Candelario et al v. HSBC Bank USA N.A., as Trustee on behalf of ACE S

I N THE U NITED STATES B ANKRUPTCY C OURT
FOR THE E ASTERN DISTRICT OF PENNSYLVANIA
I N RE : 	: CHAPTER 13
:
RALEIGH B LYTHE AND 	:
ROSE CANDELARIO 	:
:
D EBTOR( S) 	: B ANKRUPTCY NO. 08-15626 SR
RALEIGH B LYTHE AND 	:
ROSE CANDELARIO 	:
:
PLAINTIFF ( S) 	:
VS. 	:
:
HSBC B ANK USA, N.A., AS T RUSTEE ON B EHALF OF 	:
ACE SECURITIES CORP. 	:
:
D EFENDANT( S) 	: A DVS. NO. 08-350
OPINION
B Y: STEPHEN RASLAVICH, CHIEF UNITED STATES B ANKRUPTCY JUDGE .
Introduction
Before the Court is the Defendant HSBC’s Motion to Dismiss the Plaintiffs’
Amended Complaint. The Plaintiffs oppose the motion. Briefs were submitted. A
hearing on the matter was held on April 2, 2009. The Court next took the motion under
advisement. For the reasons set forth below, the Motion will be granted in part and
denied in part.1
1 As this matter involves the determination of the validity, extent or priority of a lien, it is
a core proceeding within this Court’s jurisdiction. 28 U.S.C. § 157(b)(2)(K)
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Factual Allegations
The Amended Complaint asserts causes of action under the federal Truth in
Lending Act2 and the Pennsylvania common law of contract. The following is alleged:
In the Summer 1998 the Plaintiffs refinanced an existing mortgage.3 ¶¶ 9-13. The
lender for the refinancing was Gelt Financial. ¶ 12. The loan amount was $32,800.
	Id.
Settlement charges paid to Gelt and a mortgage broker were equal to 9.98% of the
loan amount. ¶ 18. 	Those fees made the loan a “high cost” mortgage loan pursuant
to the Home Owners Equity Protection Act (HOEPA).4 ¶ 19. As a result, the Plaintiffs
were required to have received certain disclosures regarding the high cost of their new
loan. It is alleged that they did not. ¶ 20.
Some time later, the loan was assigned to HSBC. ¶ 21. In July 2006, the
Plaintiffs defaulted on the loan and HSBC obtained a judgment in foreclosure. ¶¶ 24,
25. On September 4, 2008, a sheriff’s sale was stayed by the Debtors’ bankruptcy
filing. 	¶ 28. On September 11, HSBC filed a secured proof of claim. ¶ 29. That
claim is alleged to contain an improperly calculated interest component as well as other
unauthorized charges. ¶¶ 50-51.
Causes of Action
From these allegations, the Amended Complaint pleads six counts. Count I
215 U.S.C. § 1601 et seq.
3That this is a refinance as opposed to a purchase money loan matters: the Plaintiffs
allege that this is a “high cost,” or HOEPA loan. See 15 U.S.C. § 1639. The ramifications which
flow from that do not apply to purchase money mortgages. See, id.
4TILA devotes a separate section to these loans. See 15 U.S.C. § 1639.
2
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seeks to determine the extent of the HSBC lien. Dismissal is not sought as to that
count.
Counts II through IV allege various violations of TILA. Therein, it is alleged that
Gelt failed to disclose that this was a “high cost” HOEPA loan (Count II); that HSBC has
been improperly amortizing the loan (Count III); and that Gelt failed to provide other
disclosures to the Plaintiff (Count IV). Liability on HSBC’s part is based on its status as
assignee of the loan.
Count V alleges that HSBC’s Proof of Claim contains unauthorized interest and
other charges. As a result, it should be disallowed to that extent.
Count VI alleges a common law breach of contract based on the same
allegations regarding the calculation of interest on the loan. It seeks an accounting and
re-application of all payments consistent with the loan terms.
Grounds for Objection
HSBC’s motion does not challenge the legal sufficiency of
what is pleaded in the
Amended Complaint. Rather, HSBC’s challenge is based on affirmative defenses. First,
it argues that the foreclosure judgment precludes the TILA claims under the doctrine of
res judicata. Second, even assuming the claims could be raised, HSBC maintains that
they are ineffective against it because it is an assignee and not the original lender.
	See
generally HSBC’s Brief.
Relief Requested
HSBC requests alternative relief. First, it asks the Court to dismiss all counts
except for Count I. If the record does not support that, then HSBC asks the Court to
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dismiss Count IV entirely and to dismiss Counts II and III to the extent that they seek
attorneys fees and costs.
Plaintiffs’ Response
Plaintiffs dispute that res judicata applies because, they argue, their claims could
not have been raised in the context of foreclosure. They explain that foreclosure
involves an
in rem proceeding while consumer lending claims proceed
in personam.
Plaintiffs’ Brief, 5-11. Likewise, they allege that HSBC’s assignee status is irrelevant.
Id. 12 They explain that this is a “high cost” mortgage loan as defined by TILA.
	Id.
Such a loan makes the assignee as liable as the lender for TILA violations.
	Id. 13.
Mortgage Foreclosure,
TILA and Res Judicata
The Court first takes up HSBC’s argument that the TILA claims are barred by the
state court foreclosure judgment. Because that judgment has not been set aside or
otherwise altered, HSBC argues, Plaintiffs are bound by it under the doctrine of res
judicata. HSBC’s Brief, 3-5.
Federal courts are required to give state court judgments the same full faith and
credit to which they would be entitled under state law. 28 U.S.C. § 1738;
In re Graves,
33 F.3d 242, 247 (3d Cir.1994);
Allegheny International, Inc. v. Allegheny Ludlum Steel
Corp., 40 F.3d 1416, 1429 (3d Cir.1994). Implicit in this deference is the application of
principles of preclusion. But “[w]hile federal common law has developed its own set of
preclusion principles, if the decision allegedly precluding a later action was issued by a
state court, then the federal courts must apply the preclusion principles developed by
4
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that state.”
	In re Randall, 358 B.R. 145, 164 (Bankr.E.D.Pa. 2006)
citing Gregory v.
Chehi, 843 F.2d 111, 116 (3d Cir.1988) 	Under Pennsylvania law, claim preclusion, or
res judicata, holds that “ a final valid judgment upon the merits by a court of
competent jurisdiction bars any future suit between the parties or their privies, on the
same cause of action.”
Keystone Bldg. Corp. v. Lincoln Sav. and Loan Ass’n, 468 Pa. 85,
91, 360 A.2d 191, 194 (1976) Application of the doctrine requires: (1) identity of the
thing sued for; (2) identity of the cause of action: (3) identity of persons and parties to
the action ; and (4) identity of the capacity of the parties suing or being sued.
	City of
Pittsburgh v. Zoning Bd. of Adjustment, 522 Pa. 44, 54, 559 A.2d 896, 901 (1989)
Judgment By Default
The Court begins by reviewing the circumstances surrounding the state court
judgment. It is stressed that the foreclosure judgment was entered by default.
Amended Complaint, ¶ 25. That fact, however, does not affect the application of res
judicata. Unlike
issue preclusion,
claim preclusion does not require actual litigation of
the merits of the claim.
	See Randall,
supra, 358 B.R. at 165
quoting Zimmer v.
Zimmer, 457 Pa. 488, 490-491, 326 A.2d 318, 320 (1974). A default judgment, then,
will have the same preclusive effect as a ruling on the merits.
Scope of Mortgage
Foreclosure Proceeding
HSBC insists that Plaintiffs were required to bring their TILA claims in the
foreclosure proceeding. This implies a belief that such claims were compulsory
counterclaims. There is, however, no compulsory counterclaim rule in Pennsylvania.
5
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See Pa.R.C.P. 1031 (stating that as a general matter a litigant “may” raise a
counterclaim in response to complaint);
see also In re Soto, 221 B.R. 343, 357
(Bankr.E.D.Pa.1998)
For this Court, the question is not whether the Plaintiffs were
required to bring
their TILA claims in state court, but whether they were
entitled to at all. As Bankruptcy
Judge Fox of this Court has explained:
In Pennsylvania, the invocation of res judicata “applies not
only to claims actually litigated, but also to claims which
could have been litigated during the first proceeding if they
were part of the same cause of action.”
R/S Financial Corp.
v. Kovalchick, 552 Pa. 584, 588, 716 A.2d 1228 (1998);
see,
e.g., Balent v. City of Wilkes-Barre, 542 Pa. 555, 564, 669
A.2d 309 (1995). Conversely, claim preclusion is not applied
to claims that could not have been previously litigated.
	See
Dithridge House Ass'n v. Com., Dept. of Environmental
Resources, 116 Pa.Cmwlth. 24, 33, 541 A.2d 827 (1988).
Randall, 358 B.R. at 166.
In Pennsylvania, the scope of a foreclosure action is limited.
	Id. at 156-157.
The applicable rules of procedure set forth what must be pleaded in a foreclosure case.
Id. citing Pa.R.C.P. 1147. Counterclaims in foreclosure actions are limited to claims
which “arise[] from the same transaction or occurrence or series of transactions or
occurrences from which the plaintiff’s cause of action arose.” Pa.R.C.P. 1148. Based
on these specific rules of procedure, Pennsylvania courts have ruled that a defendant
may not raise TILA as a counterclaim in a mortgage foreclosure action.
	New York
Guardian Mortgage Corp. v. Dietzel, 362 Pa.Super. 426, 430, 524 A.2d 951, 953 (1987);
Fleet Real Estate Funding Corp. v. Smith, 366 Pa.Super. 116, 126-127, 530 A.2d 919,
6
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925 (1987). In
New York Guardian the Court explained that the interjection of a TILA
counterclaim was incompatible with the foreclosure proceeding because the TILA claim
was
in personam in nature, whereas the foreclosure action was strictly
in rem. 362
Pa.Super. at 430-31, 524 A.2d at 953. Indeed, on more than one occasion this Court
has previously ruled on that very question, consistent with the holding of
New York
Guardian.
	See In re Apaydin, 201 B.R. 716, 721 (Bankr.E.D.Pa.1996) (holding that
TILA claims not raised in response to foreclosure may be raised in subsequent
litigation);
see also In re Faust, 353 B.R. 94, 102-103 (Bankr.E.D.Pa.2006) (same)
Other courts within this District have held likewise.
	See Randall,
supra, 358 B.R. at
166;
In re Reagoso, 2007 WL 1655376 *4 (Bankr.E.D.Pa.)
There is no reason the foregoing result does not obtain here. The state court
proceeding determined rights in property (
in rem relief) while the pending matter
requests an award of damages against a defendant (in personam) albeit
via
recoupment. The latter action could not have been raised in response to foreclosure.
As a result, the Plaintiffs’ TILA claims are not precluded by res judicata.
Rooker-Feldman
In its Reply Brief, HSBC added the argument that if this Court were to hear the
TILA claims, then it would violate the
Rooker-Feldman doctrine.
	See HSBC Reply Brief,
2-3. That doctrine bars a lower federal court from review of a state court decision.5
5 That doctrine derives from two Supreme Court Opinions:
D.C. Court of Appeals v.
Feldman, 460 U.S. 462, 486-487, 103 S.Ct. 1303, 1317, 75 L.Ed.2d 206 (1983);
Rooker v. Fid.
Trust Co., 263 U.S. 413, 416, 44 S.Ct. 149, 150, 68 L.Ed. 362 (1923).
7
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See Gulla v. North Strabane Twp., 146 F.3d 168, 171 (3d Cir. 1998) Specifically, a
claim is barred if (1) the federal claim was actually litigated in state court prior to the
filing of the federal action or (2) if the federal claim is inextricably intertwined with the
state adjudication meaning that federal relief can only be predicated upon a conviction
that the state court was wrong.”
In re Knapper, 407 F.3d 573, 580 (3d Cir.2005). In
assessing whether a claim was “actually litigated” in state court, the court must look to
the substance of the claims adjudicated in the state court compared to the plaintiff's
claims in the federal action.
	Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 364 F.3d
102, 105 (3d Cir.2004),
rev'd on other grounds, 544 U.S. 280, 125 S.Ct. 1517, 161
L.Ed.2d 454 (2005). A federal claim is“inextricably intertwined” with the state court
adjudication “when ... the federal court must take an action that would negate the state
court's judgment”
	See Knapper, 407 F.3d at 581 The
Rooker-Feldman doctrine is
grounded in principles of federalism and designed to serve two primary functions: It
furthers the interest of finality in court decisions, and ensures that federal courts show
proper respect for their state counterparts.
See Guarino v. Larsen, 11 F.3d 1151, 1157
(3d Cir.1993).
HSBC maintains that
Rooker-Feldman is implicated not because the TILA claims
were already heard, but because they would undermine the validity of the state court
judgment. Reply Brief, 2 quoting Amended Complaint, ¶¶ 2,3. That statement is
misleading. While the complaint’s jurisdictional basis explains that Plaintiffs seek to
determine the “validity, amount and extent” of a secured claim, the validity of the HSBC
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lien is not challenged. A review of the substance of the pleading reveals that the
Plaintiffs seek only to reduce the amount of the secured claim via recoupment. For that
reason, the
Rooker-Feldman doctrine is not implicated here.
TILA, HOEPA
and Assignee Liability
HSBC’s second argument assumes that even if the TILA claims were preserved,
its assignee status shields it from liability.
	See Motion to Dismiss, ¶¶ 12, 13. Plaintiffs
respond that because the loan in question was a “high cost” mortgage loan, HSBC is
equally liable. Plaintiffs’ Brief, 12-16.
As a general matter, assignees of loans under TILA take loans free of TILA
claims which are not readily apparent from the disclosure documents.
	See 15 U.S.C. §
1641(a);
see also 15 U.S.C. § 1641(e) (providing that in the case of a loan secured by
real estate, the assignee’s duty to inquire as to defects is limited to certain
documentation) But that is not the case with regard to
all mortgage loans. Subsection
(d) of § 1641 explains that:
Any person who purchases or is otherwise
assigned a
mortgage within referred to in section 1602(aa) of this title
shall be
subject to all claims and defenses with respect to
that mortgage that the consumer could assert against the
creditor of the mortgage, unless the purchaser or assignee
demonstrates, by a preponderance of the evidence, that a
reasonable person exercising ordinary due diligence, could
not determine, based on the documentation required by this
subchapter, the itemization of the amount financed, and
other disclosure of disbursements that the mortgage was a
mortgage referred to in section 1602(aa) of this title.
15 U.S.C. § 1641(d)(1). The assignee of a mortgage loan defined under § 1602(aa)
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bears the same liability as that of the original lender, regardless of what appears on the
TILA disclosure documents. It can avoid liability only by
proving that it could not have
discovered that the instrument was a high cost mortgage loan.
	See Thomas v. Wells
Fargo Bank, N.A., 2008 WL 5412113 *5 (Bankr.E.D.Pa.);
McMaster v. CIT
Group/Consumer Finance, Inc., 2006 WL 1314379 *6 (E.D.Pa.);
Kane v. Equity One,
Inc., 2003 WL 22939377 *5 (E.D.Pa.);
Harvey v. EMC Mortgage Corp., 2003 WL
21460063 *4 (Bankr.E.D.Pa.). The reason for the different treatment is reflected in the
legislative history:
By imposing assignee liability, the Committee seeks to
ensure that the High Cost Mortgage market polices itself.
Unscrupulous lenders were limited in the past by their own
capital resources. Today, however, with loans sold on a
regular basis, one unscrupulous player can create havoc in a
community by selling loans as fast as they are originated.
Providing assignee liability will halt the flow of capital to
such lenders.
S. Rep. 103-169,
reprinted in 1994 U.S.C.C.A.N. 1881 at 1912.
Criteria of a
HOEPA Loan
The key issue for the Court to determine here is whether the Plaintiffs have
pleaded that their loan is a HOEPA loan. If the Amended Complaint does that, then it
matters not at the pleading stage that HSBC is an assignee. The Court begins with the
definition of a HOEPA loan:
(aa)(1) A mortgage referred to in this subsection means a
consumer credit transaction that is secured by the
consumer's principal dwelling, …if–
…
(B) the total points and fees payable by the consumer at or
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before closing will exceed the greater of–
(i) 8 percent of the total loan amount; or
(ii) $400.
15 U.S.C. § 1602(aa)(1). 6 The Amended Complaint alleges that the “total loan amount”
is $32,800. Eight percent (8%) of that equals $2,624. If the “points and fees” alleged
to have been charged by Gelt exceed that amount, then the Amended Complaint has
pleaded a HOEPA loan. Regulation Z goes on to define “[p]oints and fees” as, among
other things:
(i) All items required to be disclosed under § 226.4(a) and
226.4(b), except interest or the time-price differential;
(ii)
All compensation paid to mortgage brokers;
12 C.F.R. § 226.32(b)(1) (emphasis added) The regulation’s incorporation of §
226.4(b) refers to examples of a “finance charge.” That includes “points and loan fees.”
12 C.F.R. § 226.4(b)(3). The Amended Complaint lumps together the amounts paid to
the lender (loan fees, or “points”) with what was paid to the mortgage broker. The
total amount paid to the two entities is alleged to equal 9.98% of the loan amount, or
$3,273.44. Taken as true — which they must be at this stage of the proceedings —
these allegations establish that these costs alone exceed the $2,624 threshold. That is
6The corresponding agency regulation was drafted by the Federal Trade Commission
and is referred to as “Regulation Z.” Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566, 100
S.Ct. 790, 797, 63 L.Ed.2d 22 (1980). Where there is an inconsistency between an agency
regulation and the statute, it is the regulation which controls. Id. In this instance, Regulation Z
provides the same definition as to what constitutes a high cost, HOEPA loan as is found in the
TILA statute. See 12 C.F.R. § 226.32(a)(1)(ii). There is no need, then, to cite both the statute
and the regulation.
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sufficient to state that this loan is a “high cost” loan under HOEPA. As a result, any
claim on HSBC’s part that it is an assignee of the original lender is irrelevant to the
question of whether a claim has been stated against it.7
Liability of Assignee
for Fees and Costs
As an alternative, limited form of relief, HSBC’s Motion asks the Court to disallow
any recovery of attorneys fees or costs. 8 Motion to Dismiss, ¶ 11. Two reasons are
offered for this. First, HSBC argues that such relief is available only as to a “creditor”
and not an “assignee.” Relying on the
definition of “creditor” in TILA § 1602, and the
liability of a “creditor” in § 1640, HSBC argues that as an assignee, it is not liable for
Gelt’s alleged TILA violations. HSBC Brief, 5-6. Alternatively, it argues that while some
assignees may be liable for the violations of original lenders, innocent assignees are
not.
	Id. 6-7
This first argument is wholly without a basis in authority. It disregards § 1641
which deals with assignee liability under TILA. As stated,
supra, the assignee may be
just as liable as the creditor.
	See 15 U.S.C. § 1641(a), (d) and (e). If liability is found,
then § 1640 awards attorneys fees and costs against the culpable assignee. There is
simply no differentiation between creditors and assignees as far as
relief is concerned.
7Whether HSBC can later prove that it had no knowledge of the high cost nature of this
particular remains to be seen. However, at the pleadings stage, that question is premature.
8 The TILA damages provides in its section regarding damages that “[i]in the case of any
successful action to enforce the foregoing liability or in any action in which a person is
determined to have a right of rescission under section 1635 of this title, the costs of the action,
together with a reasonable attorney's fee as determined by the court” shall be awarded. 15
U.S.C. § 1640(a)(3).
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The second argument is equally unfounded. Fees and costs are coexistent with
liability.
	See 15 U.S.C. § 1640(a)(3). For the typical TILA loan, a finding of liability on
the part of the assignee necessarily precludes good faith. In the case of assignees of
HOEPA loans, liability renders innocence altogether irrelevant.
	See 15 U.S.C. § 1641(d)
(placing burden of proof upon assignee to show that it could not have known that it
was purchasing a HOEPA loan) Because the Plaintiff has alleged assignee liability, it
has perforce stated a claim for fees and costs.
Count V: Claim Objection
Count V constitutes an objection to the HSBC Proof of Claim. That claim,
Plaintiffs argue, is deficient in two respects. First, it alleges that HSBC’s servicer has
been miscalculating the interest component on that claim. ¶50. Second, HSBC is
accused of charging excessive escrow fees, advances, costs and other expenses to the
claim. ¶ 51. Here again, HSBC relies on preclusion principles to request dismissal of
this count. It argues that Plaintiffs’ failure to have raised these issues as a defense to
foreclosure bars it from doing so now. HSBC’s Brief, 3.
For its part, Plaintiffs agree that principles of preclusion apply, but assert that it
is
HSBC’s defense—and not Plaintiffs’ claim objection—which should be precluded. They
explain that notwithstanding that HSBC has obtained a foreclosure judgment, it has
filed a Proof of Claim for an amount based on the
mortgage and note.
	See Plaintiffs’
Sur-Reply, 6. Plaintiffs maintain that this is contrary to the common law principle of
merger; i.e., that upon foreclosure, the underlying mortgage merges into the judgment
and exists no more. This doctrine has been specifically recognized by the Third Circuit
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in
Stendardo v. FNMA, 991 F.2d 1089, 1095 (3d Cir.1992). Based on that binding
authority, Plaintiffs argue that to the extent HSBC is relying on the loan instruments to
charge interest and other costs to its Proof of Claim, the claim must be disallowed.
Sur-Reply, 10.
The Court finds that much of Plaintiffs’ argument is well made but that its
interpretation of
Stendardo is incomplete. Certainly, issues regarding the amount due
on the mortgage or whether interest was accruing as provided under the note should
have been litigated in the state court. If they were not at that time, then they may not
be raised now. On the other hand, the
Stendardo Court recognized an exception to the
merger doctrine. It explained that “[p]arties to a mortgage may rely upon a particular
provision post-judgment if the mortgage clearly evidences their intent to preserve the
effectiveness of that provision post-judgment.”
Id.;
accord Cardiello v. Casale (In re
Phillips Group, Inc.), 382 B.R. 876, 883 (Bankr.W.D.Pa. 2008) This means that HSBC
may be entitled to charge a rate of interest other than the legal rate
if the loan
documents so provide. Likewise, the note may have provided for the continued
assessment of fees, costs and other charges. However, these documents are not part
of this record. Therefore, the Court cannot yet say whether the challenge as to interest
and other charges is precluded by the state court judgment. On that basis, the Court
finds that Count V survives dismissal.
Count VI: Breach of Contract
The last count, however, is a different matter. While its factual predicate shares
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with Count V the allegation that interest was not properly calculated, it falters on the
relief requested. It asks for a full accounting from the servicer and “reappl[ication of]
all payments in a manner that conforms to the terms of the note and mortgage.]
	See
Amended Complaint, Count VI, Prayer. Given that this is an action in assumpsit, there
must be an underlying agreement. But that instrument—as Plaintiff maintained with
regard to the Proof of Claim—merged into a judgment in foreclosure and exists no
more. The time for raising contract-based claims was in response to the complaint in
foreclosure. Indeed, the applicable rules of procedure require a foreclosure complaint
to set forth, inter alia, “a specific averment of default,” and “an itemized statement of
the amount due.”
	See Pa.R.C.P. 1147(a)(4), (a)(5) Likewise, counterclaims in
foreclosure proceedings are limited to claims which “arise from the same transaction or
occurrence or series of transactions or occurrences from which the plaintiff’s cause of
action arose.” Pa.R.C.P. 1148. Plaintiffs’ allegation that the amount of interest stated
as due was not correct should have been raised as a counterclaim. Plaintiffs failed to
do so and the mortgage note has now merged into the foreclosure judgment.
	See
Stendardo, supra;
see also Younger v. Fleet Bank, N.A. (In re A & P Divers. Tech.
Realty, Inc.), 467 F.3d 337, 343 (3d Cir. 2006) (noting that lending agreements, i.e.,
the mortgage
and note, merge into the foreclosure judgment);
Price v. Amboy National
Bank (In re Price), 361 B.R. 68, 77 (Bankr.D.N.J.2007) (stating that lending agreements
merge into final judgment of foreclosure);
In re Miles, 400 B.R. 441, 444
(Bankr.E.D.Pa.) (acknowledging merger doctrine with regard to mortgage foreclosure)
Nor is the
Stendardo merger exception applicable here. Again, that exception
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recognized the parties to an agreement might agree that a provision survive judgment
or foreclosure. In such a case, a contract term which allowed for post judgment
interest or taxes could be enforced without altering the underlying judgment. But the
relief requested in Count VI goes well beyond that. The Plaintiffs would have the Court
return the parties to the
status quo ante the foreclosure judgment
; that is, reapply
every payment made on the loan, and then determine the amount due. That cannot be
reconciled with the interests protected by the
Rooker-Feldman doctrine. As discussed,
supra, that doctrine deprives a lower federal district court of jurisdiction to review a
federal claim which would essentially negate a prior state court adjudication. For all
intents and purposes, that is what Plaintiffs would have the Court do in Count VI. They
ask for a determination of what is owed on the mortgage when that very ruling was
already made by the state court in the foreclosure proceeding. The Court cannot revisit
that issue without infringing upon the state court’ s act of entering final judgment on a
matter within its purview. For that reason, Count VI will be dismissed, but without
prejudice. 9
Summary
The Court finds that Counts II through IV state claims under TILA. Likewise,
Count V’s objection to the HSBC Proof of Claim is viable. Finally, Count VI must be
dismissed. Accordingly, HSBC’s Motion to Dismiss the Amended Complaint will be
9At the hearing, Plaintiffs’ counsel conceded the weakness of Count VI. He explained
that the count’s predicates could, however, support an independent claim under state consumer
protection law (UDAP) and so sought leave to amend the pleading to state that claim.
Transcript, 12. If that is Plaintiffs’ intention, then they must proceed accordingly and file a
motion for leave to amend.
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granted in part and denied in part.
An appropriate Order follows.
By the Court:
Stephen Raslavich
Chief U.S. Bankruptcy Judge
Dated: May 6, 2009
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I N THE U NITED S TATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
I N RE : 	: CHAPTER 13
:
RALEIGH B LYTHE AND ROSE CANDELARIO 	:
D EBTOR( S) 	: B ANKRUPTCY NO. 08-15626 SR
RALEIGH B LYTHE AND ROSE CANDELARIO 	:
PLAINTIFF ( S) 	:
VS. 	:
:
HSBC B ANK USA, N.A., AS T RUSTEE ON B EHALF OF 	:
ACE SECURITIES CORP. 	:
D EFENDANT( S) 	: A DVS. NO. 08-350
O RDER
AND NOW, upon consideration of HSBC’s Motion to Dismiss, the Plaintiffs’
Response there, the parties’ briefs, after a hearing held on April 2, 2009, and for the
reasons set forth in the foregoing Opinion, it is hereby
ORDERED that the Motion is granted as to Count VI, which is dismissed, the
Motion is denied as to all other counts.
By the Court:
Stephen Raslavich
Chief U.S. Bankruptcy Judge
Dated: May 6, 2009
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Counsel for Plaintiff
Montgomery L. Wilson, Esquire
Community Legal Services
2638 North Broad Street
Philadelphia, PA 19104
Counsel for Defendant
Michelle Pearson, Esquire
7228 Baptist RD, #175
Bethel Park, PA 15102
George Conway, Esquire
Office of the United States Trustee
833 Chestnut Street
Suite 500
Philadelphia PA 19106
Nancy Mulvehill, Courtroom Deputy to Judge Raslavich
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