Houck v. Substitute Tr. Servs., Inc. (In re Houck)

597 B.R. 820
CourtUnited States Bankruptcy Court, W.D. North Carolina
DecidedFebruary 15, 2019
DocketCase No. 11-51513; Adversary Proceeding No. 15-5028
StatusPublished
Cited by3 cases

This text of 597 B.R. 820 (Houck v. Substitute Tr. Servs., Inc. (In re Houck)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. North Carolina primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Houck v. Substitute Tr. Servs., Inc. (In re Houck), 597 B.R. 820 (N.C. 2019).

Opinion

Laura T. Beyer, United States Bankruptcy Judge

This order comes at a pivotal crossroad in a lengthy and complex lawsuit involving Diana Houck (the "Plaintiff") and a party involved in the foreclosure sale of her home on December 20, 2011, Substitute Trustee Services, Inc. ("STS" or the "Defendant"). Indeed, after over five years of litigation, one question remains for this court to decide: whether the actions and inactions of STS on the afternoon of December 20, 2011 violated the automatic stay as codified in 11 U.S.C. § 362 of the United States Bankruptcy Code (the "Bankruptcy Code" or the "Code"). As *824more extensively outlined in this court's February 5, 2018 Order Determining the Status of This Adversary Proceeding, Examining This Court's Subject Matter Jurisdiction, Recommending Withdrawal of the Reference, and Setting Status Hearing" (the "Recommendation Order"), this adversary proceeding resulted in a number of extremely complicated procedural and jurisdictional questions. Only the facts and procedural history relevant to this particular order are repeated below.

For all of the reasons stated below, this court hereby grants summary judgment in favor of the Plaintiff and finds that STS willfully violated the automatic stay as outlined in § 362. Further, the court denies the Plaintiff's motion for sanctions because STS's actions during the deposition at issue were not worthy of sanctions.

FACTS

Prior to this lawsuit, the Plaintiff filed two pro se Chapter 13 bankruptcy cases in this court. She filed her first case, case no. 11-51141 (the "First Bankruptcy Case"), on September 12, 2011 by filing a "bare-bones" petition. The Plaintiff's petition was missing many of the schedules and statements required of all Chapter 13 debtors. This court dismissed the First Bankruptcy Case on September 30, 2011 because the Plaintiff failed to timely file the missing documents.

The Plaintiff commenced her second Chapter 13 case, case no. 11-51513 (the "Second Bankruptcy Case"), on December 16, 2011. Again, the Plaintiff filed a "bare-bones" petition; her submission was missing many of the same schedules and statements that were missing in the First Bankruptcy Case. In conjunction with her petition, the Plaintiff requested additional time to file a certificate of credit counseling with the court.

Unfortunately, the Debtor's filing did not have its desired effect because on December 20, 2011 at 12:57 P.M. a report of sale was filed in the Ashe County Clerk of Superior Court's office indicating that the Debtor's residence had been sold (the "Foreclosure Sale") to Lifestore Bank ("Lifestore").

There are conflicting arguments about when STS received notice of the Second Bankruptcy Case. On the one hand, STS argues that it did not receive notice of the Second Bankruptcy Case until April 2, 2012, well after the Foreclosure Sale, when it got a call from the Plaintiff's husband, Richard Penley ("Penley"), regarding his pending bankruptcy case. Memorandum in Support of Substitute Trustee Services, Inc.'s Motion for Summary Judgment, Houck v. Substitute Trustee Servs., Inc., No. 15-5028 (Bankr. W.D.N.C. Oct. 31, 2018), ECF No. 59, at 7 (hereinafter, "STS's Brief"). However, STS then includes a footnote on the same page of its brief that reads:

It appears that [the Plaintiff's husband's] lender, Nationstar Mortgage, LLC, alerted Hutchens to the filing of the [Second Bankruptcy Case] in connection with [Penley's foreclosure file] on December 20, 2011 at approximately 3:52 P.M - three (3) hours after the foreclosure sale had been held in connection with the Houck Foreclosure Proceeding.

STS's Brief at 7 n.1. To reconcile these inconsistent statements, STS argued at the hearing that the "notice" it got from Nationstar Mortgage, LLC ("Nationstar") on December 20, 2011 was given to the Hutchens Law Firm ("Hutchens"), not STS, and was received only with respect to Penley's case, not the Plaintiff's Second Bankruptcy Case specifically. STS was represented by the Hutchens Law Firm.

*825In response, the Plaintiff asserts in its Complaint that Hutchens, and necessarily STS, actually received a call from Penley on December 16, 2011 advising the Hutchens Law Firm of the Second Bankruptcy Case.1 Second, the Plaintiff notes that Lifestore was listed on the Plaintiff's creditor matrix that she included with the Second Bankruptcy Case filing; Plaintiff maintains that this undercuts STS's theory that it didn't get notice until April 2012. Finally, and most importantly, the Plaintiff argues that even if the court is not convinced that Penley called STS on December 16, 2011, STS still had notice as of December 20, 2011 at 3:52 P.M. The Plaintiff points to STS's own admissions found in the aforementioned footnote and subsequent deposition excerpts. See Memorandum in Support of Defendant Substitute Trustee Services, Inc.'s Response in Opposition to Plaintiff's Motion to Amend and Compel, at Ex. B., Houck v. Substitute Tr. Servs., Inc., No. 15-05028, ECF No. 49.

Following Nationstar's call, STS took no action with respect to the Foreclosure Sale during the Second Bankruptcy Case. On December 21, 2011, this court dismissed the Second Bankruptcy Case due to the Plaintiff's failure to satisfy the credit counseling requirement. It is these events-events during the five-day lifespan of the Second Bankruptcy Case-that gave rise to the last several years of litigation.

PROCEDURAL HISTORY

A year and a half after this court dismissed the Second Bankruptcy Case, this adversarial proceeding began its less than traditional journey through the court system. The Plaintiff filed a complaint in the United States District Court for the Western District of North Carolina ("District Court") on April 26, 2013. The complaint, as subsequently amended, alleges that the original defendants, Lifestore, STS, and Grid Financial Services, Inc. ("Grid"), fraudulently engaged in a conspiracy to cause the Plaintiff to default on her mortgage payments in violation of several state laws and then foreclosed on her property in violation of the Bankruptcy Code's automatic stay. In July of 2013, the parties filed a Joint Stipulation of Consent to Exercise Jurisdiction by a United States Magistrate Judge, and the District Court assigned the lawsuit to the Honorable David S. Cayer. On October 1, 2013, Judge Cayer entered a Memorandum and Order ("October 1 Order") granting STS's motion to dismiss and dismissing all of the claims against STS. The Plaintiff filed a Notice of Appeal of the October 1 Order on October 28, 2013.2 Several months later, on August 27, 2014, the Fourth Circuit entered an unpublished opinion dismissing the Plaintiff's appeal of the October 1 Order for lack of jurisdiction.

*826Eventually, the Plaintiff returned to the Fourth Circuit and filed a motion for clarification of its August 27, 2014 opinion. On December 17, 2014, the Fourth Circuit recalled its mandate and granted panel rehearing of the Plaintiff's appeal of the October 1 Order.

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Cite This Page — Counsel Stack

Bluebook (online)
597 B.R. 820, Counsel Stack Legal Research, https://law.counselstack.com/opinion/houck-v-substitute-tr-servs-inc-in-re-houck-ncwb-2019.