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Rhodes v. Diamond

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA


July 14, 2010

DENNIS A. RHODES; GERALD A. BENDER; AND, EDWARD H. WOLFERD, JR., INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED PLAINTIFFS,
v.
ROSEMARY DIAMOND; FRANCIS S. HALLINAN; DANIEL G. SCHMIEG; LAWRENCE T. PHELAN; JUDITH T. ROMANO; FRANCIS FEDERMAN; THOMAS M. FEDERMAN; PHELAN HALLINAN & SCHMIEG, LLP; FEDERMAN & PHELAN, LLP DEFENDANTS.

The opinion of the court was delivered by: Jones, J.

MEMORANDUM

I. Introduction

Plaintiffs in the above-captioned matter are homeowners who defaulted on their mortgages and subsequently filed Petitions for relief under Chapter 13 of the Bankruptcy Code. Defendants herein are individual attorneys and their law firms, who represent the lenders and are accused of filing inflated Proofs of Claims in Bankruptcy Court. Plaintiffs allege that said Proofs of Claims did not reflect refunds of fees paid for Sheriff's Sales on the foreclosed properties that were postponed by reason of the bankruptcy filings. As such, Plaintiffs - individually and on behalf of all others similarly situated - have filed a Complaint in this court, asserting violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq.;Pennsylvania's Fair Credit Extension Uniformity Act ("FCEUA"), 73 P.S. § 2270 et seq.; (3) Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 P.S. § 201 et seq.; and, (4) common law claims of Tortious Interference with Contractual Relations.

In response to said Complaint, Defendants have filed the instant Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6)(Doc. No. 2), asserting in pertinent part that any issues Plaintiffs may have with the Proofs of Claims that were filed, are issues that must be pursued in Bankruptcy Court by means of Objections to said Proofs, or Motions for Sanctions. Plaintiffs oppose said Motion (Doc. No. 3), maintaining that they have pled sufficient facts to sustain their cause of action in this court.*fn1 For the reasons set forth hereinbelow, Defendants' Motion will be granted.

II. Standard of Review

In deciding a motion to dismiss pursuant to Rule 12(b)(6), courts must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (internal quotation and citation omitted). After the Supreme Court's decision in Bell Atl. Corp. v. Twombly, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, - U.S. -, 129 S.Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. 544, 555 (2007)). "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." Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 556). This standard, which applies to all civil cases, "asks for more than a sheer possibility that a defendant has acted unlawfully." Id. Accord Fowler v. UPMC Shadyside, 578 F.3d 203, 210-211 (3d Cir. 2009) ("All civil complaints must contain more than an unadorned, the - defendant - unlawfully -harmed - me accusation.") (internal quotation omitted).

Although Plaintiffs herein have provided this Court with an extensive dissertation regarding their perceived victimization of mortgagees throughout the economic downturn of the past several years, their allegations cannot entitle them to relief in this court.

III. Discussion

As Defendants properly point out in their Motion to Dismiss, creditors are only required to file a Proof of Claim which states the amount owed "as of the date of the filing of the petition." (Defs. Mot. Dismiss 8-11, citing 11 U.S.C. § 501(b).) Plaintiffs do not dispute this statement of bankruptcy law. (Pls. Opp'n Mem. 12.) Plaintiffs' Complaint fails to allege that Defendants did not file the Proofs of Claims using totals known as of the date of the filing of the petition - which included initial Sheriff's fees - or that pertinent bankruptcy law required Defendants to amend the Proofs of Claims. Instead, Plaintiffs claim in pertinent part that Defendants' failure to timely amend the Proofs in accordance with a representation that they would do so, was unlawful and entitles Plaintiffs to relief. (Pls. Compl. ¶¶59-60.) Despite Plaintiffs' arguments to the contrary, it is this failure to promptly amend that forms the basis for all of their claims.

Plaintiffs expend much time and energy focusing not only their Complaint, but their Opposition to Defendants' Motion to Dismiss, on the premise that homeowners all over the country are being victimized by attorneys such as Defendants, in a systematic scheme to overcharge debts in bankruptcy proceedings.*fn2 However, Plaintiffs fail to provide any legal basis for the one critical component necessary to sustain the particular claims alleged in their Complaint: the existence of a duty to amend a Proof of Claim. Although Plaintiffs note that discovery would be helpful regarding the merits of their claims, discovery cannot provide a duty that does not exist by law. Plaintiffs argue that the authority cited in support of Defendants' contention that no such duty exists is inapposite to the case at bar, inasmuch as it involves post-petition payments by a debtor, as opposed to a creditor's claim for debt incurred pre-petition.

(Pls. Opp'n Mem. 13 n. 12.) However, Plaintiffs provide no authority in support of their claim.

The Bankruptcy Court for the District of Massachusetts has effectively summarized the law regarding amendment of a Proof of Claim as it existed in 2002 and still exists today...

Neither the Bankruptcy Code nor the Federal Rules of Bankruptcy Procedure address amendments to proofs of claim. Clamp-All Corp. v. Foresta (In re Clamp-All Corp.), 235 B.R. 137, 140 (BAP 1st Cir. 1999), citing 9 Lawrence P. King, et al., Collier on Bankruptcy P 3001.01[1] (15th ed. rev. 1999). Prior to the bar date, amendments to filed proofs of claim are permissible. Id. Amendments to timely filed defective proofs of claim may be made after the bar date has expired. Hutchinson v. Otis, Wilcox & Co., 190 U.S. 552, 47 L.Ed. 1179, 23 S.Ct. 778 (1903); In re Stylerite, Inc., 120 F. Supp. 485 (D.N.H. 1954). However, post-bar date amendments should not be allowed if it is in actuality a new claim against the estate. In re Clamp-All Corp., 235 B.R. at 140, citing In re Int'l Horizons, 751 F.2d 1213, 1216 (11th Cir. 1985).

In re Callery, 274 B.R. 51, 56 (Bankr. D. Mass. 2002).

Amendment of a Proof of Claim is not mandatory, therefore Defendants' failure to do so -timely or otherwise - cannot constitute a basis for wrongdoing that would afford Plaintiffs relief under the FDCRA or any of the other statutory/common law provisions*fn3 they contend Defendants have violated. Plaintiffs had an opportunity to object to the disputed Proofs of Claims and their assertion that doing so would impose an undue burden on them that the filing and litigation of the instant lawsuit would not, is unfounded.

Even in the event Plaintiffs did not wish to utilize the objection procedure, other options existed within the appropriate jurisdiction of the Bankruptcy Court which could have served to remedy their allegations of "inflated" Proofs of Claims. In fact, one such option was discussed in a decision issued by the United States Bankruptcy Court for the Middle District of Pennsylvania, which Plaintiffs submitted to this Court on March 22, 2010 when they filed a Notice of Relevant Authority (Doc. No. 11). Similar to the case at bar, In re: Hannon, No. 06-51870 (Bankr. M.D. Pa. Dec. 18, 2009) involved allegations of an allegedly inflated Proof of Claim which had not been timely amended to reflect a refund of Sheriff's refunds. Said debtor sought sanctions against the mortgagee pursuant to Rule 9011 of the Federal Rules of Bankruptcy Procedure. Accordingly, the Bankruptcy Court issued a Rule to Show Cause upon the mortgagee and noted that in the event Rule 9011...

... [i]s not "up to the task" of providing sufficient authority to compel a claimant to keep their Proofs of Claim updated so as to allow the Trustee, or Debtor-in-Possession, to fairly allocate distributions to those filing proofs... [Section] 105(a) provides the judicial authority to compel a claimant to timely amend a claim that ought, in good conscience, be reduced because of circumstances such as the refund at hand."*fn4

Hannon at 9.

In this instant matter, Plaintiffs' inclusion of claims under the FDCPA, FCEUA, UTPCPL, and for Tortious Interference with Contractual Relations, cannot serve to convert this bankruptcy matter into one that would be proper before this Court:

One of the fundamental purposes of the bankruptcy system is to adjudicate and conciliate all competing claims to a debtor's property in one forum. Gray-Mapp v. Sherman, 100 F.Supp. 2d 810, 813 (N.D. Ill. 1999); Holloway v. Household Automotive Finance Corp., 227 B.R. 501, 507-08 (N.D. Ill. 1998); Brandt v. Swisstronics, Inc., 135 B.R. 707, 708 (Bankr. D. Me. 1992).

We agree with the numerous courts that have concluded that, once a debtor is in bankruptcy court, the debtor's remedies to attack an allegedly inflated proof of claim are limited to those provided for in the Bankruptcy Code. Baldwin, 1999 U.S. Dist. LEXIS 6933, 1999 WL 284788 at 4; Gray-Mapp, 100 F.Supp. 2d at 813-14; Holloway, 227 B.R. at 507-08; In re Sims, 278 B.R. 457 (Bankr. E.D. Tenn. 2002); In re Cooper, 253 B.R. 286 (Bankr. N.D. Fla. 2000). Accordingly, we find that the within Complaint seeking damages under the FDCPA and Consumer Protection Law must be dismissed.

In re: Abramson, 313 B.R. 195, at ** 6-7 (U.S. Bankr. Ct., W. Dist. Pa. 2004).*fn5 See also, Angulo v. Emigrant Mortg. Co., 2010 Bankr. LEXIS 1402, at **30-32 (Bankr. E.D. Pa. Apr. 23, 2010)(recognizing the fact that an"an FDCPA claim 'cannot be based on the filing of a proof of claim, regardless of the ultimate validity of the underlying claim.'")(internal citation omitted).

Inasmuch as there is no Third Circuit precedent involving exactly the same factual scenario that exists herein, the holdings in Abramson and Williams provide constructive guidance in this Court's determination that redress for Plaintiffs' allegations of "systematic" violations by Defendants for filing allegedly inflated Proofs of Claims lie solely within the Bankruptcy Court.*fn6*fn7

IV. Conclusion

For the reasons set forth hereinabove, Plaintiffs' Complaint is hereby dismissed. An appropriate Order follows.

C. Darnell Jones, II J.


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