Kimber et al v. GMAC Mortgage Corporation et al

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
RESIDENTIAL CAPITAL, LLC, et al.,
Debtors.
FOR PUBLICATION
Case No. 12-12020 (MG)
Jointly Administered
Brian F. Kimber and
Malinda D. Kimber,
Plaintiffs,
v.
GMAC Mortgage, LLC, et al.,
Defendants.
Adv. Proc. 12-02045 (MG)
MEMORANDUM OPINION AND ORDER DISMISSING THE ADVERSARY
PROCEEDING PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(b)(6)
A P P E A R A N C E S:
BRIAN F. KIMBER
MALINDA D. KIMBER
Pro Se
6109 Bridgewood Drive
Killeen, Texas 75649
MORRISON & FOERSTER LLP
Counsel for the Debtors
1290 Avenue of the Americas
New York, New York 10104
By: 	Norman S. Rosenbaum, Esq.
Stefan W. Engelhardt, Esq.
Paul Galante, Esq.
Erica J. Richards, Esq.
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BRADLEY ARANT BOULT CUMMINGS LLP
Counsel for Defendants Susan Turner and Mortgage Electronic Registration Systems, Inc.
One Federal Place
1819 Fifth Avenue North
Birmingham, Alabama 35203
By: 	Glenn. E. Glover, Esq.
James P. Watkins, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE:
Pending before the Court in this adversary proceeding are two motions: the Motion To
Dismiss Adversary Proceeding Pursuant to Bankruptcy Rule 7012(b)(6) by Defendants Susan
Turner and Mortgage Electronic Registration Systems, Inc., (“Non-Debtors’ Motion,” ECF Doc.
# 12) and Debtors’ Motion for Dismissal of Adversary Proceeding Pursuant to Bankruptcy Rule
7012(b)(6) and FRCP 12(b)(5), and (6) or, in the Alternative, Permissive Abstention Pursuant to
28 U.S.C. § 1334(c)(1) (“Debtors’ Motion,” ECF Doc. # 13, and together with the Non-Debtors’
Motion, the “Motions”).
GMAC Mortgage, LLC (“GMACM”) and Executive Trustee Services, LLC (“ETS,” and
together with GMACM, the “Debtor Defendants”), each a debtor and debtor in possession in the
above-captioned chapter 11 cases (collectively with all affiliated debtors and debtors in
possession, the “Debtors”), and Defendants Susan Turner (“Turner”) and Mortgage Electronic
Registration Systems, Inc. (“MERS,” and together with Turner, the “Non-Debtor Defendants”)
seek dismissal of the Adversary Complaint. In support of the Debtors’ Motion, the Debtor
Defendants submit the Declaration of Erica Richards, dated March 6, 2013 (the “Richards
Decl.,” ECF Doc. # 13, Ex. 1). The Court held a hearing in consideration of the Motions on
March 21, 2013.
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For the following reasons, the Court GRANTS the Motions and orders that Judgment be
entered in favor of Defendants dismissing the Complaint with prejudice.
I. 	BACKGROUND
A. 	The Foreclosure Proceeding
On May 2, 2009, Amerigroup Mortgage Corporation (“Amerigroup”) originated
Plaintiffs’ mortgage loan in the amount of $175,950.00. The loan is evidenced by a promissory
note (the “Note”) secured by real property located at 6109 Bridgewood Drive, Killeen, Texas
76549 (the “Property”) pursuant to a deed of trust (the “Deed of Trust”) executed
contemporaneously with the Note. On or about June 6, 2012, Amerigroup assigned the Deed of
Trust to GMACM. Plaintiffs defaulted on the Note and, after GMACM initiated a non-judicial
foreclosure proceeding, the Property was sold at a foreclosure sale on August 7, 2012.
B. 	The Plaintiffs’ Bankruptcy Cases
On August 7, 2012, the same day as the foreclosure sale, Mr. Kimber filed a chapter 13
petition in the Texas Bankruptcy Court for the Western District of Texas (the “Texas Bankruptcy
Court,” Case No. 12-11803). On September 10, 2012, the Texas Bankruptcy Court entered an
order for summary dismissal of the case for failure to timely file a plan and/or schedules. The
Case was closed on November 29, 2012.
On October 8, 2012, Plaintiffs filed a joint petition chapter 13 petition, again in the Texas
Bankruptcy Court (Case No. 12-61074 (CAG)). On November 20, 2012, Plaintiffs initiated an
adversary proceeding in the Texas Bankruptcy Court (the “Texas AP,” Adv. Proc. No. 12-6040
(CAG)) against the following defendants: GMACM; Amerigroup; Transcontinental Title Co.;
MERS; Turner; Anh P. Nguyen; ETS; Pite Duncan, LLP; Gabrial Ozel; Raye Mayhorn; Realty
Executives of Killeen, Inc.; Sol Jessy Lockhart; and Alarcon Law Group P.C. (collectively, the
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“Texas AP Defendants”). The Texas AP complaint asserts claims for: (a) violation of the
automatic stay in Mr. Kimber’s first bankruptcy case (Count I); (b) avoidance of defective deed
of trust (Count II); (c) declaratory relief (Count III); and (d) turnover (Count IV). See Texas
Complaint, attached as Exhibit A to the Richards Decl.
In response to a motion to dismiss filed by the Texas AP Defendants, the Texas
Bankruptcy Court entered an order on February 21, 2013. (“First Texas Order,” Adv. Proc. No.
12-6040 (CAG), ECF Doc. # 41.) The First Texas Order dismissed with prejudice all claims
against Turner and MERS (the “Non-Debtor Defendants”). First Texas Order ¶ 1. Additionally,
the First Texas Order dismissed with prejudice all claims against GMACM and ETS, the Debtor
Defendants, except Count I (violation of the automatic stay). Id. ¶¶ 2-3. In order for Plaintiffs to
proceed with the sole surviving claim against the Debtor Defendants, the First Texas Order
required Plaintiffs to file an amended complaint by March 6, 2013. Id. ¶ 4. The Plaintiffs failed
to amend their complaint by the deadline. The Texas AP was closed on March 8, 2013, and the
Texas Bankruptcy Court entered an order dismissing Count I with prejudice on March 19, 2013.
(“Second Texas Order,” Adv. Proc. No. 12-6040 (CAG), ECF Doc. # 46, and together with the
First Texas Order, the “Texas Orders.”)
C. 	The Adversary Proceeding Before This Court
On May 14, 2012 (the “Petition Date”), each of the Debtors filed a voluntary petition for
relief under chapter 11 of the Bankruptcy Code in this Court. The Debtors are managing and
operating their businesses as debtors in possession pursuant to Bankruptcy Code sections 1107(a)
and 1108. Their chapter 11 cases (collectively, the “Bankruptcy Case”) are being jointly
administered pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure (the
“Bankruptcy Rules”). (Case. No. 12-12020 (MG), ECF Doc. # 59.)
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On November 26, 2012, Plaintiffs filed the Complaint initiating the instant Adversary
Proceeding, and on November 29, 2012, a summons and notice of pretrial conference was issued.
In the Complaint, Plaintiffs assert claims that are identical to those previously asserted in the
Texas AP against the same Defendants. In particular, Plaintiffs claim that Defendants violated
the automatic stay in Mr. Kimber’s first bankruptcy case by selling the Property in foreclosure
(Count I). Plaintiffs allege that the Deed of Trust is defective and should be avoided because the
signature on the assignment by Turner is fraudulent and the Deed was not perfected (Count II).
Plaintiffs seek declaratory relief from this Court stating that the Deed of Trust, Assignment and
the asserted lien in the Property are void (Count III). Last, Plaintiffs seek a turnover of the
market value of the Property to Plaintiffs’ bankruptcy estate (Count IV). The Complaint requests
that the bankruptcy court enter judgment in favor of Plaintiffs on all of the claims asserted in the
Complaint. Other than the language included in the prayer for relief, requesting that the
bankruptcy court enter judgment in favor of Plaintiffs, the Complaint otherwise fails to comply
with Local Bankruptcy Rule 7008-1 which requires that the Complaint “shall contain a statement
that the pleader does or does not consent to the entry of final orders or judgment by the
bankruptcy judge if it is determined that the bankruptcy judge, absent consent of the parties,
cannot enter final orders or judgment consistent with Article III of the United States
Constitution.” To the extent that any claim in the Complaint is a non-core claim, the moving
parties have explicitly consented to this Court’s entry of a final judgment dismissing or
preserving those claims. Non-Debtors’ Mot. at 1, Debtors’ Mot. ¶ 3.
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The Defendants filed their respective Motions on March 6, 2013. The Motions seek
dismissal of the Complaint under Rule 12(b)(5) for insufficient service of process,1 Rule 12(b)(6)
for failure to state a claim upon which relief may be granted, and the judicial doctrines of
collateral estoppel2 and res judicata. Plaintiffs did not respond to the Motions or appear at the
hearing on the Motions.
II. 	DISCUSSION
A. 	Authority to Enter Final Judgment
Count I of the Complaint alleges that Defendants violated the automatic stay created by
the Bankruptcy Code, so the claim is a core matter over which the bankruptcy court may enter
final judgment. 28 U.S.C. § 157(b). Other claims included in the Complaint appear to be non-
core claims, but that issue need not be completely resolved. If a matter brought before the
bankruptcy court is non-core, “the parties may consent to entry of a final order or judgment by a
bankruptcy judge.” Oldco M Corp. v. Advanced Machine & Engineering Co. (In re Oldco M
Corp.), 484 B.R. 598, 605 (Bankr. S.D.N.Y. 2012) (citing Stern v. Marshall, 131 S. Ct. 2594,
2606, 2609 (2011)); 28 U.S.C. § 157(c)(2). Here, the defendants expressly consented to the
Court entering final orders or judgment. Since filing the Complaint, the Plaintiffs have not
appeared or filed any additional pleadings. While the Plaintiffs did not comply with Local
Bankruptcy Rule 7008-1, they did expressly request that the Court enter judgment in their favor
1 	The Plaintiffs have not filed an affidavit of service for the Complaint and Summons, and the Debtor
Defendants assert that they have no record of being served, either directly or through counsel or registered agent.
Because there are grounds for dismissing the Adversary Proceeding with prejudice, the Court does not address
whether the Plaintiffs’ deficient service of the Summons and Complaint creates an alternative ground for dismissal.
2 	Collateral estoppel is a doctrine that precludes relitigating issues “if those issues were actually litigated and
determined in [a] prior action and if their determination was essential to the judgment.” RESTATEMENT (S ECOND ) OF
J UDGMENTS § 17 (1982). The Court finds adequate grounds to dismiss the action based upon res judicata alone and
therefore does not reach the issue of collateral estoppel.
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on all of the claims in the Complaint. Under these circumstances, the Court concludes that the
Plaintiffs likewise consented to the Court entering final orders or judgment in this case.
B. 	Legal Standard
Bankruptcy Rule 7012 incorporates by reference Rule 12(b)-(i) of the Federal Rules of
Civil Procedure (the “Rules”). FED. R. BANKR. P. 7012(b). A party may move to dismiss a
cause of action based on the complaint’s “failure to state a claim upon which relief can be
granted.” FED. R. CIV. P. 12(b)(6). Rule 8(a)(2) requires a complaint to contain “a short and
plain statement of the claim showing that the pleader is entitled to relief.” FED. R. CIV. P.
8(a)(2).
Following the Supreme Court’s decision in Ashcroft v. Iqbal, 556 U.S. 662 (2009), courts
use a two-prong approach when considering a motion to dismiss. See L-7 Designs, Inc. v. Old
Navy, LLC, 647 F.3d 419, 430 (2d Cir. 2011); Harris v. Coleman, 863 F. Supp. 2d 336, 340
(S.D.N.Y. 2012); Bektic-Marrero v. Goldberg, 850 F. Supp. 2d 418, 425 (S.D.N.Y. 2012); King
County, Wash. v. IKB Deutsche Industriebank AG, 863 F. Supp. 2d 288, 297 (S.D.N.Y. 2012),
reh’g denied, 863 F. Supp. 2d 317 (S.D.N.Y. 2012). First, the court must accept all factual
allegations in the complaint as true, but should ignore legal conclusions clothed in factual garb.
Iqbal, 556 U.S. at 677-79; L-7 Designs, 647 F.3d at 430; Boykin v. Keycorp, 521 F.3d 202, 204
(2d Cir. 2008). Second, the court must determine if these well-pleaded factual allegations state a
“plausible claim for relief.” Iqbal, 556 U.S. at 679. The only allegations that may survive a
motion to dismiss are those that cross “the line between possibility and plausibility of
entitle[ment] to relief.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007) (quotations
omitted).
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Whether entitlement to relief is plausible “depends on a host of considerations: the full
factual picture presented by the complaint, the particular cause of action and its elements, and the
existence of alternative explanations so obvious that they render plaintiff's inferences
unreasonable.” L-7 Designs, 647 F.3d at 430. Courts do not make plausibility determinations in
a vacuum; it is a “context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Iqbal, 556 U.S. at 663-64. A claim is plausible when the
factual allegations permit “the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. at 663. Complaints drafted by pro se plaintiffs are to be
construed liberally, but they must nonetheless be supported by specific and detailed factual
allegations sufficient to provide the court and the defendant with “a fair understanding of what
the plaintiff is complaining about and . . . whether there is a legal basis for recovery.” Iwachiw v.
New York City Bd. of Elections, 126 Fed. Appx. 27, 29 (2d Cir. 2005) (citations omitted).
C. 	The Doctrine of Res Judicata Requires That the Action Be Dismissed
Courts in this District have dismissed a complaint under Rule 12(b)(6) based on an
affirmative defense, such as res judicata, otherwise known as claim preclusion. See Cost v.
Super Media, 482 B.R. 857, 863 (S.D.N.Y. 2012) (dismissing district court action against
employer because plaintiff’s proof of claim in employer’s previous chapter 11 case was
expunged); Dellutri v. Village of Elmsford, No. 10 Civ. 01212 (KMK), 2012 WL 4473268, at *4-
5 (S.D.N.Y. Sept. 28, 2012). “Under the doctrine of res judicata . . . [a] final adjudication on the
merits of an action precludes the parties or their privies from relitigating issues that were or
could have been raised in that action.” Leather v. Eyck, 180 F.3d 420, 424 (2d Cir. 1999)
(quoting Rivet v. Regions Bank of La., 522 U.S. 470, 476 (1998)).
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To determine whether the Texas Orders bar the Plaintiffs from asserting claims in this
adversary proceeding, the Court must consider whether (1) the prior decision was a final
judgment on the merits; (2) the litigants were the same parties; (3) the prior court was of
competent jurisdiction; and (4) the causes of action were the same. Corbett v. MacDonald
Moving Services, Inc., 124 F.3d 82, 88 (2d Cir. 1997).
Each of those conditions exist in this case and the action is therefore barred by res
judicata. The Texas AP and this Adversary Proceeding involve identical parties (factor 2); the
Texas Bankruptcy Court and this Court are both courts of competent—indeed identical—subject
matter jurisdiction under 28 U.S.C. § 1334 (factor 3); and Plaintiffs alleged identical claims in
both proceedings (factor 4).3
In addition, the Texas Orders amount to a final judgment on the merits (factor 1). Under
Bankruptcy Rule 8002, Plaintiffs could have appealed either of the Texas Orders up until
fourteen days after their respective entry. FED. R. BANKR. P. 8002(a). Not having made an
appeal, the Texas Orders are now final.4 In order for a judgment to be on the merits, “[r]es
judicata does not require the precluded claim to actually have been litigated; its concern, rather,
is that the party against whom the doctrine is asserted had a full and fair opportunity to litigate
the claim.” EDP Med. Computer Sys., Inc. v. U.S., 480 F.3d 621, 626 (2d Cir. 2007). If a prior
action was dismissed under Rule 12(b)(6), such a dismissal is “on the merits, with res judicata
effects.” Teltronics Servs., Inc. v. L M Ericsson Telecommc’ns, Inc., 642 F.2d 31, 34 (2d Cir.
1981).
3 	The Court notes that even the same error in paragraph numbering appears at the same point in both
complaints. See Texas Complaint, attached as Exhibit A to the Richards Decl., at 11.
4 	The First Texas Order, entered on February 21, was appealable until March 7, 2013. The Second Texas
Order, entered on March 19, was appealable until April 2, 2013.
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The Texas Orders were dismissals on the merits under Rule 12(b)(6). As plaintiffs in the
Texas AP, Mr. and Mrs. Kimber had the opportunity to pursue their claims against the
Defendants, and the First Texas Order notes that Plaintiffs’ arguments were considered in
deciding that motion. The Texas Bankruptcy Court gave Plaintiffs a chance to pursue their sole
surviving claim against the Debtor Defendants, but the court made it clear that the claim would
be dismissed unless Plaintiffs amended their complaint. Having attempted and failed to pursue
these exact claims against these exact Defendants in Texas Bankruptcy Court, Plaintiffs are
estopped from relitigating this action before this Court.
III. 	CONCLUSION
Having considered the arguments of the moving parties and for the reasons stated above,
Debtors’ Motion is GRANTED and Non-Debtors’ Motion is GRANTED. Accordingly, the
Court orders that the Complaint be dismissed with prejudice. Counsel for the moving parties
shall prepare and submit a Judgment dismissing the Complaint with prejudice without costs.
IT IS SO ORDERED.
Dated: 	April 8, 2013
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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