Opinion
PROC. 24-4001
10-02-2024
IN RE: CASE NO. 16-40206 MICHAEL JOHN RAE Debtor(s) v. VENTURES TRUST 2013-I-NH by MCM CAPITAL PARTNERS, LLC, ITS TRUSTEE; MARINOSCI LAW GROUP, P.C.; DAVID M. BENGS; JENNIFER L. SNOOK; WILMINGTON SAVINGS FUND SOCIETY, FSB, AS OWNER TRUSTEE OF THE RESIDENTIAL CREDIT OPPORTUNITIES TRUST V-D Defendant(s) MICHAEL JOHN RAE Plaintiff(s)
DECISION ON MOTION TO DISMISS
Robert E. Grant Judge,
The plaintiff, who is proceeding pro se, filed a petition for relief under chapter 7 on April 29, 2016 and received a discharge on August 29, 2016. The Chapter 7 trustee filed a no asset report on August 23, which was approved without objection, and the case was closed on October 13, 2016. While the case was pending, Ventures Trust filed a motion for relief from stay and abandonment, to which both the debtor and the trustee objected. The court held a hearing on the motion and the objections on August 17. That hearing resulted in the court's order of August 19, 2016, which "relieved [Ventures Trust] of the automatic stay in order to foreclose upon or otherwise proceed against the real property commonly known as 1734 Elderberry Circle South East, Demotte, Indiana," but denied the requested abandonment.
Denial of the requested abandonment did not, in any way, restrict the scope of the relief from stay that the court granted. It only meant that the real estate remained property of the bankruptcy estate if the trustee wanted to administer it and, in the event there was a surplus after any foreclosure sale, that money would be available to the trustee for distribution to creditors. Once the case was closed the property was deemed abandoned. See, 11 U.S.C. § 554(c).
Following the court's order terminating the stay (and the subsequent discharge), Ventures Trust was free to resume its efforts at foreclosure and apparently did so. The debtor, however, claims there were defects in the execution, recordation, and/or assignment of the note and mortgage making them and the proceedings concerning them invalid. This adversary proceeding - filed eight years after the court terminated the stay and the bankruptcy case was closed - is the result. Because he believes the note and mortgage are invalid, the debtor contends this court's order terminating the stay was void; that the creditor's foreclosure proceedings violated both the automatic stay and the subsequent discharge injunction and are also void; and, so, he asks the bankruptcy court to declare the state court proceedings void and to award him compensatory and punitive danages. The defendants responded to the initial complaint (styled as a motion for contempt) with a motion to dismiss. This prompted the debtor to file an amended complaint. That mooted the original motion, see e.g., Johnson v. Dossey, 515 F.3d 780 (7th Cir. 2007) ("When an amended complaint is filed, the prior pleading is withdrawn and the amended pleading is controlling."); Flannery v. Recording Indus. Assoc. of America, 354 F.3d 632, 638 n.1 (7th Cir.2004) ("It is axiomatic that an amended complaint supersedes an original complaint and renders the original complaint void."), but led to yet another motion to dismiss. That motion has been fully briefed by both sides and is presently before the court for a decision.
The defendants argue the amended complaint fails to state a claim upon which relief can be granted and seek dismissal pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. To survive such a motion requires two things:
First, the complaint must describe the claim in sufficient detail to give the defendant 'fair notice of what the . . . claim is and the grounds upon which it rests' . . . Second, its allegations must plausibly suggest that the plaintiff has a right to relief raising the possibility above a 'speculative level'; if they do not, the plaintiff pleads itself out of court. 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) (internal citations omitted). See also, Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937 (2009); 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 accepts the factual allegations in the complaint as true and draws all reasonable inferences in plaintiff's favor. Christensen v. County of Boone, Illinois, 483 F.3d 454, 457 (7th Cir. 2007). Here, we do so recognizing that, as pro se litigant, the plaintiff's filings are construed more liberally than papers which are drafted by attorneys. Kincaid v. Vail, 969 F.2d 594, 598 (7th Cir. 1992).
The debtor's arguments that the state court action violated the discharge injunction are based upon a significant misperception of what the discharge actually does. A discharge only relieves the debtor of its personal liability to creditors. See, 11 U.S.C. § 524(a). It "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any debt as a personal liability of the debtor, whether or not discharge of such debt is waived." 11 U.S.C. § 524(a)(2)(emphasis added). Furthermore, liens pass through bankruptcy unaffected, unless specifically acted upon by the bankruptcy court, and unavoided liens may be enforced in rem after the debtor has been discharged. See, Matter of Penrod, 50 F.3d 459, 461 (7th Cir. 1995); In re Tarnow, 749 F.2d 464 (7th Cir. 1984); In re Simmons, 765 F.2d 547 (5th Cir. 1985). See also, In re Parkland Properties, LLC, 605 B.R. 509, 525-26 (Bankr. N.D.Ill. 2019). So, the "discharge extinguishes only one mode of enforcing a claim - namely, an action against the debtor in personam - while leaving intact another - namely, an action against the debtor in rem." Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 2154 (1991); Long v. Bullard, 117 U.S. 617, 620-21, 6 S.Ct. 917 (1886).
An act that has some other purpose does not violate § 524, even though it may involve a discharged debt. So, to the extent the plaintiff argues that Ventures Trust violated the automatic stay and/or discharge injunction by selling the note to third parties, that is not so. Nothing in the Bankruptcy Code prohibits the sale of discharged debt to other entities. See, In re McKay, 613 B.R. 648, 649 (Bankr. E.D. Mich. 2020); Finnie v. First Union Nat. Bank, 275 B.R. 743, 746 (Bankr. E.D. Va. 2002) (mere sale to a third party of a discharged debt is not a violation of the discharge injunction).
The terms in rem and in personam describe different types of actions. In rem means a proceeding or judgment against a thing (e.g. a house), a right, or status, whereas in personam means a proceeding or judgment against a person. In re Spore, 105 B.R. 476, 480 (Bankr. W.D. Wis. 1989) (citing Black's Law Dictionary).
The court will be as suscinct as possible. After the court's order terminating the stay and the subsequent discharge, Ventures Trust, its successors and assigns and their agents were free to take any action they wanted in order to foreclose the note and mortgage on debtor's property so long as they only proceeded in rem. To successfully state a claim that the defendants violated the stay or the discharge injunction, the amended complaint must allege facts that plausibly suggest they did something more than that. It does not. Nothing has been alleged that even begins to suggest that the relief sought in the state court litigation and the actions taken there have been anything other than purely in rem or that the defendants have sought to do anything other than foreclose a mortgage upon the debtor's property. See e.g., Plaintiff's Amended Motion for Order of Contempt, ¶ 19-21, 26 (ECF No. 8). All of the plaintiff's arguments concerning the validity of the note and mortgage, who had standing to enforce it, the sale and assignment, etc. do not alter that reality and are arguments that could and should have been presented to the state court in the foreclosure litigation. (Whether or not they were, the pleadings do not say, but they may well be barred in federal court by the Rooker-Feldman doctrine. See, Bauer v. Koester, 951 F.3d 863, 865-67 (7th Cir. 2020); Long v. Shorebank Dev. Corp., 182 F.3d 548, 554-55 (7th Cir. 1999). See also, Kotsopouloas v. Fifth Third Mortgage Co., 2014 Bankr. LEXIS 4620 (Bankr. N.D. Ind. Oct. 10, 2014)).
The court's order terminating the stay was not void. That would only be so if the court lacked jurisdiction, which it clearly had. See, 28 U.S.C. §§ 1334(b), 157; N.D.Ind. L.R. 200-1. Furthermore, the time to raise that issue has long since passed. See, Fed.R.Civ.P. Rule 60(b)(4), (c)(1).
The amended complaint fails to state a claim upon which relief can be granted. Furthermore, the plaintiff has already amended his complaint once and, even with the liberality accorded filings made by pro se litigants, it is clear that any opportunity to file another amended complaint 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.