Federal National Mortgage Association, et al v. Leroy Ramirez

Western District of Texas, txwd-5:2018-cv-01074

Order on Bankruptcy Appeal Affirming appeal. Signed by Judge Xavier Rodriguez.

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0 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION § FEDERAL NATIONAL MORTGAGE § ASSOCIATION; BANK OF AMERICA, N.A.; § AND SETERUS, INC., § § Defendants - Appellants, § Civil Action No. 5:18-CV-01074-XR § Bankr. No. 18-05242 VS. § § LEROY RAMIREZ, § § Plaintiff - Appellee. § § ORDER On this date, the Court considered the appeal filed by Federal National Mortgage Association ("FNMA"), Bank of America, N.A., and Seterus, Inc. from the Bankruptcy Court's Order remanding this case. FNMA asserts that the Bankruptcy Court's Order remanding the case was improper on three grounds. First, FNMA asserts that the Bankruptcy Court erred by disregarding Ramirez's failure to provide notice to FNMA of his initial bankruptcy case and its reopening. Second, FNMA asserts that the Bankruptcy Court erred by applying the wrong standard to its inquiry into whether the Amended Petition provided sufficient notice to FNMA regarding the bankruptcy. Third, FNMA asserts that the Bankruptcy Court misapplied the standard for excusable neglect under Bankruptcy Rule 9006(b). After careful consideration, this court holds that the removal was untimely and affirms the Bankruptcy Court's remand order. 1 0 Background On August 1, 2007, Ramirez executed a promissory note with Countrywide Home Loans, Inc. for $45,900.00, secured by a Deed of Trust for the real and personal property located at 141 East Rosewood Street, Beeville, Texas 78102 (the "Property") (The Note and Deed of Trust are referred to collectively as the "Loan"). In August 2008, Ramirez defaulted on the Loan and FNMA purchased the Property at a foreclosure sale in June 2009. Unaware of the foreclosure, Ramirez alleges he was granted a loan modification in July 2009 and that he continued making loan payments and maintained possession of the property until 2015. On September 25, 2013, Ramirez filed for bankruptcy protection under Chapter 13. Bankr. Case No. 13-52576-CAG. The Property was listed on Schedule A and exempted on Schedule C. FNMA had an interest in this action as titleholder of the Property, and notice of the bankruptcy was effected on FNMA's mortgage servicer, Seterus. Docket no. 9 at 35, 40. Service was not effected directly on FNMA. On October 15, 2013, Ramirez filed a Notice of Voluntary Conversion from Chapter 13 to Chapter 7, and on January 16, 2014, Ramirez received a discharge and the initial bankruptcy case was closed. Id. at 103. Ramirez learned of the 2009 foreclosure in 2017. After he learned of the foreclosure, he sued FNMA, Bank of America, and Seterus. On August 22, 2017, Ramirez filed a petition in the 156th Judicial District Court of Bee County against FNMA seeking damages in the amount of "$100,000 or less" and alleging trespass to try title with respect to the Property, fraud against Bank of America and Seterus, and unjust enrichment against Bank of America and Seterus. Docket no. 9 at 182-88. FNMA filed an answer on October 23, 2017. Id. at 66. It is undisputed that the original petition made no mention of the 2013 bankruptcy. 2 0 On January 10, 2018, Ramirez moved to re-open his bankruptcy case. Docket no. 9 at 106-11. Ramirez sought to re-open the bankruptcy to provide the correct address of the Beeville property to avoid any assertion that he failed to disclose the asset, and further to disclose as an asset his claims against FNMA and the other defendants related to the Property. He amended his schedules to properly list the house address, to list the claims against FNMA, Seterus, and Bank of America as assets, and to exempt those claims. Ramirez provided service to notify FNMA's servicer, Seturus, that the bankruptcy case had been re-opened, but did not provide service directly to FNMA. Docket no. 9 at 66, 107-09. Seturus was also notified of the Amended Schedules filed in the re-opened bankruptcy case regarding the Beeville property and the claims in the state court action. Id. During January and February of 2018, a Chapter 7 Trustee was appointed. Id. at 113-21, 130, 140-45. The Trustee objected to Ramirez's claimed exemptions for his claims related to the Property. On April 4, 2018, a Motion to Approve a Settlement Between the Trustee and the Debtors Regarding Trustee's Objections to Exemptions was filed, and the Bankruptcy Court approved the motion on April 30, 2018. Id. at 147; docket no. 6 at 566. This motion was served on Seturus, but service was not effected directly on FNMA. Docket no. 9 at 81. Under the terms of the settlement, Ramirez and the Estate would split the proceeds of any recovery in the state court litigation. On April 6, 2018, after the Motion to Approve Settlement was filed but before it was approved by the Bankruptcy Court, Ramirez filed an Amended Petition in his civil action in the Bee County District Court. The Amended Petition increased the damages sought to over two million dollars and added new causes of action. Docket no. 6 at 82-91. The Amended Petition mentions Ramirez's bankruptcy and house in paragraph 19 as follows: "Ramirez experienced so 3 0 much stress over his financials that in late 2013 he turned to bankruptcy in an effort to get relief. In the bankruptcy schedules he listed the house as one of his assets." Id. at 85. Although it is undisputed that FNMA received service of the Amended Petition, FNMA alleges that this reference to the bankruptcy case was insufficient to alert it that the case was removable under 28 U.S.C. § 1452. Section 1452(a) permits removal of claims over which the district court would have jurisdiction under 28 U.S.C. § 1334, which provides for original jurisdiction of all cases arising under Title 11 or arising in or related to cases under Title 11, the Bankruptcy Code. This jurisdiction is broad, and a case is related to a case under Title 11 if the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy. Matter of Wood, 825 F.2d 90, 93 (5th Cir. 1987). Generally, a debtor's claims against third parties are assets of the estate and thus could potentially have an effect on the bankruptcy estate. FNMA asserts that it first learned of Ramirez's bankruptcy case when notified by co- Defendants on August 6, 2018. Docket no. 10 at 11. On August 10, 2018, FNMA filed its Notice of Removal under 28 U.S.C. § 1452(a) and Bankruptcy Rule 9027(a). As noted, section 1452(a) allows a party to remove "any claim or cause of action in a civil action. . . to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of [Title 28]." 28 U.S.C. § 1452(a). 1 Section 1452(a) provides the right of removal, and Bankruptcy Rule 9027 establishes the procedures for such removal. Rule 9027 provides that, if the claim or cause of action is asserted after the commencement of a case under the Bankruptcy Code, "a notice of removal may be filed with the 1 Removals directly to the Bankruptcy Court are contemplated and permitted by the Rules. See In re Coastal Plains, Inc., 338 B.R. 703, 711 (N.D. Tex. 2006). Although FNMA removed to the Bankruptcy Court in the Western District of Texas, removal should have been to the Southern District of Texas. However, removal to the wrong district is a procedural defect that does not require remand if jurisdiction is otherwise proper. 4 0 clerk only within the shorter of (A) 30 days after receipt, through service or otherwise, of a copy of the initial pleading setting forth the claim or cause of action sought to be removed, or (B) 30 days after receipt of the summons if the initial pleading has been filed with the court but not served with the summons." FED. R. BANKR. P. 9027(a)(3). FNMA asserts that its removal was proper and timely because it first learned of the bankruptcy case on August 6, 2018 and the Notice of Removal was filed within thirty days of that date. Docket no. 6 at 21-26. On August 27, 2018, Ramirez filed a motion to remand. Ramirez asserted five reasons in support. First, Ramirez asserted that the Notice of Removal was untimely because, consistent with FNMA's servicing guidelines, Seterus was sent notice of the bankruptcy, which sufficiently provided notice to FNMA. Second, Ramirez asserted that FNMA was required to remove within thirty days of receipt of the Amended Petition because the Amended Petition provided notice of the bankruptcy case to FNMA. Third, Ramirez asserted that there was no excusable neglect for untimely removal. Fourth, Ramirez asserted that that the civil action was removed to the wrong district because the 156th District Court is in the Southern District of Texas. Fifth, Ramirez asserted that remand was proper when weighing the factors for abstention and remand under § 1452(b). Docket no. 6 at 197-02. On September 17, 2018, FNMA filed an Opposition to the Motion to Remand asserting that removal was timely and the case should remain in federal court. Docket no. 6 at 391. After a hearing, the Bankruptcy Court granted Ramirez's motion to remand. The Bankruptcy Court explained his reasoning on the record, and then entered a one-sentence order remanding the case based on untimely removal. The Bankruptcy Court noted that when the Amended Petition was filed on April 6, 2018, FNMA could have removed the case under 5 0 diversity jurisdiction,2 but it did not remove the case within thirty days on that basis. Docket no. 6 at 555, ln. 18-21. The Bankruptcy Court further noted that there was no case law regarding the relationship between 28 U.S.C. § 1452 and 28 U.S.C. § 1446, the general removal statute, and whether the failure to remove based on diversity would preclude a later removal under § 1452, but concluded that FNMA's ability to remove the case under 28 U.S.C. § 1452 would be viewed independently of any right to remove based on diversity under § 1446. Id. at 555-56, ln. 22-25, 1- 9. Consistent with the Bankruptcy Court, this Court will view FNMA's ability to remove this case under § 1452 independently from its failure to remove under § 1446. In reviewing the § 1452 removal, the Bankruptcy Court held that FNMA's removal was untimely because the Amended Petition, filed on April 6, 2019, put FNMA on notice that the action was removable under 28 U.S.C. § 1452 as related to a bankruptcy proceeding. Thus, because FNMA failed to remove the case within thirty days, the removal was untimely and remand was warranted. Standard of Review On review, a bankruptcy court's factual findings are reviewed for clear error and conclusions of law are reviewed de novo. See Henderson v. Belknap (In re Henderson), 18 F.3d 1305, 1307 (5th Cir. 1994); In re Kennard, 970 F.2d 1455, 1457-58 (5th Cir. 1992). Mixed questions of law and fact are reviewed de novo. Bass v. Denny, 171 F.3d 1016, 1021 (5th Cir. 1999). Analysis Federal Rule of Bankruptcy Procedure 9027 governs removal of civil actions to federal bankruptcy court pursuant to 28 U.S.C. § 1452(a). Rule 9027 sets out time limitations for 2 The requirements for diversity jurisdiction were met because Ramirez's Amended Petition seeks damages in excess of $2 million and there is complete diversity among opposing parties, as conceded by Defendants. Docket no. 6 at 521, ln. 24. 6 0 removal depending whether a civil action was initiated before or after the bankruptcy case was commenced, but Rule 9027 only asks whether the pleading was received, and does not differentiate between an initial or an amended pleading, nor does it address what constitutes adequate notice to trigger the removal clock. Rule 9027(a)(3) provides that, If a claim or cause of action is asserted in another court after the commencement of a case under the Code, a notice of removal may be filed with the clerk only within […] 30 days after receipt, through service or otherwise, of a copy of the initial pleading setting forth the claim or cause of action sought to be removed. FED. R. BANKR. P. 9027 This language is similar to that contained in the general removal statute pertaining to removal based on initial pleadings, 28 U.S.C. § 1446(b), which provides: (1) The notice of removal of a civil action or proceeding shall be filed within 30 days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within 30 days after the service of summons upon the defendant if such initial pleading has been filed in court… 28 U.S.C. § 1446(b)(1). However, § 1446(b) also addresses amended pleadings: (3) …if the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable. 28 U.S.C. § 1446(b)(3) (emphasis added). In a diversity case, the Fifth Circuit held that § 1446(b)(1) applies to initial pleadings and the time limit for removal begins when the pleading "affirmatively reveals on its face" that the action is removable. Bosky v. Kroger Texas, LP, 288 F.3d 208, 210 (5th Cir. 2002). In contrast, it held, amended pleadings are governed by U.S.C. § 1446(b)(3), and the removal clock begins to run when it "may first be ascertained" from an amended pleading or other paper that the case is or has become removable, meaning that notice must be "unequivocal" to start the removal clock. Id. 7 0 FNMA argues that Bosky and § 1446(b)(3) apply and require that the notice of the pending bankruptcy case must be "clear and unequivocal" in an amended pleading to trigger the clock for removal under § 1452(a) and Bankruptcy Rule 9027. However, Bosky and the case from which it developed, Chapman v. Powermatic, Inc., 969 F.2d 160 (5th Cir. 1992), dealt with amount in controversy, not federal question removals or removals under § 1452. Those cases wanted to establish a bright-line rule for determining when the amount in controversy exceeded the jurisdictional minimum to prevent protective removals. But removals in other contexts, such as those based on improper joinder, do not necessarily apply the same standards. See Jernigan v. Ashland Oil Inc., 989 F.2d 812, 815 (5th Cir. 1993) (the thirty days is measured from receipt of whatever writing constitutes first notice that the case has become or always has been removable). Moreover, as noted, Rule 9027 does not incorporate the language from § 1446(b)(3) that was construed in Bosky. Even if "clear and unequivocal" notice is required, however, FNMA fails to establish that such notice requires formal notice/service in the bankruptcy case or that the notice in the Amended Pleading was insufficient. Thus, the Court concludes that FNMA's argument that Bosky requires a different result must fail. This case boils down to whether the amended pleading provided adequate notice that the case or a claim therein was or had become removable under § 1452(a) as a case or claim related to a bankruptcy case. In other words, was there sufficient notice that a case under the Bankruptcy Code had been commenced and that the current case could conceivably affect the bankruptcy estate? The Bankruptcy Court found that the Amended Petition provided sufficient notice, and this Court agrees. The Bankruptcy Court found that the mention in the Amended Complaint of the bankruptcy case having been filed and that the property was listed as an asset was sufficient to 8 0 put FNMA on notice to avail themselves of the bankruptcy code removal provisions. Docket no. 6 at 558. The Bankruptcy Court supported its decision that notice was sufficient with the testimony of FNMA's employee, Ms. Kirk, who acknowledged that she was put on notice by the first amended petition and that anyone could be on notice that a bankruptcy had been filed, and the fact that FNMA and Seterus, its mortgage servicer who had been served in the bankruptcy case, shared counsel. Docket no. 6 at 558, ln. 13-25 (referencing Docket no. 6 at 509, ln. 10-11 ("Yes, I think that if you read the pleading, you can ascertain that a bankruptcy had occurred.")); Docket no. 6 at 560, ln. 13-19. It is undisputed that this action was commenced after the filing of Ramirez's bankruptcy in 2013. The Amended Petition put FNMA on notice that a bankruptcy case had been commenced before the state court suit was filed. Although the bankruptcy case was closed when the suit was initially filed, "there is no requirement under Bankruptcy Rule 9027(a)(3) that the bankruptcy proceeding remain open at the time of removal for that subsection to apply – the subsection only requires that the state court action be filed after the 'commencement' of the bankruptcy proceeding." Sonnier v. HESCO Bastion USA, LLC, No. 12-00728-BAJ-RLB, 2013 WL 5350853, at *4 (M.D. La. Sept. 23, 2013). The 2002 amendment to Rule 9027 clarified that "if a claim or cause of action is initiated after the commencement of a bankruptcy case, the time limits for filing a notice of removal of the claim or cause of action apply whether the case is still pending or has been suspended, dismissed, or closed." Id. (quoting Advisory Comm. Note and citing cases). Here the case had been re-opened by the time Ramirez filed the Amended Petition, but even if it had still been closed, FNMA could have removed and filed a motion to re-open the bankruptcy case after removal. 9 0 Thus, Rule 9027(a)(3) applies, and it requires removal within thirty days of receipt of the pleading that provides notice of removability. Here, the Amended Petition is the pleading that sets forth the claim that FNMA seeks to remove and it provided notice of the bankruptcy case. FNMA contends that the Amended Petition did not trigger the removal clock because FNMA was not on notice of the bankruptcy case via service or some sort of other formal notice. But, as the Bankruptcy Court held, the fact that the Amended Petition expressly references Ramirez's filing of a bankruptcy petition and listing the house as an asset was sufficient, and FNMA's counsel received service of the Amended Petition and should have realized that a debtor's claims for money damages and for trespass to try title would conceivably affect the bankruptcy estate. As a result, FNMA had thirty days after receipt of the Amended Petition to remove under Rule 9027, and it failed to do so. The Court further affirms the Bankruptcy Court's ruling that the untimely removal was not excused under Rule 9006 on the basis of excusable neglect. Conclusion This Court affirms the Bankruptcy Court's order remanding the case. See 28 U.S.C. § 1447(c), (d); see also Things Remembered, Inc. v. Petrarca, 516 U.S. 124 (1995) (28 U.S.C. § 1447(d) applies to remand orders under § 1452 based on a timely raised defect in removal procedure). The Clerk is directed to CLOSE this case. It is SO ORDERED. SIGNED this 14th day of June, 2019. XAVIER RODRIGUEZ UNITED STATES DISTRICT JUDGE 10