Diana Houck v. Substitute Trustee Services

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-2326
DIANA LOUISE HOUCK; STEVEN G. TATE,
Plaintiffs - Appellants,
v.
SUBSTITUTE TRUSTEE SERVICES, INC.,
Defendant - Appellee,
and
LIFESTORE BANK; GRID FINANCIAL SERVICES, INC.,
Defendants.
-------------------------
PAULA STEINHILBER BERAN,
Court-Assigned Amicus Counsel.
Appeal from the United States District Court for the Western
District of North Carolina, at Statesville. David S. Cayer,
Magistrate Judge. (5:13-cv-00066-DSC)
Argued: May 12, 2015 Decided: July 1, 2015
Before NIEMEYER, DIAZ, and FLOYD, Circuit Judges.
Vacated, reversed in part, and remanded by published opinion.
Judge Niemeyer wrote the opinion, in which Judge Diaz and Judge
Floyd joined.
M. Shane Perry, COLLUM & PERRY, Mooresville, North Carolina, for
Appellants. Jeffrey Allen Bunda, HUTCHENS LAW FIRM, Charlotte,
North Carolina, for Appellee. Paula Steinhilber Beran, TAVENNER
& BERAN, PLC, Richmond, Virginia, as Court-Assigned Amicus
Counsel.
2
NIEMEYER, Circuit Judge:
Diana Houck commenced this action under 11 U.S.C. § 362(k),
alleging that the defendants foreclosed on and sold her
homestead in violation of the automatic stay triggered by her
filing of a Chapter 13 bankruptcy petition. The district court
granted the motion to dismiss filed by one of the defendants,
Substitute Trustee Services, Inc. (the “Substitute Trustee”),
concluding that Houck failed to allege facts that plausibly
supported her allegation that the violation of the automatic
stay was willful, a necessary element of a § 362(k) claim.
Because we find to the contrary, we vacate the district court’s
judgment, reverse its order dismissing Houck’s claims against
the Substitute Trustee, and remand for further proceedings.
I
In 2000, Houck’s father deeded to her part of the family
farm located in Ashe County, North Carolina. After Houck had
secured financing from a predecessor to LifeStore Bank, F.S.A.,
she and her then-fiancé, Ricky Penley, placed a mobile home on
part of the homestead.
In 2007, Houck refinanced the loan so that she and Penley
could remodel the family farmhouse, but within a year, she lost
her job and began having difficulty making her loan payments.
In the summer of 2009, after she and Penley were married, Houck
3
asked LifeStore for a loan modification. LifeStore, however,
referred her to Grid Financial Services, Inc., a debt collection
agency, which denied her request because she was unemployed.
Houck thereafter defaulted on her loan.
In July 2011, the Hutchens Law Firm (formerly Hutchens,
Senter, Kellam & Pettit, P.A.) served Penley with a notice of
foreclosure. To stop the foreclosure proceedings, Houck, acting
pro se, filed a Chapter 13 bankruptcy petition on September 12,
2011. The next day, the Hutchens Law Firm notified the Clerk of
the Superior Court of Ashe County that Houck had filed a
bankruptcy petition and consequently that all foreclosure
proceedings had to be stayed. A few weeks later, however, the
bankruptcy court dismissed Houck’s petition because she had
failed to file certain schedules and statements in accordance
with applicable bankruptcy rules, and the Substitute Trustee, by
its counsel, the Hutchens Law Firm, reactivated the foreclosure
proceedings.
On December 16, 2011, Houck, again acting pro se, filed a
second Chapter 13 bankruptcy petition, again to stop the
foreclosure proceedings. On that same day, Penley called the
Hutchens Law Firm to notify it of the bankruptcy filing. The
employee of the Firm with whom Penley spoke acknowledged that
the Firm had a file for Houck. Penley told the employee that
Houck had filed a second bankruptcy petition earlier that day,
4
and he provided the employee with the new case number. On that
same day, Penley also contacted LifeStore to notify it of the
new bankruptcy petition. LifeStore told Penley that it intended
to wait for notice from the bankruptcy court before taking any
action.
On December 18, 2011, two days after Houck had filed her
second bankruptcy petition, the bankruptcy court ordered Houck
to appear and show cause why her petition should not be
dismissed. Two days later, on December 20, 2011, the Substitute
Trustee, represented by the Hutchens Law Firm, sold Houck’s
homestead at a foreclosure sale. The following day, the
bankruptcy court dismissed Houck’s second bankruptcy petition.
Because Houck had filed the second petition with the purpose of
preventing the sale of her homestead and it had already been
sold, she did not object to the petition’s dismissal.
Thereafter, Penley endeavored unsuccessfully to undo the sale.
In March 2012, after the sheriff issued a notice to vacate,
Houck and Penley left the homestead and moved into a small
cabin.
Houck retained counsel and commenced this action, naming as
defendants LifeStore, Grid Financial, and the Substitute Trustee
and asserting a claim against them under 11 U.S.C. § 362(k) for
violation of the automatic stay. She also asserted several
related state law claims.
5
The Substitute Trustee filed a motion to dismiss the
complaint under Federal Rule of Civil Procedure 12(b)(6),
contending that the complaint had failed to allege that the
Substitute Trustee was aware of the second bankruptcy petition’s
filing at the time it conducted the foreclosure sale of Houck’s
homestead. The district court granted the motion by order dated
October 1, 2013, concluding that Houck had “failed to allege
that [she] sent notice of the second petition to [the Substitute
Trustee] or that [the Substitute Trustee] had any notice of the
[bankruptcy] petition.” Based on that deficiency, the court
also dismissed Houck’s related state law claims. On October 28,
2013, Houck filed an interlocutory appeal from the district
court’s order dismissing her claims against the Substitute
Trustee.
The remaining defendants, LifeStore and Grid Financial,
thereafter filed various motions to dismiss or for summary
judgment. In one of those motions, Grid Financial contended
that the district court lacked subject matter jurisdiction over
Houck’s § 362(k) claim, maintaining that the provision did not
create a private cause of action that could be adjudicated
outside of the bankruptcy court. By order dated February 20,
2014, the district court granted Grid Financial’s motion and
dismissed Houck’s complaint, agreeing that it lacked subject
matter jurisdiction over Houck’s federal claim for violation of
6
the automatic stay and declining to exercise its discretion to
adjudicate her state law claims. The Clerk of Court thereafter
entered judgment and closed the case.
Subsequently, we, sua sponte, dismissed Houck’s pending
appeal of the district court’s October 1, 2013 order dismissing
the Substitute Trustee because it had been taken from an
interlocutory order. Houck v. Substitute Tr. Servs., Inc., 582
F. App’x 230, 230 (4th Cir. 2014) (per curiam). We concluded
further that the jurisdictional defect was not cured by the
district court’s February 20, 2014 order granting Grid
Financial’s motion to dismiss for lack of subject matter
jurisdiction, as that order was also not final. Id. at 230 n.*.
Thereafter, Houck filed motions requesting that the
district court reopen the case and reconsider its February 20,
2014 order. The district court denied the motions, reiterating
that it had finally decided the case with that order. Houck
then filed an unopposed motion in our court for clarification,
seeking to resolve her procedural predicament created by the
district court’s statement that its February 20, 2014 order
finally closed the case and our contrary statement that that
order was not final. In response, we recalled the mandate
issued on our dismissal of Houck’s appeal and granted panel
rehearing.
7
In her now-reopened appeal, Houck contends that, in
dismissing her § 362(k) claim against the Substitute Trustee,
the district court applied the wrong legal standard for ruling
on a Rule 12(b)(6) motion and erroneously concluded that her
complaint failed to allege sufficient facts to state a plausible
claim for relief.
II
At the outset, we determine whether we have jurisdiction to
hear Houck’s appeal. See, e.g., Chevron Corp. v. Page (In re
Naranjo), 768 F.3d 332, 342 (4th Cir. 2014).
In its October 1, 2013 order, the district court granted
the Substitute Trustee’s motion to dismiss on the ground that
Houck’s complaint failed to allege that she had given the
Substitute Trustee notice of her bankruptcy petition before the
Substitute Trustee sold her homestead, thus precluding any claim
that the Substitute Trustee’s conduct was willful. But because
LifeStore and Grid Financial were not parties to that motion and
remained defendants in the action, Houck’s appeal of the October
1 dismissal order was interlocutory. Moreover, Houck made no
request that the district court certify the order as a final
judgment under Federal Rule of Civil Procedure 54(b), although
it appears that she could have satisfied that rule’s
requirement. See, e.g., Nystedt v. Nigro, 700 F.3d 25, 29 (1st
8
Cir. 2012) (upholding a Rule 54(b) certification of an order
granting a Rule 12(b)(6) motion to dismiss filed by some but not
all of the defendants). Consequently, we dismissed Houck’s
appeal sua sponte because it was not taken from a final
decision, as required by 28 U.S.C. § 1291(a). Houck, 582 F.
App’x at 230.
After Houck requested that we reconsider the effect of the
district court’s February 20, 2014 order granting Grid
Financial’s motion to dismiss for lack of subject matter
jurisdiction, we recalled our mandate and now hear this appeal
to consider her arguments.
If the district court’s February 20, 2014 order, entered
several months after the court had dismissed Houck’s claims
against the Substitute Trustee, was a final judgment, then
Houck’s appeal might be reviewable under the doctrine of
cumulative finality -- a finality achieved by the cumulative
effect of the October 1, 2013 dismissal order and the February
20, 2014 dismissal order. See Equip. Fin. Grp., Inc. v.
Traverse Computer Brokers, 973 F.2d 345, 347 (4th Cir. 1992)
(recognizing cumulative finality in circumstances where all
claims are dismissed, albeit at different times, before the
appeal taken from the first dismissal order is considered).
Upon close review of the district court’s February 20, 2014
order, we conclude that it was indeed a final judgment. In that
9
order, the district court granted Grid Financial’s motion to
dismiss -- LifeStore was not a party to the motion -- concluding
that it did not have subject matter jurisdiction over Houck’s
§ 362(k) claim for violation of the Bankruptcy Code’s automatic
stay. Because subject matter jurisdiction goes to the power of
the court to adjudicate a claim, an order dismissing a claim for
lack of subject matter jurisdiction necessarily dismisses the
claim as to all defendants. And, indeed, the district court’s
February 20, 2014 order reflected this effect by dismissing the
entire complaint without limiting its ruling to any particular
party. Consistently, the district court also directed the Clerk
of Court to enter judgment by way of a separate docket entry, as
required by Federal Rule of Civil Procedure 58 for entry of a
final judgment. Finally, the court later confirmed that it had
intended to dismiss the entire case when it denied Houck’s
motions to reopen the case and to reconsider its February 20,
2014 ruling. Specifically, it stated that “[o]n February 20,
2014, the Court dismissed [Houck’s] only federal claim,” and it
declined to exercise supplemental jurisdiction over her pendent
state law claims. Because the district court’s February 20,
2014 order disposed of the entire case, “leav[ing] nothing for
[it] to do,” United States v. Breeden, 366 F.3d 369, 372 (4th
Cir. 2004) (quoting Coopers & Lybrand v. Livesay, 437 U.S. 463,
467 (1978)) (internal quotation marks omitted), the order was a
10
final judgment. This brings us to consideration of the doctrine
of cumulative finality.
In Equipment Finance, we articulated the requirements for
application of the doctrine. There, the district court granted
summary judgment to one of two defendants, and the plaintiff
appealed the district court’s order. Equip. Fin., 973 F.2d at
346-47. While the appeal was pending, the plaintiff voluntarily
dismissed its claim against the second defendant. Id. at 347.
On appeal, we rejected the first defendant’s argument that we
lacked jurisdiction, concluding that the subsequent dismissal of
the claim against the remaining defendant prior to our
consideration of the appeal “effectively satisfie[d] the
finality requirements of Rule 54(b).” Id. Noting that the
case’s “procedural circumstances . . . warrant[ed] a practical
approach to finality,” we recognized a doctrine of “cumulative
finality where all joint claims or all multiple parties are
dismissed prior to the consideration of the appeal.” Id. The
doctrine applies, however, only when the appellant appeals from
an order that the district court could have certified for
immediate appeal under Rule 54(b). See In re Bryson, 406 F.3d
284, 287-89 (4th Cir. 2005).
In this case, the district court dismissed completely
Houck’s claims against the Substitute Trustee in its October 1,
2013 order, leaving open only her claims against LifeStore and
11
Grid Financial. Because the court could have certified such an
order as a final judgment under Rule 54(b) and because the court
later entered final judgment against the remaining defendants
with its February 20, 2014 order before we considered Houck’s
interlocutory appeal, we conclude that the doctrine of
cumulative finality applies and that we therefore have
jurisdiction to hear her appeal. 1
III
A second jurisdictional issue is presented by the district
court’s February 20, 2014 order, in which the court dismissed
Houck’s federal claim on the ground that it lacked subject
matter jurisdiction. Of course, if the court lacked subject
matter jurisdiction to hear Houck’s § 362(k) claim, it could not
have ruled on the Substitute Trustee’s Rule 12(b)(6) motion to
dismiss for failure to state a claim upon which relief could be
granted.
As noted above, on February 20, 2014, the district court
concluded, without further discussion, that a claim under
1 Houck argues, unnecessarily as it turns out, that we could
hear her appeal under the collateral order doctrine. That
doctrine, however, would not be applicable here, because Houck’s
claim against the Substitute Trustee was not a collateral matter
and Houck could well have obtained review of the dismissal order
on appeal from the final judgment. See generally Mohawk Indus.,
Inc. v. Carpenter, 558 U.S. 100 (2009); Swint v. Chambers Cnty.
Comm’n, 514 U.S. 35 (1995).
12
§ 362(k) for violation of the automatic stay could only be
brought in a bankruptcy court, not in a district court. It
relied for support on Scott v. Wells Fargo Home Mortgage, Inc.,
326 F. Supp. 2d 709, 719 (E.D. Va.), aff’d sub nom. Scott v.
Wells Fargo & Co., 67 F. App’x 238 (4th Cir. 2003) (per curiam),
where the district court stated, “[I]t is doubtful that a
violation of § 362[k] is cognizable in this Court. While
§ 362[k] arguably creates [a] private right of action for
willful violation of [the] automatic stay, [it] does not create
a private cause of action outside of the Bankruptcy Court for
violations of [the] automatic stay.” (Citation omitted). The
Scott court in turn relied for support on Dashner v. Cate, 65
B.R. 492 (N.D. Iowa 1986).
But in Dashner, the district court did not consider
§ 362(k) because, at the time of the stay violation at issue
there, § 362(k) had not yet been enacted. 65 B.R. at 494. The
Dashner court simply held that before 1984 -- i.e., before the
creation of what is now a § 362(k) cause of action -- nothing in
the Bankruptcy Code “indicate[d] that Congress intended to
create a private right of action outside of [the] bankruptcy
court” for a violation of the automatic stay. Id. at 495. To
reach that conclusion, the court pointed to Stacy v. Roanoke
Mem’l Hosps. (In re Stacy), 21 B.R. 49 (Bankr. W.D. Va. 1982).
The Stacy court likewise considered a pre-1984 violation of the
13
automatic stay and concluded, “The proscriptive provision of the
Code in question here, the § 362 automatic stay provision, is
not a proscription to be enforced by a debtor or any third
party. A stay is an order of the [bankruptcy] court, to be
enforced by the [bankruptcy] court.” Id. at 52.
Thus, both Dashner and Stacy, on which Scott relied,
analyzed the pre-1984 version of § 362, which lacked subsection
(k)’s private cause of action, and therefore are inapposite.
For that reason, neither the district court’s opinion in Scott
nor our unpublished, one-paragraph affirmance of that decision
supports the district court’s determination below that only a
bankruptcy court may entertain a § 362(k) claim.
Both Houck and the Substitute Trustee now agree that the
district court erred in determining that it lacked jurisdiction
to adjudicate Houck’s § 362(k) claim. But because subject
matter jurisdiction cannot be conferred by agreement, see
McCorkle v. First Pa. Banking & Trust Co., 459 F.2d 243, 251
(4th Cir. 1972), we appointed counsel to submit an amicus curiae
brief defending the district court’s position on the issue. 2 We
turn now to whether the district court erred in concluding that
it lacked subject matter jurisdiction to adjudicate a claim
brought under § 362(k).
2We are grateful to Paula Steinhilber Beran, Esq., for
providing this “friend of the court” service to us.
14
As background, the filing of a bankruptcy petition operates
immediately to stay creditors from pursuing certain enumerated
collection actions against the debtor or the debtor’s estate.
See 11 U.S.C. § 362(a). This automatic stay is “one of the
fundamental debtor protections provided by the bankruptcy laws.”
S. Rep. No. 95-989, at 54 (1978), reprinted in 1978 U.S.C.C.A.N.
5787, 5840. “It gives the debtor a breathing spell from his
creditors” and “stops all collection efforts, all harassment,
and all foreclosure actions.” Id.Before 1984, when Congress enacted § 362(k) (designated
§ 362(h) when enacted), the automatic stay appeared to be merely
proscriptive. Section 362(a) provided that the filing of a
bankruptcy petition “operates as a stay,” without prescribing
any sanction for its violation. 11 U.S.C. § 362(a). The
Bankruptcy Code simply gave the bankruptcy court authority to
administer the proscription. For example, § 362(d) authorized
the bankruptcy court to “grant relief from the stay,” and
§ 362(e) and § 362(f) otherwise authorized the bankruptcy court
to regulate the stay’s length, conditions, and termination.
Thus, courts had held that the § 362(a) automatic-stay provision
did not provide a party with an independent right of action for
damages but rather with a procedural mechanism to be regulated
and enforced by the bankruptcy court. See, e.g., Stacy, 21 B.R.
at 52.
15
In 1984, however, with the enactment of the Bankruptcy
Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-
353, 98 Stat. 333 (codified in scattered sections of 11 and 28
U.S.C.), Congress created a private cause of action for the
willful violation of a stay, authorizing an individual injured
by any such violation to recover damages. See 11 U.S.C.
§ 362(k). 3 In creating the cause of action, Congress did not
specify which courts possess jurisdiction over a § 362(k) claim
for violation of the automatic stay.
Under the Bankruptcy Amendments and Federal Judgeship Act,
the district courts were given “original and exclusive
jurisdiction in all cases under title 11,” 28 U.S.C. § 1334(a),
and “original but not exclusive jurisdiction of all civil
proceedings arising under title 11, or arising in or related to
cases under title 11,” id. § 1334(b). But they were also
3 Section 362(k) reads in full:
(1) Except as provided in paragraph (2), an
individual injured by any willful violation of a stay
provided by this section shall recover actual damages,
including costs and attorneys’ fees, and, in
appropriate circumstances, may recover punitive
damages.
(2) If such violation is based on an action taken by
an entity in the good faith belief that subsection (h)
applies to the debtor, the recovery under paragraph
(1) of this subsection against such entity shall be
limited to actual damages.
16
authorized to refer to bankruptcy judges any such cases or
proceedings. See id. § 157(a); Exec. Benefits Ins. Agency v.
Arkison, 134 S. Ct. 2165, 2171 (2014). In addition, the Act
authorized the district courts to withdraw, in whole or in part,
any case or proceeding that they had referred. See 28 U.S.C.
§ 157(d). In short, while the district courts were given
jurisdiction over bankruptcy cases, Congress also delegated to
the bankruptcy courts, “as judicial officers of the [district
courts],” Wellness Int’l, Ltd. v. Sharif, 135 S. Ct. 1932, 1945
(2015) (quoting 28 U.S.C. § 151) (internal quotation marks
omitted), adjudicatory authority, subject to the district
courts’ supervision as particularized in § 157 and the limits
imposed by the Constitution. In no circumstance, however, did
the Act, in conferring such adjudicatory authority, give a
bankruptcy court jurisdiction to the exclusion of a district
court.
A claim under § 362(k) for violation of the automatic stay
is a cause of action arising under Title 11, and as such, a
district court has jurisdiction over it. Of course, under
§ 157(a), a district court may refer a § 362(k) claim to the
bankruptcy court. If the § 362(k) claim did not “stem[] from
the bankruptcy itself or would [not] necessarily be resolved in
the claims allowance process,” Stern v. Marshall, 131 S. Ct.
2594, 2618 (2011), or would only “augment the bankruptcy estate
17
and would otherwise exis[t] without regard to any bankruptcy
proceeding,” Wellness, 135 S. Ct. at 1941 (alteration in
original) (citation and internal quotation marks omitted), the
§ 157 referral would be for recommended findings of fact and
conclusions of law, see Exec. Benefits, 134 S. Ct. at 2171-72,
2175. But even if the § 157 referral authorized the bankruptcy
court to adjudicate the claim to final judgment, it would not
deprive the district court of jurisdiction. See 28 U.S.C.
§ 1334(b); see also Justice Cometh, Ltd. v. Lambert, 426 F.3d
1342, 1343 (11th Cir. 2005) (per curiam); Price v. Rochford, 947
F.2d 829, 832 n.1 (7th Cir. 1991). But see Eastern Equip. &
Servs. Corp. v. Factory Point Nat’l Bank, 236 F.3d 117, 121 (2d
Cir. 2001) (per curiam) (stating, without considering 28 U.S.C.
§ 1334, that a § 362(k) claim “must be brought in the bankruptcy
court, rather than in the district court, which only has
appellate jurisdiction over bankruptcy cases”).
The amicus contends that jurisdiction to hear Houck’s
§ 362(k) claim was vested solely in the bankruptcy court because
of a standing referral order, entered under § 157(a), which has
been in place in one form or another in the Western District of
North Carolina since July 30, 1984. At the time relevant to
this case, that order provided that “all bankruptcy matters”
were “automatically referred” to the bankruptcy judge. The
amicus argues that, under § 157(d), until such time as that
18
reference is withdrawn, the district court has ceded its
jurisdiction to the bankruptcy court. She maintains that
§ 157(d)’s requirement that “cause” be shown for a discretionary
withdrawal of a referral confirms her interpretation. See 28
U.S.C. § 157(d) (“The district court may withdraw, in whole or
in part, any case or proceeding referred under this section, on
its own motion or on timely motion of any party, for cause
shown” (emphasis added)).
But nowhere in the text of § 157 is there any indication
that the provision is jurisdictional, as the amicus claims. The
text indicates that § 157 is simply a procedural mechanism
authorizing a bankruptcy court, upon referral from a district
court (1) to hear constitutionally core claims to final
judgment, subject to appeal in the district court, and (2) to
recommend findings of fact and conclusions of law to the
district court in constitutionally non-core matters for de novo
review and final judgment by the district court. See Exec.
Benefits, 134 S. Ct. at 2171-72, 2175. Indeed, in Stern, the
Court observed that § 157 is little more than a traffic
regulator, directing where adjudication of bankruptcy matters
can take place, and that it does not implicate subject matter
jurisdiction. 131 S. Ct. at 2607. As the Court stated:
Section 157 allocates the authority to enter final
judgment between the bankruptcy court and the district
19
court. That allocation does not implicate questions
of subject matter jurisdiction.
Id. (emphasis added) (citation omitted); see also Home Ins. Co.
of Ill. v. Adco Oil Co., 154 F.3d 739, 742 (7th Cir. 1998) (“[A]
judge’s failure to follow orderly procedures [under § 157] for
allocating bankruptcy matters within a district court does not
deprive the court of subject-matter jurisdiction”). Consistent
with its ruling, the Stern Court held that because the
provisions of § 157 were not jurisdictional, their proscriptions
could be waived. 131 S. Ct. at 2607-08.
In the same vein, the fact that litigants may consent to a
bankruptcy court’s adjudication of a non-core proceeding also
indicates that § 157 is not jurisdictional. See 28 U.S.C.
§ 157(c)(2) (permitting bankruptcy courts to adjudicate
statutorily non-core proceedings with the parties’ consent);
Wellness, 135 S. Ct. at 1939 (holding that bankruptcy courts
may, with the parties’ knowing and voluntary consent, adjudicate
Stern claims -- i.e., statutorily core but constitutionally non-
core proceedings).
Thus, even if Houck’s § 362(k) claim was indeed subject to
the Western District of North Carolina’s standing order
referring “all bankruptcy matters” to the bankruptcy court, the
district court’s failure to follow the procedural rule did not
deprive it of subject matter jurisdiction. The district court
20
always had original jurisdiction over any bankruptcy matter, and
any breach of § 157 would “not implicate questions of subject
matter jurisdiction.” Stern, 131 S. Ct. at 2607; see also Home
Ins. Co., 154 F.3d at 742. While it may be that the district
court should have sent Houck’s § 362(k) claim to the bankruptcy
court in accordance with its standing order, the amicus has
failed to explain how not doing so deprived the district court
of the original jurisdiction that Congress bestowed upon it by
way of § 1334. See Justice Cometh, 426 F.3d at 1343 (stating
that, although the district courts may refer to the bankruptcy
courts proceedings arising under Title 11, “the explicit § 1334
grant of original jurisdiction over Title 11 cases clearly
forecloses a conclusion that the district court[s] lack[]
subject matter jurisdiction over [§ 362(k) claims]”); Price, 947
F.2d at 832 n.1 (observing that the plaintiff’s claim for
willful violation of the automatic stay “should probably have
been referred to the bankruptcy court under [the district
court’s standing order of reference],” but deciding that “the
defect [was] not jurisdictional”).
Moreover, neither Houck nor the Substitute Trustee objected
to the district court’s failure to refer this case to the
bankruptcy court. Accordingly, any claim that the case should
have been tried in the bankruptcy court was waived or forfeited.
See Stern, 131 S. Ct. at 2607-08 (holding that the failure to
21
raise the statutory limitations of § 157 amounted to a waiver or
forfeiture); Home Ins. Co., 154 F.3d at 742 (finding that the
district court had committed no reversible error in failing to
refer the matter to the bankruptcy court because, in part,
neither of the parties challenged the district court’s decision
to hear the case).
At bottom, we hold that the district court had subject
matter jurisdiction over Houck’s § 362(k) claim and therefore
that the court had authority to rule on the Substitute Trustee’s
motion to dismiss Houck’s claims against it, to which we now
turn.
IV
On the merits, Houck contends that the district court erred
in dismissing, under Federal Rule of Civil Procedure 12(b)(6),
her § 362(k) claim against the Substitute Trustee, arguing that
the court applied the wrong legal standard and that her
complaint was legally sufficient under the proper standard.
In dismissing her claim, the district court applied the
standard: “[I]f after taking the complaint’s well-pleaded
factual allegations as true, a lawful alternative explanation
appears a more likely cause of the complained of behavior, the
claim for relief is not plausible.” (Citation and internal
quotation marks omitted). The court then found that the
22
complaint was “replete with generalized and conclusory
allegations that the [foreclosure] sale was ‘improper’ or
‘conducted improperly’” and that “[t]he only specific factual
allegation against [the Substitute Trustee was] that it
conducted the foreclosure sale in violation of the bankruptcy
stay.” More specifically, the court focused on the elements of
a § 362(k) claim and noted that Houck had “failed to allege that
[she] sent notice of the second [bankruptcy] petition to [the
Substitute Trustee] or that [the Substitute Trustee] had any
notice of the petition,” thus precluding any allegation of
willfulness.
Houck argues that the district court improperly created a
balancing test for ruling on a Rule 12(b)(6) motion and that we
should “summarily reject[]” it because “it has no legal basis
and is logically unworkable.” And as to the court’s finding
that the complaint was factually insufficient, she argues simply
that the complaint did sufficiently allege that the Substitute
Trustee had notice of her bankruptcy petition, pointing to
numerous paragraphs in her complaint.
It is well established that a motion filed under Rule
12(b)(6) challenges the legal sufficiency of a complaint, see
Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009), and
that the legal sufficiency is determined by assessing whether
the complaint contains sufficient facts, when accepted as true,
23
to “state a claim to relief that is plausible on its face,”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This plausibility
standard requires only that the complaint’s factual allegations
“be enough to raise a right to relief above the speculative
level.” Twombly, 550 U.S. at 555.
In light of these well-established principles, we agree
with Houck that the district court’s articulated standard was
erroneous. While the court correctly accepted the complaint’s
factual allegations as true, it incorrectly undertook to
determine whether a lawful alternative explanation appeared more
likely. To survive a motion to dismiss, a plaintiff need not
demonstrate that her right to relief is probable or that
alternative explanations are less likely; rather, she must
merely advance her claim “across the line from conceivable to
plausible.” Twombly, 550 U.S. at 570. If her explanation is
plausible, her complaint survives a motion to dismiss under Rule
12(b)(6), regardless of whether there is a more plausible
alternative explanation. The district court’s inquiry into
whether an alternative explanation was more probable undermined
the well-established plausibility standard.
Turning to Houck’s complaint, it sought to state a claim
for relief under 11 U.S.C. § 362(k), which, as we have noted,
creates a cause of action for an individual injured by a
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violation of the automatic stay imposed by § 362(a). To recover
under § 362(k), a plaintiff must show (1) that the defendant
violated the stay imposed by § 362(a), (2) that the violation
was willful, and (3) that the plaintiff was injured by the
violation. See, e.g., Garden v. Cent. Neb. Hous. Corp., 719
F.3d 899, 906 (8th Cir. 2013).
The district court acknowledged that Houck’s complaint
adequately alleged that the Substitute Trustee violated the stay
imposed by § 362(a). But the court determined that the
complaint insufficiently alleged that the Substitute Trustee had
notice of Houck’s second bankruptcy petition and thus acted
willfully when it sold her homestead in foreclosure. The court
did not address the Substitute Trustee’s additional argument
that the complaint also failed to allege adequately that Houck
had been injured by the automatic-stay violation. Upon our
examination of the complaint, however, we conclude that neither
position can be sustained, as the complaint adequately alleged
that the Substitute Trustee had notice of Houck’s second
bankruptcy petition and that Houck sustained injury as a result
of the violation.
By way of background, the complaint alleged that LifeStore
was Houck’s lender; that Grid Financial was the collection
agency for LifeStore; that the Substitute Trustee conducted the
foreclosure sale on behalf of LifeStore and Grid Financial; and
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that the Hutchens Law Firm represented these defendants in the
foreclosure proceedings.
The complaint then alleged that on December 16, 2011, Houck
filed a Chapter 13 bankruptcy petition “to stop the foreclosure
and keep the homestead.” Compl. ¶ 62. It alleged that in her
bankruptcy petition, Houck “noticed LifeStore Bank,” Compl.
¶ 64, and that, on the same day that Houck filed the petition,
her husband “called [the Hutchens Law Firm] and notified them of
the bankruptcy filing,” Compl. ¶ 65. It detailed that call as
follows:
[Houck’s husband] told the person who answered the
phone that [Houck] had filed her bankruptcy petition.
The person on the phone said, “Hold on.” She then
told him that she pulled up the file for Diana Houck
and acknowledged that they had a file for her.
[Houck’s husband] gave her the new bankruptcy case
number at that time. He mentioned that it was a new
filing, filed that day. That was the end of the phone
call.
Compl. ¶ 65. The complaint further alleged that on the same day
that Houck filed the petition, her husband also “contacted
LifeStore by telephone and spoke with Anne Jones.” Compl. ¶ 66.
And it also detailed that call as follows:
He told her that [Houck] had filed a bankruptcy
[petition] that day. Ms. Jones said that people often
claim to have filed a bankruptcy without actually
filing and that [LifeStore] intended to wait for the
Court’s notice, or words to that effect.
Compl. ¶ 66. The complaint further alleged that, “[u]pon
information and belief[,] LifeStore received notice from the
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AACER system of the bankruptcy filing on December 16, 2011, the
date that [Houck] filed the petition.” Compl. ¶ 67. Finally,
it alleged that the defendants “were noticed of the second
petition the same way they were under notice of the first
petition.” Compl. ¶ 69. Based on these allegations of notice,
the complaint concluded that the defendants “violated 11 U.S.C.
§ 362 by intentionally and knowingly foreclosing on [Houck’s]
real property while they knew that [Houck] was under the
protection of the automatic stay.” Compl. ¶ 93 (emphasis
added). It is difficult to imagine that a court could demand
more specificity with respect to the allegations of notice than
the details that Houck provided in her complaint.
With respect to the Substitute Trustee’s argument that
Houck failed to allege injury, the complaint is likewise
adequately detailed. The complaint alleged that Houck’s
homestead was sold in violation of the automatic stay on
December 20, 2011, to Fannie Mae, the insurer of LifeStore’s
loan, although the exhibits to the complaint show that it was
“Life Store Bank c/o Grid Financial Services, Inc.,” that
purchased the property. Compl. ¶ 74 & Ex. K. The complaint
further alleged that, “[u]pon information and belief, [Fannie
Mae] returned the homestead to LifeStore,” which “is presently
attempting to develop the land for sale.” Compl. ¶¶ 86-87.
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Finally, with respect to how the violation of the stay injured
her, the complaint alleged:
Because [Houck] and [her husband] were forced to move
from the homestead to a smaller cabin, they suffered
unreasonable loss including but not limited to:
a) Loss of the rental income from the
smaller cabin as [Houck] and [her
husband] were forced to move into the
cabin.
b) Loss of [Houck’s] grandmother’s antiques
as there was nowhere to store them.
c) Loss of value of four collector cars as
they are no longer being stored in a
garage.
d) Loss of income from [Houck’s] produce
stand.
e) Loss of barn where [Houck] kept farm
equipment and vegetables prior to sale.
f) Loss of furniture because of smaller
space.
g) Loss of all of their seasonal clothing
because of loss of storage space.
h) Lost all of their sentimental
possessions because of loss of storage
space.
i) Emotional injury.
Compl. ¶ 89.
In sum, we conclude that the complaint alleged facts that
more than adequately support Houck’s claims (1) that she gave
the defendants, including the Substitute Trustee through its
attorneys, notice of her December 16, 2011 bankruptcy filing and
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(2) that as a result of the defendants’ violation of the stay,
she was injured.
Rather than address Houck’s factual allegations in any
detail, the Substitute Trustee argues that Houck failed to
allege that she provided it with notice of her bankruptcy
petition in writing, which, it argues, she was required to do
under 11 U.S.C. § 342(c)(1) (“If notice is required to be given
by the debtor to a creditor . . . , such notice shall contain
the name, address, and last 4 digits of the [social security]
number of the debtor”). The Substitute Trustee reasons that,
because it did not receive such written notice before it sold
Houck’s homestead, it could not have willfully violated the
automatic stay. This argument, however, distorts the
requirements of § 362(k), which does not include any provision
that a particular form of notice be given. Rather, it imposes
liability for a willful violation of the automatic stay. We
agree with Houck that, because the complaint alleges that the
Substitute Trustee had actual notice of her December 16, 2011
bankruptcy petition when it sold her homestead, it sufficiently
alleges that the Substitute Trustee’s sale of her homestead on
December 20 with such notice was willful. See Alan N. Resnick &
Henry J. Sommer, 3 Collier on Bankruptcy ¶ 362.02, at 362-21
(16th ed. 2011) (“A party that has received notice of the
bankruptcy case, even if only oral notice, can be sanctioned for
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violation of the stay”); see also ZiLOG, Inc. v. Corning (In re
ZiLOG, Inc.), 450 F.3d 996, 1008 (9th Cir. 2006) (“‘[A] party
with knowledge of bankruptcy proceedings is charged with
knowledge of the automatic stay’ for purposes of awarding
damages under [§ 362(k)]” (quoting Knupfer v. Lindblade (In re
Dyer), 322 F.3d 1178, 1191 (9th Cir. 2003))).
At bottom, we conclude that Houck stated a plausible claim
for relief under § 362(k).
V
As an alternative ground for dismissal of Houck’s claims,
the Substitute Trustee contends that Houck was not an “eligible
debtor” when she filed her second bankruptcy petition within 180
days of her first petition and therefore that the second
petition, filed on December 16, 2011, did not automatically
trigger the stay under § 362(a).
It is true that even though the automatic stay generally
operates “without the necessity for judicial intervention,”
Sunshine Dev., Inc. v. FDIC, 33 F.3d 106, 113 (1st Cir. 1994),
certain filings do not trigger the stay. For example, a filing
under 11 U.S.C. § 301, like Houck’s Chapter 13 petitions, does
not operate as a stay “of any act to enforce any lien against or
security interest in real property . . . if the debtor is
ineligible under [11 U.S.C. §] 109(g) to be a debtor in a case
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under [Title 11].” 11 U.S.C. § 362(b)(21)(A). Section 109(g)
in turn provides in relevant part:
Notwithstanding any other provision of this section,
no individual . . . may be a debtor under this title
who has been a debtor in a case pending under this
title at any time in the preceding 180 days if --
(1) the case was dismissed by the court for
willful failure of the debtor to abide
by orders of the court, or to appear
before the court in proper prosecution
of the case . . . .
The 180-day filing ban is “an extraordinary statutory remedy for
perceived abuses of the [Bankruptcy] Code.” Frieouf v. United
States (In re Frieouf), 938 F.2d 1099, 1104 (10th Cir. 1991)
(second emphasis added) (citation and internal quotation marks
omitted).
While Houck’s second bankruptcy petition was filed within
180 days after the dismissal of her first petition, the
Substitute Trustee has not shown that the first petition was
dismissed because Houck willfully failed to abide by the
bankruptcy court’s orders or to appear in proper prosecution of
her case. Indeed, the record shows to the contrary. The
bankruptcy court dismissed Houck’s first petition, which she
filed pro se, because she “failed to file certain schedules,
statements, or other documents.” It made no mention of Houck’s
failure being willful -- i.e., knowing and deliberate. And
tellingly, the bankruptcy court did not dismiss her case with
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prejudice, which bankruptcy courts “frequently” do when imposing
the 180-day filing ban authorized by § 109(g). See Colonial
Auto Ctr. v. Tomlin (In re Tomlin), 105 F.3d 933, 937 (4th Cir.
1997).
Moreover, when Houck filed her second petition within 180
days of her first petition’s dismissal, no party to the second
petition questioned whether Houck was an eligible debtor.
Similarly, when the bankruptcy court ultimately dismissed
Houck’s second petition, it did so because she failed to satisfy
§ 109(h)(1)’s credit-counseling requirement, not because she
failed to qualify as a debtor pursuant to § 109(g)(1).
Whether Houck was an eligible debtor when she filed her
second petition is a fact-bound question that requires
evidentiary support. Finding no such evidence in the record, we
reject the Substitute Trustee’s alternative ground for
dismissal.
VI
Based on its conclusion that Houck’s allegations were
insufficient to state a claim under § 362(k), the district court
also concluded that her “state law claims fail as well.”
Because the court predicated its dismissal of the state law
claims on a finding that we now reverse, we vacate its order
dismissing those claims as well. In remanding them to the
32
district court, however, we express no opinion as to their
merit.
* * *
The judgment of the district court is vacated; the court’s
October 1, 2013 order dismissing Houck’s § 362(k) claim against
the Substitute Trustee is reversed; and the case is remanded for
further proceedings.
VACATED, REVERSED IN PART, AND REMANDED
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