In Re: Safina N. Mbazira

Filing 13

Judge F. Dennis Saylor, IV: ORDER entered. MEMORANDUM AND ORDER, the Order of the Bankruptcy Court dated 7/22/10, is AFFIRMED.(Castles, Martin)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
_______________________________________
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SAFINA N. MBAZIRA,
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Debtor.
_______________________________________)
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SAFINA N. MBAZIRA,
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Appellant,
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v.
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LITTON LOAN SERVICING, LLP; US
BANK NATIONAL ASSOCIATION, as
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Trustee of the J.P. Morgan Mortgage
Acquisition Corp. 2005-Fre1 Asset Backed )
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Pass-Through Certificates, Series 2005Fre1; MORTGAGE ELECTRONIC
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REGISTRATION SYSTEM, INC.; and
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BRICE, VANDER LINDEN &
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WERNICK, P.C.,
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Appellees.
_______________________________________)
In re

Chapter 13 Case No.
07-14407-WCH

Civil Action No.
10-11831-FDS

MEMORANDUM AND ORDER
ON APPEAL FROM BANKRUPTCY COURT
SAYLOR, J.
This is an appeal from an order of dismissal of the United States Bankruptcy Court for the
District of Massachusetts. After confirmation of her Chapter 13 plan, debtor Safina N. Mbazira
sought to challenge the validity of the mortgage on her home by instituting an adversary
proceeding. The bankruptcy judge dismissed the proceeding on the basis of judicial estoppel.
For the reasons set forth below, the order of the Bankruptcy Court will be affirmed.

I.

Background
The following facts are drawn from the bankruptcy court filings and the parties’ briefs.

Except where otherwise noted, the facts are undisputed.
On July 26, 2005, debtor-appellant Safina Mbazira obtained from Fremont Investment &
Loan two loans in the amount of $528,000 and $132,000, secured by two mortgages on her
property at 977 Trapelo Road, Waltham, Massachusetts. Servicing rights on the mortgages were
later assigned to appellee Litton Loan Servicing, LLP.1
Mbazira filed a voluntary Chapter 13 bankruptcy petition on July 17, 2007. Her first plan
scheduled Litton as a secured creditor holding claims in the amount of $656,131. Litton filed
proofs of claim for the mortgage liens.
From July 2007 to August 2009, Mbazira submitted three additional modified plans to the
Bankruptcy Court.2 Each plan represented that the mortgages serviced by Litton were secured
debt, entitled to payment in full. The Bankruptcy Court confirmed the plan on September 30,
2009. Litton’s claims as mortgagee were allowed as secured claims.
Mbazira quickly fell behind on her mortgage payments under the confirmed plan. In
January 2010, the Trustee filed a motion to dismiss the case under 11 U.S.C. § 1307(c)(4) for
failure to make timely payments. To resuscitate the plan, Mbazira and the Trustee entered into an
“agreed order,” which provided that the case would be dismissed unless the debtor filed an
amended Chapter 13 plan by March 26.

1

In the adversary proceeding, Mbazira contested the assignment from Fremont to Litton. She does not
dispute the issue on appeal.
2

The second plan was filed on December 28, 2007; the third on August 11, 2008; and the fourth on
August 26, 2009.

2

Mbazira submitted a “Post-Confirmation Chapter 13 Plan” on March 13. The proposed
plan, for the first time, attempted to reclassify the first mortgage as an unsecured claim. Citing a
May 2009 decision of the Bankruptcy Court for the District of Massachusetts in an unrelated
case, Mbazira contended that the first mortgage—valued at $581,811.46—was recorded with a
defective certificate of acknowledgment and therefore constituted an unsecured lien on the
property.3 Litton objected to the reclassification of its claim under the new plan. It also
contended that because Mbazira sought to contest the validity of a lien on real property, the
challenge must be brought as an adversary proceeding. See Fed. R. Bankr. P. 7001(2).
Mbazira thereafter instituted an adversary proceeding seeking, among other things, a
declaration regarding the validity of the mortgage securing her property. She alleged that a
notarization defect in the certificate of acknowledgment rendered the mortgage an invalid security
interest under 11 U.S.C. § 506. She also sought total disallowance of the claim on the ground
that the proofs of claim were fraudulent. The defendants filed a motion to dismiss.
The Bankruptcy Judge held a hearing on the motion on July 22, 2010. The defendants
contended that (a) the challenge to the validity of the mortgage was barred by the operable statute
of limitations, 11 U.S.C. § 546; (b) the debtor was precluded from challenging the allowance of
Litton’s secured claim under principles of judicial estoppel and res judicata; and (c) even if the
mortgage lien could be reclassified as unsecured debt, the benefit would inure to the estate rather
than to the debtor. The judge granted the motion to dismiss orally from the bench, reasoning as
follows:

3

The case on which Mbazira relied was Agin v. Mortgage Elec. Registration Sys., Inc. (In re Giroux),
2009 WL 1458173, at *1 (Bankr. D. Mass. May 21, 2009), aff’d 2009 WL 3834002, at *1 (D. Mass. Nov. 17,
2009).

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I believe that the defendants have the better of the judicial estoppel argument here.
Once you’[v]e written a plan, once you’ve gotten a plan confirmed—which was
not Giroux, which was not my case, Dessources. In neither of those cases was a
plan confirmed. So I think judicial estoppel applies.
To say that a debtor can come in after confirmation and all of a sudden change the
treatment of a significant claim just doesn’t fly. The motion to dismiss is granted.
(Hrg. Transcript, at 8:12 – 8:20). No written opinion was issued. This appeal followed.
II.

Jurisdiction and Standard of Review
This Court has jurisdiction to hear appeals from final judgments, orders, and decrees of

the Bankruptcy Court pursuant to 28 U.S.C. § 158(a)(1). In reviewing the Bankruptcy Court’s
decision, this Court functions as an appellate court and is authorized to “affirm, modify, or reverse
a bankruptcy judge’s [order] or remand with instructions for further proceedings.” Fed. R.
Bankr. P. 8013. The Bankruptcy Court’s conclusions of law are reviewed de novo and its
findings of fact are reviewed for clear error. See Stornawaye Fin. Corp. v. Hill (In re Hill), 562
F.3d 29, 32 (1st Cir. 2009).
The First Circuit has not determined the standard of review for a Bankruptcy Court’s
application of judicial estoppel. Gens v. Resolution Trust Corp., 112 F.3d 569, 572 n.2 (1st Cir.
1997). Other circuits, however, review a decision about whether to invoke the doctrine for abuse
of discretion. See, e.g., In re Kane, 628 F.3d 631, 636 (3d Cir. 2010); In re Coastal Plains, Inc.,
179 F.3d 197, 205 (5th Cir. 1999). They reason that judicial estoppel is equitable in nature and
affords judges wide, although not unbounded, discretion. In re Coastal Plains, 179 F.3d at 205.
In the First Circuit, a district court’s application of judicial estoppel is reviewed for abuse of
discretion, Perry v. Blum, 629 F.3d 1, 8 (1st Cir. 2010), as is a decision made by a Bankruptcy
Court pursuant to a provision of the Bankruptcy Code that confers discretion, In re Gonic Realty
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Trust, 909 F.2d 624, 626-27 (1st Cir. 1990).
Considering these factors, other courts in this district have reviewed Bankruptcy Court
applications of judicial estoppel for abuse of discretion. E.g., In re Fiorillo, 2011 WL 2535002,
at *5 (D. Mass. June 24, 2011). Appellees contend that it is the appropriate standard.
(Appellee’s Br. at 3). The debtor-appellant’s brief inconsistently points to abuse of discretion and
de novo review as the applicable standard. (Appellant’s Br. at 4, 7). As the debtor does not offer
an argument as to why de novo review is proper, and all other indicators suggest that it is not, the
Court will review the decision of the Bankruptcy Court for abuse of discretion. “A court abuses
its discretion if it does not apply the correct law or if it rests its decision on a clearly erroneous
finding of material fact.” Cabral v. Shamban (In re Cabral), 285 B.R. 563, 570 (B.A.P. 1st Cir.
2002).
III.

Analysis
Judicial estoppel is an equitable doctrine that serves to protect the integrity of the judicial

process. New Hampshire v. Maine, 532 U.S. 742, 749-50 (2001); Perry, 629 F.3d at 8. It
operates by preventing a party who successfully adopts one position in a legal proceeding from
urging the contrary position in a subsequent proceeding after its interests or circumstances have
changed. InterGen N.V. v. Grina, 344 F.3d 134, 144 (1st Cir. 2003). While the contours of
judicial estoppel are imprecise, three conditions typically inform a court’s application of the
doctrine. First, a party’s earlier and later positions must be inconsistent. Second, the party must
have prevailed in convincing the court to adopt its earlier position. Third, the party urging the
contrary position must stand to derive an unfair advantage from its about-face or impose and
unfair detriment on the opposing party if the court accepts the new position. New Hampshire,
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532 U.S. at 750-51; Perry, 629 F.3d at 9.
The Bankruptcy Court did not methodically consider each factor in its dismissal of the
adversary proceeding. Nevertheless, the application of judicial estoppel is fairly straightforward in
this case. In four iterations of the debtor’s proposed Chapter 13 plans submitted to the
Bankruptcy Court, she represented that Litton was a secured creditor, entitled to full repayment
on both mortgages. She never questioned whether the mortgages were properly notarized or
validly recorded. The Bankruptcy Court accepted the debtor’s position and confirmed her plan in
September 2009. But in the amended Chapter 13 plan submitted in March 2010 and the
subsequent adversary proceeding, for the first time she argued that one of the mortgages was
invalid and should be treated as unsecured debt. These positions were plainly inconsistent. The
first and second conditions for judicial estoppel are therefore present.
The third condition—the likelihood of the inconsistent party obtaining an unfair
advantage—results from different treatment of secured and unsecured claims under the
Bankruptcy Code. Treating Litton’s claims as secured enabled the debtor to avoid foreclosure
and remain in the property if she complied with the payment schedule in her confirmed Chapter 13
plan. By contrast, had the claim be allowed as unsecured, she would not have been able to keep
the property as collateral securing the claim, and the property would have been subject to
liquidation in order to pay creditors of the estate. But after she was unable to comply with the
payment schedule under the confirmed plan, she faced dismissal or conversion of the case to a
Chapter 7 proceeding. 11 U.S.C. § 1307(c)(4). Under these circumstances, it would have been
advantageous for the debtor to reclassify Litton’s claim as unsecured. If the claim was allowed as
unsecured, she would no longer have been responsible for full payment of the claim as long as
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Litton received no less than what it would have been paid if the estate were liquidated under
Chapter 7. Id. § 1325(a)(4). The debtor would receive an unfair benefit, while Litton, which
until March 2010 had no reason to doubt that its claim was secured, would lose the protections
granted to holders of secured claims under the Bankruptcy Code. Presumably for these reasons,
the Bankruptcy Court held the debtor judicially estopped from asserting that the mortgage was
invalid and that Litton held an unsecured interest in the property.
Other courts that have considered post-confirmation attacks on the validity of secured
claims have likewise rejected these efforts. See, e.g., Celli v. First Nat’l Bank of N. N.Y. (In re
Layo), 460 F.3d 289 (2d Cir. 2006); Adair v. Sherman, 230 F.3d 890 (7th Cir. 2000). In a
Chapter 13 case, “[t]he provisions of a confirmed plan bind the debtor and each creditor, . . .
whether or not such creditor has objected to, has accepted, or has rejected the plan.” 11 U.S.C. §
1327(a). This Bankruptcy Code provision safeguards the finality that Congress intended to
achieve in confirmed plans. Adair, 230 F.3d at 895. Accordingly, if a debtor has notice of a
creditor’s proof of claim and has the opportunity to contest it prior to confirmation, the claim is
not thereafter subject to collateral attack. In re Layo, 460 F.3d at 295; Adair, 230 F.3d at 89495. Although the matter is typically viewed as a question of res judicata rather than judicial
estoppel, several courts of appeals have held debtors estopped from challenging the status of
secured claims after confirmation. In re Layo, 460 F.3d at 295-96; Adair, 230 F.3d at 895.4
The debtor contends that application of judicial estoppel was not appropriate because she
4

The debtor’s challenge to the mortgage and effort to reclassify Litton’s claim does not fit within the
exceptions to the finality of confirmed plans permitted under 11 U.S.C. § 1329. Section 1329 provides for
modification of a plan after confirmation in three circumstances, none of which apply in this case. See
Massachusetts Housing Fin. Agency v. Evora, 255 B.R. 336, 343 (D. Mass. 2000) (“While section 1329(a)(1)
provides that a plan may be modified to increase or reduce the amount of payments it does not state that the plan
may be modified to increase or reduce the amount of the secured claim.”).

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merely changed her legal position in response to an unanticipated change in the law. See In re
Parker, 391 B.R. 411, 416 (Bankr. S.D. Ohio 2008). She relies on In re Giroux, a case in which
the Bankruptcy Court held that a mortgage recorded without the debtor’s name in the certificate
of acknowledgment was materially defective and void under Massachusetts law. 2009 WL
1458173, *6-9 (Bankr. D. Mass. May 21, 2009) (interpreting Mass. Gen. Laws ch. 183, §§ 29,
30). In Giroux, the court permitted the Chapter 7 Trustee, pursuant to strong-arm powers
conferred by 11 U.S.C. § 544, to assume the position of a bona fide purchaser who would not be
on constructive notice of the mortgagee’s interest due to the notarization defect. The court held
that the mortgage was avoidable under § 544(a)(3). Id. (adopting the reasoning of Gregory v.
Ocwen Fed. Bank (In re Biggs), 377 F.3d 515 (6th Cir. 2004)). The district court affirmed the
decision on appeal. Mortgage Elec. Registration Sys., Inc. v. Agin, 2009 WL 3834002, *2 (D.
Mass. Nov. 17, 2009).
The debtor offers no persuasive argument as to how Giroux may be considered an
unanticipated change in the substantive law governing the case. True, the bankruptcy court was
called upon to predict whether the Supreme Judicial Court would consider the omission of a
mortgagor’s name from the acknowledgment a material defect under Massachusetts law. But in
doing so, it was guided by extensive precedent from Massachusetts and other jurisdictions. Had
the debtor conducted research and identified the alleged defect in her mortgage prior to
confirmation, she too could have raised the arguments made by the Giroux debtor under the
existing governing statutes and body of controlling case law. Under the circumstances, it was not
an abuse of discretion to conclude that Giroux did not effect an unanticipated change in the law
sufficient to overcome the clear basis for judicial estoppel.
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Moreover, Giroux was issued in May 2009, more than four months before the Bankruptcy
Court confirmed the debtor’s plan. Had she desired to argue that the reasoning of Giroux applied
to her case and challenge the notarization of her mortgage on that basis, she could have instituted
the adversary proceeding before confirmation. As the First Circuit has explained, “confirmation
of a Chapter 13 plan customarily is res judicata as to all issues that were or could have been
decided during the confirmation process.” Carvalho v. Federal Nat’l Mortg. Ass’n (In re
Carvalho), 335 F.3d 45, 49 (1st Cir. 2003). Months after confirmation of the plan—and after her
own failure to abide by it—the debtor may not invoke Giroux as a purported change in the law
that permits a post-confirmation attack on the validity of the mortgage and the status of the debt.
The Bankruptcy Judge did not abuse his discretion in concluding that judicial estoppel bars the
debtor from undermining the finality of confirmation by attempting to manipulate the judicial
process in this manner.
IV.

Conclusion
For the foregoing reasons, the Order of the Bankruptcy Court dated July 22, 2010, is

AFFIRMED.
So Ordered.
/s/ F. Dennis Saylor
F. Dennis Saylor IV
United States District Judge
Dated: July 27, 2011

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