Alvarez et al v. PNC Bank National Association et al

Filing 39

ORDER granting 29 Motion to refer the action to the United States Bankruptcy Court for the Eastern District of North Carolina; denying as moot 25 Motion to Dismiss for Failure to State a Claim; and denying as moot 27 Motion to Dismiss for Failure to State a Claim. Signed by District Judge Terrence W. Boyle on 11/10/2015. (Romine, L.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
SOUTHERN DIVISION
No. 7:15-CV-121-BO
SOFIA ALVAREZ and GINA DEAL,
Plaintiffs,
V.

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ORDER

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PNC BANK, NATIONAL ASSOCIATION,)
d/b/a PNC MORTGAGE et al.,
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Defendants.

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This matter is before the Court on defendants' motions to dismiss amended complaint
[DE 25, 27] and plaintiffs' motion [DE 29] to refer the action to the United States Bankruptcy
Court for the Eastern District ofNorth Carolina. For the following reasons, plaintiffs' motion is
GRANTED, and defendants' motions are DENIED AS MOOT.
BACKGROUND
On June 3, 2015, defendants removed plaintiffs' state court complaint to the Eastern
District of North Carolina. [DE 1]. On July 2, 2015, plaintiffs filed an amended complaint in this
Court bringing seven claims against defendants. [DE 21]. Plaintiffs' claims revolve around an
allegedly wrongful escrow account set up by defendant PNC Bank as part of servicing plaintiffs'
mortgage. Plaintiffs allege breach of contract, negligence, and North Carolina state law
violations, including breach of duty of good faith and fair dealing and unfair and deceptive trade
practices among others. [DE 21]. Defendants have moved to dismiss for failure to state a claim.
[DE 25, 27]. Plaintiffs have moved to refer the action to bankruptcy court due to a pending
bankruptcy matter that will require resolution of how much is owed on the mortgage at issue
here. [DE 29]. For the reasons discussed below, plaintiffs' motion is granted.

DISCUSSION
This Court has original jurisdiction over bankruptcy matters and those proceedings
related to them. 28 U.S.C. §§ 1334(a), (b). Pursuant to 28 U.S.C. § 151, a bankruptcy court may
exercise the district court's subject matter jurisdiction over bankruptcy proceedings and cases
referred by the district court. The subject matter jurisdiction of bankruptcy courts is bifurcated
into core and non-core proceedings. Core proceedings either arise under the Bankruptcy Code or
arise in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Non-core proceedings are
proceedings that are otherwise related to the bankruptcy case. See 28 U.S.C. § 157(a). A
bankruptcy court may issue a final judgment on a core proceeding, which is subject to appellate
review by a district court, but a bankruptcy court may only issue proposed findings of fact and
conclusions of law in a non-core proceeding, which are subject to de novo review by the district
court. Executive Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165, 2171-72 (2014).
A proceeding is a core proceeding "if it invokes a substantive right provided by title 11 or
if it is a proceeding, that by its nature, could arise only in the context of a bankruptcy case."

Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir. 1987). A proceeding arising under the
bankruptcy code "involve[ s] a cause of action created or determined by a statutory provision of
title 11 ,"while matters arising in bankruptcy proceedings are those that "would have no
existence outside of bankruptcy." !d. at 96-97. This is a breach of contract claim that is in federal
court on the basis of diversity of citizenship. None of the counts in the complaint or the defenses
alleged in the answers are created by the Bankruptcy Code. This case could have been resolved
in state court if not for defendants' removal to federal court. Because this action does not involve
a right created by the Bankruptcy Code and could exist outside of a bankruptcy case, the Court
finds that it is not a core proceeding.

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A proceeding is related to a bankruptcy case when "the outcome of that proceeding could
conceivably have any effect on the estate being administered in bankruptcy." Pacor Inc. v.
Higgins, 743 F.2d 987, 994 (3d Cir. 1984) overruled on other grounds by Things Remembered,
Inc. v. Petrarca, 516 U.S. 124, 124-25 (1995). The Fourth Circuit adopted the Pacor test for
determining "related to" jurisdiction in A. H Robins Co. v. Piccinin, 788 F .2d 994, 1002 n.11
(4th Cir. 1986). If the outcome of the proceeding "could alter the debtor's rights, liabilities,
options, or freedom of action (either positively or negatively) and [the proceeding] in any way
impacts upon the handling and administration of the bankrupt estate," the district court, and
derivatively the bankruptcy court, has jurisdiction. Spartan Mills v. Bank of Am. Ill., 112 F .3d
1251, 1255-56 (4th Cir. 1997), cert. denied, 522 U.S. 969 (1997).
Though this proceeding originated in state court and implicates state law, it is undeniably
related to plaintiff Sofia Alvarez's bankruptcy proceeding. Deciding this matter in this Court
would affect the bankruptcy proceeding, so this case may properly be referred to bankruptcy
court. The biggest debt owed by Ms. Alvarez is the mortgage at issue here. Resolution of Ms.
Alvarez's bankruptcy proceeding will require determining the amount owed on that mortgage,
which is the same issue at the heart of the matter currently before this Court. Consequently,
referring this matter to the bankruptcy court will promote judicial economy and is of practical
benefit to the administration of the action.
Defendants oppose the reference to bankruptcy court on several grounds, but the Court is
not persuaded. Defendants argue, correctly, that plaintiffs' claims before this Court are non-core
and only related to plaintiffs bankruptcy case. This is correct. However, the Court is satisfied
with the course of action for a case so situated: permitting the bankruptcy judge to make
proposed findings and conclusions which will then be reviewed de novo by the district court.

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CONCLUSION
For the foregoing reasons, plaintiffs' motion to refer this action to bankruptcy court [DE
29] is GRANTED and defendants' motions to dismiss [DE 25, 27] are DENIED AS MOOT. The
case is to be referred to the Bankruptcy Court for the Eastern District of North Carolina in
relation to plaintiff Gina Alvarez's pending proceeding. E.D.N.C. Case No. 15-03934-5-SWH.

SO ORDERED, this

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day of November, 2015.

TERRENCE W. BOYLE
UNITED STATES DISTRICT JUD

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