Opinion
Case No. 10-46482-399, Adversary No. 10-04302-399.
September 29, 2010
MEMORANDUM OPINION
This matter comes before this Court on a Motion to Dismiss filed by CitiMortgage, Inc. (the "Defendant"). For the reasons set forth below, the Motion to Dismiss is granted.
BACKGROUND
On June 10, 2010, Michael J. Barnes and Beverly Hendricks-Barnes (together, the "Plaintiffs") filed a petition for relief under Chapter 13 of Title 11 of the United States Code (the "Bankruptcy Code"). The Defendant filed a proof of claim in the Plaintiffs' bankruptcy case for the amount of $112,908.25. Attached to the proof of claim are copies of a promissory note made by the Plaintiffs to American Equity Mortgage, Inc. for the principal amount of $113,451.00, and a deed of trust securing the loan. Also attached to the proof of claim is an allonge to the promissory note evidencing the negotiation of the note to the Defendant.
The Adversary Proceeding in Bankruptcy Court
On July 9, 2010, the Plaintiffs, acting pro se, commenced this adversary proceeding by filing a Motion to Vacate and Dismiss all Debt Claims Due to Breach of Statute/Contract and Violation of Statutes that Govern Discharge Debts in Contracts (the "Affidavit") and a Brief in Support (the "Brief"). This Court treats the Affidavit and the Brief filed by the Plaintiffs as a complaint (the "Complaint"). The Complaint includes a random compilation of statutory and case law with no separate delineation of the causes of action the Plaintiffs seek to assert.
At the same time when the Plaintiffs filed the Complaint, they also commenced a similar adversary proceeding against a different defendant. The complaints in the two adversary proceedings are similar, but not identical. It appears that the grammatical problems in the Complaint were caused, in part, by the Plaintiffs attempt to use portions of the same pleading in both adversary proceedings.
On August 16, 2010, the Defendant filed a timely Motion to Dismiss the Complaint and a Memorandum in Support of Motion to Dismiss. The Motion to Dismiss and memorandum in support thereof sought dismissal of this adversary proceeding with prejudice under Federal Rule of Civil Procedure 12(b)(6), as applicable in bankruptcy proceedings under Federal Rule of Bankruptcy Procedure 7012(b), or application of res judicata.
The Plaintiffs then filed a document referred to as a motion to strike the Defendant's motion to dismiss and a brief in support thereof. Like the Complaint, the motion filed by the Plaintiffs is nearly incomprehensible. This Court treats the Plaintiffs' documents as a response to the Defendant's motion to dismiss and as a motion by the Plaintiffs to dismiss the Defendant's motion to dismiss (together, the "Response").
By this action, the Plaintiffs request that this Court determine that any debt they owe to the Defendant be declared invalid and that the Defendant's lien on their real property be released. As this Court understands the Plaintiffs' factual allegations, they maintain that they have been "grossly and unlawfully/illegally violated in respect to a contract with [the Defendant]." The Plaintiffs also contend that they provided a bond to the Defendant "for the discharge of the debt for property at address 4770 Parkton Pl., Florissant, MO 63033-4517." They maintain that because the bond was not returned to them, it was accepted as payment for any debt the Plaintiffs owed to the Defendant and, accordingly, any such debt has been discharged. They also state that an "original negotiable instrument 'contract' bond [sic]" given by the Plaintiffs "has been altered."
Some allegations in the Plaintiffs' Complaint refer to actions taken by a plaintiff, identified as "I." It appears that the use of "I" is probably meant to refer to both Plaintiffs.
Construed liberally, the Plaintiffs' Complaint also includes a claim that any debt to the Defendant is invalid because the Defendant has supposedly not provided certain documentation that the Plaintiffs requested, an original copy of the promissory note or bond showing their indebtedness and a full accounting of the indebtedness. The Plaintiffs allege violations of the Uniform Commercial Code and the Fair Debt Collection Practices Act. In addition, they argue that the Defendant lacked standing in this Court. Last, the Plaintiffs state that they "invoke my right to counterclaims for damages suffered by myself committed by [the Defendant] in respect to their Color of Authority Actions which accompanies this Action as a separate set of Counterclaims."
In their Response, the Plaintiffs appear to argue that the Defendant's Motion to Dismiss should be considered as a motion for summary judgment because the Defendants attached documentation to their motion. The Response also makes vague allegations regarding sovereign immunity and the national banking system, and it requests sanctions against the Defendant's attorneys.
District Court Action
On June 15, 2010, less than one month before the Plaintiffs commenced this action, the United States District Court for the Eastern District of Missouri granted a motion to dismiss with prejudice a complaint filed by Mr. Barnes against, among others, the Defendant. Barnes v. Citigroup, Inc., No. 4:10CV620 JCH, 2010 WL 2557508 (E.D. Mo. June 15, 2010). In his complaint in the district court, Mr. Barnes alleged that he gave a "bond" to an unspecified party as an "asset exchange" and that "this bond was then exchanged with other instruments from the United States Department of Treasury." Id. at * 1 (quoting Complaint at p. 5). According to Mr. Barnes, CitiMortgage altered the bond with intent to defraud him. Mr. Barnes also claimed that there was "no consideration for the contract in the amount of $113,451, the original amount of the bond of collateral held by [him]." Id. The district court interpreted the causes of action alleged by Mr. Barnes as arising under: (1) the vapor money theory; (2) 42 U.S.C. § 1983; (3) the National Bank Act; (4) the Fair Debt Collection Practices Act; (5) securities fraud; and (6) fraud in the factum. Id. at * 1-4. It held that his allegations "fail[ed] to state a cognizable claim for relief" and that "[l]eave to amend would clearly be futile in this case given the obvious deficiencies and frivolous nature of [his] complaint as addressed above." Id. at *2 and 4 n. 5 (citation omitted).
The district court determined that the complaint was improperly captioned. It treated the complaint as though it had properly named CitiMortgage, Inc., as a defendant. Id. at *1.
On July 6, 2010, just four days before they commenced this adversary proceeding, Mr. Barnes filed in the district court a Motion for Reconsideration and Objection. Together, the Plaintiffs filed a Motion to Vacate and Dismiss all Debt Claims Due to Breach of Statute/Contract and Violation of Statutes that Govern Discharge of Debts in Contracts (the "District Court Motion"). The caption of the District Court Motion includes Mrs. Barnes as a plaintiff and she signed the document. The District Court Motion is identical to the Affidavit filed in this Court. The district court denied each motion by docket order on July 29, 2010.
DISCUSSION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b), 157(b) and Local Rule 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding pursuant to 28 U.S.C. § 157(b).
Dismissal
Federal Rule of Civil Procedure 8(a)(2), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7008, provides that a pleading 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). A motion made under Federal Rule of Civil Procedure 12(b)(6), made applicable to bankruptcy proceeding by Federal Rule of Bankruptcy Procedure 7012(b), concerns the legal sufficiency of a complaint based on failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The Supreme Court has articulated the standard for surviving a motion to dismiss for failure to state a claim upon which relief can be granted:
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." 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. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of 'entitlement to relief.'"
Ashcroft v. Iqbal, ___ U.S. ___, ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal citations omitted; quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The plausibility standard applies in "all civil actions." Ashcroft, 129 S.Ct. at 1953 (citation omitted).
" Twombly and Iqbal did not abrogate the notice pleading standard of Rule 8(a)(2)." Hamilton v. Palm, ___ F.3d ___, Case. 09-3676, 2010 WL 3619580, at *1 (8th Cir. Sept. 20, 2010). To meet the plausibility standard, "[a] plaintiff need only allege facts that permit a reasonable inference that the defendant is liable, even if the complaint 'strikes a savvy judge that actual proof of the facts alleged is improbable' and 'recovery is very remote and unlikely.'" Id. (quoting Braden v. Wal-Mart Stores, 588 F.3d 85, 594 (8th Cir. 2009) (quotation omitted)).
"Although pro se complaints, 'however inartfully pleaded,' are to be held 'to less stringent standards than formal pleadings drafted by lawyers,' Haines v. Kerner, 404 U.S. 519, 520, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972), 'a [court] should not assume the role of advocate for the pro se litigant,' nor may a [court] 'rewrite a [complaint] to include claims that were never presented,'" Allen v. ASRC Commc'n, No. 4:08CV1575, 2010 WL 1404179 at *2 (E.D. Mo. Apr. 8, 2010) (quoting Barnett v. Hargett, 174 F.3d 1128, 1133 (10th Cir. 1999) (quotations omitted), cited with approval in Palmer v. Clarke, 408 F.3d 423, 444 n. 15 (8th Cir. 2005)).
In the most basic sense, the Plaintiffs' Complaint fails to meet the plausibility standard. It is a redundant hodgepodge of assorted theories, statutes and case law. The Plaintiffs did not include relevant facts to support their legal theories. In some instances, it is impossible to determine which legal theories the Plaintiffs attempt to assert. The Defendant has not been put on notice of the cause of action against it. In addition, this Court is unable to draw a reasonable inference that the Defendant is liable for some vague cause of action.
Consideration of Documents Attached to Motion to Dismiss
Construed liberally, the Plaintiffs' Response includes a contention that the Defendant's Motion to Dismiss should be treated as a motion for summary judgment because it attaches the documents from the district court action. The Plaintiffs' arguments do not convince this Court to treat the Defendant's motion as anything other than a Motion to Dismiss.
Tender of Bond as Satisfaction of Debt
The Plaintiffs allege that they have been "grossly and unlawfully/illegally violated in respect to a contract with [the Defendant]." According to the allegations in their Complaint, any obligation they owed to the Defendant was discharged by the tender of a bond. Specifically, the Plaintiffs claim that the bond that they tendered to the Defendant discharged "the debt for property at address 4770 Parkton Pl., Florissant, MO 63033-4517, pursuant to the federal laws that govern the payment of (alleged) debts which is the United States statutes at large Volume 48 stat 112 113." They quote the following language:
Therefore be it resolved by the Senate and House of Representatives of the United States of America in Congress assembled, that every provision contained in or made with respect to any obligation which supports to give the Obligee a right to require payment in gold or a particular kind of coin or currency, or in an amount of money of the United States measured thereby, is declared to be against public policy; and no such provision shall be contained in or made with respect to any obligation hereinafter incurred.
In addition, they cite to sections 3-601 through 3-604 of the Uniform Commercial Code as adopted in Missouri (the "Missouri UCC") to support their claim that the bond tender discharged their liability. See Mo. ANN. STAT. § 400.3-601-604. Missouri UCC sections 3-601 through 3-604 concern the discharge of a party's obligation to pay a negotiable instrument.
Viewed in their entirety, the legal and factual allegations in the Complaint are at best confusing, leaving this Court unable to make a reasonable inference that the Defendant is liable. Rather, it seems that the Plaintiffs tendered nothing to the Defendant other than a worthless piece of paper, which, of course, would not constitute payment in lawful currency of the United States. None of the Plaintiffs' arguments suggest that the bond had value. The Plaintiffs provide no details about the bond, such as its type, amount or issuor. While they claim that the bond constituted "a "tender in payment," the Plaintiffs never actually indicate what, if anything, was paid to the Defendant. The Plaintiffs' citation to the suspension of the gold standard in connection with their bond tender indicates that their allegations amount to a claim that the tender was as made by a document that, in fact, lacks value. See McLauglin v. CitiFinancial Auto Credit, Inc., No. 3:09 CV 1844 (MRK), 2010 WL 2377089 at *6-7 (D. Conn. June 11, 2010).
Even though the Plaintiffs did not label them as such, their Complaint might be rooted in a theory known by other courts as the "redemptionist" theory or a similar mortgage elimination theory. See, e.g. McLaughlin v. CitiMortgage, Inc., No. 3:09 CV 1762 (MRK), 2010 WL 2377108 (D. Conn. June 11, 2010) (discussing the "redemptionist," "vapor money" and "unlawful money" theories); Bryant v. Washington Mutual Bank, 524 F.Supp.2d 753, 758-60 (W.D. Va. 2007) (explaining claims that debtors may issue a bill of exchange requiring the government to pay their debts out of secret trusts as being based in "revisionist legal history and conspiracy theory"). Although it may vary from case to case, this theory instructs, in part, that the government holds a secret trust account for each citizen containing profits that the government gained by pledging its citizens as collateral for the national debt. Bryant, 524 F.Spp. 2d. at 758-59. Each individual is afforded the remedy of recovering the profits in his trust account if he follows the proper steps. Id. In 1933, the government provided the remedy by the section quoted by the Plaintiffs above declaring clauses in contracts requiring payment in gold or in an amount of money of the United States measured thereby to be against public policy. Id. One who learns how to take advantage of this remedy can use the debt owed to him by the government to discharge his debt to third parties. Id. Arguments based on this and other similar theories have been rejected by courts as being frivolous and a waste of judicial resources. See, e.g., Id. (collecting cases); McLaughlin, 2010 WL 2377108 at *11 (same); Barnes, No. 4:10CV620 JCH, 2010 WL 2557508, at *4 (discussing "vapor money theory" and explaining that it and similar arguments are regularly rejected). Failure to Produce Original Note or Full Accounting of Indebtedness and Uniform Commercial Code
The Plaintiffs' reliance on one or more of these theories is further suggested by the vague allegations in their Response regarding sovereign immunity and the national banking system.
The Plaintiffs suggest that for the Defendant to have a claim, the Defendant would have had to: (1) have provided to the Plaintiffs an original copy of the promissory note showing their indebtedness and a full accounting of the indebtedness; and (2) be in possession of the "instrument" so their security interest in it was properly perfected under Missouri's version of the Uniform Commercial Code.
The allegations that the Defendant did not provide an original copy of the promissory note and a full accounting of the indebtedness do not state a plausible cause of action at the initial stages of the litigation. The Defendant was not required to provide discovery or introduce evidence at the time the complaint was filed.
Although the Plaintiffs' argument is again unclear, they seem to maintain that they are not indebted to the Defendant because the Defendant did not perfect its security interest in the promissory note by possession. This Court does not see how the Plaintiffs' argument is relevant or correct.
The Plaintiffs' papers suggest that they rely on Article 9 of the Missouri UCC to challenge the Defendant's security interest. Article 9 does not apply to the security interest at issue here because the security interest asserted by the Defendant is a security interest in real estate, not in a promissory note. Section 9-109 of the Missouri Uniform Commercial Code explains that, absent exceptions that the Plaintiffs have not alleged to exist here, Article 9 is inapplicable to "the creation or transfer of an interest in or lien on real property." MO. ANN. STAT. § 400.9-109(d)(11).
Moreover, the Plaintiffs' understanding of the method of perfection required for an instrument is incorrect. Section 9-312(a) of the Missouri UCC provides that a security interest in an instrument is perfected by filing. Mo. ANN. STAT. § 400.9-312(a). Comment 2 clarifies that "[t]his rule represents an important change from former Article 9, under which the secured party's taking possession of an instrument was the only method of achieving long-term perfection." MO. ANN. STAT. § 400.9-312, cmt. 2. Fair Debt Collection Practices Act
The Complaint also makes a cursory reference to the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq. As was recognized by the district court, "The FDCPA makes it unlawful for debt collectors to use abusive tactics while collecting debts for others." Barnes, No. 4:10CV620 JCH, 2010 WL 2557508, at *3 ( quoting Gentsch v. Ownit Mortgage Solutions Inc., No. CV F 09-0649 LJO GSA, 2009 WL 1390843 *7 (E.D. Cal. May 14, 2009) (citation omitted). Like in the district court action, because the Plaintiffs presented "no evidence that the . . . loan was in default at the time it was acquired by [the Defendant], [the Defendant] is not a debt collector under the meaning of the FDCPA." Id. at *3.
Even if the Plaintiffs did otherwise hold an action under the FDCPA, it would be an asset of the Plaintiffs' bankruptcy estate. The Plaintiffs did not list the alleged FDCPA action on their schedules as property of the estate and, accordingly, they are estopped from pursuing it.
Standing of Defendant
According to the Plaintiffs, the Defendant "lacks standing in this court." It is puzzling to this Court why the Plaintiffs argue about the Defendant's standing when it was the Plaintiffs who commenced this adversary proceeding in the first instance.
Miscellaneous Allegations
Included in the Plaintiffs' papers are additional allegations for which this Court cannot make sense. Included in these allegations are the references to the Defendant's "Color of Authority Actions which accompanies this Action as a separate set of Counterclaims" and the alteration of the "original negotiable instrument 'contract' bond [sic]." It is possible, though not certain, that these statements are made as support for theories asserted by the Plaintiffs about the United States banking system. In any event, they do not put the Defendant on notice of the causes of action asserted against them and do meet the plausibility standard required by the Supreme Court.
Res Judicata
Res judicata also applies to bar Mr. Barnes's suit against the Defendant. It prevents "the relitigation of a claim on grounds that were raised or could have been raised in the prior suit." Banks v. Int'l Union Elec., Elec., Technical, Salaried and Machine Workers, 390 F.3d 1049, 1052 (8th Cir. 2005) (quoting Lane v. Peterson, 899 F.2d 737, 741 (8th Cir. 1990) (citation omitted)). Res judicata bars a second lawsuit when: (1) the first suit resulted in a final judgment on the merits; (2) the first suit was based on proper jurisdiction; (3) both suits involved the same cause of action; and (4) both suits involved the same parties or their privies. Lovell v. Mixon, 719 F.2d 1373, 1376 (8th Cir. 1983) (citing Ward v. Ark. State Police, 653 F.2d 346 (8th Cir. 1981)). The party against whom the first decision is asserted must have "had a 'full and fair opportunity' to litigate the issue in question." Id. (citing Kremer v. Chemical Construction Corp., 456 U.S. 461, 481 n. 22 (1982)).
The district court had jurisdiction to dismiss the action that was filed there and the dismissal and denial of the District Court Motion constituted final judgments on the merits. There is no doubt that Mr. Barnes was a party to the district court action. The requirement that both suits involved the same cause of action was also met here.
Even though Mrs. Barnes was included in the caption of the District Court Motion and she signed it, she was not named as a party on the complaint in the district court action. Normally, res judicata does not bar claims, even if they arise out of the same facts against the defendant, if the defendant seeks to assert res judicata against someone who was not a party in the first action. Exceptions exists to the rule against nonparty preclusion. Taylor v. Sturgell, 553 U.S. 880 (2008) (explaining some exceptions); Headley v. Bacon, 828 F.2d 1272, 1275 (8th Cir. 1987). However, this Court does not need to decide whether Mrs. Barnes would be barred from pursuing this action based on the district court action because of the determination set forth above that the Plaintiffs failed to state a claim under Rule 12(b)(6).
"[A] claim is barred by res judicata if it arises out of the same nucleus of operative facts as the prior claims." Banks, 390 F.3d at 1052 (quoting Lane, 899 F.2d at 741 (citation omitted)). Res judicata "should be invoked only after a careful inquiry because it blocks 'unexplored paths that may lead to the truth' and 'shields the fraud and the cheat as well as the honest person.'" Lovell, 719 F.3d at 1379 (quoting Brown v. Felsen, 442 U.S. 127, 132 (1979)).
The claims in the district court action arose out of the same nucleus of operative fact as the claims in this action. To be sure, the District Court Motion is identical to the Affidavit that was filed to commence this adversary proceeding. In addition, both actions include claims under the Fair Debt Collection Practices Act. Both actions also seem to be premised on some type of contract and one or both of the Plaintiffs giving a bond to a lender and the alleged alteration of that bond or related documentation without one or both of their consent. Both actions appear to be based on some sort of theory attacking the modern banking system. Moreover, both actions request a determination that the Defendant's claim in the approximate amount of $113,000 and a related security interest are invalid. Even in light of the fact that the pleadings are nearly impossible to interpret, it is clear that this action concerns the same alleged transaction or scheme as set forth in the district court action.
Sanctions Request
Without citing any authority to support their position, the Plaintiffs claim in their Response that the Defendant's motion to dismiss is "a substantive and procedural nullity, frivolous on its face, interposed for the purposes of harassment and delay warranting this court's sanction of Attorneys sua sponte and placement of Attorneys under filing restrictions." As shown through this Court's ruling that dismissal of this action is proper, there is absolutely no reason to impose sanctions against the Defendant's attorneys. If any party would be considered to have filed frivolous pleadings in this action, it would be the Plaintiffs.
CONCLUSION
The Plaintiffs failed to state a plausible claim for relief. In addition, res judicata applies to bar the suit brought by Mr. Barnes. Accordingly, it is hereby
ORDERED that the Defendant's Motion to Dismiss shall be GRANTED in that the above-captioned adversary proceeding shall be DISMISSED WITH PREJUDICE. As was recognized by the district court in the action before it, it would be futile to allow the Plaintiffs leave to amend their Complaint in this action because of its deficiencies and frivolous nature. Barnes, 2010 WL 2557508 at *4 n. 5 (citation omitted). It is further
ORDERED that all pending requests and motions shall be denied.