Ditech Holding Corporation

UNITED STATES BANKRUPTCY COURT 	NOT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK
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In re:
Ditech Holding Corporation, et al.,
Debtors.1
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Case No. 19-10412 (JLG)
Chapter 11
(Jointly Administered)
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MEMORANDUM DECISION AND ORDER SUSTAINING THE TRUSTEE AND PLAN
ADMINISTRATOR’S OBJECTION TO THE WALTERS CLAIM AND THE
ADDITIONAL CLAIMS AND DISALLOWING AND EXPUNGING THE CLAIMS
A P P E A R A N C E S :
JENNER & BLOCK LLP
Attorneys for Consumer Claims Trustee
919 Third Avenue
New York, New York 10022
By: 	Richard Levin, Esq.
WEIL GOTSHAL & MANGES LLP
Attorneys for Plan Administrator
767 Fifth Avenue
New York, New York 10153
By: 	Ray C. Schrock, P.C., Esq.
Sunny Singh, Esq.
WAYNE GREENWALD, P.C.
Attorneys for 800 Consumer Creditors
475 Park Avenue South—18 th Floor
New York, New York 10016
By: 	Wayne M. Greenwald, Esq.
1 	The Debtors’ Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation and Its Affiliated Debtors,
ECF No. 1326, was confirmed, which created the Wind Down Estates. The Wind Down Estates, along with the last
four digits of each of their federal tax identification number, as applicable, are Ditech Holding Corporation (0486);
DF Insurance Agency LLC (6918); Ditech Financial LLC (5868); Green Tree Credit LLC (5864); Green Tree Credit
Solutions LLC (1565); Green Tree Insurance Agency of Nevada, Inc. (7331); Green Tree Investment Holdings III
LLC (1008); Green Tree Servicing Corp. (3552); Marix Servicing LLC (6101); Walter Management Holding
Company LLC (9818); and Walter Reverse Acquisition LLC (8837). The Wind Down Estates’ principal offices are
located at 2600 South Shore Blvd., Suite 300, League City, TX 77573. References to “ECF No. __” are references to
documents filed on the electronic docket in these Chapter 11 Cases.
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CHRISTOPHER M. FERRARO, P.C.
Attorneys for 800 Consumer Creditors
925 S. Capital of Texas Highway, Suite B225
Austin, Texas 78746
By: 	Christopher M. Ferraro, Esq.
HON. JAMES L. GARRITY, JR.
U.S. BANKRUPTCY JUDGE
Introduction2
Stella Johnson, Bernadette Martinez, and Monique J. Scranton (collectively, the “Walters
Claimants”) jointly filed Proof of Claim No. 21367 (the “Walters Claim”) in these Chapter 11
Cases as a purported class proof of claim on behalf of themselves and approximately 800
individuals in Mississippi and Texas (the “Consumer Creditors”) who are listed in Exhibit A to
the Rider to Proof of Claim (the “Creditor List”).3 In it, each purports to assert a damage claim
2 	Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Objection
of the Consumer Claims Trustee and the Plan Administrator to Claim No. 21367 of Stella Johnson, Bernadette
Martinez & Monique J. Scranton, or the Third Amended Plan, as applicable.
3 	The Walters Claimants did not number the pages of the Walters Claim. In citing to the claim, the Court cites to
the electronic page number and, as appropriate, paragraphs on the page. The Walters Claim is a 3203-page document
that consists of a three-page “Proof of Claim (Official Form 410),” as supported by:
Pages 4-8: “Backup Documentation”
Pages 9-32: “Rider to Proof of Claim,” including Exhibit A consisting of the Creditor List.
Pages 33-369: Roshonda Addison & Harry Howard v. Green Tree, et al., Circuit Court of Amite
Co., MS No. 12-CV-0041-S. Miscellaneous pleadings, correspondence, transcripts, and the Krisner
Consulting “Construction Report (Built Conditions)” regarding the condition of Ms. Addison and
Mr. Howard’s home (283-369).
Pages 370-462: Green Tree Servicing as Successor By Merger To Walters Mortgage Co. LLC v.
Billy V. Brown & Gwendolyn Brimage, Circuit Court of Simpson County, MS, Civil Action No.
2014-357. Miscellaneous pleadings and decision denying plaintiff’s motion for summary judgment
(459-462).
Pages 463-3203: Documents from The Ferraro Law Firm (the “Ferraro Law Firm Documents”), as
purported counsel to various consumer claimants, consisting of:
463-479: List of Clients represented by firm.
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against the Debtors for wrongs allegedly committed by the Debtors’ former affiliates, Jim Walter
Homes, Inc., and Walter Mortgage Company, to each of them in connection with the construction
and simultaneous financing of their homes. 	See Walters Claim, ¶¶ 3–4. 	Before the Walters
Claimants filed the Walters Claim, the six individuals identified below (the “Additional
Claimants”) separately filed their own claims in these Chapter 11 Cases seeking damages from the
Debtors for wrongs allegedly committed by Jim Walter Homes, Inc., and Walter Mortgage
Company in connection with the construction and financing of their homes (the “Related Claims”).
Each Additional Claimant is among the Consumer Creditors listed in the Creditor List.
The matters before the Court are the objections to the Walters Claim and to the Related
Claims jointly filed by the Consumer Claims Trustee (“Trustee”), on behalf of the Consumer
Creditor 	Recovery 	Trust 	established 	under 	the 	Debtors’ 	confirmed 	Plan, 	and 	the 	Plan
Administrator appointed under the Plan, on behalf of the Wind Down Estates established under
the Plan. 	As summarized below, and in notes 4–10, during the period of January through May
2020, the Trustee and Plan Administrator filed certain Omnibus Claim Objections which together
480-1994: Form document requests by Ferraro to Green Tree on behalf of
individual clients.
1995-3203: Copies of three Mississippi Litigation and Mediation Requests;
support for the third such request consisting of (i) list of claimants, and (ii) “initial
construction defects summaries” for each such claimant.
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encompassed all of the Related Claims (“the “Related Claims Objections”). 	Each Additional
Claimant responded to the objection to their claim(s) (the “Additional Claimants’ Responses”):
George Waters 	Claim No. 60195 4
Teresa Darty 	Claims Nos. 1797,5 25026
Stanley Harrison 	Claim No. 60239 7
James Miller 	Claims Nos. 2552, 2559, 25748
Ive McDonald 	Claim No. 26309
Mose and Betty Arrington 	Claim No. 2162210
On May 8, 2020, the Trustee and Plan Administrator jointly filed an objection to the claims
of the Walters Claimants (the “Walters Claim Objection” 11 collectively with the Related Claims
Objections, the “Objection”), and, in that objection, replied to the Additional Claimants’
Responses to the Related Claims Objections. 	The Walters Claimants did not respond to the
Walters Claim Objection, and the Additional Claimants did not file additional documents in
support of their claims. However, the Consumer Creditors filed a response to the Walters Claim
4 	Twenty-seventh Omnibus Objection, ECF No. 1759. Response, ECF No. 1886.
5 	Thirty-first Omnibus Objection, ECF Nos. 1763. Response, ECF No. 1887.
6 	Twenty-eighth Omnibus Objection, ECF No. 1760. Response, ECF No. 1887.
7 	Twenty-second Omnibus Objection, ECF No. 1754. Response, ECF No. 1888.
8 	Twenty-eighth Omnibus Objection, ECF No. 1760. Response, ECF No. 1889.
9 	Twenty-fourth Omnibus Objection, ECF No. 1756. Response, ECF No. 1890.
10 	Nineteenth Omnibus Objection, ECF No. 1751. Response, ECF No. 1891.
11 	Objection Of The Consumer Claims Trustee And The Plan Administrator To Claim No. 21367 of Stella Johnson,
Bernadette Martinez & Monique J. Scranton, ECF No. 2324.
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Objection (the “Response”).12 	The Trustee and Plan Administrator filed a joint reply to the
Response (the “Reply”).13
The Response does not address the six Related Claims or Ms. Scranton’s damage claim.
In the Response, the Consumer Creditors mislabel the Walters Claim Objection as the “Consumer
Claims Administrator’s Objection to the 800 Creditors’ Proof of Claim.” 	Response ¶ 1. 	They
contend that the only issue asserted in the Walters Claim Objection is that the Consumer Creditors’
claims do not qualify as claims under section 363(o) of the Bankruptcy Code. Id. ¶ 2. They say
that the Court should overrule that objection because the Consumer Creditors’ claims are based on
consumer credit transactions squarely within the ambit of section 363(o), not on alleged
construction defects, and because the claims are not barred by statutes of limitations. Id. ¶ 3. That
Response is wide of the mark. As explained below, the Court finds that the causes of action in the
Walters Claim are barred by applicable statutes of limitations. Moreover, the matters before the
Court are the Trustee’s and Plan Administrator’s objections to the Walters Claim and Related
Claims. 	Those objections do not encompass the “800 Creditors’ Proof of Claim” and do not
address section 363(o) of the Bankruptcy Code. 	Those matters are not before the Court. 	In
addition to filing the Walters Claim, the Walters Claimants filed a Motion for Class Certification.14
That motion is not presently before the Court, and a class has not been certified in these cases.15
12 	800 Consumer Creditors’ Response To The Consumer Claims Administrator’s Objection To Their Claim, ECF
No. 3531.
13 	Reply Of The Consumer Claims Trustee And The Plan Administrator To The Response Of M. Scranton, S. Johnson
And B. Martinez And “800 Consumer Creditors” To Objections To Their Proofs Of Claim (Claim Nos. 21367, 1745,
1797, 2502, 2552, 2559, 2574, 2630, 21622, 60195, 60239), ECF No. 3781.
14 	Motion by Monique Scranton, Stella Johnson, Bernadette Martinez, Individually and as Representative Claimants
for 800 Consumer Creditors, Seeking Orders, Pursuant to Fed. R. Bankr. P. 7023, Certifying Them as a Class and
Authorizing Their Prosecuting Their Class Proof of Claim as a Class Action with Point and Authorities, ECF No.
2438.
15 	Until a class is certified, the legal sufficiency of allegations in the class claim depends on only the named claimant:
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At the request of the Trustee and Plan Administrator, and in accordance with the Claims
Procedures Order,16 the Court conducted a non-evidentiary “Sufficiency Hearing” to consider
whether the Related Claims and claims of the Walters Claimants state claims for relief against the
Debtors. 	The legal standard of review at a Sufficiency Hearing is equivalent to the standard
applied to a motion to dismiss a complaint under Rule 12(b)(6) of the Federal Rules of Civil
Procedure (“Rule 12(b)(6)”).17 As explained below, applying that standard, the Court disallows
and expunges each Related Claim, and the claims of Stella Johnson, Bernadette Martinez and
Monique J. Scranton since accepting all factual allegations asserted in support of the claims as
true, drawing all reasonable inferences in the respective claimant’s favor, and interpreting the
respective claims and the responses to the objections to raise the strongest arguments that they
suggest, the claims fail to state plausible claims for relief against the Debtors.
Jurisdiction
The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334
and the Amended Standing Order of Reference dated January 31, 2012 (Preska, C.J.). This is a
core proceeding pursuant to 28 U.S.C. § 157(b).
In order to maintain a class action, Plaintiffs must first establish that they have a valid claim with
respect to the shares that they purchased. If the named plaintiffs have no cause of action in their
own right, their complaint must be dismissed, even though the facts set forth in the complaint may
show that others might have a valid claim.
Goldberger v. Bear, Stearns & Co., No. 98 Civ. 8677, 2000 WL 1886605, at *1 (S.D.N.Y. Dec. 28, 2000); accord In
re Initial Pub. Offering Sec. Litig, 214 F.R.D. 117, 122 (S.D.N.Y. 2002).
16 	Order Approving (I) Claim Objection Procedures and (II) Claim Hearing Procedures, ECF No. 1632.
17 	See Claims Procedures Order ¶ 3(iv)(a). Rule 12(b)(6) is incorporated herein by Rule 7012 of the Federal Rules
of Bankruptcy Procedure (the “Bankruptcy Rules”).
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Background
The Chapter 11 Cases
On February 11, 2019, Ditech Holding Corporation (f/k/a Walter Investment Management
Corp.) and certain of its affiliates (“Debtors”) filed petitions for relief under chapter 11 of title 11
of the United States Code (the “Bankruptcy Code”) in this Court (the “Chapter 11 Cases”). The
Debtors remained in possession and control of their business and assets as debtors and debtors in
possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On February 22, 2019,
the Court entered an order fixing April 1, 2019 at 5:00 p.m. (prevailing Eastern Time) as the
deadline for each person or entity, not including governmental units (as defined in section 101(27)
of the Bankruptcy Code) to file a proof of claim in the Chapter 11 Cases (the “General Bar Date”).18
Thereafter, the Court extended the General Bar Date for consumer borrowers, twice, and ultimately
to June 3, 2019 at 5:00 p.m. (prevailing Eastern Time).19
On September 26, 2019, the Debtors confirmed their Third Amended Plan,20 and on
September 30, 2019, that plan became effective.21 The Plan Administrator is a fiduciary appointed
under the Third Amended Plan who is charged with the duty of winding down, dissolving and
liquidating the Wind Down Estates. 	See Third Amended Plan ¶¶ 1.130, 1.184, 1.186. 	In
accordance with the Third Amended Plan, the Trustee is responsible for the reconciliation and
18 	Order Establishing Deadline for Filing Proofs of Claim and Approving the Form and Manner of Notice Thereof,
ECF No. 90.
19 	See Order Further Extending General Bar Date for Filing Proofs of Claim for Consumer Borrowers Nunc Pro
Tunc, ECF No. 496.
20 	See Order Confirming Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation and its Affiliated
Debtors, ECF No. 1404.
21 	Notice of (I) Entry of Order Confirming Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation
and its Affiliated Debtors, (II) Occurrence of Effective Date, and (III) Final Deadline for Filing Administrative
Expense Claims, ECF No. 1449.
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resolution of Consumer Creditor Claims and distribution of funds from the trust to holders of
Allowed Consumer Creditor Claims. Id. ¶ 1.41. The Plan Administrator, on behalf of each of the
Wind Down Estates, is authorized to object to all Administrative Expense Claims, Priority Tax
Claims, Priority Non-Tax Claims, and Intercompany Claims; and the Trustee has the exclusive
authority to object to all Consumer Creditor Claims. See id. ¶ 7.1.
The Proofs of Claim
The Related Claims
Below, the Court provides a brief summary of the Related Claims.
George Waters
On November 11, 2019, George Waters filed Proof of Claim No. 60195 as an
administrative claim in an “undetermined amount.” The basis of the claim is noted as “Customer
Claims.” 	Mr. Waters annexed no supporting documents to the claim. 	He is included in the
Creditor List. He is also identified in the Ferro Law Firm Documents as the owner of a poorly
constructed home—“[a]ge of house 15.” See Walters Claim at 3118.
Teresa Darty
Teresa Darty filed claims in these Chapter 11 Cases on May 21, 2019 (Proof of Claim No.
1797) and October 15, 2019 (Proof of Claim No. 2502).22 In Claim No. 1797, Ms. Darty asserts a
secured claim, but does not state the amount of the claim. She indicates that the “value of property”
is $44,550.00. Ms. Darty filed Claim No. 2502 as an “Administrative Expense Claim” in the sum
of $6,000 based on “the damage that I claimed on my proof of claims form, filed in July 2019 . . .
[and] for damages done after February 11, 2019.” 	She states that those alleged damages were
caused by “mortgage and financing, interest rates.” Claim No. 2502 at 1. Ms. Darty is included
in the Creditor List. The Walters Claim does not annex any documents in support of Ms. Darty’s
claim.
Stanley Harrison
On November 11, 2019, Stanley Harrison filed Proof of Claim No. 60239 as an
administrative expense claim in an undetermined amount based on a “Customer Claim.” 	Mr.
Harrison annexed no supporting documents to the claim. Mr. Harrison is included in the Creditor
List. The Walters Claim does not annex any documents in support of his claim.
22 	Ms. Darty also filed a secured claim in these cases on May 17, 2019 (Claim No. 1745). By order dated July 8,
2020, the Court sustained the Plan Administrator’s objection to the claim and disallowed and expunged it. See Order
Granting Fifty-Fourth Omnibus Objection To Proof Of Claim (No Basis Consumer Creditor Claims), ECF No. 2652.
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James Miller
On October 15, 2019, James Miller filed Proofs of Claim Nos. 2552, 2559 and 2574. The
claims are identical. Each claim asserts an administrative expense claim in the sum of $140,000
on account of the Debtors’ alleged breach of contract based on “unsatisfactory and incomplete
work” in the construction of his home. Mr. Miller provides no documentation in support of his
claims. He is included in the Creditor List. The Ferro Law Firm Documents annexed to the claim
purport to demonstrate “[d]efects present in the residence” which is his home of 20 years (“Age of
house 20 years”).
Ive McDonald
On November 8, 2019, Ive McDonald filed Proof of Claim No. 2630 as an administrative
expense claim in the sum of $5,000 based on monies owed to him for Ditech’s alleged failure to
report to the credit bureaus that he purchased his home. 	See Proof of Claim 2630 at 1. 	Mr.
McDonald says that as a result of Ditech’s failure to report the purchase, he has suffered and was
denied the opportunity to purchase a vehicle without a co-signer. See id. He also says that Ditech
failed to send correct billing statements reflecting the accurate amounts due. 	Id. at 1–2. 	Mr.
McDonald did not attach any documents in support of the claim. He is included in the Creditor
List, and the Walters Claim includes Ferro Law Firm Documents purporting to show alleged
construction defects in his “house of 17 years.” See Walters Claim at 2768.
Mose and Betty Arrington
On May 7, 2019, Mose and Betty Arrington (the “Arringtons”) filed Proof of Claim No.
21622 as an unsecured claim in an undetermined amount based on “Customer Claims.” 	They
assert that the claim is entitled to priority treatment under section 507(a)(10) of the Bankruptcy
Code. See Proof of Claim 21622 at 1–2. The Arringtons did not annex any documents in support
of the claim. However, they are included in the Creditor List, and the Walters Claim annexes Ferro
Law Firm Documents purporting to show alleged defects in the construction of the Arringtons’
home, which was “[b]uilt, 1982.” See Walters Claim at 2084–85.
The Walters Claim
In support of the Walters Claim, the Walters Claimants, as purported class representatives,
say that they and the Consumer Creditors identified in the Creditor List are victims of a home
construction/financing scheme pursuant to which: (i) the Consumer Creditors purchased homes
constructed by Jim Walter Homes, Inc.; (ii) Jim Walter Homes, Inc. concealed construction defects
in the homes; (iii) the Consumer Creditors financed their purchases through Walter Mortgage
Company and were misled into signing loan documents that included 30-year notes in the inflated
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principal amount equal to: (a) the actual disclosed principal amount of the loan, plus (b) a sum
equal to the thirty years of interest that would accrue over the term of the note; and (iv) the
Consumer Creditors pledged their homes as security for payment of the notes. See Walters Claim
¶¶ 3, 4, 10. They maintain that the promised (but not delivered) quality homes were the catalyst
that fueled Ditech’s financial scheme. 	They assert that Ditech’s predecessors bundled the
notes/mortgages and sold them to investors but retained the servicing and other rights related to
the loans. See id. ¶¶ 5–6.
The Walters Claimants maintain that the Consumer Creditors are universally rural
dwellers, racial minorities, of lower income, and “unsophisticated.” Id. ¶¶ 7, 8. Thus, when they
executed the loan documents, they did not understand what they were signing, that they were
promised things they did not receive, and that most of the homes were poorly constructed and
required frequent repairs that the homeowners could not afford to make. 	Id. 	They say that the
Consumer Creditors are stuck with debts reflected in their home counties’ property registers that
vastly exceed the amount that they borrowed to purchase their homes—due to the fact that the full
amount of the principal and thirty years of interest is reported as the debt’s principal amount. Id.
¶¶ 9, 10.
Despite being labeled as two of the three purported class representatives, neither Ms.
Johnson nor Ms. Scranton is identified as a Consumer Creditor on the Creditor List. Ms. Scranton
is not listed in the Ferro Law Documents, although Ms. Johnson is identified in the documents as
the owner of a poorly constructed home “[b]uilt 2007” and financed and constructed by Jim Walter
Homes and Walter Mortgage Company, respectively. Id. at 2615. The Walters Claim represents
that its “Exhibits ‘A’ ‘B’ and ‘C’ are copies of pleadings in proceedings commenced by Stella
Johnson, Bernadette Martinez, and Monique J. Scranton, respectively. See id. ¶ 11. The Walters
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Claimants are mistaken, because the only attachments to the claim are documents relating to two
motions for summary judgment in Mississippi state courts brought on behalf of other parties. One
was filed in an action brought by Roshonda Addison and Harry Howard (id. at 33), neither of
whom is included in the Creditor List. That action was settled in August 2017.23 The other was
filed in an action brought jointly by Billy V. Brown, who is not on the Creditor List, and
Gwendolyn Brimage, who is on the list. See id. at 370. That case was compelled to arbitration,24
but the claimants never filed an arbitration complaint. Neither action is a class action.
The Legal Claims Asserted in the Claims
The Walters Claim, and by implication, the Related Claims, assert claims for monetary
damages against the Debtors and their predecessors for alleged violations of various federal and
state statutes relating to real estate financing, as follows:
(i) deceptive, predatory, and harmful housing scheme, targeting victims on the basis
of race, color, and national origin, constituting “reverse redlining” and violating the
federal Fair Housing Act (“FHA”), 42 U.S.C. § 3601 et seq.,
(ii) the federal Equal Credit Opportunity Act (“ECOA”), 15 U.S.C. § 1691 et seq.,
(iii) the federal Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq.,
(iv) violations of the federal Real Estate Settlement Procedures Act (“RESPA”), 12
U.S.C. § 2601 et seq.;
(v) willful and systemic violations of the federal Fair Debt Collection Practices Act
(“FDCPA”), 15 U.S.C. § 1692 et seq.;
(vi) violation of MISS . CODE ANN. § 81-19-1, the Consumer Loan Broker Act;
23 	See Agreed Order of Dismissal with Prejudice, Green Tree Servicing, LLC v. Addison, Circuit Court of Amite
County, Miss., Cause No. 12-CV-0041-S (Jan. 4, 2018). A copy is attached as Exhibit B to the Objection.
24 	See Opinion and Order and Final Judgment, Green Tree Servicing, LLC v. Brimage, United States District Court,
Southern District of Mississippi, Civil Action No. 3:16-cv-458-WHB-JCG, ECF 11, 12 (Mar. 15, 2017). Copies of
the Opinion and Order and Final Judgment are annexed as Exhibits C and D, respective, to the Walters Claim
Objection.
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(vii) violation of MISS . C ODE ANN. § 81-18-55, the Mississippi S.A.F.E. Mortgage
Act, and particularly MISS . CODE ANN. § 81-18- 55(1)(f);
(viii) infliction of emotional distress; and
(ix) unspecified other violations of federal and state law.
Walters Claim ¶¶ 13–14 (collectively, the “Damage Claims”); see also Response ¶¶ 5, 34–47. The
Walters 	Claimants 	“seek 	monetary 	compensation 	for 	various 	forms 	of 	damages 	and
injuries[,]”(Walters Claim ¶ 14), and although “[t]he exact amount of each of the Class Creditor’s
claims is unknown to the [Walters Claimants] . . . [t]he [Walters Claimants] estimate that the total
amount of the Class Creditors’ claims is approximately eighty million dollars ($80,000,000).” Id.
¶¶ 18–19. Finally, they “seek on their own behalf and on behalf of the Class Creditors an allowed
administrative priority claim for the reasonable attorneys’ fees and costs in prosecuting this claim
as authorized by [applicable state and federal law].” Id. ¶ 22.
The Objections to The Proofs of Claims
The Related Claims
Each of the Related Claims is the subject of a Related Claims Objection. See supra notes
4–10. In those objections the Trustee and Plan Administrator seek to disallow and expunge the
claims on various grounds, including that they lack sufficient documentation to support the validity
of the claim and that there is no merit to the claim. In addition, the Trustee and Plan Administrator
contend that the claims are barred by the application of relevant statutes of limitation. See Walters
Claim Objection ¶¶ 21–23.
The Walters Claim
The Trustee and Plan Administrator seek to disallow and expunge the Walters Claim on
the grounds that the Damage Claims are barred by application of the relevant statutes of limitations.
See id. ¶¶ 18, 21–34. The longest statute of limitations applicable to the Damage Claims is five
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years.25 In substance, the Trustee and Plan Administrator contend, and the Walters Claimants do
not deny, that any claim that accrued before February 11, 2014 (five years prior to the Petition
Date) is barred by the statute of limitations, except for a claim for which a Walters Claimant
commenced a state-court action within the applicable statute of limitations that was still pending
on the Petition Date. 	The Walters Claim does not identify any such action. 	The documents
25 	The Statutes of Limitations applicable to the Damage Claims, are as follows :
Federal Fair Housing Act—Two-year statute of limitations. 42 U.S.C. § 3613(a). See Garcia v. Brockway,
526 F.3d 456 (9th Cir.), cert. denied, 555 U.S. 1069 (2008) (plaintiffs required to bring private civil action
for failure to properly design and construct within two years of completion of construction phase).
Federal Equal Credit Opportunity Act—Five-year statute of limitations. 15 U.S.C. § 1691e(f).
Federal Truth in Lending Act—One-year statute of limitations running from the date of the violation, but
some violations carry a three-year limitations period. 15 U.S.C. § 1641(e).
Real Estate Procedures Settlement Act—One-year or three-year statute of limitations, depending on the
nature of the violation. 15 U.S.C. § 2614.
Fair Debt Collection Practices Act—One-year statute of limitations. 15 U.S.C. § 1692k(d).
Mississippi Consumer Loan Broker Act—The statute of limitations for an action under the Mississippi
Consumer Loan Broker Act is governed by the general Mississippi statute of limitations for “actions not
otherwise specifically provided for,” MCA § 15-1-49(1), which is three years.
Mississippi S.A.F.E. Mortgage Act, and particularly MCA §81-18-55(1)(f)—The Mississippi S.A.F.E.
Mortgage Act, and particularly MCA §81-18-1 et seq., is repealed effective July 1, 2020. However, the
repeal date has previously been extended by the Mississippi legislature. Assuming it is extended again and
so would apply to the Walters Claim, the statute of limitations would be three years—the same as for
violation of the Consumer Loan Broker Act.
Infliction of emotional distress—The statute of limitations for negligent infliction of emotional distress is
three years. MCA § 15-1-49(1); Bristow v. Baskerville, 2010 U.S. Dist. LEXIS 129131 (S.D. Miss. Dec.
6, 2010), vacated, 2011 U.S. Dist. LEXIS 41860 (S.D. Miss. Apr. 12, 2011). For intentional infliction of
emotional distress, the period is also three years. Guthrie v. J.C. Penney Co., 803 F.2d 202 (5th Cir. Miss.
1986); CitiFinancial Mortg. Co. v. Washington, 967 So. 2d 16 (Miss. 2007) (one year from time of loan,
for action against lender for misrepresentations or omissions at time of loan).
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annexed to the Walters Claim show that Ms. Johnson’s house was built in 2007 (id. at 2615), and
Ms. Martinez’s house was built in 2008 (id. at 2750); but there is nothing that shows when Ms.
Scranton’s claim might have accrued. The Trustee and Plan Administrator assert that nothing in
the Walters Claim demonstrates or even alleges that the Damage Claims accrued later than
February 11, 2014. Moreover, they maintain that the Related Claims relate to houses built between
1982 and 2004. 	Accordingly, the Trustee and Plan Administrator assert that the Walters Claim
and Related Claims are barred by their respective statutes of limitations.
In their Response, the Consumer Creditors contend that the statutes of limitations do not
bar the Walters Claim because the Debtors’ actions give rise to continuing torts under federal and
Mississippi state law that toll the statutes of limitations. Additionally, they assert that application
of the “discovery rule” (or “layman’s test”) and principles of “fraudulent concealment” likewise
toll the running of the statutes of limitations. 	Finally, they contend that at a minimum, genuine
issues of material fact relating to the application of statutes of limitations are present, and, under
Mississippi law, limitations are an issue for the jury to decide. See Response ¶¶ 48–62.
The Claim Objection Hearing
Under the Claim Procedures Order, a properly filed and served response to a claim
objection gives rise to a “Contested Claim” to be resolved at a Claim Hearing. 	See Claim
Procedures Order ¶ 3(iv). 	Where, as here, the Trustee and Plan Administrator argue that the
Contested Claims, i.e., the Walters Claim and Related Claims, fail to state claims for relief, the
Court conducts a non-evidentiary “Sufficiency Hearing.” Id. ¶ 3(iv)(a), (b). The legal standard of
review at a Sufficiency Hearing is equivalent to the standard applied to a motion to dismiss for
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failure to state a claim upon which relief may be granted under Rule 12(b)(6). Id. ¶ 3(iv)(a). The
Court conducted a Sufficiency Hearing on the Walters Claim and Related Claims.26
Applicable Legal Standards
Under section 502(a) of the Bankruptcy Code, “a claim . . . proof of which is filed under
section 501 of this title, is deemed allowed, unless a party in interest . . . objects.” 	11 U.S.C.
§ 502(a). 	The filing of a proof of claim constitutes “prima facie evidence of the validity and
amount of a claim.” Fed. R. Bank. P. 3001(f). If an objection refuting at least one of the claim's
essential allegations is asserted, the claimant has the burden to demonstrate the validity of the
claim. See, e.g., Rozier v. Rescap Borrower Claims Tr. (In re Residential Capital, LLC), 15 Civ.
3248, 2016 WL 796860, at *9 (S.D.N.Y. Feb. 22, 2016); Hasson v. Motors Liquidation Co. (In re
Motors Liquidation Co.), No. 09-50026, 2012 WL 1886755, at *3 (S.D.N.Y. May 12, 2012); In re
Oneida Ltd., 400 B.R. 384, 389 (Bankr. S.D.N.Y. 2009), aff’d sub nom. Peter J. Solomon Co., L.P.
v. Oneida, Ltd., No. 09-cv-2229, 2010 WL 234827 (S.D.N.Y. Jan. 22, 2010). Section 502(b) sets
forth the grounds for disallowing a properly filed proof of claim. 	See 11 U.S.C. § 502(b); see
also Travelers Cas. and Sur. Co. of Am. v. Pac. Gas and Elec. Co., 549 U.S. 443, 449 (2007) (“But
even where a party in interest objects [to a claim], the court ‘shall allow’ the claim ‘except to the
extent that’ the claim implicates any of the nine exceptions enumerated in § 502(b)”).
In filing the Objections, the Trustee and Plan Administrator initiated contested matters.
See Fed. R. Bankr. P. 3007 advisory committee’s notes (1983) (“The contested matter initiated by
an objection to a claim is governed by Rule 9014 . . . .”); see also Pleasant v. TLC Liquidation Tr.
(In re Tender Loving Care Health Servs., Inc.), 562 F.3d 158, 162 (2d Cir. 2009) (stating that
“when a debtor files an objection to a claim, the objection has initiated a contested matter”).
26 	Transcript Regarding Hearing Held on 1/20/2022, ECF No. 3876 (Hr’g Trans.).
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Bankruptcy Rule 9014 governs contested matters. 	The rule does not explicitly provide for the
application of Bankruptcy Rule 7012. However, Bankruptcy Rule 9014 provides that a bankruptcy
court “may at any stage in a particular matter direct that one or more of the other Rules in Part VII
shall apply.” Fed. R. Bankr. P. 9014. The Court did so here since the Claims Procedures Order
states that the legal standard of review the Court applies at a Sufficiency Hearing is equivalent to
the standard applied by the Court under Rule 12(b)(6) on a motion to dismiss for failure to state a
claim upon which relief could be granted. See Claim Procedures Order ¶ 3(iv)(a); see also In re
20/20 Sport, Inc., 200 B.R. 972, 978 (Bankr. S.D.N.Y. 1996) (“In bankruptcy cases, courts have
traditionally analogized a creditor's claim to a civil complaint [and] a trustee's objection to an
answer . . . .”).
In applying Rule 12(b)(6) to the Walters Claim and Related Claims, the Court assesses the
sufficiency of the facts alleged in support of the claims in light of the pleading requirements
under Rule 8(a) of the Federal Rules of Civil Procedure.27 Rule 8(a)(2) states that a claim for relief
must contain “a short and plain statement of the claim showing that the pleader is entitled to
relief[.]” Fed. R. Civ. P. 8(a)(2). To meet that standard, the claim “must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (“Iqbal”) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007) (“Twombly”)). “A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id. at 678; accord Twombly, 550 U.S. at 570. In considering whether that standard is
met for a particular claim, the court must assume the truth of all material facts alleged in support
27 	Rule 8 is incorporated herein pursuant to Bankruptcy Rule 7008.
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of the claim and draw all reasonable inferences in the claimant's favor. See ATSI Commc’ns, Inc.
v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).
Discussion
As an initial matter, on the face of the documents, the claims of the Walters Claimants are
time-barred. 	They assert claims under Mississippi state law for violations of MISS . CODE ANN.
§§ 81-19-1 and 81-18-55, and for infliction of emotional distress—these causes of action each
carry a three-year statute of limitations. See supra note 23. The claimants also assert claims under
five federal statutes: FHA, ECOA, TILA, RESPA, and FDCPA. The longest applicable federal
statute of limitations is five years, which applies to the ECOA claims. Id. All the houses in this
case were built and financed between 1982 and 2009. Walters Claim at 2061–3203. The Walters
Claim alleges no activity by Ditech or its predecessor (other than servicing loans) after 2009,
approximately ten years before the February 11, 2019 petition date. Accordingly, on the face of
the Walters Claim, all the federal and state claims are time-barred. The Consumer Creditors assert
that the apparent time-bar is not fatal to those claims, since the asserted harms give rise to
continuing torts under federal and Mississippi state law, and application of the “discovery rule”
and principles of “fraudulent concealment” tolls the running of the statute of limitations.
Accordingly, the Court evaluates the claims in light of those asserted exceptions to the facial
time-bar.
The Related Claims
The Additional Claimants filed what are essentially identical responses to the Related
Claims Objections,28 in which they do not provide substantive responses to the objections. They
have not attempted to demonstrate that the Related Claims state plausible claims for relief against
28 	In discussing the objections to the Related Claims, the Court will cite to the Darty Response.
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the Debtors. Rather, they “oppose[] the Objection[s] because [they are] part of a class of consumers
that have already filed a proof of claim” (citing the Walters Claim). See, e.g., Darty Response ¶ iii.
Further, they assert that “[their] claim[s] were apparently filed individually and illustrate why
adjudicating these claims as a class is a much more efficient resolution.” Id. Finally, they maintain
that “[t]he documents that [they] will rely upon are included as exhibits in the [Walters Claim]”
and that “[they] will supplement individually, if required.” Id. ¶ iv. Likewise, in the Response,
the Consumer Creditors do not address the substance of the Related Claims. Rather, they assert,
in essence, that the Court should disregard, not expunge, the Related Claims. See Response ¶¶ 63,
65. 	They say that the Court should disregard the Arrington, Harrison, McDonald, Miller, and
Waters claims because “[t]hese claims were misfiled before the creditors were aware that current
counsel would represent them along with the remaining [Consumer Creditors].” Response ¶ 63.
They urge the Court to disregard Ms. Darty’s claims because “current counsel was unaware that
these claims were to be filed and Darty expects to be part of the [Consumer Creditors’] claims
rather than pursuing her claims independently.” 	Response ¶ 65. 	Neither purported excuse
provides grounds for the Court to disregard the filed claims. 	Moreover, it appears that the
Arringtons, Harrison, McDonald, Miller and Waters were represented by counsel when they filed
their claims.29
Neither the Additional Claimants nor the Consumer Creditors provided substantive
responses to the Related Claims Objections. 	They have not attempted to demonstrate that the
Related Claims state plausible, timely filed claims for relief against the Debtors. 	The claims
plainly fail to do so. Accordingly, the Court sustains the Related Claims Objections and disallows
29 	See Letters of Representation annexed to the Walters Claim at 508 (Arrington), 1058 (Harrison), 1423
(McDonald), 1461 (Miller), 1893 (Waters).
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and expunges those claims, subject only to possible participation in any recovery of the class, if
the Court certifies the class and allows the class claim.
The Walters Claim
Ms. Scranton did not respond to the objection to her claim. The Response does not provide
a substantive response to the claim or any support for the claim. As noted, Ms. Scranton is not
identified as a Consumer Creditor on the Creditor List, and is not listed in the Ferro Documents.
The Walters Claim fails to allege any facts in support of the Scranton claim. The Court grants the
Trustee’s and Plan Administrator’s objection to the claim, and disallows and expunges it, subject
only to possible participation in any recovery of the class—if the class is certified and a class claim
is allowed.
In sanctioning the Claim Objections Procedures, the Court approved a form of the Notice
of Omnibus Objection (the “Omnibus Objection Notice”). See Claim Procedures Order Ex. 1. In
part, the Notice states that a claimant’s response to an objection, if any, “must contain at a
minimum the following . . . (iv) all documentation or other evidence of the Claim, to the extent
not included with the Proof of Claim previously filed with the Bankruptcy Court, upon which you
will rely in opposing the Objection . . . .” 	Id. 	As support for their Response, the Consumer
Creditors annexed copies of miscellaneous documents, including portions of the transcripts of
depositions of individuals taken in an arbitration proceeding and state court actions (Walters
Claimants’ Response Exs. A, B, D, & E),30 a First Amended Complaint for Arbitration (the
30 	Those transcripts are:
Deposition of Joe Kelly, Crosby v. Green Tree Servicing LLC, et al., Circuit Court of Smith County,
Mississippi Civil Action No. 2015-92 (Ex. A).
Deposition of Sally A. Leon, Green Tree Servicing LLC v. Roshonda Addison and Harry Howard,
Circuit Court of Amite County, Mississippi, Civil Action No. 12-CV-0041-S (Ex. B).
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“Martinez Arbitration Complaint”) filed by Bernadette Martinez against “Ditech, Inc. Successor
By Merger To Walter Mortgage Company LLC” and others (id. Ex. C),31 a copy of a hand-written
letter from Stella Johnson to the Trustee’s counsel (id. Ex. F), and an order denying summary
judgment in a state court proceeding not involving any of the Claimants (id. Ex. G).32 	At the
Hearing, Consumer Creditors’ counsel asserted that, in responding to the Walters Claim Objection
(and as purportedly authorized by the Notice of the Claim Objection), the creditors “painstakingly
set out the details and facts underlying [their] claims” and in doing so “incorporated, by reference,”
the Martinez Arbitration Complaint. See Hr’g Trans. 33:12–17. He says that the complaint was
filed in September 2019 and “sets out in meticulous detail how Ms. Martinez was defrauded by
Ditech. 	There’s 	even 	a 	section 	of 	the 	complaint 	that 	says, 	‘How 	Ms. 	Martinez 	was
Defrauded’ . . . .” Id. at 33:19–23.
There is little overlap between the Walters Claim and the Martinez Arbitration Complaint.
The latter includes twenty-two claims for relief, sixteen of which are not included in the Walters
Deposition of Roshonda Addison Cotton, Green Tree Servicing LLC v. Roshonda Addison and
Harry Howard, Circuit Court of Amite County, Mississippi, Civil Action No. 12-CV-0041-S (Ex.
D).
Deposition of Jeanatta Brown, JAMS Arbitration Case No. 14440005054 (Ex. E.)
31 	Martinez v. Ditech, Inc. Successor by Merger to Walter Mortgage Company, LLC. In the Arbitration Complaint
Ms. Martinez purports to assert general money damage claims against Ditech predicated on Civil conspiracy (Count
Two), Negligence (Count Three). Gross Negligence (Count Four), Negligent Hiring (Count Five), Negligent
Misrepresentation (Count Six), Fraudulent Inducement/Fraudulent Concealment (Count Seven), Fraud (Count Eight),
Breach of Contract (Count Eight [sic]), Breach of Covenant of Good Faith and Fair Dealing (Count Nine), Breach of
Implied Warranty (Count Ten), Agency (Count Eleven), Respondiat Superior (Count Twelve), Intentional Infliction
of Emotional Distress (Count Thirteen), Unjust Enrichment (Count Fourteen), Wrongful Foreclosure (Count Fifteen),
Violation of the Equal Credit Opportunity Act (Count Sixteen), Violations of the Fair Housing Act (Count Seventeen),
Violations of the Truth-in-Lending Act (Ability to Repay) (Count Nineteen [sic]), Violation of the Truth-in-Lending
Act (Pre-Loan Counseling) (Count Twenty), Violation of the Truth-in-Lending Act (Mandatory Disclosure) (Count
Twenty-One), Violation of the Truth-in-Lending Act (Appraisal) (Count Twenty-Two).
32 	Order Denying Plaintiff’s Motion for Summary Judgment and Granting Defendant Brimage’s Motion for Leave,
Green Tree Servicing LLC, Successor By Merger To Walter Mortgage Company, LLC. v. Billy Y. Brown and
Gwendolyn Brimage, Cause No. 2014-357 (Circuit Court of Simpson County, Mississippi Aug. 2, 2016).
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Claim, and it does not include the Mississippi state statutory claims that are in the Walters Claim.
Moreover, in the complaint, Ms. Martinez seeks general money damages, punitive damages,
attorneys’ fees and expenses, and other costs and expenses, as well as the imposition of a
constructive trust, and an injunction staying ejectment/eviction proceedings against her. 	See
Martinez Arbitration Complaint ¶¶ 154–70. 	Those claims and the evidence in support of the
claims are not alleged in support of the Walters Claim. 	Still, at the hearing, counsel took the
position that in annexing the Martinez Arbitration Complaint to their Response, the Consumer
Creditors effectively amended the Walters Claim to include all of the allegations of fact and law
contained in the Martinez Arbitration Complaint, and that they were permitted to do so under the
Claims Objections Procedures. 	Hr’g Tr.42:23–43:1 (“Well, Your Honor, excuse me, but the
claims hearing procedure says just that. We shall submit all documentation or other evidence upon
which we rely in opposing the objection.”). Moreover, counsel contended that the standard to be
applied in resolving the Walters Claim Objection is not the standard applied to Rule 12(b)(6)
motions. 	Rather, it is whether “we stated a claim with particularity [and] the answer to that is
unquestionably, yes. Ms. Martinez, I need to say, is one of the representatives’ named plaintiffs,
here . . . .” 33:19–34:1. The Court finds no merit to those contentions.
First, in accordance with the Claims Procedures Order, the Court conducted a Sufficiency
Hearing on the Walters Claim. In resolving the Walters Claim Objection, the Court will apply the
standards 	applicable 	to 	Rule 	12(b)(6) 	motions, 	counsel’s 	contentions 	to 	the 	contrary
notwithstanding. 	It is “axiomatic that the complaint may not be amended by the briefs in
opposition to a motion to dismiss.” Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1107
(7th Cir. 1984). “To hold otherwise would mean that a party could unilaterally amend a complaint
at will, even without filing an amendment, and simply by raising a point in a brief.” 	Morgan
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Distrib. Co v. Unidynamic Corp., 868 F.2d 982, 995 (8th Cir 1989) (citation omitted). The plain
language of the Omnibus Objection Notice that counsel relies on does not provide otherwise. The
Court construes that language in light of the well-settled standards governing Rule 12(b)(6)
motions. In resolving the Walters Claim Objection, the Court will not consider the facts and legal
theories introduced in the Martinez Arbitration Complaint. See Lim v. Radish Media, Inc., No. 21
Civ. 4379, 2022 WL 2292768, at *5 n.5 (S.D.N.Y. June 24, 2022) (“However, the Court cannot
consider allegations raised for the first time in a brief opposing the motion to dismiss because ‘it
is axiomatic that a complaint may not be amended by the brief in opposition to a motion to
dismiss.’” (quoting Kirya Joel All. v. Vill. of Kiryas Joel, No. 11 Civ. 3982, 2011 WL 5995075, at
*5 (S.D.N.Y. Nov. 29, 2011))); Palm Beach Mar. Museum, Inc. v. Hapoalim Sec. USA, Inc., 810
F. App’x 17, 20 (2d Cir. 2020) (summary order) (“[W]e find that the District Court's dismissal of
the complaint was proper because a complaint may not be amended by advocating a different
theory of liability in an opposition brief wholly unsupported by factual allegations in the
complaint.”); Aaronson v. Kellogg Co., 837 F. App’x 850, 850–51 (2d Cir. 2021) (summary order)
(holding that a claim first asserted in an opposition to a motion to dismiss was not “validly
asserted”).
The objection to the Johnson and Martinez claims underlying the Walters Claim is
narrowly tailored, as the Trustee and Plan Administrator contend that those claims are barred by
statutes of limitations. “Although the statute of limitations is ordinarily an affirmative defense that
must be raised in the answer, a statute of limitations defense may be decided on a Rule 12(b)(6)
motion if the defense appears on the face of the complaint.” Ellul v. Congregation of Christian
Bros., 774 F.3d 791, 798 n.12 (2d Cir. 2014); see also Ghartey v. St. John’s Queens Hosp., 869
F.2d 160, 162 (2d Cir. 1989) (“Where the dates in a complaint show that an action is barred by a
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statute of limitations, a defendant may raise the affirmative defense in a pre-answer motion to
dismiss.”). 	The same holds true for a proof of claim. 	“The claims allowance process of the
Bankruptcy Code contemplates that time-barred claims may be filed and expressly preserves the
statute of limitations as a defense and a ground for disallowance of the claim.” In re Hess, 404
B.R. 747, 750–51 (Bankr. S.D.N.Y. 2009) (quoting Simpson v. PRA Receivables Mgmt., LLC (In
re Simpson), No. 08-137, 2008 WL 4216317, at *2 (N.D. Ala. Aug. 29, 2008)). Section 502(b)(1)
requires disallowance of a claim that is unenforceable under applicable non-bankruptcy law. A
claim that is barred by the applicable statute of limitations is barred and subject to disallowance.
See In re Brill, 318 B.R. 49, 53 (Bankr. S.D.N.Y. 2004) (“A challenged claim will not be allowed
by the bankruptcy court if the claim is barred by the applicable statute of limitations.”); B-Real,
LLC v. Chaussee (In re Chaussee), 399 B.R. 225, 240 n.16 (B.A.P. 9th Cir. 2008) (“Because the
statute of limitations is an affirmative defense, a debtor is indeed burdened by the requirement that
an objection be filed to a proof of claim that is, on its face, clearly time-barred.”).
The Consumer Creditors do not dispute that a valid statute of limitations defense would
require the disallowance of the Walters Claim, and they do not dispute the applicable statutes of
limitations set forth in the Walters Claim Objection.33 However, as noted, they contend that the
statute of limitations does not bar the claims because the Debtors’ actions give rise to continuing
torts under federal and Mississippi state law, and that application of the “discovery rule” and
principles of “fraudulent concealment” tolls the running of the statute of limitations. The Court
considers those matters below.
33 	As support for the Claim, the Consumer Creditors’ Response asserts that the Walters Claim is based on damages
claims under the following federal and Mississippi state statutes: Fair Housing Act, 42 U.S.C. § 3601 et seq., the Equal
Credit Opportunity Act, 15 U.S.C. § 1691 et seq., the Truth in Lending Act, 15 U.S.C. § 1601 et seq.; and the Fair
Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., the Mississippi Consumer Loan Broker Act, M ISS . CODE
A NN . § 81-19-1 (2022), and the Mississippi S.A.F.E. Mortgage Act, Id. § 81-18-55.
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I. 	The Continuing Violation Doctrine
The Consumer Creditors label Ditech’s actions as a “continuing tort.” 	They say that
Ditech’s alleged “consumer credit scheme” is “outside the statute of limitations” because “[e]ach
monthly mortgage statement and payment obtained therefrom continues to wrongfully enriching
[sic] Ditech and constitutes a continuing violation.” 	Response ¶ 49. 	The Court considers that
matter below.
Federal Law
Under the continuing violation doctrine, a court can allow recovery for violations outside
the applicable limitations period if those violations are so closely related to violations within the
limitations period that they can be regarded as a single continuing violation. Lucente v. Cnty. Of
Suffolk, 980 F.3d 284, 309 (2d Cir. 2020). “Where, by contrast, plaintiffs complain of ‘discrete
acts’ separated in time, the usual limitations rule applies.” Desuze v. Ammon, 990 F.3d 264, 271
(2d Cir. 2021) (quoting Gonzalez v. Hasty, 802 F.3d 212, 220 (2d Cir. 2015)). Notably, “courts in
the Second Circuit ‘have been loath to apply [the continuing violation doctrine] absent a showing
of compelling circumstances.’” 	Grimes v. Fremont Gen. Corp., 785 F. Supp. 2d 269, 292
(S.D.N.Y. 2011) (alteration in original) (quoting Trinidad v. N.Y.C. Dep’t of Corr., 423 F. Supp.
2d 151, 165 n.11 (S.D.N.Y. 2006)). To allege a continuing violation, “a plaintiff must identify a
specific act that is discriminatory and that occurred within the limitations period.” 	Johnson v.
Wells Fargo Bank, N.A. (In re Johnson), No. 13-1445, 2014 WL 4197001, at *14 (Bankr. E.D.N.Y.
Aug. 22, 2014) (holding that a “monthly payment obligation” on a debtor’s home loan was not
alleged to arise “from a specific discriminatory act . . . within the limitations period, or how this
payment obligation was an act in violation of the FHA’s proscriptions against discriminatory
lending.”).
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The Consumer Creditors say that the doctrine applies to the federal law claims asserted by
Ms. Johnson and Ms. Martinez. It is undisputed that the longest applicable federal statute of
limitations in this action is five years. It is also undisputed that the harms the claimants complain
of arise from actions taken by Ditech and its predecessors in interest regarding the servicing and/or
origination of the loans. 	Response ¶¶ 4–13, 17–33. 	What is disputed is whether the act of
collecting monthly mortgage payments constitutes a continuing violation or is merely the lingering
effect of past activity. The Walters Claimants raise allegations of discrimination, redlining, and
improper mortgage terms, which they say occurred after 2009, ten years before the Petition Date.
At the Sufficiency Hearing, Consumer Creditors’ counsel argued that the claims flow from the
“build the home of your dreams” scheme peddled by Ditech. 	Hr’g Trans. at 31:19–32:3. 	The
Consumer Creditors maintain that under Havens Realty Corp. v. Coleman, 455 U.S. 363, 380
(1982), the monthly servicing of the loan constitutes a continuing violation sufficient to toll the
applicable statute of limitations. Response ¶ 51.
Havens Realty Corp. involved a class action asserting various forms of discriminatory
housing practices by Havens Realty Corp., including “racial steering” in violation of section 804
of the FHA. 34 Id. at 367. An organization called Housing Opportunities Made Equal (HOME),
sent out two testers, one white and one black, to determine whether Havens practiced racial
steering. Id. at 368–69. They found that it did. Id. Havens told the black tester that no apartments
were available, but it told the white tester that there were vacancies. Id. A few months later, a
black prospective tenant inquired about renting an apartment. Id. He was told that there were no
apartments available, despite the fact that there were unoccupied units. Id. At the time, a 180-day
34 	Section 804 is now codified at 42 U.S.C. § 3604.
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limitation period applied to the claims under the FHA. 35 Id. at 369–70. By the time the complaint
was filed, the incidents where the black tester was denied housing were more than 180 days past,
and only the prospective tenant’s denial was within the limitations period. 	Id. 	The defendant
moved to dismiss the claims against the black tester, the white tester, and HOME on the grounds
that (i) these plaintiffs lacked standing, and (ii) their claims were barred by the statute of
limitations, since the acts taken against the testers occurred outside the statute of limitations.36 Id.
at 369. The district court granted the motion on those grounds. Id. On appeal, the Fourth Circuit
reversed and remanded the case, determining that (i) the testers and HOME had standing because
they were harmed by the landlord’s discriminatory actions, and (ii) the discriminatory acts against
the testers and HOME were not outside the statute of limitations, because they formed one
longstanding continuing violation that had persisted until the prospective tenant’s denial within
180 days of the complaint. Coles v. Havens Realty Corp., 633 F.2d 384, 392 (4th Cir. 1980). The
Supreme Court granted Havens’s petition for certiorari and affirmed the appellate court, holding
that, where a plaintiff, pursuant to the FHA, challenges not just one incident of conduct violative
of the Act, but an unlawful practice that continues into the limitations period, the complaint is
timely when it is filed within 180 days of the last asserted occurrence of that practice. 	Havens
Realty Corp. v. Coleman, 455 U.S. 363, 380–81 (1982).
The Trustee and Plan Administrator argue, correctly, that the Consumer Creditors do not
assert a continuing violation that recurs with each instance of servicing the loans. Instead, they
35 	As aforementioned, the applicable period is now two years. 42 U.S.C. § 3613(a).
36 	Both tester plaintiffs asserted that the harm they had incurred was a deprivation of the benefits of living in an
integrated neighborhood, and the black tester alleged that the misinformation given to her about apartment availability
caused her a “specific injury.” Havens Realty Corp., 633 F.3d at 69. The asserted harms to HOME were the frustration
of its efforts to facilitate equal access to housing, which drained its resources, and the deprivation of its members of
the benefits of living in an integrated neighborhood. Id.
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describe the single historical violation of predatory loan origination, which has continuing
consequences. 	The case of In re Johnson, 2014 WL 4197001, is instructive. 	In that adversary
proceeding, a chapter 13 debtor asserted claims under the FHA against his loan originator,
mortgage broker and mortgage servicing agents, arising out of a loan and mortgage associated with
the 	2006 	purchase 	of 	his 	home. 	The 	debtor 	asserted 	that 	the 	loan 	originator 	“made
misrepresentations during the loan originating process as part of a larger scheme designed to
extend credit on unfavorable terms to African-American borrowers.” Id. at *1. The debtor alleged
that, in 2006, the loan originator “artificially originated the purchase price of the home and
encouraged Johnson to take out a second loan and mortgage secured by the property,” such that
“the second mortgage proceeds could be used as a down payment on the first mortgage, so that the
first mortgage would meet federal housing guidelines and be marketable in the secondary mortgage
market.” 	Id. at *2. 	This scheme was repeatedly perpetrated by the loan originator, and “a
disproportionate number of mortgage loans originated . . . were made to minority borrowers,
especially African-Americans.” Id. Liability was asserted against the loan servicers as assignees
of the loan and because the originator had “originated loans in reliance on their credit policies.”
Id. at *3.
Because the adversary proceeding was brought approximately seven years after the
mortgage origination, the claims fell outside of the two-year FHA statute of limitations period. Id.
at *13. Johnson argued that the continued servicing of his mortgage was a continuing violation
that brought his claims within the FHA’s statute of limitations. Id. The Johnson court considered
whether each act of servicing a mortgage that was discriminatorily originated, i.e., whether the
accrual of each monthly payment was another act in violation of the FHA, such that the
continuing-violation doctrine would be satisfied. Id. at *14. The court found that the debtor did
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not “show how his regular monthly payment obligation on his home loan arose from a specific
discriminatory act by the Defendants within the limitations period, or how this payment obligation
was an act in violation of the FHA’s proscriptions against discriminatory lending.” 	Id.
Accordingly, the court found that the continuing violation doctrine did not bring Johnson within
the applicable statute of limitations.
Here, the Consumer Creditors raise the same argument that was rejected in Johnson. They
argue that the continuing-violation doctrine is satisfied by the continued accrual of obligations
under a mortgage that was discriminatorily originated. Response ¶¶ 30, 34, 48–51. However, bare
allegations that obligations have continued under a mortgage that was discriminatorily originated,
without the allegation of some further specifically discriminatory action, are insufficient to
establish that the continuing-violation doctrine applies. In re Johnson, 2014 WL 4197001, at *14.
While the practice of reverse redlining was and is reprehensible, continuing mortgage obligations
alone cannot be used to enlarge the time to challenge discriminatory mortgage originations. See
id.
The circumstance presented here and in Johnson is distinguishable from the situation in
Havens Realty Corp., where there was an additional discriminatory act taken within the limitations
period that could be viewed in conjunction with the otherwise time-barred acts as one violation.
455 U.S. at 380. Instead, like the debtor in Johnson, the Consumer Creditors have pointed only to
the continued servicing of discriminatory loans as the basis for their continuing violation argument.
As in that case, the continued loan obligations are not discriminatory in themselves—instead, they
are merely “consequence[s] of prior discrimination.” In re Johnson, 2014 WL 4197001, at *14.
The harm the Consumer Claimants complain of, i.e., servicing the loan, is merely a continuing
consequence of the loan entered into by the Walters Claimants and the Debtors’ predecessor in
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interest. The other discriminatory practices that the Claimants complain of—the recording of the
Deed and Note in the applicable county records reflecting principal plus 30 years of interest—
occurred at the time of filing documents in the record, shortly after the closing of the loan.
Therefore, the continuing violation doctrine does not apply to the federal claims and those claims
are time-barred.
Mississippi State Law
The Consumer Creditors contend that under Mississippi law, a plaintiff may recover for a
continuing violation in its entirety “if at least a portion of the alleged violation occurs within the
applicable period” or “where the later act itself constitutes a violation.” 	Response ¶ 50. 	They
maintain that “[b]oth conditions apply here.” Id. As support, they rely on Hendrix v. City of Yazoo
City, Miss., 744 F. Supp. 1412, 1414 (S.D. Miss. 1989), aff’d 911 F.2d 1102 (5th Cir. 1990). In
Hendrix, the plaintiff firefighters were employed by defendant, Yazoo City, Mississippi and
brought the action alleging violations of section 8 of the 1985 Amendments to the Fair Labor
Standards Act (FLSA). Id. at 1413. The city filed a motion to dismiss the action on the basis that
the suit was not filed within the limitations period provided by statute. The statute of limitations
for claims brought under the FLSA for non-willful violations is two years from the date the cause
of action accrues and three years for willful violations. 	Id. at 1414 (citing 29 U.S.C. § 255(a)).
The defendant moved to dismiss the complaint, arguing that the plaintiffs’ claims accrued on the
date on which the wage reduction became effective, and therefore the plaintiffs’ suit, which was
filed three years and one month later, was untimely. Id. The plaintiffs argued that the defendant’s
acts constituted a continuing violation such that as long as the reduced base wage rates remained
in effect, a new cause of action accrued each time the defendant paid the plaintiffs the lowered
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wage. Id. The district court held that the complaint was barred by the FLSA’s three-year statute
of limitations for willful violations. Notably, the court found no continuing violation. Id. at 1417.
On appeal, the Fifth Circuit Court of Appeals affirmed the judgment dismissing the
complaint. See Hendrix, 911 F.2d at 1102. In part, the court noted that
[T]he continuing violation doctrine embraces two types of cases. The first includes
cases in which the original violation occurred outside the statute of limitations, but
is closely related to other violations that are not time-barred. In such cases, recovery
may be had for all violations, on the theory that they are part of one, continuing
violation.
The second type of continuing violation is one in which an initial violation,
outside the statute of limitations, is repeated later; in this case, each violation begins
the limitations period anew, and recovery may be had for at least those violations
that occurred within the period of limitations.
Id. at 1103. Relevant to that determination is “whether the practice at issue is part of, or a repetition
of, a past discriminatory act, in which case there is a continuing violation, or whether it is facially
neutral, simply giving effect to prior discrimination, in which case there is no continuing
violation.” Id. at 1104. The key to the inquiry of when the actual violation occurred “is whether
the original discriminatory act had ‘the degree of permanence that should trigger an employee’s
awareness of and duty to assert his or her rights.’” 	Id. (quoting Berry v. Bd. of Supervisors of
L.S.U., 715 F.2d 971, 981 (5th Cir. 1983)). 	In affirming the district court, the appellate court
reasoned that “the firefighters were fully aware of the City’s reduction in their base rate of pay
when they received their April 15, 1986, paychecks. The reduction in pay was itself the violation;
subsequent pay packets simply gave it continuing effect in a facially neutral manner.” Id. at 1105.
The Walter Claimants assert claims under the Mississippi Consumer Loan Broker Act,
M ISS . CODE ANN. § 81-19-1 (2022), and the Mississippi S.A.F.E. Mortgage Act, id. § 81-18-55,
each of which relates to origination of the loans and provides a three-year statute of limitations.
The Consumer Creditors assert that the Mississippi state-law claims are timely under the
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continuing violation doctrine because a portion of the continuing violation—servicing the loan and
collecting payments—occurred within the applicable limitations period, and so under state law,
they may recover for the continuing violation in its entirety. Response ¶ 51. The Trustee and Plan
Administrator dispute that contention. They say that the claim is barred by the three-year statute
of limitations, because claims under §§ 81-19-1 and 81-18-55 relate to origination of the loans.
See Ishee v. Fannie Mae, No. 13-cv-234, 2015 U.S. Dist. LEXIS 15223, *42–43 (S.D. Miss. Feb.
6, 2015) (explaining that the S.A.F.E. Mortgage act applies to mortgage brokers, lenders, and loan
originators); McCrillis v. WMC Mortg. Corp., 133 F. Supp. 2d 470, 476 (S.D. Miss. 2000)
(explaining that § 81-19-1 only “limits the amount paid by a borrower to a broker for service
charges to three percent of the amount of the loan”).
Analogous to the federal continuing-violation doctrine, Mississippi state law has a similar
exception, which it styles as its “continuing-tort doctrine.” Estate of Fedrick v. Quorum Health
Res., Inc., 45 So. 3d 641, 643 (Miss. 2010).
A “continuing tort” is one inflicted over a period of time; it involves a wrongful
conduct that is repeated until desisted, and each day creates a separate cause of
action. A continuing tort sufficient to toll a statute of limitations is occasioned by
continual unlawful acts, not by continual ill effects from an original violation.
Id. (quoting Pierce v. Cook, 992 So. 2d 612, 619 (Miss. 2008)). 	A Mississippi intermediate
appellate court has considered whether the subsequent ill effects of an impermissibly obtained
mortgage can satisfy the state’s continuing-tort doctrine. Brown-Howle v. Cmty. Bank, 327 So. 3d
651, 658 (Miss. Ct. App. 2018). In that case, in 2016, a conservator brought suit on behalf of a
mentally incompetent plaintiff against mortgage servicers and the plaintiff’s neighbors, asserting
inter alia that a 2009 mortgage was unenforceable because the plaintiff lacked capacity to obtain
the loan, and that the neighbors had had exercised undue influence and misappropriated the
plaintiff’s loan proceeds. Id. at 653, 657–58. Under Mississippi law, the longest applicable statute
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of limitations was three years. Id. at 655. The plaintiff argued that the statute of limitations had
continued throughout the duration of a mortgage servicer’s servicing of the loan and subsequent
foreclosure proceedings. 	Id. at 657–58. 	The state appellate court found that the “wrongful
conduct” occurred only when the plaintiff obtained the mortgage loan, and while “the ‘continued
ill effects’ of the purported wrongful act resulted in the foreclosure of [her] home, the wrongful
conduct was not repeated.” Id. at 658.
The Trustee and Plan Administrator correctly assert that the Walters Claimants have failed
to allege any facts demonstrating that mortgage origination activity continued at any time after
February 11, 2016 (three years before the Petition Date). Reply ¶ 12. In fact, no facts are pleaded
to show any activity by Ditech or its predecessor in interest after 2009. 	Thus, even if the
continuing-tort doctrine applied, there are no facts pleaded that would constitute a continuing
violation by the Debtors. See Brown-Howle, 327 So. 3d at 658; see also In re Johnson, 2014 WL
4197001, at *14. Therefore, and for the same reasons given with respect to the federal claims, the
limitations period has long since expired. Thus, the claims under state law are time-barred.
II. 	The Fraudulent Concealment Doctrine
Federal Law
The Supreme Court first applied the fraudulent concealment doctrine in the late 1800s
in Bailey v. Glover, 88 U.S. 342 (1874). Since then, the fraudulent concealment doctrine, which
some courts refer to as the Bailey doctrine, has permeated federal law. In re Ahead by a Length,
Inc., 100 B.R. 157, 163 (Bankr. S.D.N.Y. 1989). The fraudulent concealment doctrine tolls the
statute of limitations, which begins to run only when the fraud is uncovered. Id. Its purpose is “to
prevent a defendant from concealing a fraud or committing a fraud which by its nature is concealed
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until such time as the party committing the fraud could plead the statute of limitations to protect
it.” Id. The Supreme Court articulated the fraudulent concealment doctrine as follows:
[W]hen there has been no negligence or laches on the part of a plaintiff in coming
to the knowledge of the fraud which is the foundation of the suit, and when the
fraud has been concealed, or is of such character as to conceal itself, the statute [of
limitations] does not begin to run until the fraud is discovered by, or becomes
known to, the party suing, or those in privity with him.
Bailey v. Glover, 88 U.S. 342, 349 (1874); see In re Ahead by a Length, Inc., 100 B.R. at 163.
“The doctrine of fraudulent concealment is read into every federal statute of limitations and state
statutes adopted by federal law and was developed to prevent wrongdoers from concealing their
actions and later perpetrating a further fraud by asserting the bar of limitations.” Humphrey v. J.
B. Land Co., 478 F. Supp. 770, 772 (S.D. Tex. 1979). However, “[a] party seeking to apply this
tolling doctrine must show that he exercised reasonable care and diligence in seeking to learn the
facts which would disclose the fraud.” Id. “Unawareness of facts or law, alone, does not justify
suspending the operation of the statute. The party seeking protection under this doctrine must have
exercised reasonable care and diligence in seeking to learn the facts which would disclose fraud.”
Morgan v. Koch, 419 F.2d 993, 997 (7th Cir. 1969) (citations omitted); see Derisme v. Hunt Leibert
Jacobson P.C., 880 F. Supp. 2d 339, 355–56 (D. Conn. 2012) (“In the context of a claim of
fraudulent concealment, plaintiffs must show: (1) concealment of the alleged wrongdoing; and
(2) plaintiffs’ failure to discover the facts giving rise to their claims despite their exercise of due
diligence.”). Allegations of fraudulent concealment must comport with the pleading requirements
of Rule 9(b) of the Federal Rules of Civil Procedure. Miller v. Countrywide Bank, N.A., 571 F.
Supp. 2d 251, 264 (D. Mass. 2008).37
37 	Under Rule 9(b), a claim of fraud “must state with particularity the circumstances constituting fraud.” Fed. R.
Civ. P. 9(b). Rule 9 applies to an objection to claim. See Fed. R. Bankr. Proc. 9014(c) (applying Rule 7009, which
incorporates Rule 9, to contested matters); Rule 3007 (objection to claim is a contested matter).
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For the federal fraudulent concealment doctrine to apply, and for the relevant statute of
limitations to be equitably tolled, the Walters Claimants must plead facts sufficient to show: (i) that
Ditech concealed its wrongdoings; and (ii) that the Walters Claimants failed to discover the facts
giving rise to their claims despite their exercise of due diligence. They have failed to allege any
facts to support a claim that the Debtors, or their predecessors, fraudulently concealed the
underlying alleged statutory violations, or that they exercised reasonable care and diligence in
learning what transpired. Moreover, the Walters Claim and Response suggest that the conduct of
Ditech and its predecessors, other than the securitization of the mortgages, was open and
notorious.38 At least three members of the purported class asserted essentially the same causes of
action as set forth in the Walters Claim in actions commenced in 2014 and 2015, more than three
years before the Petition Date. See Response Ex. G at 1, Green Tree Servicing LLC, Successor By
Merger To Walter Mortgage Company, LLC. v. Billy V. Brown and Gwendolyn Brimage, Cause
No. 2014-357 (Circuit Court of Simpson County, Mississippi Aug. 2, 2016); Response Ex. H,
James Crosby v Green Tree Servicing, et al., No. 15-cv-726 (S.D. Miss. Feb. 18, 2016) at 1; see
also Millsap v. Jim Walter Homes, No. 2:14-CV-198, Docket No. 41 (S.D. Miss. May 28, 2015)
(remanding similar lawsuit to state court). 	The facts underlying the claims asserted here were
available to the Walters Claimants more than three years before the Petition Date.
Therefore, the Walters Claimants do not and cannot satisfy the requirement that they failed
to discover the facts giving rise to their claims or that such failure was despite their exercise of due
diligence. See, e.g., Lanza v. Merrill Lynch & Co., 154 F.3d 56, 60 (2d Cir. 1998) (holding that
38 	Although the Walters Claim and the Response assert that the securitization of the mortgages was difficult to
understand, neither the Walters Claim nor the Response allege that the securitization was part of the harm the
Claimants suffered, only that the alleged conduct was in furtherance of a securitization. Walters Claim ¶¶ 3–10;
Response ¶¶ 5, 22, 53. Nothing in the Walters Claim or the Response suggests that the claims would not lie but for
the securitization or that the securitizations were any essential element of the liability. Whether or not the Claimants
understood the securitization is not relevant to the fraudulent concealment issue.
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investors did not adequately plead they satisfied the due diligence requirement of the fraudulent
concealment doctrine where they did not plead that they exercised due diligence and made “no
allegation of any specific inquiries of [the defendant], let alone detail when such inquiries were
made, to whom, regarding what, and with what response”).; Koch v. Christie’s Int’l PLC, 699 F.3d
141, 157 (2d Cir. 2012) (holding that a plaintiff did not satisfy the due diligence requirement where
he received a report suggesting he had been the victim of a wine forgery but did not investigate it
for more than four years); see also Zirvi v. Flatley, 838 F. App’x 582, 587 (2d Cir. 2020) (summary
order) (rejecting, in the fraudulent-concealment context, plaintiffs’ “conclusory claims that they
could not have discovered the misappropriation through the exercise of diligence because
defendants engaged in a decades-long fraudulent ‘conspiracy’ of ‘camouflage, disguise and
nomenclature changes.’” (alterations omitted)).
Mississippi State Law
To establish fraudulent concealment under Mississippi state law, “there must be shown
some act or conduct of an affirmative nature designed to prevent and which does prevent discovery
of the claim.” Robinson v. Cobb, 763 So.2d 883, 887 (Miss. 2000) (quoting Reich v. Jesco, Inc.,
526 So. 2d 550, 552 (Miss. 1988)); see also Holaday v. Moore, 169 So. 3d 847, 853 (Miss. 2015)
(“This Court has held that ‘[f]raudulent concealment of a cause of action tolls its statute of
limitations’ and ‘[t]he fraudulent concealment doctrine applies to any cause of action.’”
(alterations in original) (quoting Robinson, 763 So. 2d at 887)). 	Moreover, Mississippi also
requires that the party asserting a fraudulent concealment argument has the burden to demonstrate
that they performed due diligence in an attempt to discover the claim. Holaday, 169 So. 3d at 853.
Thus, for the Walter Claimants to establish grounds for fraudulent concealment, they must
demonstrate that Ditech and its predecessors engaged in affirmative acts of concealment and that
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even though they acted with due diligence in attempting to discover the alleged wrongdoing, they
were unable to do so. Robinson, 763 So. 2d at 887. They have failed to plead facts demonstrating
that they can meet that burden. The Walters Claim contains no allegations of any “act or conduct
of an affirmative nature designed to prevent and which does prevent discovery of the claim,” nor
of their due diligence. The Walters Claimants allege only that the securitizations were too complex
to understand. Robinson, 763 So.2d at 887. Moreover, because the Mississippi claims relate to
loan brokers and certain foreclosure prerequisites, neither of which are alleged in the Walters
Claim or the Response, any claims about the securitizations cannot support a claim of fraudulent
concealment of the Mississippi claims.
The Consumer Creditors make only the conclusory assertions that “Ditech’s and its
predecessors’ [sic] continually concealed their sophisticated scheme,” Response ¶ 59, and that
scheme “would be undetectable by lay, unsophisticated homeowners such as the 800 creditors,”
id. ¶ 60. 	Additionally, they briefly mention that in the Crosby case, the Southern District of
Mississippi “held that Ditech had transactional structuring which amounted to a subsequent
affirmative act of concealment,” but they do not explain the nature of the transactional structuring
in that case.39 Id. ¶ 59. Here, the Walters Claimants have alleged nothing further to support those
conclusory assertions about the purported concealment of a scheme. First, the claimants have not
represented the nature of the purportedly deceptive transactional structure before this court. See
39 	The claimants make no assertion that the issue in this case is identical to the one before the Southern District of
Mississippi—they assert only that the Crosby case “shares the same fact pattern as the 800 Creditors and was litigated
by counsel for the 800 Creditors,” with no further details. Response ¶ 59. To the extent that the creditors represent
that this Court is bound to arrive at the same conclusion as in that case, their reliance on Crosby is misplaced. The
claimants have not asserted a collateral-estoppel argument with respect to Crosby, and they certainly have not alleged
the four elements of collateral estoppel. See Cayuga Nation v. Tanner, 6 F.4th 361, 374 (2d Cir. 2021) (“a party may
invoke issue preclusion only if: ‘(1) the identical issue was raised in a previous proceeding; (2) the issue was actually
litigated and decided in the previous proceeding; (3) the party [raising the issue] had a full and fair opportunity to
litigate the issue [in the prior proceeding]; and (4) the resolution of the issue was necessary to support a valid and final
judgment on the merits.’” (alterations in original) (quoting Marvel Characters, Inc. v. Simon, 310 F.3d 280, 288–89
(2d Cir. 2002))).
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Robinson, 763 So.2d at 887. 	Even if they had, the claimants have not met the Mississippi
requirement to show that they actually performed some kind of due diligence with respect to the
claim. 	See Holaday, 169 So. 3d at 853; cf. Lanza, 154 F.3d at 60. 	Accordingly, the claimants
have failed to meet their fraudulent-concealment burden on their Mississippi state claims.
The Discovery Rule and the Layman’s Test
The Consumer Creditors generally assert that the limitations period within which to bring
an action is equitably tolled under the discovery rule. See Response ¶¶ 52–56. 	The Consumer
Creditors say that is so because their group is comprised of lay people, rural Mississippians and
Texans who were unsophisticated borrowers, and who they say could not possibly have been
expected to detect Ditech’s complex consumer-credit scheme to obtain, package, service, and sell
consumer-credit securities. Response ¶ 53. In support, the Claimants cite to an instance where
they say that Ditech’s own lawyer could not explain the consumer transaction documents provided
to the 800 creditors. See id.
Federal Law
The Walters Claimants assert claims under the following federal statutes: the FHA, ECOA,
TILA, RESPA, and FDCPA. Walters Claim ¶¶ 13–14. Notably, the Walters Claimants advanced
a discovery-rule40 argument only with respect to their state claims. Id. ¶¶ 52–56. The state-law
arguments are addressed below. 	Because the Walters Claimants did not raise a discovery-rule
argument with respect to the federal claims, it is waived. In re Centric Brands, Inc., 639 B.R. 34,
40 n.3 (Bankr. S.D.N.Y. 2022) (citing In re AMR Corp., 598 B.R. 365, 384 (Bankr. S.D.N.Y.
40 	As discussed below, the purported “Layman’s Test” derives only from Mississippi state law.
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2019)). However, in the interest of completeness, the Court will also address the discovery rule to
the extent it may have bearing on the federal claims.
The federal discovery rule applies generally to federal statutes of limitations unless the
statute provides otherwise. 	See TRW Inc. v. Andrews, 534 U.S. 19 (2001). 	Under the federal
version of this rule, the statute of limitations begins to run when the plaintiff discovered or should
have discovered the injury. 	Fritz v. Resurgent Cap. Servs., LP, 955 F. Supp. 2d 163, 172–73
(E.D.N.Y. 2013); see Miller v. Countrywide Bank, N.A., 571 F. Supp. 2d 251, 263 (D. Mass. 2008).
The general discovery rule applies to FHA claims. Adkins v. Morgan Stanley, No. 12-cv-7667,
2013 WL 3835198, at *5 (S.D.N.Y. July 25, 2013); Saint-Jean v. Emigrant Mortg. Co., 50 F. Supp.
3d 300, 314–16 (E.D.N.Y. 2014) (applying the general discovery rule to FHA claims). Courts are
split as to whether the discovery rule applies to actions under the ECOA, TILA, RESPA, and
FDCPA. 41
Regardless, the Claimants have not demonstrated that they can avail themselves of the
general discovery rule with respect to the FHA or any other claims, chiefly because they have not
alleged facts demonstrating that (i) they did not actually discover their claims less than (at most)
41 	See Benzemann v. Houslanger & Assocs., PLLC, 924 F.3d 73, 81–82 (2d Cir. 2019) (declining to decide whether
the discovery rule could apply to the FDCPA, since the plaintiff’s claim in that case “would be time-barred in any
event”); Wise ex rel. Wilson v. Union Acceptance Corp., No. IP 02-0104-C-M/S, 2002 WL 31730920, at *5 (S.D. Ind.
Nov. 19, 2002) (applying discovery rule to ECOA); Archer v. Nissan Motor Acceptance Corp., 550 F.3d 506, 509
(5th Cir. 2008) (stating, in the ECOA context, “a discovery rule does not apply to statutes that key the start of the
limitations period to ‘the date of the occurrence of the violation.’” (quoting TRW Inc. v. Andrews, 534 U.S. 19, 32
(2001)); Adkins v. Morgan Stanley, No. 12-cv-7667, 2013 WL 3835198, at *5 (S.D.N.Y. July 25, 2013) (holding that
the general discovery rule applies to the FHA but not to the ECOA, since the latter has a limited discovery rule at
§ 1691e(f)(1)–(2)); McAnaney v. Astoria Fin. Corp., No. 04-cv-1101, 2007 WL 2702348, at *6 (E.D.N.Y. Sept. 12,
2007) (noting that, in the TILA context, the discovery rule applies only to “open-end” credit transactions, rather than
“closed-end” one-time loan transactions, such as a residential mortgage loan); Gorbaty v. Wells Fargo Bank, N.A.,
No. 10-cv-3291, 2014 WL 4742509, at *10 & n.14 (E.D.N.Y. Sept. 23, 2014) (holding that the discovery rule is
inapplicable to RESPA). Generally, the discovery rule cannot be applied to the FDCPA or RESPA. See Rotkiske v.
Klemm, 140 S. Ct. 355, 359 (2019) (FDCPA); Cunningham v. M&T Bank Corp., 814 F.3d 156, 162 (3d Cir. 2016)
(RESPA). However, there may be an exception in cases of fraud. Rotkiske, 140 S. Ct. at 361 (citing Merck & Co. v.
Reynolds, 559 U.S. 633, 644 (2013)).
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five years prior to asserting their claims, and (ii) that they should not have discovered their claims
earlier. See Fritz, 955 F. Supp. 2d at 172–73; Miller, 571 F. Supp. 2d at 263. As aforementioned,
they plead no activity by Ditech or its predecessors after 2009—there is nothing in the claimant’s
papers, other than generalized allegations of fraud and complexity, to explain why these claims
should not have been discovered more than five years ago. 	See id. 	Further, as discussed with
respect to the fraudulent-concealment argument, the claimants assert only vague accusations that
Ditech’s transactional structure was inherently deceptive, due to its complexity. Response ¶¶ 59–
60. These conclusory assertions cannot establish that their years-old claims should not have been
discovered sooner. See Fritz, 955 F. Supp. 2d at 172–73; Miller, 571 F. Supp. 2d at 263. In any
event, the issue is waived. In re AMR Corp., 598 B.R. at 384.
Mississippi State Law Claims
As a preliminary matter, the Consumer Creditors assert that, under Mississippi state law, a
jury must decide whether the limitations period is tolled or expired. In support, they say that the
Mississippi intermediate appellate court held that “unsophisticated, minimally educated plaintiffs
faced with opaque language made the statute of limitations issue a jury question.” Response ¶ 55
(citing Baker v. Raymond James & Assocs. Inc., No. 2019-CA-73-COA, 2020 WL 1685704, at *4
(Miss. Ct. App. Apr. 7, 2020), reh’g denied (July 21, 2020), cert. granted sub nom. Travis v.
Raymond James & Assocs. Inc., 304 So. 3d 1121 (Miss. 2020), rev’d, 312 So. 3d 720 (Miss.
2021)). However, the claimants’ reliance is misplaced. This case was reversed on appeal. The
Mississippi Supreme Court held that the claims were barred by the statute of limitations, and the
discovery rule did not apply to the claims. The Mississippi high court also stated, as relevant, that
whether the suit is barred by the statute of limitations may certainly present a jury question. Baker,
312 So. 3d at 723 (citing Benvenutti v. McAdams, 162 So. 3d 808, 814 (Miss. 2015)). But, “as
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with other putative fact questions, the question may be taken away from the jury if reasonable
minds could not differ as to the conclusion.” Id. (quoting Benvenutti v. McAdams, 162 So. 3d at
814). 	Therefore, the Court finds, in this instance, that the issue of whether the discovery rule
applies to the limitations period is not purely an issue for the jury to decide. In this instance, the
Court finds it appropriate to rule on the issue.
The Walters Claimants assert two claims under Mississippi law: the Consumer Loan
Broker Act, MCA § 81-19-1, and the Mississippi S.A.F.E. Mortgage Act, MCA § 81-18-55. There
is no dispute that Mississippi’s general three-year statute of limitations, MCA § 15-1-49, applies
to the state law claims alleged in the Walters Claim. As relevant, it states, as follows:
(1) All actions for which no other period of limitation is prescribed shall be
commenced within three (3) years next after the cause of such action accrued,
and not after.
(2) In actions for which no other period of limitation is prescribed and which
involve latent injury or disease, the cause of action does not accrue until the
plaintiff has discovered, or by reasonable diligence should have discovered, the
injury.
MCA § 15-1-49 (1), (2).
The claimants assert that the state statute of limitations could not have run against them
because of their lack of sophistication and the inherently complex nature of the financings. They
claim:
As lay, rural Mississippians, the 800 Creditors could not possibly have been
expected to detect Ditech’s sophisticated consumer credit scheme to obtain,
package, service and sell consumer credit securities.
Response ¶ 53. at 14. 	However, that argument misses the mark. 	Section 15-1-49(2) sets forth
Mississippi’s “discovery rule.” That rule has no application herein, because it applies to injury to
property. 	Donald v. Amoco Production Co., 735 So. 2d 161, 168 (Miss. 1999). 	If an injury is
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latent, the statute of limitations starts to run when a layman could realistically perceive a previously
secret injury. Id. But the statute begins to run upon discovery of the injury itself, not later when
the plaintiff discovers the cause of the injury. City of Tupelo v. Patterson, 208 So. 3d 556, 569
(Miss. 2017).42 Under the facts asserted in this case, application of the relevant Mississippi state
“discovery rule” does not toll the three-year statute of limitations.
Both of the Mississippi state law claims are time-barred. The Consumer Loan Broker Act
applies only to loan brokers. 	The only cause of action it provides to a borrower is for a loan
broker’s violation of a list of requirements, mainly relating to fees and service charges, use of false
or misleading advertising, or false promises to induce the borrower to use the loan broker’s
services. M ISS . CODE A NN. § 81-19-1; McCrillis, 133 F. Supp. 2d at 476. The Walters Claimants
allege that the mortgages were placed directly with Jim Walter Mortgage Company, not involving
any loan broker. Walters Claim ¶ 3. Even crediting the new allegations contained in the Response,
the Consumer Creditors do not allege the use of a loan broker. Response, ¶ 19 (“Ditech was the
source of the debt and paper.”), ¶ 24 (“Oftentimes these consumer credit transactions occurred
with only one Ditech agent and without a notary present.”). The claims allege nothing to suggest
that loan brokers were involved, that the Walters Claimants did not discover until later that loan
brokers arranged the loans, or even that the involvement of loan brokers was hidden by
misrepresentations that would have prevented discovery of claims under the Loan Broker Act. To
42 	In describing the Mississippi discovery rule, the Walters Claimants cite to two cases that explain the rule.
Response ¶ 54 (citing Stringer v. Trapp, 30 So. 3d 339, 342 (Miss. 2010); Holaday v. Moore, 169 So. 3d 847, 850
(2015)). In a footnote in their Reply, the Trustee and Plan Administrator assert that the cases are inapposite “because
they involve medical malpractice claims that are governed by a different statutory provision, MCA 15-1-36, and
different discovery rules.” Reply at 9 n.2. That criticism is correct. Both Stringer and Holaday’s discussions of a
“discovery rule” refer to a statutory discovery rule that applies only in cases of medical malpractice. M ISS . CODE
A NN . § 15-1-36; see Stringer, 30 So. 3d at 341–42 (applying § 15-1-36(1)); Holaday, 169 So. 3d at 850 (applying
§ 15-1-36(2)). The medical-malpractice discovery rule is distinct from the § 15-1-49 discovery rule at issue, and
accordingly § 15-1-36 has no bearing on this case.
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the extent the Response addresses loan brokers at all, it does so in a conclusory manner that makes
clear that the Walters Claimants would or should have known at the time of the loans themselves
that loan brokers were not involved. Response ¶ 43 (“Here, Ditech made false promises to the 800
Creditors in order to influence or induce them to use its consumer loan broker’s services . . . .”).
Thus, the discovery rule is not applicable to those claims. None of the claims of Ms. Johnson and
Ms. Martinez arose from mortgages placed after 2009. 	Therefore, the Mississippi statute of
limitations bars claims under the Consumer Loan Broker Act.
The Mississippi S.A.F.E. Mortgage Act provision on which the claimants rely, MCA § 81-
18-55(1)(f), requires a mortgage lender to mail detailed information to a borrower at least 45 days
before a power of sale foreclosure auction is conducted. MISS . CODE ANN. § 81-18-55; Ishee, 2015
U.S. Dist. LEXIS 15223, *42–43. 	The Walters Claim does not allege facts demonstrating that
Ditech failed to mail the required information to claimants within the specified time period.
Moreover, the Response does not allege facts demonstrating that Ditech violated Mississippi’s
S.A.F.E. Mortgage Act within or outside of the limitations period. Rather, it generally alleges that
Ditech foreclosed on the properties. 	Response ¶ 25 (“Ditech also serviced the loans, collected,
and foreclosed on the same people which it had fraudulently qualified.”). 	Finally, the Walters
Claim does not allege that any foreclosure sale occurred within three years before the February
2019 Petition Date or that either of the Claimants was unaware of a foreclosure auction such that
the discovery rule would apply. Therefore, the Mississippi statute of limitations bars claims under
the S.A.F.E. Mortgage Act.
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Conclusion
Based on the foregoing, the Court sustains the Trustee and Plan Administrator’s Objection
to the Walters Claim and the Additional Claims, and disallows and expunges those claims.
IT IS SO ORDERED.
Dated: New York, New York
October 26, 2022
/s/ James L. Garrity, Jr.
Hon. James L. Garrity, Jr.
U.S. Bankruptcy Judge
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