United States District Court, E.D. Tennessee, Chattanooga
FEDERAL NATIONAL MORTGAGE ASSOCIATION and SETERUS, INC., Defendants/Appellants,
JOSEPH C. CAWOOD, Plaintiff/Appellee.
L. COLLIER, UNITED STATES DISTRICT JUDGE
matter comes before the Court from the Bankruptcy Court.
Defendants/Appellants, Federal National Mortgage Association
(“FNMA”) and Seterus, Inc.
(“Seterus”; collectively with FNMA,
“Defendants”), object to the Bankruptcy
Court’s proposed findings of fact and conclusions of
law on their motions to dismiss the adversary proceeding
filed against them by Plaintiff/Appellee, Joseph C. Cawood.
For the reasons stated herein, the Court will
ACCEPT the Bankruptcy Court’s proposed
findings of fact and conclusions of law,
DENY Seterus’s motion to dismiss,
GRANT IN PART and DENY IN
PART FNMA’s motion to dismiss,
DISMISS Count Six of Plaintiff’s
Amended Complaint against FNMA, and REMAND
the case to the Bankruptcy Court for further proceedings
consistent with this opinion.
do not object to the Bankruptcy Court’s explanation of
Plaintiff’s factual allegations for the purposes of
Defendants’ motion to dismiss. The Court accordingly
adopts Section One of the Bankruptcy Court’s Memorandum
Opinion by reference and provides only a brief summary of the
bought a house in Cleveland, Tennessee, in 2004, obtaining a
loan from SunTrust Mortgage, Inc. (“SunTrust”).
The loan was secured by a deed of trust.
moved to Texas. He fell behind on his loan payments in 2008,
and SunTrust instituted foreclosure proceedings. Plaintiff
filed a voluntary Chapter 13 bankruptcy petition (the
“Texas Case”) in the Bankruptcy Court for the
Southern District of Texas (the “Texas Court”) on
May 12, 2008, to stop the foreclosure. The Texas Case was
completed on May 31, 2013. The Texas Court granted the
trustee’s June 2013 motion deeming the mortgage current
and directing Plaintiff to make future loan payments directly
to SunTrust. Plaintiff received a discharge from the Texas
Court on July 8, 2013.
made loan payments to SunTrust for June, July, August, and
September 2013. In October 2013, Seterus sent Plaintiff a
letter informing him that Seterus had become the servicer of
the loan on behalf of FNMA. The letter stated that there was
unpaid interest of $2, 591.62 and an escrow overdraft of
$745.33 on the loan. Seterus also returned Plaintiff’s
September payment. Plaintiff made his October 2013 payment to
Seterus as instructed. He also retained counsel, who wrote to
Seterus in November 2013, resubmitting Plaintiff’s
September 2013 payment and enclosing a copy of the order from
the Texas Case deeming the loan current.
October 2013 and August 2014, certain patterns repeated.
Plaintiff submitted all of his payments to Seterus, Seterus
returned certain payments, and Plaintiff resubmitted them.
Seterus sent multiple letters to Plaintiff claiming the loan
was in default and discussing new payment amounts, a possible
loan modification, and the institution of foreclosure
proceedings. Plaintiff’s counsel sent multiple letters
telling Seterus to check the records from the Texas Case,
asserting that Plaintiff had made all of his payments since
the Texas Case on time, and asserting that foreclosure would
violate the orders of the Texas Court. Seterus responded with
letters saying the matter was under investigation.
was scheduled and advertised for August 14, 2014. In order to
stop the sale, Plaintiff filed a Chapter 13 petition on
August 12, 2014, in the Bankruptcy Court for the Eastern
District of Tennessee, to which Petitioner had returned.
Seterus filed an objection to confirmation on the grounds
that Plaintiff’s plan did not account for arrearages to
Seterus of more than $7, 000.
filed this adversary proceeding on August 11, 2015, against
FNMA, Seterus, SunTrust, and other entities allegedly
involved in the planned foreclosure. His First Amended
Complaint (the “Complaint”) seeks individual and
class-action relief. He asserts causes of action for (1) an
objection to Seterus’s claim; (2) breach of contract;
(3) intentional or negligent misrepresentation; (4)
negligence; (5) failure to credit payments in violation of 15
U.S.C. § 1639f; and (6) violation of the Fair Debt
Collection Practices Act (the “FDCPA”).
and FNMA each filed a motion to dismiss on July 8, 2016.
Seterus argued the Bankruptcy Court lacks subject matter
jurisdiction over all of Plaintiff’s claims for
individual relief because they are attempts to enforce the
discharge injunction from the Texas Case, and a contempt
action for violation of a discharge injunction can only be
heard in the court that issued the injunction. Similarly,
Seterus argued for dismissal of the class-action claims as
attempts to enforce discharge injunctions of other courts. In
the alternative, it argued the Complaint fails to state valid
claims for relief under Rule 12(b)(6) of the Federal Rules of
Civil Procedure. FNMA’s motion sought dismissal on the
grounds that the Complaint does not contain any factual
allegations of misconduct by FNMA. In the alternative, FNMA
adopted Seterus’s arguments for dismissal. The
Bankruptcy Court heard oral argument on the motions to
dismiss on September 20, 2016.
Bankruptcy Court issued a Memorandum Opinion and Order on
September 29, 2017, which constitute the Bankruptcy
Court’s proposed findings of fact and conclusions of
law for this Court’s review.See Fed. R. Bankr.
P. 7012(b); 28 U.S.C. § 157(c)(1). The Bankruptcy Court
first addressed Defendants’ challenge to subject-matter
jurisdiction based on the discharge injunction in the Texas
Case. (Op. at 10–14.) The Bankruptcy Court acknowledged
the correctness of Defendants’ position that only a
court that issues a discharge injunction may punish a
violation of that injunction. (Id. at 10.) It
concluded, however, that a discharge injunction was not at
issue in Plaintiff’s Complaint, because
Plaintiff’s debt to SunTrust was not discharged in the
Texas Case. (Id. at 11–14 (quoting Perry
v. EMC Mortgage Corp., 388 B.R. 330 (Bankr.E.D.Tenn.
2008) (long-term mortgage was excepted from discharge under
11 U.S.C. § 1328, so post-discharge collection actions
by mortgage holder did not ...