In re Residential Capital, LLC
AMENDED MEMORANDUM OPINION AND ORDER UPHOLDING BANKRUPTCY COURT AUTHORITY TO TRY THE INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS CAUSE OF ACTION ASSERTED IN CLAIMS FILED BY PAMELA D. LONGONI AND JEAN GAGNON
The Court must decide whether it can hear and determine (ie., enter final judgment) the emotional distress claim included among the remaining claims in this contested matter. If the emotional distress claim is a “personal injury tort” under section 157(b)(5) of title 28 of the
I. BACKGROUND
A. Prior Proceedings
An earlier memorandum opinion and order (the “Prior Opinion,” ECF Doc. # 8825) sustained in part and overruled in part the ResCap Borrower Claims Trust’s (the “Trust”) objection (the “Objection,” ECF Doc. #8530) to Claim Numbers 2291, 2294, 2295, and 2357 (the “Claims”) filed by Pamela D. Longoni (“Longoni”), individually and as guardian ad litem for Lacey Longoni, and Jean M. Gagnon (“Gagnon,” and together with Longoni and Lacey Longoni, the “Claimants”).
After issuing the Prior Opinion, the Court raised the issue whether section 157(b)(5) of title 28 of the United States Code, which entitles a party to a personal injury tort or wrongful death claim to demand a trial of such claim in a district court, applies to the Claimants’ emotional distress claim. If applicable, the emotional distress claim may not be.tried in this Court unless the parties consent. This Court directed the Claimants and the Trust to advise whether they consent; if any party to the claim did not consent, the parties were directed to brief whether section 157(b)(5) applies to the emotional distress claim. (See Case Management and Scheduling Order (the “CMSO”), ECF Doc. # 8903 ¶ 4 (requiring the parties to brief the issue whether this Court can finally adjudicate the Claimants’ surviving intentional infliction of emotional distress claim (the “IIED Claim”)).) The parties did not mutually consent and therefore they briefed the issue. (See ‘.‘Trust’s Brief’ or “Trust Br.,” ECF Doc. # 9014; “Claimants’ Brief’ or “Cl. Br.,” ECF Doc. # 9016.)
B. The Claims
In April 2010, the Claimants filed a complaint in Nevada state court against Debtors GMAC Mortgage, LLC (“GMACM”), Executive Trustee Services, LLC (“ETS”), Residential Funding Corporation (“RFC”), and Residential Asset Mortgage Products, Inc. (“RAMP”), as well as against other non-debtor individuals and entities (the “Nevada Action”). (ObjA 5.) The defen
The Claims filed here incorporate the causes of action asserted in the Nevada Action. (See Obj. Ex. 1.) The Prior Opinion disallowed and expunged some of these causes of action, but the fraud, negligence (negligent misrepresentation and negligent infliction of emotiorial distress), IIED, and promissory estoppel claims remain.
C. The IIED Claim
The IIED Claim stems from the allegedly wrongful foreclosure. The operative complaint in the Nevada Action included the following allegations: “foreclosure and wrongful ousting of the plaintiffs from the family home was an invasion of property owners’ rights which occurred under circumstances of malice, willfulness, wantonness, and inhumanity”; the “defendants’ .... wrongful acts and foreclosure were a willful use of power with the expectation to humiliate and distress the mortgagors and plaintiffs”; and “the defendants engaged in conduct that they knew, or should have known and expected, would cause, the plaintiffs to suffer and which did, in fact, cause the plaintiffs to suffer severe and mental and emotional pain, grief, sorrow, anger, worry, and anxiety.” (Obj. Ex. 4 ¶¶ 173-176.) The complaint requested at least $10,000 in general damages, at least $10,000 in exemplary and punitive damages, and costs and attorneys’ fees. (Id. ¶¶ 175-177.)
The Claimants supported their Opposition to the Objection to the IIED Claim with Pamela Longoni’s affidavit that addresses the physical manifestations of the emotional distress to herself and her daughter. (Opp.¶ 68.) The affidavit states:
38. I expressed'to all GMACM representatives that losing my home was such an emotional and life changing event. My children grew up in that home. I had improved that home greatly, and I was comfortable in my neighborhood. My daughter, Lacey, who was 13 at the time this foreclosure took place, suffered tremendously. She was forced out of her neighborhood and left the kids she grew up with. She was forced to ride a new school bus from our new rental house, and did not know any kids on the bus. She didn’t have anyone to walk home*570 with as there were no kids in our new neighborhood.
39. We relied tremendously on the neighbors across the street on Twin Creeks. She was a stay at home mom, and me, being a single mom, relied greatly on her to assist with Lacey after school. Our daughters were very close friends. Their friendship involved sleepovers, holiday events, and extracurricular activities together. We often attended summertime BBQ’s and holiday events together. We shared activities as families and helped each other with transportation for our kids.
40. It was devastating to lose my house. It caused a great deal of emotional distress. I had never planned on living anywhere else. However, since this time, I have lived in 4 other places, which has caused a lot of financial and continued emotional distress, as nothing has felt quite like “home.”
41. After I learned of the foreclosure, I lost 13 pounds in a less than two weeks. I was forced to take prescription medications just to stop the emotional breakdowns. I was embarrassed and humiliated that this had taken place. I had a hard time concentrating at work. I cried all the time. I felt so guilty for my daughter, Lacey, who had been displaced from her childhood home. I remember, while attempting to pack all of 15 years of belongings, and I was just exhausted, and I was wrapping up the day of packing. I had left several belongings in my driveway and after sheer exhaustion from the day, I covered those items with a tarp and believed they would be safe, as I knew my neighbors and neighborhood.
42. The following morning, I went out to get my things and continue packing. I realized that sometime during the night, my belongings had been picked through, and several items were missing. I ran to the side of the house, and vomited.
(Id. Ex. 9 ¶¶ 38-42.)
The Prior Opinion overruled the Trust’s Objection to the IIED Claim; the Nevada District Court had previously denied the defendants’ motion to dismiss that claim. (Prior Opinion at 34-35 & n.15 (citing Opp. ¶¶ 67-68 (citing id. Ex. 9 ¶¶ 38-42)).) The Court also overruled the Trust’s argument about the requirement for physical manifestations of emotional distress — at this stage of the pleadings, the Court concluded, Claimants provided sufficient allegations of physical manifestations. (Id.) The Court overruled the Objection to the negligence claim insofar as it asserted a negligent infliction of emotional distress claim because the Trust did not address the cause of action in its Objection, thereby failing to meet its initial burden. (Id. at 31 & n.14.)
D. The Parties’ Arguments
The parties disagree whether the IIED Claim is a “personal injury tort” under section 157(b)(5). The Trust argues that the IIED Claim is not a personal injury tort because it alleges no physical trauma or bodily injury — it is based on secondary emotional or mental anguish purportedly caused by the failed mortgage contractual relationship. (Trust Br. ¶¶ 4-7.) Without allegations that the Claimants suffered real psychiatric impairment beyond shame and humiliation, the Trust argues, the IIED Claim is not a personal injury tort that cannot be finally adjudicated by a bankruptcy court. (Id.) Alternatively, the Trust asserts that even if the IIED Claim is construed as a personal injury tort, the IIED Claim should remain before this
The Claimants contend that this Court cannot properly exercise jurisdiction over their IIED Claim. (Cl. Br. at 2-5.) According to the Claimants, IIED claims based on wrongful foreclosure are “non-core” claims under Stern v. Marshall, - U.S. -,
II. DISCUSSION
Bankruptcy courts have jurisdiction over cases “arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334. “The manner in which a bankruptcy judge may act on a ... mat-tery depends on the type of proceeding, involved.” Stern,
For matters involving personal injury tort or wrongful death claims, a bankruptcy court’s authority is different. Section 157(b)(5) requires the district court to “order that personal injury tort or wrongful death claims shall be tried in the district in which the bankruptcy case is pending, or in the district court in the district in which the claim arose, as determined by the district court in which the bankruptcy case is pending.” Id. § 157(b)(5). The Supreme Court has held — though most overlook this particular holding — that section 157(b)(5) is not jurisdictional and the parties may consent to the trial of personal injury and wrongful death claims in the bankruptcy court. Stern,
The Bankruptcy Code does not define the term “personal injury tort.” The Second Circuit has not addressed the issue. Lower courts in this Circuit and elsewhere have adopted different approaches to determine whether a particular claim is a personal injury tort for purposes of section 157(b)(5). See Stranz v. Ice Cream Liquidation, Inc. (In re Ice Cream Liquidation, Inc.),
Some courts adopt the “narrow view,” characterizing a personal injury tort claim as “a tort [claim] with[ ] trauma or bodily injury.” Id. at 160 (citing In re Atron Inc. of Mich.,
Other courts adopt a “broader view,” holding that the term “personal injury tort” “embraces a broad category of private or civil wrongs or injuries for which a court provides a remedy in the form of an action for damages, and includes damage to an individual’s person and any invasion of personal rights, such as libel, slander and mental suffering.” Boyer v. Balanoff (In re Boyer),
Still other courts adopt a middle or hybrid view. Where a claim appears to be a “ ‘personal injury tort claim’ under the ‘broader’ view but has earmarks of a financial, business or property tort claim, or a contract claim, the court reserves the right to resolve the ‘personal injury tort claim’ issue by (among other things) a more searching analysis of the complaint.” In re Ice Cream Liquidation, Inc.,
Courts have reached different results under section 157(b)(5) for emotional distress claims (whether negligent or intentional). Some courts have held, without analysis or explanation, that the bankruptcy court does not have subject matter jurisdiction to adjudicate the emotional distress claim under section 157(b)(5).
Some courts have found it unnecessary to settle on one single approach for determining whether an emotional distress claim involves a personal injury tort, focusing instead on the “gravamen”
The court’s analysis in Thomas and in other cases points strongly towards analyzing the context and central focus of the claims — if an IIED claim is the tail wagging the dog, section 157(b)(5) should not require dislodging the claim from bankruptcy court resolution of a portion of a claim asserted against a debtor. If the IIED claim is the gravamen of the claim, as the South Carolina bankruptcy court found in Thomas, section 157(b)(5) does not permit the bankruptcy court to try the claim absent consent. But when the context and central focus of the claim is not about physical injury or emotional distress, the claim should remain in the bankruptcy court.
Other courts have also focused on the context and central focus of the claims.
Concern about permitting a claimant too easily to escape bankruptcy court adjudication of claims against a debtor by pleading an emotional distress claim (along with other claims) has led other courts to be cautious about concluding that section 157(b)(5) applies. In Bertholet v. Harman,
The courts’ concerns in Lang and Ber-tholet highlight the problem where IIED. claims are tacked onto bankruptcy claims when the gravamen of the claim — as is true here — focuses on a contractual relationship, alleged economic injury, or conduct arising from mortgage foreclosure. The Claimants here are not the first borrowers in the ResCap bankruptcy cases to assert an IIED claim along with a plethora of other common law and statutory claims arising from what are fundamentally residential mortgage foreclosure disputes. See, e.g., In re Residential Capital, LLC,
Each ResCap borrower asserting an emotional distress claim should have his or her claim evaluated separately to determine whether it states a claim under applicable state law. But the issue whether the state law claim is a personal injury tort under federal bankruptcy law, such that a bankruptcy court may not enter a final judgment absent consent, is a separate question controlled by federal law. The Claimants’ IIED Claim here survived the Trust’s Objection to the Claims, but that ruling does not control whether this Court may hear and finally determine the IIED Claim along with the Claimants’ other surviving causes of action.
Efficient, prompt, consistent resolution of objections to bankruptcy claims is important — no ResCap borrower claimant with an allowed claim has received a distribution yet from the Trust, as the claims allowance process continues to resolve numerous contested claims. Requiring each ResCap borrower’s emotional distress claim to be resolved in a district court can only further slow the claims allowance process and the making of distributions to claimants with allowed claims. These concerns, of course, cannot control the correct determination of what is a personal injury tort under section 157(b)(5), but courts should not be blind to the consequences of a ruling on the application of the statutory term “personal injury tort” — context matters.
With that, the Court turns to the' primary issue before it: whether the Claimants’ IIED Claim is a personal injury tort for purposes of section 157(b)(5). The Court concludes that the hybrid approach is most appropriately applied in determining whether the Claimants’ IIED Claim is a personal injury tort under section 157(b)(5). In this contested matter, however, whether the hybrid or narrow approach is followed, the result would be the same — the Claimants’ IIED Claim is not a personal injury tort.
The Claimants’ assert their IIED Claim pursuant to Nevada law. Under Nevada law, courts identify the following elements of an IIED claim: “(1) extreme or outrageous conduct on the part of the defendants; (2) intent to cause emotional distress or reckless disregard for causing emotional distress; (3) that the plaintiff actually suffered extreme or severe emotional distress; and (4) causation.” Franchise Tax Bd. of State of Cal. v. Hyatt,
This Court refused to dismiss the Claimants’ IIED Claim under Nevada law, finding that their allegations of physical manifestations of the emotional distress were sufficient to overcome the Trust’s Objec
Under the hybrid view, the Claimants’ IIED Claim does not fall within section 157(b)(5). Like many other ResCap borrower claimants, the Claimants’ IIED Claim unquestionably stems from allegedly flawed mortgage foreclosure and loss mitigation processes. The IIED Claim therefore arises primarily out of financial, contract, or property tort claims triggering this Courts “more searching analysis” of the Claimants’ allegations. See In re Ice Cream Liquidation, Inc.,
III. CONCLUSION
For the foregoing reasons, the Court concludes that the Claimants’ IIED Claim is not a personal injury tort for purposes of section 157(b)(5). As a result, the IIED Claim will remain in this Court for final adjudication.
IT IS SO ORDERED.
Notes
. The Prior Opinion can be found at In re Residential Capital, LLC, Case No. 12-12020(MG),
. The negligence claim included allegations of negligent infliction of emotional distress. It is not clear whether the Claimants intended to plead a separate claim for negligent infliction of emotional distress, or to seek emotional distress damages on their negligence claim. The Prior Opinion overruled, in part, the objection to the negligence claim. Nevada law appears to recognize a claim for negligent infliction of emotional distress, but with a heavier burden for a plaintiff to recover on the claim. This Opinion will refer to a single intentional infliction of emotional distress claim; the result here would be the same for a negligent infliction of emotional distress claim.
. Many of the cases discussed in the text are off-the-mark to the extent they hold that the bankruptcy court does not have subject matter jurisdiction over claims against the estate for personal injury tort or wrongful death claims — Stem v. Marshall makes that point clearly. Even though the court has jurisdiction, section 157(b)(5) may require trial in the district court.
. As will be seen, a number of courts have focused on the gravamen of the claim. Black’s Law Dictionary defines "gravamen” as "[t]he substantial point or essence of a claim, grievance or complaint.” Black's Law Dictionary (10th ed.2014).