Engelhardt et al v. Argent Mortgage Company LLC et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
WESTERN DIVISION
________________________________
In re:
JOEL P. ENGELHARDT, JR. and 	Chapter 7
JANET R. ENGELHARDT, 	Case No. 06-42346
Debtors
________________________________
JOEL P. ENGELHARDT JR., et al.,
Plaintiffs
Adversary Proceeding
v. 	Case No. 07-04104
ARGENT MORTGAGE CO. et al.
Defendants
________________________________
MEMORANDUM OF DECISION
This matter came before the Court upon the motions to dismiss filed by the
following defendants: (1) Field Asset Services Inc.; (2) RE/MAX International, Inc., (3)
RE/MAX Associates of Charlton Massachusetts; (3) Argent Mortgage Company, LLC;
(4) Ameriquest Mortgage Company; (5) Deutsche Bank National Trust Company 1 ; and
(6) Kenneth Maston, individually and d/b/a Haul on Call [Docket # 17, 24, 36, and 50].
For the reasons set forth herein, the motions to dismiss are GRANTED and the objection
of the plaintiffs 2 is OVERRULED.
1 Deutsche Bank Mortgage Services is also named as a defendant in this adversary proceeding. To the
extent that it is an extant entity, it and the moving parties (jointly “the Defendants”) will be treated
collectively.
2 Joel P. Engelhardt Jr., Janet R. Engelhardt, Daniel A. Engelhardt, and Sarah E. Engelhardt.
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Janet and Joel Engelhardt (“the Debtors”) filed for Chapter 11 bankruptcy in
October 2006, and the case was subsequently converted to Chapter 7. In June 2007, the
Chapter 7 Trustee filed a Report of No Distribution, certifying that there was “no
nonexempt property available for distribution to creditors.” (Trustee’s Report, entered
June 18, 2007). On August 21, 2007, this Court issued an Order of Discharge to the
Debtors. [Docket # 115]. As of the date of this Memorandum, the case remains open.
Prior to the Debtors’ discharge, on February 22, 2007, this Court granted Argent
Mortgage Co. (“Argent”) relief from the automatic stay, allowing a foreclosure of the
mortgage on the Debtors’ property at 6 Apache Road, Hubbardston MA. [Docket # 60].
That Order stated in relevant part, “Argent and any successor in interest is permitted to
proceed forward to pursue its rights and remedies under state and federal law.” (Order
Granting Relief from the Automatic Stay 1). Following the completion of the
foreclosure, realtors and disposal agencies (also named defendants in this case) entered
the property, allegedly without legal right, and allegedly caused damage to the Debtors’
personal property. (Complaint ¶¶ 22-29) [Docket # 1]. On July 19, 2007, the Debtors
filed their Complaint, asserting nine separate state law tort claims against each
defendant. 3
The Debtors argue that this Court has jurisdiction because the Defendants’ actions
violated “an Order issued by this Court requiring that the party authorized to proceed
with foreclosure and its agents act in accordance with established state law procedures.”
(Opposition to Argent’s Motion to Dismiss 2) [Docket # 37]. In other words, because the
3 The nine claims asserted against each defendant are: (i) Trespass, (ii) Nuisance, (iii) Negligent
Interference with Property, (iv) Intentional Interference with Property, (v) Intentional and Malicious
Destruction of Property, (vi) Negligent Infliction of Emotional Distress, (vii) Intentional Infliction of
Emotional Distress, (viii) Bad Faith and (ix) Negligence. (Mot. of Re/Max to Dismiss for Lack of
Jurisdiction, or Alternatively, to Abstain 3 n. 1).
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Order for Relief stated that foreclosure must be done in accordance with state law, a
violation of state law during foreclosure confers jurisdiction over the resulting claims on
this Court. The Debtors cite two cases in which “allegations of failure of parties to
adhere to orders of the Court or procedures established thereto” were considered to be the
province of the court whose orders or procedure had been violated. (Opposition to
Argent’s Motion to Dismiss 3).
The Defendants respond that the Court lacks jurisdiction because the Debtors’
claims: (1) will have no bearing on the administration of the bankruptcy estate and (2)
arose after the filing of the Debtors’ bankruptcy petition. (Argent’s Motion to Dismiss
2). Thus, they argue, the case should be dismissed for lack of jurisdiction pursuant to 28
U.S.C. § 1334(b). Alternatively, they argue that the Court should voluntarily abstain
from the case pursuant to 28 U.S.C. § 1334(c)(1). Argent and its co-defendants also
contend that the cases relied upon by the Debtors are inapplicable because: (1) neither
case deals with jurisdiction or permissive abstention and (2) in both cases the defendants
were alleged to have violated the automatic stay, which was not the case here.
28 U.S.C. § 1334(b) states, “the district courts shall have original but not
exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related
to cases under title 11.” Accordingly, whether a given matter is “related to” the
bankruptcy case is the threshold denominator of bankruptcy court jurisdiction. Pacor v.
Higgins articulated the test of “related to” jurisdiction currently espoused by the First
Circuit: “whether the outcome [of the proceeding in question] could conceivably have
any effect on the estate being administered in bankruptcy.” 743 F.2d 984, 994 (3rd Cir.
1984). See also In re G.S.F. Corp., 938 F.2d 1467, 1474 (1st Cir. 1991) (endorsing the
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Pacor test). A proceeding can sufficiently affect the estate by “altering debtor’s rights,
liabilities, options, or freedom of action, or otherwise hav[ing] an impact upon the
handling and administration of the…estate.” In re Boston Regional Medical Center, Inc.,
410 F.3d 100, 105 (1st Cir. 2005).
The Defendants’ alternative request, permissive abstention, is governed by 28
U.S.C. § 1334(c)(1):
Nothing in this section prevents a district court in the interest of justice, or
in the interest of comity with State courts or respect for State law, from
abstaining from hearing a particular proceeding arising under title 11 or
arising in or related to a case under title 11.
In addition to the three factors enumerated in the statute, courts have looked to “factors
such as the extent to which state law issues predominate over bankruptcy issues, the
presence of a related proceeding commenced in state court, and the likelihood that the
commencement of the proceeding in bankruptcy court involves forum shopping by one of
the litigants.” In re Colarusso, 382 F.3d 51, 57 (1st Cir. 2004) (citing In re Middlesex
Power Equipment & Marine, 292 F.3d 61, 69 (1st Cir. 2002)).
The Court’s direction to proceed under state law may not rightfully be considered
an “order” as the Debtors suggest. The Supreme Court, for example, has rejected as
nonbinding a:
So-called order…which does not command the [defendant] to do, or to
refrain from doing, anything; which does not grant or withhold any
authority, privilege, or license; which does not extend or abridge any
power or facility; which does not subject the [defendant] to any liability,
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civil or criminal; which does not change the [defendant’s] existing or
future status or condition; which does not determine any right or
obligation. U.S. v. Los Angeles & S.L.R. Co., 273 U.S. 299, 309 (1927).
In this case, the Court’s instruction did not modify or amend any duty the Defendants
owed to the Debtors; they were equally obliged to comply with state law before and after
the issuance of the Order for Relief. To the contrary, the language of the Court’s Order
actually clarifies that no duty to comply with state law has been modified or amended in
any way.
In the same vein, the Court’s instruction, and thus the causes of action purportedly
arising from it, clearly does not fit under the definition of “related to” in Boston Regional
Medical Center, supra, because it does not alter “debtor’s rights, liabilities, options, or
freedom of action, or otherwise have an impact upon the handling and administration of
the bankrupt estate.” 410 F.3d at 105. The Defendants were no more or less bound by
state law once the Order for Relief was granted, and thus the administration of their estate
was not impacted in any way by the “state law” instruction.
Moreover, neither the Debtors’ tort claims, nor any recovery potentially derived
therefrom, belong to the bankruptcy estate. As the bankruptcy court noted in In re
Riccitelli, a claim must be “sufficiently developed as of the petition date to constitute
property of the debtor for purposes of inclusion or exclusion from the bankruptcy estate.”
320 B.R. 483, 490 (Bankr. D. Mass. 2005) (citing Segal v. Rochelle, 382 U.S. 375, 379-
380 (1966)) (see also In re Adams, 212 B.R. 703 (Bankr. D. Mass. 1997) (“bankruptcy
courts do not have jurisdiction over postpetition matters which are unrelated to the
bankruptcy estate”)). Because the Debtors’ claims did not exist at the commencement of
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the case, they cannot be considered part of the bankruptcy estate. By the same token, any
recovery under the tort claims would not be incorporated into the estate or distributed to
creditors of the estate; instead it would accrue solely to benefit the Debtors. Accordingly,
the tort claims fail the Pacor test of “whether the outcome [of the proceeding in question]
could conceivably have any effect on the estate being administered in bankruptcy.” 	743
F.2d at 994. As such, the Court does not have jurisdiction over the Debtors’ claims;
dismissal is appropriate on those grounds and it is unnecessary for the Court to consider
the issue of abstention.
For the reasons set forth herein, the Defendants’ motions to dismiss [Docket
# 17, 24, 36, and 50] are GRANTED.
A separate order will issue.
Dated: October 15, 2007 	By the Court,
_________________ _______________
Joel B. Rosenthal
United States Bankruptcy Judge
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