United States District Court, S.D. New York
GREGORY C. MORSE, Appellant,
RESCAP BORROWER CLAIMS TRUST, Appellee.
MEMORANDUM OPINION AND ORDER
GREGORY H. WOODS, District Judge.
Appellant Gregory Morse brings this appeal from a decision of the United States Bankruptcy Court for the Southern District of New York, expunging his claims against appellee Rescap Borrwer Claims Trust (the "Trust"). On June 6, 2014, the Bankruptcy Judge issued an opinion sustaining the Trust's objections to and thus expunging Mr. Morse's claims against the Trust. Mr. Morse filed a notice of appeal to this Court on July 28, 2014, and timely filed his opening brief on August 11, 2014. The Trust filed their brief in opposition on August 25, 2014, and Mr. Morse filed his reply on September 7, 2014.
For the reasons outlined below, Mr. Morse's appeal is denied.
a. Proceedings in the Bankruptcy Court
In any bankruptcy proceeding, a creditor may file a proof of claim, asserting a right to payment by the debtor. See 11 U.S.C. § 101(10)(A); Fed.R.Bankr.P. 3001(a). A creditor is an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor..., " and a claim is a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured...." 11 U.S.C. § 101(10)(A); 101(5)(A). A properly-filed proof of claim serves as prima facie evidence "of the validity and amount of the claim." Fed.R.Bankr.P. 3001.
This bankruptcy proceeding began on May 14, 2012, when Residential Capital, LLC and a group of other entities filed petitions for bankruptcy under Chapter 11 of the Bankruptcy Code. On December 11, 2013, the Bankruptcy Court confirmed the bankruptcy plan, which became effective on December 17, 2013. The Trust was set up to manage the bankruptcy process on behalf of the debtors, and was given the authority to object to claims. See Bankruptcy Court Opinion at 3.
Mr. Morse filed two claims in this bankruptcy proceeding, each for $6, 475, 662: claim number 5680 against GMACM and claim number 5682 against Homecomings. Bankruptcy Court Opinion at 1, 9. The Trust filed objections to both claims based on Mr. Morse's failure to state a basis for liability. Mr. Morse filed a response, the Trust filed a reply, and the Bankruptcy Court scheduled a hearing on the objections for May 15, 2014. Bankruptcy Court Opinion at 1-2.
On May 7, 2014, Mr. Morse requested an adjournment of the hearing. Notice of Adjournment, Bankruptcy Dkt. No. 6880. The Bankruptcy Court denied Mr. Morse's request in an order allowing him to appear for the hearing by telephone and stating that "[i]f he chooses not to appear, the Court will take the matter under submission without argument by any of the parties and the objection will be decided on the papers alone." Order Denying Motion for Adjournment, Bankruptcy Dkt. No. 6931, at 1. Mr. Morse did not appear in person or by phone, so the Bankruptcy Court did not hear argument on the objections to his claims. See Transcript, Bankruptcy Dkt. No. 6998, at 5-6. On June 6, 2014, the Bankruptcy Court issued an opinion sustaining the objections and expunging both of Mr. Morse's claims.
b. Underlying Action in Texas
The basis for both of Mr. Morse's claims is a lawsuit he filed in Texas against debtors GMACM and Homecomings and various other entities. See Bankruptcy Court Opinion at 5; Proof of Claim No. 5680, Bankruptcy Dkt. No. 6743-2, at 2; Proof of Claim No. 5682, Bankruptcy Dkt. No. 6743-3, at 2 (each stating basis for claim as "Rico Fraud Complaint Filed in E. District Of Texas Federal Court"). In his amended complaint in the Texas case, Mr. Morse: (1) sought a declaratory judgment on various grounds regarding the status of the title and mortgage to his property; (2) requested an accounting; and (3) asserted claims for: (a) fraud; (b) breach of contract; (c) violations of the Texas Mortgage Broker License Act; (d) violations of the Texas Mortgage Banker Registration and Residential Mortgage Loan Originator License Act; (e) violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"); and (f) violations of the Texas Deceptive Trade Practices Act. See Amended Complaint, E.D. Tex. Dkt. No. 14, at ¶¶ 112, 138, 150, 162-75.
On September 10, 2012, GMACM and Homecomings filed their Notices of Bankruptcy in the bankruptcy action underlying this case, and joined the other defendants in filing a motion to dismiss the Texas case. Bankruptcy Court Opinion at 7. Pursuant to the Bankruptcy Court's Foreclosure Stay Relief Order, Bankruptcy Dkt. No. 774, all claims against GMACM and Homecomings in the Texas case were stayed, except those for declaratory judgment based on the validity of the lien on Mr. Morse's property. Bankruptcy Court Opinion at 7.
On August 13, 2013, the Magistrate Judge in the Texas case recommended dismissing with prejudice all claims against the non-debtor defendants and all non-stayed claims against GMACM and Homecomings. Report and Recommendation, E.D. Tex. Dkt. No. 50, at 21. With regard to the stayed claims, the Magistrate Judge noted that:
upon the lifting of any stay, the analysis in this report finding that Plaintiff has stated no statutory or common law fraud, breach of contract, RICO, DTPA, Texas Mortgage Broker License Act, Texas Mortgage Banker Registration and Residential Mortgage Loan Originator License Act, accounting or "other" claims against [the non-debtor defendants] would be equally applicable to Homecomings and GMAC, and, upon the lifting of the stay, a separate report and recommendations will be entered recommending that they be applied accordingly.
Id. On September 25, 2013, the District Court Judge adopted the Magistrate Judge's Report and Recommendation and dismissed the Texas case, finding that Mr. Morse "has not stated any claim here and is not entitled to any of the relief he seeks." Order, E.D. Tex. Dkt No. 73, at 2.
III. LEGAL STANDARDS
a. Proof of Claim Process
Under 11 U.S.C. § 502, a claim is "deemed allowed, unless a party in interest... objects." Once a party objects-as the Trust did here-courts employ a burden-shifting framework to assess the validity of a claim. See In re St. Johnsbury Trucking Co., Inc., 206 B.R. 318, 323 (Bankr. S.D.N.Y. 1997) aff'd, 221 B.R. 692 (S.D.N.Y. 1998) aff'd, 173 F.3d 846 (2d Cir. 1999). Because the proof of claim is prima facie evidence of the validity and amount of the claim, "the objector bears the initial burden of persuasion." In re Oneida Ltd., 400 B.R. 384, 389 (Bankr. S.D.N.Y. 2009); see also Fed.R.Bankr.P. 3001(f). The objector's burden is to "produce evidence equal in force to the prima facie case... which, if believed, would refute at least one of the allegations that is essential to the claim's legal sufficiency.'" In re Oneida Ltd., 400 B.R. at 389 (quoting In re Allegheny Intern., Inc., 954 F.2d 167, 173-174 (3d Cir. 1992)). Once the objector has produced sufficient evidence, the burden shifts back to the claimant to "prove by a preponderance of the evidence that under applicable law the claim should be allowed." Id. Thus, "[u]ltimately it is the claimant... who bears the burden of persuasion as to the allowance of [his] claim." In re ...