Dang! I Forgot To Disclose My Legal Claims In Three Bankruptcy Proceedings--Maryland Federal District Court Finds Bankruptcy Court Had Jurisdiction And Authority To Dismiss Plaintiff's Claims In Adversary Proceeding
In Dang v. Bank of America, N.A., et al., 2013 WL 1683820 (D.Md. Apr. 17, 2013), the federal district court for the District of Maryland, on appeal of two orders from the United States Bankruptcy Court for the District of Maryland, found the bankruptcy court possessed jurisdiction and authority to dismiss Dang's claims against Bank of America and related entities in the adversary proceeding. Dang was familiar with the bankruptcy process. Between May 2009 and March 2010, she filed bankruptcy three times. Her bankruptcies originated with the execution of a promissory note and deed of trust on a property in the amount of $240,000, in favor of Bank of America. After both the note and deed of trust fell into default, foreclosure proceedings were initiated. Dang filed three bankruptcy proceedings, halting the foreclosure process in each instance. Prior to her third bankruptcy plan being confirmed, she filed a complaint/adversary proceeding against the defendants. After multiple motions to dismiss and amended complaints, the Bankruptcy Court granted the 12(b)(6) motions to dismiss for failure to state a claim based upon the applicable statute of limitations and judicial estoppel, because Plaintiff had failed to list the causes of action as assets in her previous bankruptcy cases. Dang challenged the bankruptcy court's dismissal and argued: (1) The bankruptcy court lost subject matter jurisdiction over the Adversary Proceeding once the Chapter 13 plan was confirmed. However, the district court found that,at a minimum, the Adversary Proceeding was related to her case un ­der Title 11 of the Bankruptcy Code. See 28 U.S.C. § 1334(b). The Dang Court noted that a case meets the "related to" prong of section 1334(6) if "the outcome of that proceeding could conceivably have any effect on the estate be ­ing administered in bankruptcy."Dang, 2013 WL 1683820 6; see also Owens-Ill., Inc. v. Rapid Am. Corp. ( In re Celotex Corp.), 124 F.3d 619, 625 (4th Cir.1997) (citing A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1002 n. 11 (4th Cir.1986), and Paeor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984)). Therefore, the case was proper before the bankruptcy court. (2) Plaintiff maintained that the bankruptcy court did not have authority to order dismissal of her adversary proceeding. However, the district court concluded that Plaintiff failed to object to the bankruptcy court's final order, and impliedly consented to the bankruptcy court's adjudication of her adversary proceeding by filing the same and aggressively litigating the case in bankruptcy court. And while issuing a dismissal order may have run afoul of the bankruptcy court's Article III powers, the bankruptcy court is allowed to submit findings of fact and conclusions of law on claims for which it cannot issue final judgment. The district court is within its discretion to convert final orders into submissions of fact and conclusions of law. (3) Plaintiff asserted that because Defendant CIG was not an independent legal entity, the only relief allowed was a voluntary dismissal by Plaintiff, not a dismissal order by the bankruptcy court. The district court found Plaintiff's claim to be without any legal support and futile, because plaintiff sought the result that the bankruptcy court already reached"•the dismissal of CIG. (4) Plaintiff believed that the deed of trust and associated debt were wiped out because she received a discharge from bankruptcy. However, the Dang Court noted that the property lien was not affected by Plaintiff's first bankruptcy and subsequent discharge, as the bankruptcy court explicitly stated that it was lifting the automatic stay to allow Bank of America to exercise its rights under state law as to the property. (5) Finally, Plaintiff claimed that the bankruptcy court improperly adjudicated facts in the dismissal orders. The district court found that no such claim existed as the decisions relied upon the application of law to the facts as plaintiff pled them. Further, the complaint failed as a matter of lawon grounds of judicial estoppel"•that is, plaintiff's failure to disclose her claims in the first bankruptcy proceeding"•and statute of limitations. In the end, the district court adopted in toto the bankruptcy court's findings of fact and conclusions of law for dismissal. While this case may center on bankruptcy courts' statutory and constitutional powers to issue final orders in adversary proceedings, the takeaway for the financial services practitioner is to find out early in the litigation if the adverse party has ever filed for bankruptcy. If so, determine if plaintiff disclosed in the bankruptcy the claims being made in the instant case. As Dang found out, failure to do so may be lethal to the lawsuit. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.
Posted in: Bankruptcy, Maryland
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