['In Re: FIRST AMERICAN TITLE INSURANCE COMPANY, HSBC BANK, NA AND WELLS FARGO BANK, NA'] ( 2014 )

UNITED STATES DISTRICT CGURT
FOR THE DISTRICT OF COLUMBIA
IIl l‘€ DEBRA M. STEVENSON, et al., F I L E Q
DCbfOl’.
Clerk, U.S. Distr|ct & Bankruptcy
COUHS lOl' lll& DlSlflCl Ol C()lllml)la
INSURANCE COMPANY, et al.,
Plaintiffs-Appellees,
v. Case Nos. 13cv258, 13cv440
DEBRA M. STEVENSON, et al.,
Defendants-Appellants.
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MEMORANDU OPINION
(l\/Iarch , 2()14)
These two cases arise out of a common bankruptcy proceeding, and they come
before this Court challenging two different decisions by the United States Bankruptcy
Court for the District of Columbia ("the Bankruptcy Court"). In December 2005,
Fremont Investment & Loan ("Fremont") extended a loan ("the Fremont Loan") to debtor
Debra Stevenson, who used it to refinance a preexisting loan secured by real property
jointly owned by Stevenson and her son, Eugene Smith (collectively "appellants"). First
American Title Insurance Company ("First American") served as Fremont’s title insurer.
In February 2()()7, First American filed a two-count complaint against appellants, seeking
(l) a declaration that, although Smith was not a party to the Fremont Loan, he was
nevertheless a borrower on it, accompanied by an injunction requiring him to take any
steps necessary to document his interest in the loan, see Compl. to Determine
Applicability of Status of Liens Against Debtor’s Property ("Compl.") at 9 [Dkt. #l],' and
(2) a declaration that appellants’ "property located at 3721 Grant Place, NE, Unit B,
Washington, DC 200l9 is subject to a lien in favor of Fremont Investment and Loan,
and/or its successors and/or assigns as their interest may appear, in the amount of
$119,455.02.” 1a ar 12?
On January 4, 2013, the Bankruptcy Court issued a pair of rulings. In the first, the
court held that appellants had forfeited their affirmative defenses challenging the validity
of the Fremont Loan under federal and state lending laws, and any defenses not forfeited
failed on their merits as a matter of law. See J. Dismissing Defs.’ Claims Challenging
Validity of Fre1nont Loan Based on Alleged Violations of Fed. & State Lending Laws
("Judgment of Dismissal") [Dkt. #240]. In the second, the Bankruptcy Court issued
proposed findings of fact and conclusions of law in support of a recommendation that this
Court grant summary judgment in First American’s favor. See Mem. Decision
Submitting Proposed Findings ofFact & Conclusions of Law Recommending Dist. Ct.
l For ease of reference in both cases, unless otherwise noted, docket cites are to the underlying
Bankruptcy Court case, Adversary Proceeding No. 07-10005.
2 In a subsequent Amended Complaint, HSBC Bank USA and Wells F argo Bank joined First
American as plaintiffs. See Am. Compl. to Deterrnine Applicability of Status of Liens Against
Debtor’s Property [Dkt. #122]. l will refer to all three of the plaintiffs collectively as "plaintiffs."
2
Grant Summ. J. in Favor of Pls. on Their Claim for Equitable Subrogation ("Mem.
Recommending Su1nm. J.") [Dkt. #241]. Appellants now appeal the first decision and
seek de novo review of the second. l find that the Bankruptcy Court’s judgment and
recommendation are both sound, so l will affirm the former, adopt the latter, and enter
judgment to that effect.
First, the Bankruptcy Court’s Judgment of Dismissal is amply supported by a well-
reasoned, thorough, 36-page memorandum decision. See Mem. Decision Re Claims
Raised by Defs. in Their Second Mot. for Summ. J. & Re Pls.’ Mot. to Strike Those
Claims ("Dismissal Mem.") [Dkt. #239]. At the outset, l agree with the Bankruptcy
Court’s determination that "[a]djudication of the validity of the Fremont Loan affects the
creditor-debtor relationship and is a core proceeding that [the Bankruptcy Court] is
authorized to decide." Ia’. at 5 (citing 28 U.S.C. § l57(b)(2)(K), (O)). Indeed, the very
"classification of a proceeding as core or non-core is in itself a core proceeding which,
once decided by the bankruptcy judge, is subject only to review for clear error." In re
1733 Rz``dge Rd. E., Irzc., 125 B.R. 722, 724 (W.D.N.Y. 1991).3 The Bankruptcy Court did
not err, much less clearly err, in holding that the issues raised in this case go to the
"validity, extent, or priority of liens," § l57(b)(2)(K), and implicate potential
"adjustment[s] of the debtor-creditor . . . relationship," § 157(b)(2)(O).4
3 See also Inlerconnecl Tel. Servs., Inc. v. Farren, 59 B.R. 397, 401 n.2 (S.D.N.Y. 1986);
1 WlLuAM L. NoRToN, JR., BANKRL)PTCY LAw & PRACTK:E § 4:69 (3d ed. 2011).
4 Even if l disagreed with the Bankruptcy Court on this point, the only practical consequence is
3
Furthermore, I find that the Bankruptcy Court did not abuse its discretion in its
handling of appellants’ belatedly-asserted affirmative defenses. Appellants concede that
they "did not file an answer to the Complaint within the time required by the Fed. R.
Bankr. P. 70l2(a)." Defs.’ Appeal ofBankr. Ct.’s Disinissal Mem. at 5 [Civ. Case 13-
258 Dkt. #8].5 As the Bankruptcy Court correctly explained, because of "defendants’
failure timely and property to assert [their] affirmative defenses," First American was put
"to the unfair burden and expense of having to bring a motion to strike," which was "akin
to a motion for default judgment." Dismissal Mem. at 9. lt was well within the
Bankruptcy Court’s discretion, then, to condition appellants’ late filing their answer on
the payment of modest attorney’s fees that First American incurred when it was "put to
the task of moving to strike because no answer was filed." Ia'. at l0 (citing Thorpe v.
Thorpe, 364 F.2d 692, 694 (D.C. Cir. 1966)). “[T]he bankruptcy court has broad
that l would be required to treat its judgment as a recommendation and review its factual findings
de novo. 28 U.S.C. § l57(c)(l). Because my view of the record comports with the Bankruptcy
Court’s, I would adopt its findings and accept its recommendations in full.
5 In their brief to this court, appellants now argue that they missed the deadline because the
clerk’s office sent a scheduling order to the wrong address. See id. Appellants do not appear to
have raised this argument before the Bankruptcy Court, and they have not cited any evidence that
the Bankruptcy Court considered it. See Defs.’ Opp’n to Pls.’ Mot. to Strike Aftirmative
Defenses at 5 [Dkt. #53] (arguing they in fact complied with the court"s rules, and citing
scheduling order without mentioning that it was mismailed and never received). The argument is
therefore waived. See In re Sokolik, 635 F.3d 261, 268 (7th Cir. 201 l) ("[W]hen an issue was
not raised in the bankruptcy court, a finding that the issue is waved at the district court level is
the correct result, since to find otherwise would permit a litigant simply to bypass the bankruptcy
court." (intemal quotation marks omitted)). The same is true of appellants’ new argument, not
raised below, that their defenses were "general," not "affirrnative." See, e.g., Tr. of March 3 l ,
2008 Hearing at l9, 46, 66, 68, 76 [Dkt. #266] (appellants referring to their "affiimative
defenses").
4
discretion to make case-management decisions, and this court’s review is only for abuse
of discretion." Wells Fargo Bank, N.A. v. Jaaskelainen, 407 B.R. 449, 455-56 (D. l\/Iass.
2009); see also Speleos v. McCarthy, 201 B.R. 325, 327 (D.D.C. l996) ("Bankruptcy
court decisions involving the exercise of discretion are reviewed for abuse of
discretion.").é Whether to set aside a default judgment under Federal Rule of Civil
Procedure 60(b) is such a decision. See Gould v. Salem, No. 2010-0098, 2012 WL
2122580, at *2 (V.I. May 3 1, 2012); cf Capz``zal Yachi Club v. VesselAl/'IVA, 228 F.R.D.
389, 395 (D.D.C. 2005) ("‘ln determining whether to exercise its discretion to set aside a
defaalt, . . . a district court has inherent power to impose a reasonable condition on the
799
vacatur in order to avoid undue prejudice to the opposing party. (emphasis added)
(quoting Pawerserve Int’l, Inc. v. Lavi, 239 F.3d 508, 515-16 (2d Cir. 2001))).
Appellants have not met their burden of proving that the Bankruptcy Court’s decision
regarding forfeiture ofaffirmative defenses was "‘clearly erroneous as to the assessment
of the facts or erroneous in its interpretation of the law." In re Capitol Hill Grp., 313
B.R. at 349.7 l\/Ioreover, to the extent that appellants’ defenses were not forfeited, 1 agree
6 See, e,g., Miller v. District ofColumbia, 891 F. Supp. 2d 8, 12 (D.D.C. 2012) (whether to
extend time to file notice of appeal); In re Douglas, 477 B.R. 274, 275 (D.D.C. 2012) (same);
Hope 7 Monroe Sr. Lld. P ``ship v. RIASO L.L.C., 473 B.R. 1, 6-7 (D.D.C. 2012) (whether to
approve settlement); Akl v. Va. Hosp. Ctr., 471 B.R. l, 7-8 (D.D.C. 2012) (whether to award
sanctions); In re Siridram, 464 B.R. 495, 496-97 (D.D.C. 2011) (whether to strike amended
complaint and enjoin appellant from further filings); Irz re McGuirl, 349 B.R. 759, 760 (D.D.C.
2006) (whether to reopen case); In re Capitol Hill Grp., 313 B.R. 344, 349 (D.D.C. 2004)
(whether to award attomey’s fees and other equitable deterrninations).
7 The record before me so completely supports the Bankruptcy Court’s approach and decisions
that 1 would uphold them under any standard of review, including de novo.
5
with the Bankruptcy Court’s factual findings and legal conclusions regarding the merits_
or lack thereof_as to each defense. 1 thus affirm the Bankruptcy Court’s judgment
dismissing appellants’ claims challenging the validity of the Fremont Loan.S
Moving onto the Bankruptcy Court’s recommendation to grant summary judgment
in plaintiffs’ favor, 1 have reviewed the Memorandum Recommending Summary
Judgment, as well as the parties’ pleadings in opposition to, and in support of, that
recommendation. See Defs.’ Objections to Mem. Recommending Summ. J. [Dkt. #250];
Pls.’ Opp’n to Exceptions [Dkt. #259]; Defs.’ Reply to Pls.’ Opp’n to Defs.’ Objections
[Dkt. #263]. 1 agree with the Bankruptcy Court’s analysis and have nothing to add to its
comprehensive 38-page opinion. 1 therefore adopt its proposed findings of fact and
conclusions of law and will enter judgment accordingly
An appropriate judgment shall accompany this l\/Iemorandum Opinion.
”,YMW
Ri@H/\RALL_@@N
United States District Judge
8 1 need not decide whether the Bankruptcy Court erred when it found that Smith lacked standing
to attack the Fremont Loan, as the outcome of the case would be the same either way.
6