WIGGINS et al v. HUDSON CITY SAVINGS BANK et al

Filing 7

OPINION. Signed by Judge Kevin McNulty on 10/13/2016. (JB, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

ANDRE G. WIGGINS AND SHEILA S.
BELL-WIGGINS,

Civ. No. 15-cv-008898-KM
(Bankr. No.: 12-26993 (JKS))

Plaintiffs / Appellants,
(Adv. Pro. No.: 15-01938 (JKS))
V.

HUDSON CITY SAVINGS BANK and
WELLS FARGO BANK, N.A.,

OPINION

Defendants/Appellees.

MCNULTY, U.S.D.J.:
The debtors, Andre 0. Wiggins and Sheila S. Bell-Wiggins (the
“Wigginses”), appeal from an order by Judge John K. Sherwood of the United
States Bankruptcy Court for the District of New Jersey. (ECF No. 1 (Notice of
Appeal)). The order denied the Wigginses’ second motion for reconsideration of
a bankruptcy court order which dismissed their complaint, to the extent it did
so without granting leave to amend. See Bankr. Nov. 17, 2015 Order, Wiggins
v. Hudson City Savings Bank and Wells Fargo Bank, N.A., No. 12-26993 (JKS),
Adv. Pro. No. 15-01938-JKS ECF No. 21.’ For the reasons set forth below, the

This entry and other docket entries for the bankruptcy case and for adversary
proceedings thereunder are available through the Bankruptcy Court’s ECF filing
system. Hereinafter, citations to entries to the Adversarial Proceeding docket will be
abbreviated as “Adv. Pro No._” and citations to entries to the docket for this appeal will
be abbreviated as “ECF No.”. Additionally, citations to the moving papers will be
abbreviated as follows:
Complaint, Adv. Pro. No. 1 = “Compi.”
Proposed Amended Complaint, Adv. Pro. No. 17-1 = “Am. Compi.”
Order Granting Motion to Dismiss Complaint, entered Aug.4, 2015, ECF No. 13, Adv. Pro. No. 8 = “MTD Order”
Opinion Granting Motion to Dismiss Complaint, entered Aug.4, 2015, Adv. Pro.
No. 8 = “MTD Opinion”
Order Denying Motion for Reconsideration, entered Sept.11, 2015, ECF No. 1-2,
Adv. Pro. No. 15 = “First Order”

decision of the bankruptcy court is REVERSED AND REMANDED for a finding
as to the futility, or not, of amendment.
This matter arises from an adversary proceeding commenced by the
Wigginses as debtors/plaintiffs within their Chapter 13 bankruptcy case. A
foreclosure case against the Wigginses’ home is also proceeding in the Superior
Court of New Jersey, Chancery Division, Union County, Docket No. F-00976914 (the “Foreclosure Case”). The Wigginses’ complaint, filed May 18, 2015,
alleges that defendant Hudson City Savings Bank (“Hudson City”)—to which
the Wigginses’ mortgage loan was transferred—violated the automatic stay in
bankruptcy when it prosecuted the state foreclosure case. It also alleges that
defendant Wells Fargo Bank, N.A. (“Wells Fargo”)—the original mortgagee,
which continued to service the Wigginses’ mortgage—violated the Real Estate
Settlement Procedures Act (“RESPA”) and Implementing Regulation X
(“Regulation X”) by failing to provide the Wigginses with information about why
the bank had denied their application for a mortgage loan modification and by
continuing to pursue the foreclosure while a loan modification was allegedly
pending. (Appellant Br. 3—9; Compi.

¶J 33—51; Appellee Br. 7). The Wigginses
brought the RESPA and Regulation X claims pursuant to 12 C.F.R. §
1024.41(g) and 12 C.F.R. § 1024.35(b), seeking monetary, injunctive, and
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declaratory relief. (Compl. 10).
The Banks moved to dismiss the complaint. They argued first, that when
they instituted foreclosure proceedings, the automatic stay had been

Order Denying Second Motion for Reconsideration, entered Nov. 18, 2015, ECF
No. 1-3, Adv. Pro No. 21 = “Second Order”
Motion to Reconsider, entered August 18, 2015, Adv. Pro No. 11 = “First
Motion”
Motion to Reconsider, entered Sept. 24, 2015, Adv. Pro. No. 17 = “Second
Motion”
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12 C.F.R. § 1024.4 1(g) prohibits servicers from proceeding with foreclosure once
the borrower has sought loan modification unless the servicer has sent the borrower a
notice that the borrower is not eligible for modification and appeal is not available or
has been denied. 12 C.F.R 1024.35(b) requires servicers to respond to a properly
submitted notice of error concerning servicing of the mortgage loan. (See MTD Opinion
10—16).
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terminated as to the mortgaged property pursuant to the Wigginses’ four
confirmed bankruptcy plans; and second, that Wells Fargo had fully complied
with the RESPA and Regulation X provisions at issue. (Adv. Pro. No. 4). The
Wigginses’ brief in opposition concluded: “To the extent that the Court is
inclined to grant the Motion, the Plaintiff requests leave to amend.” (Adv. Pro.
ECF No. 5 at 7).
Bankruptcy Judge Sherwood agreed with the defendants’ arguments as
to the automatic stay and 12 C.F.R.
C.F.R.

§

§

1024.4 1(g) claims. With respect to the 12

1024.35(b) claim, he found that the Wigginses’ submission of a “notice

of error” to Wells Fargo was not the proper method to challenge the bank’s
decision to deny a loan modification; as to such a denial (as opposed to more
mundane administrative errors in loan administration) the correct procedure
was to invoke the appeals process under 12 C.F.R.

§

1024.4 1(h). Therefore, the

bank had not been obligated to respond. (MTD Opinion 10—16). Accordingly, on
August 4, 2015, the bankruptcy court granted the motion to dismiss. (MTD
Order). That ruling was not appealed, and is not challenged here.
The MTD Order does not state whether the dismissal was with or without
prejudice to amendment. On August 18, 2015, the Wigginses filed a motion for
reconsideration, contending that the bankruptcy court had made a clear error
of law by dismissing the complaint without granting their request for leave to
amend. (See First Motion). Following oral argument, the bankruptcy court
denied that motion on September 11, 2015. Considered as a motion to amend
the complaint, said the court, it was facially defective; for example, it did not
include a proposed amended complaint or other basis for the court to
determine whether amendment would not be futile. (First Order

¶J

4—5, 7—8).

And based on that defect, the bankruptcy court reasoned, the Wigginses could
not establish any of the three grounds for reconsideration: “(1) an intervening
That was of course a correct statement of the law. A motion to amend (setting
aside pro se and/or civil rights cases) will generally be denied if it is not accompanied
by a proposed amended complaint. (Id. ¶ 9 (citing Fletcher-Harlee Corp. v. Pote
Concrete Contractors, Inc., 482 F.3d 247, 251 (3d Cir. 2007), Kemezis v. Matthews, 394
Fed. Appx. 956, 960 (3d Cir. 2010), and Ramsgate Court TownhomeAssoc. v. West
Chester Borough, 313 F.3d 157, 161 (3d Cir. 2002)).
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change in the controlling law; (2) the availability of new evidence that was
not
available when the court granted the motion for summary judgment; or
(3) the
need to correct a clear error of law or fact or to prevent manifest injusti
ce.”
Max’s Seafood Café by Lou—Ann, Inc. v. Quinteros, 176 F.3d 669, 677 (3d
Cir.
1999). (See First Order ¶J 6, 10).
The Wigginses filed a second motion for reconsideration on September
24, 2015; this time, they took the hint and attached a proposed amended
complaint. (See Second Order

¶

7; Am. Compi.). Following a hearing, the

bankruptcy court denied the second motion for reconsideration. That ruling
was based on the failure to establish any of the three grounds for
reconsideration. See immediately preceding paragraph, supra. (Id.
9—10).

¶J

The order was entered on November 18, 2015. (Id.

¶

1.0; ECF No. 1-3).

On December 2, 2015, the Wigginses filed a notice of appeal to this
Court. Pursuant to 28 U.S.C. § 158(a), 1 review “‘the bankruptcy court’s legal
determinations de novo, its factual findings for clear error and its exercise of
discretion for abuse thereof.” In re American Pad & Paper Co., 478 F.3d 546,
551 (3d Cir.2007) (quoting In re United Healthcare Sys., Inc., 396 F.3d 247, 249
(3d Cir.2005)).
I have determined that a remand is appropriate. Such a remand may
appear hypertechnical, but it is necessary to ensure that the Wigginses have
not forfeited a procedural opportunity to which they may have been entitled.
The Third Circuit has liberally permitted pleading amendments to ensure
that “a particular claim will be decided on the merits rather than on
technicalities.” Dole v. Arco Chern. Co., 921 F.2d 484, 487 (3d Cir. 1990). To
call this a “one bite” rule would be too strong. But where a complaint is
dismissed on Rule 12(b)(6) grounds, “a District Court must permit a curative
amendment, unless an amendment would be inequitable or futile.” Alston v.
Parker, 363 F.3d 229, 235 (3d Cir. 2004) (emphasis added). Accord Phillips v.
Cty. of Allegheny, 515 F.3d 224, 236 (3d Cir. 2008) (citing Grayson v. Mayview
State Hosp., 293 F.3d 103, 108 (3d Cir. 2002) (citing Shane v. Fauver, 213 F.3d
113, 116 (3d Cir. 2000)).
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It follows that the wrangling over “denial” of the Wigginses’ preemptive
request for leave to amend, and “reconsideration” of a ruling that had not been
made was a diversion. In light of the command of Alston, supra, and the other
cases cited above, it does not really matter:
Nonetheless, the District Judge erred when he dismissed the
complaint without offering Phillips the opportunity to amend her
complaint. It does not matter whether or not a plaintiff seeks leave
to amend.
In Shane, we held that when dismissing for a failure to
state a claim:
...

[W]e suggest that district judges expressly state, where
appropriate, that the plaintiff has leave to amend within a
specified period of time, and that application for dismissal of
the action may be made if a timely amendment is not
forthcoming within that time. If the plaintiff does not desire
to amend, he may file an appropriate notice with the district
court asserting his intent to stand on the complaint, at
which time an order to dismiss the action would be
appropriate.
Id. at 116 (quoting Borelli v. City of Reading, 532 F.2d 950, 951 n. 1
(3d Cir. 1976)). Because Phillips was not given such an opportunity,
we will remand to allow her to decide whether to stand on her
complaint or attempt an amendment so as to properly allege an
affirmative act by defendant Nussbaum.
Phillips, 515 F.3d at 236.
I think that the same considerations should inform the dismissal of an
adversary proceeding complaint in bankruptcy court. See generally Mullarkey
v. Tamboer, Civ. No. 09-4518, 2009 WL 5205963, at *17 (D.N.J. Dec. 23, 2009)
(Debevoise, J.) (on bankruptcy appeal, noting that “leave to amend should be
granted in cases where a Complaint is dismissed for failure to state a claim
unless doing so would be futile”); In re Dwek, No. ADV 09-1233, 2010 WL

Shane explicitly addressed a dismissal in which plaintiff did not even request
leave to amend:
The Federal Rules of Civil Procedure do not address the situation in
which a deficiency in a complaint could be cured by amendment but
leave to amend is not sought. Circuit case law, however, holds that leave
to amend must be given in this situation as well.
213 F.3dat 116.
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3087474, at *3 (Bankr. D.N.J. Aug. 4, 2010) (on motion to dismiss, granting
cross-motion to amend), affcl Civ. No. 10-5952 (JAP), 2011 WL 1322292
1
(D.N.J. Mar. 31, 2011).
The better practice when dismissing a complaint, then, is to specify
whether the dismissal is with or without prejudice. If without prejudice, the
court may prevent the case from drifting by providing for the filing of a properly
supported motion to amend within a specified period. If with prejudice, the
court should make a finding that any amendment would be inequitable or
futile. “Futility,” in this context, means that “the complaint, as amended, would
fail to state a claim upon which relief could be granted,” applying the usual
Rule 12(b)(6) standard (as incorporated by Fed. R. Bankr. P. 7012). Shane, 213
F.3d at 115; see also Dressier v. Energy, No. 14-7060, 2016 WL 5886878, at *3
(D.N.J. Oct. 7, 2016); In re U.S. Mortgage Corp., 492 B.R. 784, 822—24 (Bankr.
D.N.J. 2013). Such a finding of futility might accompany a dismissal on
unavoidable jurisdictional grounds, or where there is no reasonable prospect of
amended factual allegations that could repair the deficiencies of the complaint.
A finding of futility should be approached with caution, however; the court has
no way of knowing what additional facts may exist that could be alleged in an
amended complaint.
The Wigginses’ counsel bears a share of the responsibility for the
procedural quandary here; he might have avoided miscuing the court by filing
a straightforward motion to amend, attaching a copy of the proposed amended
complaint. I am mindful, however, of the Third Circuit’s admonition that such
procedural niceties not stand in the way of the merits. See Dole, supra.
Looking beyond labels, I find that in substance, when counsel filed the second
motion for reconsideration, he got there.
I will therefore remand this matter so that the bankruptcy court may
review the proposed amended complaint and rule as to whether amendment
would be futile. I wish to particularly emphasize that, on that issue, I express
no view. There may well be a basis for a finding of futility, in that the grounds
for dismissal of the original complaint seem to have been fairly definitive.
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Nevertheless, the bankruptcy court, which best knows the case and its grounds
for dismissal, should consider the futility issue in the first instance.

CONCLUSION
For the foregoing reasons,

the

November

18,

2015 order of the

bankruptcy court denying the second motion for reconsideration is REVERSED
and REMANDED for a ruling as to whether permitting the filing of the proposed
amended complaint would be futile.

KEVIN MCNULTY
United States District Judge
DATED: October 13, 2016

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