572 B.R. 492
Bankr. S.D.N.Y.2017Background
- Debtor Philip M. Scott (chapter 13) and co-borrowers (Campbell, Gaethers‑Langley) owned taxable real property subject to a 2005 mortgage; BNY is mortgagee and Ocwen the servicer. A forced‑placed hazard policy from American Security Insurance Co. (ASIC) covered the property; the property was destroyed by fire on Dec. 31, 2014.
- Debtor alleges ASIC paid insurance proceeds (approx. $712,908) to Ocwen/BNY, which (i) failed to credit the loan, (ii) did not record satisfactions of mortgage/judgment, and (iii) proceeded with foreclosure sale notices; he seeks damages and declaratory relief that the note/mortgage/judgment are satisfied and void.
- Complaint asserts claims for conversion, embezzlement, breach of contract, NY Debtor & Creditor Law (fraudulent conveyance), NY Gen. Bus. Law § 349, FDCPA violations, and statutory recording obligations (RPAPL § 1921; CPLR § 5020). Cross‑claimants adopted plaintiff’s allegations and added their own claims.
- Defendants moved to dismiss under Fed. R. Civ. P. 12(b)(6)/(c) and related bankruptcy rules; the court excluded extraneous affidavits and treated the motions under the Rule 12 standard.
- Court held (i) debtor and cross‑claimants lack standing to bring NY DCL avoidance claims (§ 544) in chapter 13, so those claims dismissed for want of subject‑matter jurisdiction; (ii) the bankruptcy court has only "related‑to" (non‑core) jurisdiction over the debtor’s remaining state/federal common‑law claims but those claims fail on the merits and are dismissed (recommendation to district court under § 157(c)).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to assert NY DCL avoidance (§ 544) | Scott contends he can avoid transfers/press insurer subrogation and assert fraudulent conveyance-type claims tied to insurance payout | Defendants: § 544 avoidance powers belong to a trustee (or debtor in possession in chapter 11); chapter 13 debtors lack statutory standing | Held: Chapter 13 debtor lacks standing to assert § 544 claims; NY DCL claims dismissed for lack of subject‑matter jurisdiction |
| Core v. related jurisdiction and authority to enter final orders | Scott argues claims affect estate and are core (§ 157(b)(2)(E),(K),(O)) and filed surrogate proofs of claim to generate counterclaim/core posture | Defendants: most claims are prepetition state-law/private-right claims and at most "related to"; surrogate claim does not constitute consent to core jurisdiction | |
| Court: Most non‑NY DCL claims are "related to" (non‑core); defendants consented except debtor; bankruptcy court may issue proposed findings under § 157(c) and recommend dismissal | |||
| FDCPA claims (against BNY/Ocwen/McCabe/Veneer) | Scott alleges debt‑collection defects including false notices, failure to record satisfactions, faulty service/publication, and unfair collection practices | Defendants: plaintiff is not a FDCPA "consumer" (he did not sign the note and received a bankruptcy discharge); BNY is not a "debt collector" (acquired loan pre‑default); foreclosure enforcement is not debt collection for FDCPA purposes; pleadings fail to allege elements | |
| Held: FDCPA claims dismissed—Debtor not a consumer; BNY not a debt collector; foreclosure/enforcement activity not FDCPA debt collection; §1692 claims fail as pleaded | |||
| Conversion / Embezzlement re: insurance proceeds | Scott alleges Ocwen/BNY converted or embezzled insurance proceeds and failed to credit loan or record satisfactions | Defendants: proceeds were not a segregated fund payable to Scott; mortgagee had lawful interest under the policy and mortgage; debit/consent and mortgage terms permit mortgagee receipt; plaintiff lacks ownership/possession of proceeds | |
| Held: Conversion and embezzlement claims dismissed—money was not specifically identifiable to plaintiff and mortgagee had a lawful interest; dismissal without leave to amend | |||
| Breach of contract against ASIC | Scott contends charging premium to loan created contract/obligation to insureds and ASIC breached duty to pay them | ASIC: plaintiff is not a party to the insurance policy; forced‑placed policy and charge were lender‑initiated; no privity or enforceable obligation to Scott | |
| Held: Breach of contract claim against ASIC dismissed (Rule 12(c)); amendment would be futile |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must contain sufficient factual matter to state a plausible claim)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
- Hartford Underwriters Ins. Co. v. Union Planters Bank, 530 U.S. 1 (2000) (statutory prudence: trustee‑only remedies cannot be assumed by other parties)
- Marathon Pipe Line Co. v. United States, 458 U.S. 50 (1982) (limits on Article III; private‑rights claims reserved for Article III courts)
- Stern v. Marshall, 564 U.S. 462 (2011) (distinction between core and non‑core and limits on bankruptcy judges’ final adjudicatory power)
- Celotex Corp. v. Edwards, 514 U.S. 300 (1995) (bankruptcy court jurisdiction is statutory; estate property includes debtor’s causes of action)
- Orion Pictures Corp. v. Showtime Networks, Inc., 4 F.3d 1095 (2d Cir. 1993) (caution against overbroad construction of § 157(b)(2) that would conflict with Marathon)
- Knapper v. Bankers Trust Co. (In re Knapper), 407 F.3d 573 (3d Cir. 2005) (chapter 13 debtors lack standing to exercise § 544 avoidance powers)