The Plaintiff chapter 7 trustee moved to strike all of Defendant’s affirmative defenses as well as numerous paragraphs within the Answer. Prior to this decision, the Court entered a separate order overruling and denying the Defendant’s first affirmative defense—failure to state a claim upon which relief may be granted—because the Defendant failed to comply with the scheduling order by timely filing a supporting brief or memorandum. In this Order, the Court granted the motion to strike the Defendant’s eighth affirmative defense—unclean hands—without leave to amend because it did not constitute a legally sufficient defense where the Plaintiff seeks no equitable relief. The Defendant’s remaining affirmative defenses were also stricken, but with leave to amend, as “bare-bones” defenses that did not provide additional supporting facts or connect the defenses to the case at hand. Finally, the Court declined to strike those paragraphs asserting that a document “speaks for itself” or claiming the Complaint called for “legal conclusions to which no response is required.” The Court found the Defendant denied the allegations in the alternative in all but six of the cited paragraphs and also included a general denial which, taken together, did not present a sufficiently egregious violation of the rules of procedure to justify granting the Plaintiff’s motion to strike as to those paragraphs.
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(Judge: Lena M. James)
(Judge: Lena M. James)
The chapter 7 trustee objected to the proof of claim of the Creditor which was received and file-stamped by the clerk of court one day after the noticed deadline for filing proofs of claim. The Creditor filed a response to the objection as well as a motion requesting that its claim be treated as timely filed based on the common law mailbox presumption. In support of its motion, the Creditor submitted the affidavit of an employee attesting that she mailed the claim one week prior to its file-stamped date. The Court found that the mailbox presumption does not apply to the mailing of a proof of claim and would lead to complications, uncertainty, and delay in the bankruptcy claims process. While the Court acknowledged the application by some courts of the mailbox presumption to the claims process, the Court noted that in each of those cases the clerk of court never received or filed the proof of claim in question. Even if the Court were to find the mailbox presumption applicable, the Creditor would not have overcome the presumption because the record was devoid of any corroborating evidence to support the Creditor’s affidavit that it timely and accurately mailed the claim. The Court therefore sustained the trustee’s objection, denied the Creditor’s motion, and disallowed the Creditor’s claim as untimely.
(Judge: Lena M. James)
The Defendant moved to dismiss the pro se Plaintiff’s complaint because it was filed by the Plaintiff’s daughter and attorney-in-fact, who is not a licensed attorney and who lacks standing to litigate the proceeding. The Court granted the motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), finding that North Carolina law, local federal rule, and pertinent caselaw from within the Fourth Circuit prohibits the Plaintiff’s attorney-in-fact from litigating the proceeding on behalf of the pro se Plaintiff. While normally leave to amend an action is appropriate when the defect can be cured, particularly in the case of a pro se complaint, the Court declined to afford such leave because, even if the jurisdictional defects were cured, the Court would permissively abstain from hearing the Plaintiff’s claims under 28 U.S.C. § 1334(c)(1).
(Judge: Lena M. James)
The Defendant mortgage creditor moved to dismiss the Plaintiff-Debtor’s complaint for violations of the discharge injunction and automatic stay. The Defendant’s secured mortgage claim was treated as a short-term secured debt in the Plaintiff’s confirmed chapter 13 plan. The Plaintiff made all payments required under her plan and received a discharge on June 18, 2019. The chapter 13 trustee's final report stated the Defendant's $34,158 secured claim was paid in full with interest. Following discharge, the Defendant sent a series of informational statements to the Plaintiff claiming it had not received all mortgage payments since the bankruptcy filing and asserting the Plaintiff owed thousands of dollars in principal balance on the mortgage. The Plaintiff moved to reopen her bankruptcy case and then filed a complaint against the Defendant alleging that its actions violated the automatic stay and the discharge injunction under 11 U.S.C. § 524(i) by willfully failing to credit payments it received in accordance with the confirmed plan.
The Court granted the Defendant’s motion to dismiss the Plaintiff’s claim that it violated the automatic stay because the complaint did not assert the Defendant took any action to collect the claim during the case. The only alleged attempts to collect the claim occurred post-petition and after the termination of the automatic stay.
The Court also found that the Defendant’s actions could not violate Section 524(i) due to the nature of the Defendant’s claim and its treatment under the confirmed plan. The Court found that a reading of § 524(i) that is limited in application to long-term debts that are not discharged at the successful conclusion of a confirmed plan clearly aligns with the plain text of the provision, is contextually consistent with the surrounding paragraphs of § 524, including those contemporaneously added through BAPCPA, and most accords with Congressional purpose behind enacting § 524(i). Because the Defendant’s short-term, partially secured debt was not encompassed by § 524(i), the Court found the Plaintiff failed to plausibly plead a claim for relief under subparagraph (i).
While the alleged notices sent by the Defendant could not violate Section 524(i), the Court nevertheless found that the Plaintiff could pursue the traditional remedy for a violation of the discharge injunction, which lies in a contempt proceeding for a creditor's breach of one of the protective provisions described in Section 524(a). The Court found the Plaintiff met the plausibility standard in pleading, under the standard established by the Supreme Court in Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), that there is no fair ground of doubt that the Defendant understood the effect of the discharge order and continued to attempt collection on its discharge debt. Therefore, the Court denied the Defendant’s motion to dismiss as to the Plaintiff’s claim for violation of the discharge injunction.
(Judge: Lena M. James)
The Court sustained the Creditor’s objection to confirmation of the Debtor’s chapter 13 plan. The Creditor asserted a claim of $69,043.75 secured by a lien on the Debtor’s land and mobile home. The Creditor disputed the Debtor’s valuation of the property at $24,800, asserting instead that the fair market value was approximately $45,000. The Creditor presented an appraisal of the property, as well as testimony from the appraiser, at the evidentiary hearing held on the objection. The Debtor relied on his own testimony for the value of the property, which he supported through tax valuation and the NADA value of the mobile home. The Court found the valuation of $45,000 provided by the Creditor’s appraiser to be the most credible and persuasive. The Creditor presented extensive testimony and a written appraisal from an experienced state-certified real estate appraiser, while the Debtor’s testimony was inconsistent and speculative as to both the value of the property and the costs for needed repairs. Accordingly, the Court sustained the Creditor’s objection and denied confirmation of the Debtor’s chapter 13 plan.
(Judge: Lena M. James)
The Debtor moved to modify his confirmed plan and extend the plan length from sixty to eighty-four months, pursuant to the CARES Act amendment to 11 U.S.C. § 1329(d), which allows such an extension to debtors experiencing material financial hardship due, directly or indirectly, to the COVID-19 pandemic. Modification under the “material financial hardship” standard still requires sufficient notice to affected creditors of the proposed changes to the plan. While the Debtor represented that he suffered a reduction in hours and income from the pandemic, he did not provide any estimate of the modified plan payment amount, nor any estimates for the amounts by which payments to individual secured creditors would decrease. For that reason, the Court denied the Debtor’s motion without prejudice to his right to refile a similar motion that provides adequate notice to affected creditors of the proposed plan modifications.
(Judge: Lena M. James)
Debtor claimed a vacant lot adjacent to her residence as part of her homestead exemption pursuant to N.C. Gen. Stat. § 1C-1601(a)(1). The most significant factors courts look to in determining the appropriateness of an exemption claim are not present in this case. There are no garages, storage sheds, barns, or other structures on the adjacent lot which support the residence. There is no segment of the driveway, nor any utility line or easement, which crosses through the adjacent lot. The Debtor purchased the adjacent lot separately, and at a later date than the residence, and receives two separate tax bills for the parcels, factors which further favor a finding against the Debtor's exemption claim in the adjacent lot. The Trustee's objection to the Debtor's claim for exemption is sustained, and the Debtor's homestead exemption is denied.
(Judge: Lena M. James)
Federal Rule of Bankruptcy Procedure 3002.1(b)(1) requires mortgage creditors to file a notice of any change in the mortgage payment amount no later than 21 days before a payment in the new amount is due. Rather than filing an objection to a notice of mortgage payment change, a party in interest opposing a proposed mortgage payment change must use the procedure provided in Rule 3002.1(b)(2). In this case, the proper procedure under Rule 3002.1(b)(2) for determining the correct treatment of a $3,869.30 escrow shortage in the Debtor's residential mortgage escrow account was to file a "motion to determine whether the change is required to maintain payments in accordance with § 1322(b)(5)." Counsel seeking similar relief should also utilitze the appropriate event code on CM/ECF for filing a motion to determine under Rule 3002.1(b)(2).
(Judge: Lena M. James)
The Court reconsidered the decision in this case sustaining the Objections of the Debtor to claims 6 and 7 of Carolina Farm Credit ("CFC"), entered February 6, 2018 ("Claim Objection Order"). The Claim Objection Order did not award attorney fees of 15% of the principal and interest balance of the indebtedness owed CFC on the petition date, rejecting CFC's contention that a mandated 15% of the indebtedness owed should be the allowed attorney fees pursuant to N.C. Gen. Stat. § 6-21.2(2). Instead, the court ordered CFC to file its application for attorney fees within 14 days. CFC appealed the Claim Objection Order, and in June 2019 the District Court dismissed CFC's appeal, finding the order was interlocutory and not a final order under 28 U.S.C. § 158(a)(1).
CFC requested reconsideration of the Claim Objection Order following the recent decision of the Fourth Circuit Court of Appeals in SummitBridge National Investments III, LLC v. Faison, 915 F.3d 288 (4th Cir. 2019). The Court found narrow reconsideration of the Claim Objection Order was appropriate due to the impact of SummitBridge and the changed circumstances of the bankruptcy case. Upon reconsideration, the Court approved the Fee Application of Counsel for CFC in the amount of $181,682.51, or 15% of the principal and interest balance of the indebtedness owed CFC on the petition date. While the Court does not agree with CFC's reading of N.C. Gen. Stat. § 6-21.2(2) as a mandate of 15% of the indebtedness as attorney fees, the Court finds that CFC has submitted sufficient documentation, when combined with the additional pleadings and the subsequent activity within the bankruptcy case, for the $181,682.51 that CFC requests in attorneys' fees to be reasonable under both North Carolina law and 11 U.S.C. § 506(b).
(Judge: Lena M. James)
The Debtor sought to modify the financial reporting requirements of Federal Rule of Bankruptcy Procedure 2015.3 in three ways. The Debtor contended that the financial reporting should not be required because the Debtor's interests in the entities are not "substantial or controlling" for purposes of Rule 2015.3. The Debtor requested that even if the reporting requirements are not waived, the Court should modify the Rule 2015.3 requirement to provide that all reports are to be filed under seal and accessible only to those creditors willing to sign a confidentiality agreement. The Debtor also requested an enlargement of time in which to file his first Rule 2015.3 report, with each subsequent report to be filed at six-month intervals.
The Court found that the Debtor failed to rebut the presumption that he has a substantial or controlling interest in six of the seven entities listed in his schedules. With regard to the request for reports to be filed under seal, the Court found that the Debtor did not meet his burden of proving that the information should be protected under 11 U.S.C. § 107(b), noting that the Debtor's statement regarding his desire for confidentiality to protect other investors is not a basis to seal records from public view. The Court granted the Debtor's request to extend the deadline to file his initial Rule 2015.3 report, with subsequent reports due every six months.
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