Diana Houck v. Substitute Trustee Services
791 F.3d 473
| 4th Cir. | 2015Background
- Diana Houck filed a Chapter 13 petition on December 16, 2011 to stop a foreclosure of her homestead; her husband called the foreclosure law firm the same day and provided the new bankruptcy case number. A foreclosure sale was held December 20, 2011 and the property was sold. Houck’s petition was dismissed the following day.
- Houck sued under 11 U.S.C. § 362(k) (willful violation of the automatic stay) against LifeStore, Grid Financial, and Substitute Trustee Services, Inc. (through Hutchens Law Firm). She alleged the defendants had notice of the December 16 filing and nevertheless completed the sale.
- The district court dismissed the Substitute Trustee under Rule 12(b)(6) for failing to plead facts plausibly showing willfulness/notice, then later dismissed the entire case for lack of subject-matter jurisdiction over § 362(k).
- The Fourth Circuit recalled its earlier sua sponte dismissal of an interlocutory appeal, concluded the district court’s later dismissal was a final judgment (so cumulative finality applied), and reached the merits of Houck’s appeal.
- The Fourth Circuit held the district court had subject-matter jurisdiction to hear a § 362(k) claim (district courts have original jurisdiction under 28 U.S.C. § 1334 and § 157 is a procedural referral scheme, not jurisdictional), and reversed the Rule 12(b)(6) dismissal, finding Houck plausibly alleged notice/willfulness and injury.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Jurisdiction of appeal (finality) | October 1 order dismissing Substitute Trustee combined with later February 20 final dismissal yields cumulative finality permitting appeal | October 1 order was interlocutory; appeal therefore premature | Court: February 20 order was a final judgment; cumulative finality applies, appeal is proper |
| Subject-matter jurisdiction over § 362(k) in district court | § 362(k) is a federal cause of action arising under Title 11; district courts have original jurisdiction and may refer under § 157 but are not deprived of jurisdiction | § 157 standing referral to bankruptcy court in district meant only bankruptcy court could hear § 362(k) claims | Court: District court had subject-matter jurisdiction; § 157 referral scheme is procedural, not jurisdictional; failure to refer does not divest jurisdiction |
| Sufficiency of complaint under Rule 12(b)(6) (willfulness/notice) | Complaint alleges direct telephone notice to Hutchens Law Firm (Substitute Trustee’s counsel), AACER notice to lender, and other facts sufficient to plausibly plead actual notice and willful violation | Complaint failed to allege written notice as required or specific notice to Substitute Trustee; therefore cannot show willfulness | Court: District court applied wrong plausibility test; allegations (oral notice to attorneys, AACER entry, contemporaneous facts) sufficiently plead notice and willfulness; reversal of dismissal |
| Applicability of automatic stay (debtor eligibility under § 109(g)) | Houck was not shown to be ineligible; dismissal of first petition was for failure to file schedules, not willful conduct; eligibility is a fact question | Because second petition was filed within 180 days of first dismissal, debtor may be ineligible under § 109(g), so stay might not have arisen | Court: No record support that first dismissal invoked § 109(g) bar; eligibility is fact-bound — alternative jurisdictional ground rejected at motion-to-dismiss stage |
Key Cases Cited
- United States v. Breeden, 366 F.3d 369 (4th Cir.) (final judgment leaves nothing for court to do)
- Equipment Fin. Group, Inc. v. Traverse Computer Brokers, 973 F.2d 345 (4th Cir. 1992) (doctrine of cumulative finality)
- Stern v. Marshall, 131 S. Ct. 2594 (U.S. 2011) (§ 157 allocation of authority is not jurisdictional)
- Exec. Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165 (U.S. 2014) (bankruptcy courts’ adjudicatory role and § 157 framework)
- Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (U.S. 2015) (bankruptcy court adjudication with parties’ consent)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for pleadings)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must state a plausible claim)
- In re ZiLOG, Inc., 450 F.3d 996 (9th Cir. 2006) (knowledge of bankruptcy charges party with knowledge of the automatic stay for § 362(k) damages)
- Colonial Auto Ctr. v. Tomlin (In re Tomlin), 105 F.3d 933 (4th Cir. 1997) (context on § 109(g) use and 180-day bar)