MARTINEZ ARZUAGA et al v. QUANTUM SERVICING CORP

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IN THE UNITED STATES BANKRUPTCY COURT FOR
THE DISTRICT OF PUERTO RICO
IN RE:
RUDY MARTINEZ ARZUAGA
ROSA CALDERON MOLINA
CASE NO. 03-01215 BKT
CHAPTER 13
Debtor(s) 	ADVERSARY NO. 10-00107 BKT
RUDY MARTINEZ ARZUAGA
ROSA CALDERON MOLINA
Plaintiff
QUANTUM SERVICING CORP 	FILED & ENTERED ON 04/03/2012
Defendant(s)
OPINION AND ORDER
On July 2, 2010, Plaintiffs, Rudy Martínez Arzuaga and Rosa Calderón Molina, initiated this
adversary proceeding upon filing a complaint for alleged damages and violations of the discharge
injunction pursuant to 11 U.S.C. § 524 of the Bankruptcy Code and the Fair Debt Collection
Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq. (Dkt No. 1). Defendant, Quantum Servicing,
Inc. (“Quantum”), in its answer to the complaint presented as a defense that Quantum’s collection
efforts were for post-petition arrears accrued after the confirmation of the plan and after the
discharge (Dkt No. 14).
The Court ordered bifurcation of the case into two stages, liability and damages, pursuant to
Rule 42(b) of the Federal Rules of Civil Procedure, made applicable to these proceedings by Rule
7042 of the Federal Rules of Bankruptcy Procedure (Dkt No. 68). A trial onthe liability issue was
held on March 6, 2012.
I. 	Undisputed facts
The parties have proffered the following facts as undisputed and are binding as if adjudicated
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by this Court:
1. 	Plaintiffs, Rudy Martínez Arzuaga and Rosa Calderón Molina, are married to each other.
2. 	Plaintiffs filed their Chapter 13 bankruptcy petition on February 10, 2003.
3. 	On June 23, 2003, creditor, Doral Financial Corporation, filed a secured claim in the amount
of $45,350.00 for a loan itemizing pre-petition arrears of $27,466.31 encumbering Debtors’ residence.
4. 	On or about May 25, 2005, Doral Financial Corporation filed a motion for relief from stay
claiming that after the filing of the bankruptcy petition, Debtors’ account accumulated postpetition arrears of
$4,915.44, including late charges and legal fees.
5. 	On or about September 12, 2005, Doral Financial Corporation filed a notice of voluntary
withdrawal of its motion for relief from stay asserting that the causes which had prompted the referenced
filing had been cured by debtors.
6. 	On or about April 15, 2008, the Chapter 13 Trustee filed the Trustee’s Notice of Plan
Completion.
7. 	Debtors/Plaintiffs were discharged on May 28, 2008.
8. 	Quantum is a debt collector pursuant to the Fair Debt Collection Practices Act, 15 U.S.C.
§1692, et seq. (“FDCPA”). 15 U.S.C. § 1692a(6).
9. 	Through a letter dated January 5, 2009, Quantum stated that Doral Financial Corporation had
not forwarded all bankruptcy trustee payments to Quantum at the time of the transfer of Plaintiffs’ account.
10. 	On or about December 15, 2009, Doral Bank sent two payments to Quantum in the amounts
of $813.99 and $1,024.10 in payment of funds paid by Plaintiffs during their bankruptcy and retained by
Doral.
11. 	Following Plaintiffs’ discharge, Doral Financial Corporation transferred Plaintiffs’ account to
creditor Dovenmuehle Mortgage, Inc., who in turn assigned it to Quantum as mortgage servicer.
(Dkt No. 67, p. 6-7, Dkt No. 72, p. 2)
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II. 	Findings of fact
After deliberation of testimony and the submission of documentary evidence from all parties,
the following are the additional pertinent facts that were established:
12. 	Debtors were granted a discharge under Section 1328(a) of the Bankruptcy Code on May 28,
2008.
13. 	Plaintiffs cured all of the pre-petition mortgage arrears through their bankruptcy case.
14. 	Following Plaintiffs’ discharge, Doral Financial Corporation transferred Plaintiffs’ account to
creditor Dovenmuehle Mortgage, Inc., who in turn assigned it to Quantum as mortgage servicer.
15. 	Quantum began servicing Plaintiffs’ mortgage loan with Doral Bank on or around July 1,
2008. In June 2008, Plaintiffs were notified by Quantum that from July 1, 2008, all mortgage payments were
to be directed to Quantum instead of Doral Bank.
16. 	Quantum made several collection efforts, including phone calls and letters, directed to
Plaintiffs for collection of arrears. Telephone calls from Quantum would range between 3 to 4 times per
month, for a period of 3 to 4 months.
17. 	On January 26, 2009, Quantum issued a collection letter to Plaintiffs requesting outstanding
payments from June 1, 2008, and for payments due for the months thereafter until January 2009, for a total
amount of $4,452.44. This was the first letter sent by Quantum to Plaintiffs claiming arrears.
18. 	Upon receipt of Quantum’s collection letter of January 26, 2009, Plaintiffs contacted
Quantum to inquire and clarify the information of the purported arrears. Quantum explained to Plaintiffs that
the collection efforts were related to eight (8) months in arrears. Subsequently, Plaintiffs sent to Quantum
copy of money orders as evidence of payment of the purported arrears.
19. 	After Plaintiffs provided evidence of the mortgage payments to Quantum, Quantum contacted
Plaintiffs to inform that said evidence was incompatible with the payments requested. 	Plaintiffs sent
additional evidence of payment, in the form of money orders, for the months asserted by Quantum.
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20. 	Plaintiffs received monthly statements of accounts from Quantum corresponding to the
months of February to July 2009.
21. 	Through a letter dated May 26, 2009, Plaintiffs requested that Quantum corroborate all
payments previously made by Plaintiffs to Doral Bank.
22. 	On November 21, 2009, Quantum sent out a letter to Plaintiffs requesting payment for seven
(7) months of mortgage payments owed, for a total amount of $3,942.26. On December 4, 2009, Quantum
sent another letter to Plaintiffs requesting payment for eight (8) months of mortgage payments owed, for a
total amount of $4,481.94.
23. 	On January 5, 2010, Quantum notified Plaintiffs, by letter, that their account was rectified
since:(1) funds received from Doral Bank in the amount of $1,838.08 were applied to the Plaintiffs’ account,
(2) the amount of $3,140.10 that was held in an escrow account with Doral Bankwas also applied to
Plaintiffs’ account with Quantum,and the escrow requirement was eliminated. 	These actions brought
Plaintiffs account to a current status.
24. 	On or around February 2010 Quantum issued a check to the order of Plaintiffs.
III. Legal Analysis and Discussion
A. 	Violation of the discharge injunction
A bankruptcy discharge operates as an injunction against the commencement or continuation of an
action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability
of the debtor, whether or not discharge of such debt is waived. 	11 U.S.C. § 524(a)(2). A bankruptcy
discharge only covers personal liability of the debtor. Johnson v. Home State Bank, 501 U.S. 78, 84, 111
S.Ct. 2150, 115 L.Ed.2d 66 (1991) (“[A] bankruptcy discharge extinguishes only one mode of enforcing a
claim-namely, an action against the debtor in personam-while leaving intact another-namely, an action against
the debt in rem.”).After the bankrupt has been discharged, a creditor cannot proceed against the debtor,
personally, for debts incurred prior to the bankruptcy filing or discharge. 11 U.S.C. § 524(a). Section 524
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permanently enjoins creditor actions to collect discharged debts and embodies the “fresh start” concept of the
Bankruptcy Code. Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 444-45 (1st Cir.2000); Hardy v. United
States (In re Hardy), 97 F.3d 1384, 1388-89 (11th Cir.1996).
Although §524(a)(2) does not specifically authorize a remedy for its violation, a bankruptcy court is
authorized to invoke 11 U.S.C. § 105 to enforce the discharge injunction imposed by 11 U.S.C. § 524 and
order damages for the debtor. Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 444-45 (1st Cir.2000); In re
Duby, 451 B.R. 664, 670 (1st Cir.BAP. 2011). Nonetheless, Plaintiffs need to prove a violation of the
discharge injunction.
The parties in this case do not contest that Quantum received actual notice of the discharge order. It is
Quantum’s position that all collection efforts were made post discharge, for post-petition arrears that were not
discharged.
Based on the testimony received by the Court and the documentary evidence submitted by
the parties, the Court finds that all of Quantum’s collection actions followed the discharge order of
May 28, 2008, and none of Quantum’s collection actions occurred prior to that date. This conclusion
has been conceded by Plaintiffs. Moreover, the amounts claimed by Quantum following the
discharge order were for monthly payments owed by Plaintiffs for the period between June2008and
January 2009, which is also post discharge order. Therefore, the Court finds that Quantum’s actions
did not violate the discharge injunction.
The instant cause of action was tried and submitted on the merits. Defendant successfully
controverted Plaintiffs’ evidence and testimony and proved that no violation of the discharge
injunction occurred. Thus, the testimony and evidence established that Plaintiffs have no cause of
action against Quantum. As a result, the Court finds that the dismissal of the discharge injunction
cause of action is proper.
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B. 	Violation of the FDCPA
Plaintiff’s second cause of action alleges a violation of the FDCPA by Quantum and seeks damages.
The FDCPA is a consumer protection statute enacted to provide consumers a remedy after they have been
subjected to abusive, deceptive and unfair debt collection practices. 15 U.S.C. §1692. Plaintiffs base their
cause of action under the FDCPA on the allegedly false representations made by Quantum while attempting to
collect from Plaintiffs, in particular, the existence of debt which turned out to be an amount that had been paid
and was not owed by Plaintiffs.
The testimony offered during trial suggests that, as part of the assignment of Plaintiffs’ account from
Doral Bank to Dovenmuehle Mortgage, Inc., and subsequently to Quantum, Quantum was provided with
information of Plaintiffs account, including datathat indicated that said account was in default. This resulted
in Quantum’s collection attempts against Plaintiffs. It can be determined from the testimony of Quantum’s
representative that Quantum was misinformed of the real status of Plaintiffs’ account and that Quantum had
no knowledge that the information given by Doral Bank during the assignment was false or incorrect.
In determining if Quantum’s actions constitute a violation of the FDCPA, the Court should first
ascertain its jurisdiction to entertain this controversy. During trial, Quantum called into question the Court’s
jurisdiction over the FDCPA claim. Quantum’s argument is based on the Court’s determination that there
was no violation of the discharge injunction and, consequently, the lack of nexus between the remaining cause
of action under FDCPA and the bankruptcy estate.
1. 	Limited jurisdiction of the Court
The jurisdiction of the bankruptcy court, like that of any other federal court, is limited by
statute. Section 1334(b) of Title 28 provides that “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.” The district courts may, in turn, refer “any or all proceedings arising under title 11
or arising in or ‘related to’ a case under title 11 … to the bankruptcy judges for the district.”At its
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essence, bankruptcy court jurisdiction exists in cases “under” the United States Bankruptcy Code, 11
U.S.C. §§ 101et seq., and those cases “arising under,” “arising in,” and “related to” title 11. 28
U.S.C. § 1334(b); 28 U.S.C. § 157(a). These types of proceedings are further delineated as “core” or
“non-core.” 	Because of the constitutional limits imposed upon bankruptcy court jurisdiction,
distinguishing between core and non-core proceedings is vital to the exercise of jurisdiction by a
bankruptcy court. 	A bankruptcy court may hear and finally determine all core bankruptcy
proceedings; the parties’ agreement is not needed. 28 U.S.C. § 157(b). In non-core “related to”
proceedings, however, only the district court may enter final orders absent consent of the parties. 28
U.S.C. § 157(c).
Bankruptcy courts may exercise subject matter jurisdiction over core claims that "arise
under" or "arise in" a bankruptcy case. A bankruptcy court will also have subject matter jurisdiction
over those non-core proceedings that "relate to" a bankruptcy case. In re Middlesex Power Equip. &
Marine Inc., 292 F.3d 61, 68 (1st Cir. 2002). A civil proceeding is "related to" a bankruptcy case,
for jurisdictional purposes, when the action between the parties affects how much property is
available for distribution to creditors of the bankruptcy estate or allocation of property among such
creditors, or if the outcome could alter the debtor’s rights or liabilities. 	Id. at 68. 	By its very
definition, “related-to” jurisdiction only applies in non-core matters as an alternative basis of
jurisdiction. It assumes that the matter does not ‘arise in’ the case at hand and therefore it requires
some other nexus vis-à-vis the estate involved.
Whether the claims are sufficiently “related to” a bankruptcy case is a question of whether
they are “sufficiently connected” to the debtor’s reorganization. The Third Circuit has established a
much-cited standard for determining whether a proceeding is “related.” In Pacor, Inc. v. Higgins,
743 F.2d 984 (3rd Cir. 1984), the court described the test as whether “the outcome of that
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proceeding could conceivably have any effect on the estate being administered in bankruptcy.” The
First Circuit has recognized this standard. SeeIn re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir.
1991). In addition, numerous First Circuit, district and bankruptcy courts have accepted and applied
this test. See, e.g., In re Santa Clara Cnty Child Care Consortium, 223 B.R. 40, 45 (B.A.P. 1st Cir.
1998) (providing a lengthy list of First Circuit district and bankruptcy courts adopting the Pacor
test). Simply stated, if the determination of the controversy could have an effect on the bankruptcy
estate, the controversy is a “related matter.” 28 U.S.C.A. § 157(a).
A FDCPA claim does not “arise under” or “arise in” a Title 11 case, nor is it “related to” a
Title 11 case because win, lose or draw, the outcome of Plaintiffs’ FDCPA claim cannot conceivably
have any effect on the bankruptcy estate because the Plan has been completed and because the
discharge has been entered. See McGlynn v. Credit Store, Inc., 234 B.R. 576, 584 (D.R.I.1999)
quoting In re Goldstein, 201 B.R. 1, 5 (Bankr.D.Me.1996) and Pacor, Inc. v. Higgins, 743 F.2d 984,
994 (3d Cir.1984) (reversed on other grounds). An FDCPA claim regarding post-discharge conduct
that does not impact in any way the bankruptcy estate does not fall under Title 11’s jurisdictional
umbrella because any remedies gained under the FDCPA inure to the plaintiff and not to the
bankruptcy estate. Id.
This is the situation in the case at bar. Plaintiffs’ cause of action under FDCPA would have
no effect whatsoever in the bankruptcy estate and, even if they successfully prosecute said claim,
any recovery would be for their personal benefit, not their estate’s. No nexus exists between the
determination of this controversy and the administration of the estate. Therefore, this Court finds
that it has no jurisdictional authority over Plaintiff’s FDCPA claim.
IV. Conclusion
WHEREFORE, in view of the above, IT IS ORDERED that the complaint be dismissed for
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failure to state a claim pursuant to Rule 12(b)(6)of the Federal Rules of Civil Procedure, and because
this Court does not have jurisdiction to hear the FDCPA cause of action.
Judgment to be entered separately.
SO ORDERED.
San Juan, Puerto Rico, this 03 day of April, 2012.
Brian K. Tester
U.S. Bankruptcy Judge
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