Opinion
CASE NO. 16-12158 PROC. NO. 23-1011
2023-06-14
IN RE: Patrick Henry MCDONALD, Debtor Patrick Henry McDonald, Plaintiff v. Mike Royer, Katherine Gould, Jeremy Gross, et al., Defendants
Wesley N. Steury, Burt, Blee, Dixon, Sutton & Bloom LLP, Fort Wayne, IN, for Defendants.
Wesley N. Steury, Burt, Blee, Dixon, Sutton & Bloom LLP, Fort Wayne, IN, for Defendants. DECISION Robert E. Grant, Judge
The plaintiff, Patrick McDonald, who is proceeding pro se, filed for relief under chapter 7 on October 12, 2016, and received a discharge. See, Matter of McDonald, Case No. 16-12158 (Bankr. N.D. Ind.). In connection with that proceeding, he filed motions to avoid a number of judicial liens, which were granted. The defendant, Mike Royer, is a post-bankruptcy creditor of Mr. McDonald. The other defendants are Mr. Royer's attorneys. In the course of attempting to collect McDonald's obligation to him, Royer filed suit in state court, obtained a judgment against the plaintiff and then initiated proceedings to enforce the resulting judgment lien through a judicial sale. Among the named defendants in that proceeding are the individuals who held the judicial liens that had been avoided in McDonald's bankruptcy. McDonald contends that act constitutes a violation of the discharge injunction, see, 11 U.S.C. § 524(a), and so filed suit against Royer and his attorneys, seeking sanctions. The defendants filed a motion to dismiss arguing the complaint fails to state a claim upon which relief may be granted. See, Fed. R. Bankr. P. Rule 7012; Fed. R. Civ. P. Rule 12(b)(6). The matter has been fully briefed by both parties, see, N.D. Ind. L.B.R. B-7007-1, and is before the court for a decision.
To survive a motion to dismiss, the complaint must plausibly suggest that the plaintiff is entitled to "relief raising the possibility above a 'speculative level.' " E.E.O.C. v. Concentra Health Services, Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Bell Atlantic v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1964, 167 L.Ed.2d 929 (2007)) (internal citations omitted). See also, Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); Atkins v. City of Chicago, 631 F.3d 823, 832 (7th Cir. 2011) ("[T]he complaint taken as a whole must establish a nonnegligible probability that the claim is valid, though it need not be so great a probability as such terms as 'preponderance of the evidence' connote."); In re Eisaman, 387 B.R. 219, 222 (Bankr. N.D. Ind. 2008); In re Schmucker, 376 B.R. 256, 258 (Bankr. N.D. Ind. 2007). In making that determination, "the court must . . . accept all factual allegations in the complaint as true." Tellabs, Inc. v. Makor Issues & Rights, Ltd, 551 U.S. 308, 322, 127 S.Ct. 2499, 2509, 168 L.Ed.2d 179 (2007). But, in doing so, "courts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Id.
Tellabs' admonition that the court "must consider the complaint in its entirety" is particularly appropriate here because the document Plaintiff titled "Complaint for Sanctions" says nothing of substance. It has only four allegations: (1) the court has jurisdiction over the matter; (2) he believes it to be a core proceeding and consents to a final decision by the bankruptcy court; (3) he is seeking $30,000 from each defendant; and, (4) demands a jury trial. The true substance of what the plaintiff is complaining about is contained in a separate "Memorandum in Support of Complaint" filed at the same time. Memorandum in Support of Complaint, filed March 17, 2023 (ECF. No. 3). This document elaborates upon Plaintiff's claims and has attached to it various documents relevant to them, such as the orders avoiding judicial liens in his bankruptcy proceeding and the defendants' complaint in state court. In order to "consider the complaint in its entirety" these may be considered as well, and this is where the reader learns what the plaintiff is complaining about. It reveals that Mr. Royer is a post-petition creditor of the plaintiff, who has obtained a judgment against him and, in connection with enforcing that judgment, has initiated proceedings to foreclose the resulting judgment lien. In doing so, creditors whose judicial liens had been avoided in McDonald's earlier bankruptcy were added as party defendants. Memorandum ¶ 5. To be more precise, Royer's foreclosure complaint stated: "Defendants, Rodney Schaefer, et al., Shakeeda Taylor, Paul D. Gieseking, Margaret A. Gleseking, Michelle L, McDonald, and Tracey L. Rosswurm are made party defendants by virtue of their judgments against Mr. McDonald . . ." Memorandum, Ex. D ¶ 10. This is the act the plaintiff contends violates the discharge injunction, because he contends it is an attempt to collect a discharged debt, in part because Royer's complaint contained the statement: "This is a communication from a debt collector, and this is an attempt to collect a debt. . . ." Memorandum ¶ 6; Memorandum, pg. 21, ex. D.
The court is mindful that, as a pro se litigant, the debtor's filings should be construed with a degree of liberality. Korsunskiy v. Gonzales, 461 F.3d 847, 850 (7th Cir. 2006); Kincaid v. Vail, 969 F.2d 594, 598 (7th Cir. 1992).
Because attorneys may be subject to the Fair Debt Collections Practices Act, see, Heintz v. Jenkins, 514 U.S. 291, 115 S.Ct. 1489, 131 L.Ed.2d 395 (1995) (affirming Jenkins v. Heintz, 25 F. 3d 536 (7th Cir. 1994), the defendants cannot be faulted for having included this statement on pleadings involving consumer debts. A clearer perception of the litigation's purpose can be found in the complaint's prayer which seeks the sale of the property to "satisfy the debt due to Mike Royer," a declaration that his lien is "superior to the interests, liens, judgments, and claims of the Defendants," and that those interests "be forever barred and foreclosed." Memorandum, p. 20, ex. D.
"A discharge operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover, or offset [a discharged] debt as a personal liability of the debtor whether or not discharge of such debt is waived." 11 U.S.C. § 524(a)(2). It applies only to "debts that arose before the date of the order for relief," 11 U.S.C. § 727(b), and so "does not bar efforts to collect post-petition debts." In re Kalabat, 592 B.R. 134, 143 (Bankr. E.D. Mich. 2018). Moreover, since the discharge only prevents actions designed to collect a discharged debt as a personal liability of the debtor, an act that has some other purpose does not violate § 524, even though it may involve a discharged debt. So, for example, the discharge does not prevent in rem proceedings to enforce a lien against the debtor's property. In re Hunter, 970 F.2d 299, 310 (7th Cir. 1992). Neither does it prohibit actions against third parties, even though this might require joining the debtor as a party. In re Jet Florida Systems Inc., 883 F.2d 970, 973 (11th Cir. 1989); In re Western Real Estate Fund, Inc., 922 F.2d 592, 601 n.7 (10th Cir. 1990). See also, Green v. Welsh, 956 F.2d 30, 33 (2nd Cir. 1992) (collecting cases). Similarly, actions seeking declaratory relief do not violate the discharge injunction. Hawxhurst v. Pettibone Corp., 40 F.3d 175, 180 (7th Cir. 1994) (declaration of liability against the debtor); In re Taylor, 793 F.3d 814, 820 (7th Cir. 2015) (declaration concerning validity of assignment.). Since actions that seek only declaratory relief - even when they involve the debtor or discharged debts - do not violate the discharge injunction, an action that seeks a declaration of the status of avoided liens should not either.
Mr. Royer is a post-petition creditor of Mr. McDonald; so nothing he does to collect the debt owed to him can violate the discharge injunction. That includes foreclosing his judicial lien upon Mr. McDonald's property. Fairly read, there is nothing about the state court complaint his attorneys filed that seeks to collect a discharged debt. While it joins the holders of avoided liens as defendants, it seeks no relief on account of those liens; only a declaration that Royer's interest is superior to theirs and that any interest they may claim be forever barred. Seeking a declaration concerning the status of an apparent lien is not the same as taking action to collect a discharged debt and is not a violation of the discharge injunction. It might become so if someone argues the avoided lien is valid and should be paid out of the proceeds of any sale, but that has not happened and is several steps removed from simply joining the judgment holders as defendants. See, Taylor, 793 F.3d at 820-21 (action that could hypothetically set in motion a series of events that might lead to the collection of a discharged debt is not a violation of the discharge injunction).
Even if that did occur, it would be the one advocating validity and payment who would run afoul of § 524.
The plaintiff's complaint fails to state a claim upon which relief can be granted and the motion to dismiss will be granted. While the court should ordinarily give the plaintiff an opportunity to file an amended complaint before dismissing an action, in this case, it is clear that such an opportunity would be futile. See, Barry Aviation v. Land O'Lakes Municipal Airport, 377 F.3d 682, 687 (7th Cir. 2004); Garcia v. City of Chicago, 24 F. 3d 966, 970 (7th Cir. 1994). This adversary proceeding will therefore be dismissed. An order doing so will be entered.