Bloom et al v. Eastern Savings Bank, FSB

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/10/06
Daniel W. Cook, et al. v. Eastern Savings Bank, FSB, et al.
04-01246
Proposed Findings of Fact and Conclusions of Law Re: [39-1] Motion To Dismiss
Plaintiffs' Second Amended Complaint by Eastern Savings Bank, FSB .
Received on: 2006-03-29 13:26:44.000
2006-03-29 00:00:00.000
2006-03-30 00:00:00.000
Mary Anderson
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1Pursuant to Fed.R.Bankr.P. 9033(b), parties must serve and
file written objections to these Proposed Findings of Fact and
Conclusions of Law within 10 days after being served with this
document.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
DANIEL WILLIAM COOK and
YOLANDA T. COOK,
Debtors. 	No. 11-04-17704 SA
DANIEL W. COOK, et al.,
Plaintiffs,
v. 	Adv. No. 04-1246 S
EASTERN SAVINGS BANK, FSB, et al.,
Defendants.
PROPOSED FINDINGS OF FACT AND
CONCLUSIONS OF LAW ON EASTERN SAVINGS BANK’S
MOTION TO DISMISS SECOND AMENDED COMPLAINT
AND RECOMMENDATION TO DISTRICT COURT
This matter is before the Court on Defendant Eastern Savings
Bank’s (“ESB”) Motion to Dismiss Second Amended Complaint (doc
39). 	Plaintiffs filed an objection (doc 40), and ESB replied
(doc 41). 	Plaintiffs are self-represented. 	ESB appears through
its attorney Modrall, Sperling, Roehl, Harris & Sisk, P.A.
(William R. Keleher). 	These Proposed Findings of Fact and
Conclusions of Law are submitted to the District Court pursuant
to Federal Bankruptcy Rule 9033. 1
DISCUSSION
Core/Non-core
Bankruptcy Court jurisdiction is established by 28 U.S.C. §
1334, which lists four types of matters over which the district
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court has bankruptcy jurisdiction: 1) cases “under” title 11
(which are the bankruptcy cases themselves, initiated by the
filing of a Chapter 7, Chapter 11, etc. petition), 2) proceedings
“arising under” title 11, 3) proceedings “arising in” a case
under title 11, and 4) proceedings “related to” a case under
title 11. 	Wood v. Wood (In re Wood), 825 F.2d 90, 92 (5 th Cir.
1987). 	In the District of New Mexico, all four types have been
referred to the bankruptcy court. 	See 28 U.S.C. § 157(a);
Administrative Order, Misc. No. 84-0324 (D. N.M. March 19, 1992).
Jurisdiction is then further broken down by 28 U.S.C. § 157,
which grants full judicial power to bankruptcy courts over “core”
proceedings, but only limited judicial power over “related” or
“non-core” proceedings. 	Wood, 825 F.2d at 91; Personette v.
Kennedy (In re Midgard Corporation), 204 B.R. 764, 771 (10 th Cir.
B.A.P. 1997).
“Core” proceedings are matters “arising under” and “arising
in” cases under title 11. 	Wood, 825 F.2d at 96; Midgard, 204
B.R. at 771. 	Matters “arise under” title 11 if they involve a
cause of action created or determined by a statutory provision of
title 11. 	Wood, 825 F.2d at 96; Midgard, 204 B.R. at 771.
Matters “arise in” a bankruptcy if they concern the
administration of the bankruptcy case and have no existence
outside of the bankruptcy. 	Wood, 825 F.2d at 97; Midgard, 204
B.R. at 771. 	Bankruptcy judges may hear and determine core
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proceedings and enter final orders and judgments. 	28 U.S.C. §
157(b)(1).
“Non-core” proceedings are those that do not depend on the
bankruptcy laws for their existence and that could proceed in
another court even in the absence of bankruptcy. 	Wood, 825 F.2d
at 96; Midgard, 204 B.R. at 771. 	Bankruptcy courts have
jurisdiction over non-core proceedings if they are at least
“related to” a case under title 11. 	28 U.S.C. § 157(c)(1)(“A
bankruptcy judge may hear a proceeding that is not a core
proceeding but that is otherwise related to a case under title
11.”) 	However, unless all parties consent otherwise, 28 U.S.C. §
157(c)(2), bankruptcy judges do not enter final orders or
judgments in non-core proceedings. 	Rather, they submit proposed
findings of fact and conclusions of law to the district court,
which enters final orders and judgments after de novo review. 	28
U.S.C. § 157(c)(1); Federal Bankruptcy Rule 9033. 	See also Orion
Pictures Corporation v. Showtime Networks, Inc. (In re Orion
Pictures Corporation), 4 F.3d 1095, 1100-01 (2 nd Cir. 1993)
(discussing Section 157's classification scheme).
The complaint in this case seeks primarily to recover
damages for actions taken by ESB during a period predating the
bankruptcy. 	It also seeks damages for malicious abuse of
process, i.e., ESB’s filing of a motion for relief from automatic
stay in the bankruptcy case. 	It does not seek to enforce any
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2Fed.R.Civ.P. 12(b) is incorporated by Fed.R.Bankr.P.
7012(b).
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right granted by the bankruptcy code, nor does bankruptcy law
determine the outcome of the case. 	It therefore does not “arise
under” title 11. 	Furthermore, the complaint does not concern the
administration of the case; its has its own existence independent
of the bankruptcy code. 	It therefore also does not “arise in” a
case under title 11. 	The complaint is, however, “related to” the
Debtors’ bankruptcy; if successful, Debtors may recover an asset
that would be part of the bankruptcy estate and available for
payment to creditors. 	See 11 U.S.C. § 541(a)(1) (defining
property of estate) and 28 U.S.C. § 1334(e) (granting district
court exclusive jurisdiction over property of the estate). 	See
also St. George Island, Ltd. v. Pelham, 104 B.R. 429, 431-32
(Bankr. N.D. Fl. 1989)(collecting cases and noting that actions
to collect pre-petition debts are non-core proceedings).
In summary, this adversary proceeding is a non-core “related
to” proceeding. 	The bankruptcy court has jurisdiction over it by
virtue of 28 U.S.C. 1334(b), but final orders and judgments must
be entered by the United States District Court.
Applicable Legal Standard
On a motion to dismiss pursuant to Rule 12(b)(6) 2, a court
must accept as true all of the well-pleaded facts and consider
those facts in a light most favorable to the plaintiff. 	Sutton
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v. Utah State School for the Deaf and Blind, 173 F.3d 1226, 1236
(10 th Cir. 1999). 	On such a motion, the issue is not whether the
plaintiff will ultimately prevail, but rather whether the
plaintiff is entitled to offer evidence to support the claim.
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). 	A complaint should
not be dismissed under Rule 12(b)(6) unless it appears beyond
doubt that the plaintiff can prove no set of facts which would
entitle him or her to relief. 	Id. (quoting Conley v. Gibson, 355
U.S. 41, 45-46 (1957)). 	This is so even if the Court and the
parties are aware of facts, outside the pleadings, that make it
seem unlikely that plaintiffs will prevail. 	“Nevertheless,
conclusory allegations without supporting factual averments are
insufficient to state a claim on which relief can be based.”
Hall v. Bellmon, 935 F.2d 1106, 1110 (10 th Cir. 1991).
In considering the legal sufficiency of plaintiff’s claim,
the court can only consider the facts alleged and any document
attached as an exhibit to the complaint or incorporated in it by
reference. 	See Fed.R.Civ.P. 10(c). 	However, if a plaintiff does
not incorporate by reference or attach a document to the
complaint, but the document is referred to in the complaint and
is central to plaintiff’s claim, a defendant may submit an
authentic copy to the court to consider on a motion to dismiss.
GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381,
1384 (10 th Cir. 1997). 	Therefore, the Court has considered the
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documents attached to ESB’s Motion to Dismiss without converting
this Motion to one for summary judgment. 	Finally, a pro-se
litigant’s pleadings are to be construed liberally and held to a
less stringent standard than those of an attorney. 	Hall, 935
F.2d at 1110.
PROPOSED FACTS
Plaintiffs’ Second Amended Complaint contains a section with
general allegations applicable to all counts followed by eight
counts: (1) fraud or misrepresentation, (2) malicious abuse of
process, (3) negligence, (4) violations of the New Mexico Unfair
Trade Practices Act, (5) violations of Consumer Credit Protection
Act, (6) violation of Fair Debt Collection Practices Act, (7)
prima facie tort, and (8) declaratory judgment with respect to
the estate’s right to purchase of the Cook’s home. 	The general
allegations state, briefly, that ESB foreclosed on Plaintiffs’
home and purchased it for the full mortgage balance on December
11, 2003. 	Through various orders in the foreclosure suit and
oral agreements, Plaintiffs’ right to redeem the house was
extended through October 22, 2004. 	Plaintiffs made an offer to
ESB in September 2004 to purchase the property back, which
apparently was refused. 	Plaintiffs filed their chapter 11 case
on October 21, 2004, one day before the redemption period
expired. 	ESB filed and prosecuted a motion for relief from stay
in the bankruptcy case. 	Plaintiffs later learned that on
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3Plaintiffs allege that there was undisputed testimony at
the hearing on terminating the automatic stay that this was the
value of the house. 	The Court never made such a finding,
however, ultimately ruling that the value of the house was
irrelevant because the bankruptcy estate no longer had any
interest in the property.
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December 19, 2003, ESB had transferred the property to Spica
Properties, Inc., so ESB had not owned the property during the
period it agreed to extend the redemption rights or when it filed
the motion for relief from stay. 	Plaintiffs allege that the
house was worth $2,056,173 3, that ESB negligently or
intentionally misrepresented that it owned the property and
therefore prevented them from negotiating the redemption with the
true owner, and that they have therefore been injured by the
misrepresentations.
Defendant ESB filed its Motion to Dismiss (“Motion”). 	One
central theme in the Motion is that Plaintiffs have suffered no
damages because they have never had the ability to redeem the
property. 	This is an issue outside the pleadings, so the Court
has not considered this fact, whether true or not.
PROPOSED CONCLUSIONS OF LAW
1. 	Fraud or Misrepresentation
“Actionable fraud consists of misrepresentation of a fact,
known to be untrue by the maker, and made with an intent to
deceive to induce the other party to act in reliance thereon to
the actor’s detriment.” 	Cargill v. Sherrod, 96 N.M. 431, 432-33,
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631 P.2d 726, 727-28 (1981). 	Count 1 states a cause of action.
It alleges that ESB misrepresented that it owned the property (¶
21), that ESB intended to deceive and intended that Plaintiffs
rely on the misrepresentation (¶ 23), and that Plaintiffs have
been damaged (¶¶ 19, 23).
ESB also argues that the fraud was not plead with sufficient
specificity. 	The Court disagrees. 	Each order can be construed
to be a representation, and the oral extension can be considered
to be a representation. 	Count 1 should not be dismissed.
2. 	Malicious Abuse of Process
Malicious abuse of process is defined as follows:
(1) the initiation of judicial proceedings against the
plaintiff by the defendant, (2) an act by the defendant
in the use of process other than such as would be
proper in the regular prosecution of the claim; (3) a
primary motive by the defendant in misusing the process
to accomplish an illegitimate end; and (4) damages.
Devaney v. Thriftway Marketing Corp., 124 N.M. 512, 518, 953 P.2d
277, 283 (1997), cert. denied, 524 U.S. 915 (1998). 	Count 2
states a cause of action. 	It alleges that ESB filed a motion for
relief from the automatic stay (¶ 26), that it was improper to do
so in light of their non-ownership of the property (¶ 27), that
ESB’s primary motive was the improper “thwarting” of the
repurchase of the property (¶ 28), and that the Plaintiffs were
damaged (¶ 29). 	Count 2 should not be dismissed.
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3. 	Negligence
To state a negligence claim, one must allege: (1) the
existence of a duty from a defendant to the plaintiff, (2) a
breach of that duty, (3) the breach was a proximate cause of
plaintiff’s damages, and (4) the breach was the cause in fact of
the plaintiff’s damages. 	Herrera v. Quality Pontiac, 134 N.M.
43, 47-48, 73 P.3d 181, 185-86 (2003). 	Count 3 fails to state a
cause of action. 	First, while Plaintiffs state that Eastern had
a duty to advise that it did not own the property, the existence
of a duty is a legal question for the Court. 	Blake v. Public
Service Co. of New Mexico, 134 N.M. 789, 791, 82 P.3d 960, 962
(Ct. App. 2003). 	Under the facts of this case the Court finds
that there was no such duty, for two reasons. 	First, the
transfer of the property was a matter of public record. 	Second,
under the redemption statute, N.M. Stat. Ann. §39-5-18 (1978),
Plaintiffs had two methods to redeem. 	The first was to tender to
the purchaser “or assigns” the redemption amount. 	Therefore,
under the statute Plaintiffs could continue to deal with ESB to
redeem the property. 	Perhaps Plaintiffs real claim is that, had
they known about the transfer, they might have been able to
negotiate a reduced redemption amount with the purchaser. 	They
have not plead this, however, so the Court will not consider that
to be the claim. 	The second method of redemption is to file a
petition for redemption with the District Court, and serve it on
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the purchaser “or assigns.” 	There is no allegation that any such
petition was filed, or that the transfer of the property by ESB
prevented the filing of any such petition.
If there were no duty, there could be no breach of duty by
ESB. 	In addition, Plaintiffs did not allege that the transfer of
the property or the subsequent misrepresentation of ownership was
either a proximate cause of their damages or a cause in fact of
their damages. 	Count 3 should be dismissed.
4. 	Violations of the New Mexico Unfair Trade Practices Act
The Unfair Practices Act defines "unfair or deceptive trade
practice" as:
any false or misleading oral or written statement,
visual description or other representation of any kind
knowingly made in connection with the sale, lease,
rental or loan of goods or services or in the extension
of credit or in the collection of debts by any person
in the regular course of his trade or commerce, which
may, tends to or does deceive or mislead any person ...
N.M. Stat. Ann. § 57-12-2(D)(1978). 	The Act defines
“unconscionable trade practice” as:
an act or practice in connection with the sale, lease,
rental or loan, or in connection with the offering for
sale, lease, rental or loan, of any goods or services,
including services provided by licensed professionals,
or in the extension of credit or in the collection of
debts which to a person's detriment:
(1) takes advantage of the lack of knowledge, ability,
experience or capacity of a person to a grossly unfair
degree; or
(2) results in a gross disparity between the value
received by a person and the price paid.
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N.M. Stat. Ann. § 57-12-2(E)(1978). 	Private remedies are
available:
Any person who suffers any loss of money or property,
real or personal, as a result of any employment by
another person of a method, act or practice declared
unlawful by the Unfair Practices Act may bring an
action to recover actual damages or the sum of one
hundred dollars ($100), whichever is greater. Where the
trier of fact finds that the party charged with an
unfair or deceptive trade practice or an unconscionable
trade practice has willfully engaged in the trade
practice, the court may award up to three times actual
damages or three hundred dollars ($300), whichever is
greater, to the party complaining of the practice.
N.M. Stat. Ann. § 57-12-10(B)(1978).
The Complaint alleges, admittedly with no details, that
ESB’s acts of misrepresentation were willful and unlawful
violations of the Unfair Practices Act made in connection with
the “sale, lease, rental or loan of goods or services or in the
extension of credit or in the collection of debts” in its regular
course of business, tended to and did injure Plaintiffs.
Construing the pleading favorably for Plaintiff, the Court
believes the details of this count can be developed in discovery.
Count 4 should not be dismissed.
5. 	Violations of Consumer Credit Protection Act
The Consumer Credit Protection Act does not apply in this
case. 	To be implicated, there must be a debt or deferred
payment. 	Under the facts of this case, there was no debt or
deferred payment. 	ESB bid its full debt at the foreclosure sale,
leaving no balance due. 	Plaintiffs allege that after the sale,
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ESB entered into a series of credit transactions to which the
Consumer Credit Protection Act (“CCPA”) applied. 	However, the
documents attached by ESB show that, after the sale, Plaintiffs
prepaid roughly $11,000 per month to remain in the property and
for an extended right of redemption. 	The extensions and
tenancies were month to month, and neither side had an obligation
to continue the arrangement. 	There was no extension of credit by
ESB and no deferred payment arrangement. 	Therefore, the CCPA
does not apply. 	See Laramore v. Ritchie Realty Management Co.,
397 F.3d 544, 547 (7 th Cir. 2005):
[A] typical residential lease does not involve a credit
transaction. 	The typical residential lease involves a
contemporaneous exchange of consideration-the tenant
pays rent to the landlord on the first of each month
for the right to continue to occupy the premises for
the coming month. ... As such, there is no deferral of
a debt, the requirement for a transaction to be a
credit transaction under the Act.
Count 5 should be dismissed.
6. 	Violation of Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act does not apply to
creditors who are collecting their own debts. 	15 U.S.C. §
1692(a)(6)(A); Munk v. Federal Land Bank of Wichita, 791 F.2d
130, 132 (10 th Cir. 1986). 	See also Maguire v. Citicorp Retail
Services, Inc., 147 F.3d 232, 235 (2 nd Cir. 1998)(“As a general
matter, creditors are not subject to the FDCPA.”); Aubert v.
American General Finance, Inc., 137 F.3d 976, 978 (7 th Cir. 1998)
(Creditors who collect in their own name and whose principal
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business is not debt collection are not subject to FDCPA.). 	In
this case, Eastern was collecting its own debt in its own name
and therefore not subject to the FDCPA. 	Count 6 should be
dismissed.
7. 	Prima Facie Tort
The elements of prima facie tort are: (1) an intentional,
lawful act by defendant, (2) an intent to injure the plaintiff,
(3) injury to the plaintiff, and (4) the absence of justification
or insufficient justification for the defendant’s acts. 	Schmitz
v. Smentowski, 109 N.M. 386, 394, 785 P.2d 726, 734 (1990).
Count 7 states a cause of action. 	The Complaint alleges,
admittedly with no details, that ESB’s actions were intentional
and lawful, intended to injure Plaintiffs, did in fact injure
plaintiffs, and there is an absence of justification. 	Construing
the pleading favorably for Plaintiff, the Court believes the
details of this count can be developed in discovery. 	Count 7
should not be dismissed.
8. 	Declaratory Judgment
Plaintiffs seek a declaratory judgment that their redemption
rights became property of the bankruptcy estate, and that that
right remains a valuable asset which is necessary for an
effective reorganization. 	The Court can take judicial notice
that Plaintiffs did not redeem the property within 60 days of the
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filing of their bankruptcy case; Plaintiffs admitted as much in
their response to the Motion, p. 15.
The Court finds that Count 8 should be dismissed. 	While it
is true that the Debtors’ right of redemption became property of
the bankruptcy estate, that right expired 60 days after the
bankruptcy filing. 	McCarn v. WYHY Federal Credit Union (In re
McCarn), 218 B.R. 154, 162 (10 th Cir. B.A.P. 1998); 11 U.S.C. §
108(b). 	See also Canney v. Merchants Bank (In re Frazer), 284
F.3d 362, 373 (2 nd Cir. 2002)(Redemption rights after prepetition
foreclosure sale extended only by section 108(b); section 362 not
relevant. 	Applying Vermont law.); Goldberg v. Tynan (In re
Tynan), 773 F.2d 177, 179 (7 th Cir. 1985)(Same. 	Applying
Illinois law.); Johnson v. First Nat’l Bank of Montevideo,
Minnesota, 719 F.2d 270, 278 (8 th Cir. 1983), cert. denied, 465
U.S. 1012 (1984)(Same. 	Applying Minnesota law.). 	Furthermore,
the Bankruptcy Court may not use its equitable powers to
disregard the statutory limit imposed by section 108. 	Johnson,
719 F.2d at 274; In re R210 Roebling, LLC, 336 B.R. 172, 174-75
(Bankr. E.D. N.Y. 2005).
Therefore, Plaintiffs’ right of redemption expired 60 days
after they filed their bankruptcy petition, leaving them no
interest in the real property. 	With no interest in the real
property it cannot be a valuable asset for the estate, and cannot
be used to reorganize. 	Count 8 should be dismissed.
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RECOMMENDATION
The Bankruptcy Court recommends that the Motion to Dismiss
be granted in part and that Counts 3, 5, 6 and 8 should be
dismissed.
Honorable James S. Starzynski
United States Bankruptcy Judge
I hereby certify that on March 29, 2006, a true and correct copy
of the foregoing was electronically transmitted, faxed,
delivered, or mailed to the listed counsel and/or parties.
Daniel W. Cook
920 Galeras Street NW
Albuquerque, NM 87120
Yolanda T. Cook
920 Galeras Street NW
Albuquerque, NM 87120
William R Keleher
PO Box 2168
Albuquerque, NM 87103-2168
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