519 B.R. 890
Bankr. S.D.N.Y.2014Background
- Julie and Ronald Eriksen filed two $1,000,000 proofs of claim against GMAC Mortgage, LLC (GMACM) alleging wrongful foreclosure, RESPA/TILA/FDCPA violations, fraud, and related Illinois-law claims based on GMACM’s 2006 conversion from a corporation to an LLC and subsequent servicing/foreclosure events.
- GMACM originated the loan in 2005, sold it to Freddie Mac in 2006, converted to an LLC by merger in October 2006, and foreclosed in state court in February 2011; the Eriksens filed a joint Chapter 7 petition in July 2011 and received a discharge in January 2012.
- The Claims were timely filed (Nov. 12, 2012) in the ResCap claims process; the Trust objected asserting no debtor liability and that the Claimants are judicially estopped for failing to disclose these prepetition claims in their Chapter 7 schedules.
- Instead of directly responding, the Claimants moved the bankruptcy court to abstain or stay determination pending a District Court decision on their motion to withdraw the reference (arguing forum non conveniens, that claims are personal-injury torts under 28 U.S.C. §157(b)(5), and Illinois is the proper forum).
- The Trust opposed abstention/withdrawal and argued the Claims were meritless because the 2006 conversion did not constitute a RESPA transfer requiring notice; the Trust produced evidence rebutting the prima facie validity of the claims.
- The bankruptcy court denied the abstention/stay request, held the Claimants judicially estopped for failing to disclose the prepetition claims, and, alternatively, concluded the Claims failed on the merits (no RESPA violation); the court sustained the Trust’s objection and expunged the Claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court should abstain or stay resolution pending District Court decision on withdrawal of the reference | Eriksen: forum is inconvenient (Illinois); claims are state-law/personal-injury torts that should be heard in District Court or state court | Trust: mandatory and permissive abstention not satisfied; stay would cause delay and expense; claims are core to claims allowance | Denied — neither mandatory nor permissive abstention warranted; stay denied (no likelihood of withdrawal or irreparable harm) |
| Whether the District Court should withdraw the reference (mandatory or for cause) | Eriksen: withdrawal warranted because claims involve personal injury torts and Illinois law; forum non conveniens | Trust: no substantial and material federal-law consideration requiring withdrawal; bankruptcy court is most efficient forum; forum shopping | Denied as unlikely to be granted; no basis for mandatory withdrawal and no cause demonstrated |
| Whether Claimants are judicially estopped from asserting the Claims | Eriksen: did not consent to bankruptcy court jurisdiction; settlement-negotiation conduct and alleged bad faith by Trust excuse nondisclosure | Trust: Claims arose prepetition and were not scheduled in Chapter 7, discharge was entered; nondisclosure bars assertion under judicial estoppel | Held for Trust — Claimants had knowledge of claims prepetition, failed to disclose them, discharge was entered; judicial estoppel bars the Claims |
| Whether Claimants state viable RESPA/other statutory or tort claims on the merits | Eriksen: Conversion triggered RESPA notice duties and wrongful foreclosure caused damages | Trust: conversion was a mere change in entity form (no transfer of servicing/payee/address/account) so no RESPA notice obligation; foreclosure resulted from default | Even assuming no estoppel, Trust rebutted prima facie claims; court held no RESPA violation and Claims fail on the merits |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (U.S. 2011) (clarifies limits on bankruptcy courts’ authority to enter final judgments in certain Stern claims and that §157(b)(5) is not jurisdictional)
- Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d 116 (2d Cir. 2008) (broad scope of property of the estate and disclosure obligations under §541 and §521)
- Peralta v. Vasquez, 467 F.3d 98 (2d Cir. 2006) (elements for invoking judicial estoppel in the Second Circuit)
- In re Ionosphere Clubs, Inc., 922 F.2d 984 (2d Cir. 1990) (tests for withdrawal of the reference and when substantial non-bankruptcy federal law consideration requires withdrawal)