Opinion
Civil Action No. 02-8022.
July 8, 2004
MEMORANDUM
Presently before the Court are Defendant First Horizon Home Loan Corporation's Motion for Summary Judgment on Plaintiffs' Complaint, Plaintiffs' response, and Defendant's Reply. In addition, the Court will consider Defendant's Motion for Summary Judgment on Count I of its Counterclaim, to which Plaintiffs made no response. For the reasons set forth below, Defendant's Motion for Summary Judgment on Plaintiffs' Complaint is granted and Defendant's Motion for Summary Judgment on Count I of its Counterclaim is denied.
I. Background
The issues surrounding this case are based upon the following facts. On May 19, 2000, Plaintiffs refinanced their home mortgage through Defendant First Horizon Home Loans ("First Horizon"). They received this loan with the assistance of Defendant Knox Financial Group, a mortgage broker.
Defendants Knox Financial Group and First Horizon included in the closing documents two copies of the Notice of Right to Cancel, as required by the Truth in Lending Act ("TILA"), 15 U.S.C. § 1635 (2004). Plaintiffs claim, and provide a copy of the TILA Notice of Right to Cancel as proof, that although the copy of the Notice of Right to Cancel they were given to sign and return to the mortgage company was completely filled out, the copy they were directed to retain for their records was not filled out with the dates detailing how long Plaintiffs had to rescind the mortgage. Failure to properly notice the consumers of their right to rescind under TILA extends the usual three day rescission window to three years. 15 U.S.C § 1635(f).
Soon after the refinancing, Plaintiffs began having trouble meeting their monthly mortgage payments. They contacted the Defendant First Horizon and explained their situation. On April 1, 2001, Plaintiffs and Defendant First Horizon entered into a Loan Modification Agreement in which First Horizon reduced the interest rate on the loan and increased the principal amount on the loan to reflect the amount in arrears.
Despite these measures, in May 2001, Plaintiffs filed for Chapter 7 Bankruptcy. During the course of the bankruptcy proceedings, Plaintiffs were represented by attorney Paul H. Young. After a meeting and examination of Plaintiffs, the appointed bankruptcy Trustee determined Plaintiffs had no assets eligible for distribution to their creditors. Neither Plaintiffs nor their counsel raised Plaintiffs' right of rescission under TILA as a possible claim under which they might recover assets for the bankruptcy estate.
Soon thereafter, Plaintiffs entered into a reaffirmation agreement with First Horizon, reaffirming the obligation they had under the Note and Mortgage on their residence. On June 25, 2001, the Bankruptcy Court approved the reaffirmation agreement. This reaffirmation agreement provided that Plaintiffs could rescind the reaffirmation anytime prior to discharge or within 60 days after the agreement was filed. Plaintiffs did not rescind the agreement. The bankruptcy court issued the order granting Plaintiffs' discharge on October 23, 2001.
On October 10, 2002, Plaintiffs notified Defendant First Horizon that they were invoking their right to rescind, pursuant to TILA. Defendant First Horizon refused to rescind the mortgage based upon the loan modification agreement, the reaffirmation agreement and Plaintiffs' subsequent bankruptcy discharge.
II. Standard of Review
A motion for summary judgment will be granted where all of the evidence demonstrates "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Since a grant of summary judgment will deny a party its chance in court, all inferences must be drawn in the light most favorable to the party opposing the motion. U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962).
The ultimate question in determining whether a motion for summary judgment should be granted is "whether reasonable minds may differ as to the verdict." Schoonejongen v. Curtiss-Wright Corp., 143 F.3d 120, 129 (3d Cir. 1998). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248.
III. Discussion
A. Defendant's Motion for Summary Judgment on Plaintiffs' Complaint
Although Defendant First Horizon raises multiple arguments for why it should be granted summary judgment in this matter, its first argument is both persuasive and dispositive as to all Plaintiffs' claims. Defendant asserts that all of Plaintiffs' claims are barred by judicial estoppel.
The doctrine of judicial estoppel prevents a party from raising issues in a legal proceeding that are inconsistent with any position that party has previously advanced. The Supreme Court, in New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001) set forth a three part test to determine whether a party should be judicially estopped from advocating a particular position in a later judicial proceeding. The Court stated that courts should consider the following three factors: First, whether the party's earlier position was "clearly inconsistent" with its present position; second, whether the party succeeded in convincing the earlier tribunal to adopt their position such that adopting the new position would mean that one of the courts was misled; and third, whether the party seeking the inconsistent position would gain an unfair advantage or impose an unfair detriment to their opposing party if not estopped. New Hampshire, 532 U.S. at 750-51.
In this case, Plaintiffs were successful in advancing their earlier position that they had no actionable claims upon which there might be recovery to fund the bankruptcy estate. This position is clearly inconsistent with their current position that they have a rescission claim under TILA, in addition to their Unfair Trade Practices and Consumer Protection Law ("UTPCPL") and Real Estate Settlement Procedures Act ("RESPA") claims. Therefore the first prong of the New Hampshire test is satisfied.
Furthermore, the bankruptcy court accepted Plaintiffs' previous position as stated at the time, and as a result, declared their bankruptcy to be a "no asset" bankruptcy, leaving Plaintiffs' creditors without recourse to recover on their debts. This meets the second prong of the New Hampshire test.
Finally, if this Court were to adopt Plaintiffs' new position, Plaintiffs' former creditors, including Defendants, would be unfairly prejudiced, because they are unable to benefit from a claim that rightfully should have been in the bankruptcy estate and subsequently distributed. Thus, the third prong of the New Hampshire test is satisfied.
Moreover, in a case very similar to the one here, Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414 (3d Cir. 1988), the Third Circuit held that judicial estoppel specifically precluded a debtor's claim that had not been disclosed during prior bankruptcy proceedings. In Oneida, the debtor failed to disclose offsets and counterclaims it had against a creditor bank during bankruptcy proceedings. Later, however, after discharge had been granted, the debtor attempted to bring suit against the bank to recover on the claims. The Third Circuit held that the debtor's failure to disclose these claims during the prior bankruptcy "worked in opposition to preservation of the integrity of the system which the doctrine of judicial estoppel seeks to protect." Oneida, 848 F.2d at 419.
Plaintiffs, nonetheless argue that judicial estoppel should not bar their claims because the claim for rescission was inadvertently and not intentionally left out during the bankruptcy process and that a good faith mistake to list all claims should not bar post-discharge action. There is a rebuttable presumption of bad faith that arises when a Plaintiff had knowledge of an undisclosed claim, and fails to disclose it during the bankruptcy proceedings. Krystal Cadillac-Oldsmobile v. General Motors Corp., 337 F.3d 314 (3d Cir. 2003). Plaintiffs attempt to argue that Defendants failed to show any evidence of bad faith, and therefore Plaintiffs should prevail. However, once a presumption arises, as it has in this case, the burden shifts to the Plaintiffs to provide evidence that they omitted their rescission and other claims against Defendants in the bankruptcy proceedings due to a good faith error. Plaintiffs failed to meet this burden.
Plaintiffs sole evidence to rebut the presumption of bad faith is the bare assertion that they did not know of their claim until consulting with their present attorney nearly a year after their bankruptcy discharge. The Third Circuit has said, however, that "`if the debtor has enough information . . . prior to confirmation to suggest that it may have a possible cause of action, then that is a `known' cause of action such that it must be disclosed.'" Krystal Cadillac-Oldsmobile GMC Truck, Inc. v. GMC, 337 F.3d 314, 323 (3d Cir. 2003) (quoting In re Coastal Plains, Inc., 179 F.3d 197, 208 (5th Cir. 1999)). Considering that throughout the bankruptcy process Plaintiffs were represented by counsel, that they had in their possession the relevant documents that established their claim, and that the bankruptcy included action concerning their mortgage (in the form of the reaffirmation agreement), Plaintiffs had enough information to suggest they had a possible cause of action that should have been disclosed. Therefore, Plaintiffs' claims are barred by judicial estoppel.
B. Defendant's Motion for Summary Judgment on Count I of its Counterclaim
Defendant First Horizon also filed a motion for summary judgment on Count I of its Counterclaim. Defendant's Motion for Summary Judgment requests the Court find Plaintiffs liable for court costs and reasonable attorneys' fees incurred by Defendant's defense of Plaintiffs' RESPA claim. Defendant argues that because Plaintiffs moved for dismissal of this Count of their Complaint, Defendant First Horizon should be deemed the prevailing party on that Count and is thereby entitled to costs and reasonable attorneys fees under RESPA.
It is within the Court's discretion to grant such an award of attorneys fees and costs, and in this case, the Court finds there is no persuasive reason to do so. Plaintiffs brought their claim in good faith, and although unsuccessful, there were substantive bases for their allegations. Therefore, Defendant's Motion for Summary Judgment as to Count I of its Counterclaim, is denied.
IV. Conclusion
For all the foregoing reasons, the Court grants Defendant's Motion for Summary Judgment on Plaintiffs' Complaint and denies Defendant's Motion for Summary Judgment on Count I of its Counterclaim. This case is closed. An appropriate order follows.