552 B.R. 871
Bankr. M.D. Ala.2016Background
- Stacy and Stephanie Danley executed a $425,000 note and mortgage (2006) on their Auburn, AL residence; they fell severely delinquent and Liberty Bank accelerated and scheduled foreclosure sales repeatedly.
- The Danleys filed multiple bankruptcies (2007–2015); Liberty Bank obtained in rem relief from the automatic stay (after evidentiary hearing) to permit foreclosure; sale occurred November 5, 2015, and Liberty Bank purchased and recorded a foreclosure deed.
- Liberty Bank removed an ejectment action it filed in state court to the bankruptcy court and moved for summary judgment; the Danleys filed counterclaims for wrongful foreclosure (Stacy sought money damages; Stephanie sought to set aside the deed).
- The bankruptcy court analyzed its jurisdiction (in rem under §1334(e)(1); "arising under/ in" and "related to" under §1334(b)), abstention/remand options, and whether the Danleys’ factual showing could defeat summary judgment on wrongful foreclosure.
- Court remanded Liberty Bank’s ejectment claim to state court, retained the counterclaims as "related to" the bankruptcy, denied mandatory abstention (Danleys’ motion untimely), denied discretionary remand as to counterclaims, found the proceeding non-core but adjudicable on undisputed facts, and granted summary judgment for Liberty Bank on the wrongful foreclosure claims.
Issues
| Issue | Plaintiff's Argument (Liberty Bank) | Defendant's Argument (Danleys) | Held |
|---|---|---|---|
| Removal / Subject-matter jurisdiction | Removal was proper under 28 U.S.C. §1452(a); proceedings are "related to" the Chapter 7 estate | Removal improper; §1452 removal unavailable to a plaintiff/counterclaim-defendant; well-pleaded complaint rule bars jurisdiction | Removal proper under §1452; court has "related to" jurisdiction over counterclaims but not in rem §1334(e)(1) jurisdiction over the Residence; ejectment claim lacked federal jurisdiction and was remanded |
| In rem jurisdiction over Residence | §1334(e)(1) supplies in rem jurisdiction because bankruptcy case was pending | Danleys argued bankruptcy court should not exercise control over the property post-foreclosure | In rem jurisdiction over the Residence ended on foreclosure and forfeiture of redemption; §1334(e)(1) did not authorize adjudication of ejectment or merits of counterclaims about post-sale issues |
| Mandatory / discretionary abstention & remand | Opposed abstention/remand; asked court to retain counterclaims | Danleys moved to abstain/remand to state court under §1334(c)(2) (mandatory) and §1452(b) (equitable remand) | Mandatory abstention denied as untimely; discretionary abstention denied for counterclaims (court previously decided many facts and to avoid inconsistent rulings); ejectment remanded as unrelated to estate |
| Wrongful-foreclosure merits & preclusion | Foreclosure was to secure debt; proved large arrearage; Danleys admitted post-2014 nonpayment via requests for admission; prior in rem relief orders preclude relitigation of certain facts | Alleged lack of proper notice, refusal to accept partial payments/cross-collateralization, and other procedural defects | Summary judgment for Liberty Bank on wrongful-foreclosure counterclaims: Danleys admitted nonpayment; collateral estoppel barred relitigating delinquencies and pre-September 16, 2015 payment refusals; no admissible evidence of improper motive or required notices violations to survive summary judgment |
Key Cases Cited
- Montana v. United States, 440 U.S. 147 (U.S. 1979) (doctrine of collateral estoppel and finality of issues decided by competent court)
- In re Smith, 85 F.3d 1555 (11th Cir. 1996) (foreclosure divests debtor of legal and equitable title)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (test for "related to" bankruptcy jurisdiction)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (U.S. 1989) (jury trial right and distinctions between legal claims and equitable bankruptcy proceedings)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (U.S. 1986) (summary judgment requires nonmoving party to present specific facts showing genuine issue)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (movant need not produce evidence negating opponent's claim; burden on nonmovant to show triable issue)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (standard for genuine dispute and materiality on summary judgment)
- In re Gardner, 913 F.2d 1515 (10th Cir. 1990) (bankruptcy in rem jurisdiction ends when property leaves the estate)