IN RE: ARTHUR DOUGLAS STEWART and CHRISTINE ANN STEWART, Debtors.
CHASE BANK, ARCHER LAND SETTLEMENT SERVICES, and RHONDA J. WINNECOUR, CHAPTER 13 TRUSTEE, Appellees. ARTHUR DOUGLAS STEWART and CHRISTINE ANN STEWART, Appellants,
MEMORANDUM OPINION AND ORDER
JOY FLOWERS CONTI, District Judge.
Pending before the court is an appeal filed by appellants-debtors Arthur Douglas Stewart and Christine Ann Stewart ("Debtors") (ECF No. 10). Appellee JPMorgan Chase Bank ("JPMorgan") filed a brief (ECF No. 15), and appellee/trustee Rhonda J. Winnecour ("Trustee") filed a brief in opposition (ECF No. 17). Debtors seek review of the May 21, 2012 order of the bankruptcy court granting JPMorgan's motion to dismiss Debtors' complaint in Adversary No. 10-2654 and granting the Trustee's motion to strike Debtors' motion for derivative standing to exercise trustee's powers under 11 U.S.C. §§ 544, 547, 548 nunc pro tunc (the "Motion for Derivative Standing"). The bankruptcy court, among other things, determined that it lacked subject-matter jurisdiction over one of Debtors' claims under the Rooker-Feldman doctrine and that certain other claims were barred because Debtors failed to exhaust requisite administrative remedies under the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA"), 12 U.S.C. § 1811. Debtors do not contest the bankruptcy court's grant of the Trustee's motion to strike the Motion for Derivative Standing.
Debtors make two arguments in support of their appeal: first, the Rooker-Feldman doctrine does not bar the Debtors' request for rescission of a mortgage under the Truth in Lending Act ("TILA"), 15 U.S.C. § 1635; and second, they were not required to exhaust the other claims at issue because the non-Article III courts of the Federal Deposit Insurance Corporation ("FDIC") do not constitutionally have the authority to hear the claims at issue. (ECF No. 10 at 5-8.)
After considering the record on appeal and the briefs of Debtors, JPMorgan, and the Trustee, the May 21, 2012 order of the bankruptcy court will be affirmed because (1) JPMorgan's motion to dismiss was properly granted, and (2) Debtors' motion for derivative standing was properly denied.
I. Factual Background
The following factual allegations were taken as true by the bankruptcy court and this court in evaluating the motion to dismiss filed by JPMorgan. (ECF No. 1-2). Debtors, in response to a flyer, completed a telephone application with Ace Mortgage Holdings, LLC ("Ace") for a mortgage refinancing on their home (the "Property"). In re Stewart , 473 B.R. 612, 617 (Bankr. W.D. Pa. 2012). Ace allegedly guaranteed Debtors a monthly payment which did not include escrow amounts for taxes and homeowners insurance. Id . Ace used Arthur Trexler ("Trexler") doing business as Norwin Appraisal Services to appraise the Property. Id . Because Trexler's initial appraisal of $345, 000 was not high enough to complete the refinancing, Ace employees and agents allegedly coerced Trexler into increasing his appraisal to $363, 000. Id . Debtors and Ace closed on the refinancing of Debtors' original mortgage on October 26, 2007, which allowed Debtors to pay off their existing mortgage on the Property. Id . A promissory note showing a loan amount of $352, 000 was issued, and Washington Mutual Bank ("WAMU") was named the originator of the loan. Id . Debtors claim to have protested to Ace that they could not afford the payments under the refinancing, but were allegedly told by Ace that they could refinance again in the future. Id.
Archer Land Settlement Services ("Archer") prepared a HUD-1 Settlement Statement which included a yield spread premium of $10, 563.13 in the total amount financed, and did not disclose the private mortgage insurance cost. Id. at 618. The yield spread premium was allegedly given to Ace as a kickback for completing the refinancing. Id . The HUD-1 form given to Debtors was allegedly different from the HUD-1 given to WAMU. Id.
WAMU was placed into receivership by the FDIC on September 25, 2008 by an order of the Office of Thrift Supervision. Id. at 618. JPMorgan purchased WAMU assets via a Purchase and Assumption Agreement (the "Purchase Agreement"), which included the promissory note secured by the Property. Id.
Debtors defaulted on their loan which was secured by a mortgage on the Property held by JPMorgan and the bank obtained a default judgment in mortgage foreclosure against Debtors on August 6, 2010 in the Court of Common Pleas of Westmoreland County, Pennsylvania. Id . On August 8, 2010, Debtors sent a rescission request to JPMorgan, which they allege constituted a "qualified written request" ("QWR") under the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2605(e). Id . JPMorgan refused to accept the rescission request in a letter dated August 18, 2010, and returned documents to Debtors in response to the alleged QWR. Id . On September 29, 2010, Debtors voluntarily filed for Chapter 13 bankruptcy relief and claimed the value of the Property to be $225, 000, listing JPMorgan as the holder of an unsecured claim in the amount of $347, 496. Id . JPMorgan filed a proof of claim in the amount of $404, 123.53. Id.
Debtors' initial complaint alleged eight counts against JPMorgan, Archer, and the Trustee, including 1) violations of the TILA by JPMorgan and "other unknown entities" (Count I); 2) violations of the RESPA (Count II); 3) violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 ("FDCPA") (Count III); 4) a preference claim pursuant to 11 U.S.C. § 544(a)(3), seeking to exercise the avoidance powers of the Trustee to avoid JPMorgan's unperfected security interest in the Property (Count IV); 5) violations of Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 Pa. Stat. Ann. § 201 ("UTPCPL"), by JPMorgan (Count V); 6) a breach of the implied covenant of fair dealing by JPMorgan (Count VI); 7) a civil conspiracy and fraud charge against JPMorgan and Archer (Count VII); and 8) violations of the UTPCPL catchall provision by Archer (Count VIII). Id. at 619.
The issues raised in this appeal appear to relate only to Count I, the alleged violations of the TILA by JPMorgan for which Debtors seek damages and rescission of the mortgage. It was difficult discern exactly what claims for damages Debtors were arguing were not barred by the failure to exhaust under the FIRREA. The bankruptcy court explicitly held that the claim for rescission of the mortgage under the TILA was not barred under the failure to exhaust requirements because that claim was an affirmative defense to JPMorgan's claim filed in Debtors' bankruptcy case. Since the RESPA and FDCPA claims were settled and the denial of the Motion for Derivative Standing was not appealed, the only claims remaining that would be subject to the failure to exhaust requirement, which is the subject of this appeal, appears to be the TILA claims for damages.
II. Procedural History
Debtors filed the initial complaint against JPMorgan, Archer, and "other unknown entities or persons" on December 24, 2010, in the United States Bankruptcy Court for the Western District of Pennsylvania, seeking damages for violations of multiple statutes and seeking the rescission of the refinanced mortgage. Id . JPMorgan filed a motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Id. at 619. Debtors filed the Motion for Derivative Standing on July 22, 2011, seeking to obtain Chapter 13 Trustee avoidance powers. Id . The bankruptcy court in its May 21, 2012 order granted the motion to dismiss and struck the Motion for Derivative Standing. Id. at 641. A notice of appeal from the bankruptcy court's decision was filed on September 27, 2012. (ECF No. 1.)
III. Standard of Review
This court has jurisdiction over the appeal from the May 21, 2012 order pursuant to 28 U.S.C. § 158(a). A district court applies a clearly erroneous standard to the bankruptcy court's findings of fact and a plenary standard to issues of law. In re Sharon Steel Corp. , 871 F.2d 1217, 1222 (3d Cir. 1989). Mixed questions of law and fact are reviewed through applying the appropriate standard to each component. Id.
Debtors argue that the bankruptcy court erred in concluding that the Rooker-Feldman doctrine bars rescission of the mortgage under the TILA, because bankruptcy courts have original jurisdiction to hear all bankruptcy cases. They also assert that the precedential decisions by the Third Circuit Court of Appeals in Madera v. Ameriquest Mortgage Co. (In re Madera) , 586 F.3d 228 (3d Cir. 2009), and Great Western Mining and Mineral Co. v. Fox Rothschild, LLP. , 615 F.3d 159 (3d Cir. 2010), were wrongly decided and that even if these decisions are correct, rescission is not barred under the four-part test set forth in Great Western. Finally, Debtors contend that the FIRREA does not bar the bankruptcy court from exercising jurisdiction over their claims for damages under the TILA because the United States Supreme Court decision in Stern v. Marshall , 131 S.Ct. 2594, 2600 (2011), prevents non-Article III courts-like the FDIC claims review process mandated under FIRREA-from hearing a private rights claim. That argument likewise arguably applies to the bankruptcy courts. Even if Stern would preclude the bankruptcy court from entering a final order, the district court may consider the bankruptcy court order as a report and recommendation and review it de novo. See Carr v. Loeser (In re Int'l Auction and Appraisal Servs. LLC), 493 B.R. 460, 466 (Bankr. M.D. Pa. 2013). If the order and accompanying opinion of the bankruptcy court need to be considered a report and recommendation, this court, having reviewed the issues raised de novo, will adopt them as the opinion and order of this court. In any event even if the bankruptcy court has the authority to enter a final order in this case, the issues before this court involve questions of law which are subject to plenary, i.e. de novo, review. In whatever way Stern is applicable to the bankruptcy court's decision, the standard of review in this case is de novo review of that decision. After de novo review, ...