Houck v. LifeStore Bank et al

Filing 71

MEMORANDUM AND ORDER granting 70 Motion to Dismiss for Lack of Jurisdiction. The Second Amended Complaint is dismissed without prejudice. Signed by Magistrate Judge David S. Cayer on 2/20/14. (smj)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
STATESVILLE DIVISION
CIVIL ACTION NO: 5:13-CV-66-DSC
DIANA LOUISE HOUCK, et. al.,
Plaintiffs,
v.
LIFESTORE BANK, et. al.,
Defendants.

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MEMORANDUM AND ORDER
THIS MATTER is before the Court on “Defendant Grid Financial Services, Inc.’s
Motion to Dismiss for Lack of Subject Matter Jurisdiction” (document #70) and “Brief in
Support …” (document #70-1), both filed January 22, 2014.
response and the time for filing one has expired.

Plaintiffs have not filed a

The parties have consented to Magistrate

Judge jurisdiction under 28 U.S.C. § 636 (c). This Motion is now ripe for consideration.
This matter involves the foreclosure of a deed of trust on real property located at 318
Todd Railroad Grade Road (‘the Property”) in Todd, North Carolina.

On February 22, 2007,

Plaintiff Diana Louise Houck (“Houck”) borrowed $123,000.00, as evidenced by a promissory
note (“the Note”) and secured by a Deed of Trust recorded in Book 361 at Page 2052 by the
Ashe County Register of Deeds (“the Deed of Trust”).
Plaintiffs allege that sometime in July or August 2009, Diana Houck contacted the Note
holder, Defendant LifeStore Bank Corporation, F.S.A. (“Lifestore”) seeking a loan modification
and lower monthly payments. Lifestore referred her to Defendant Grid Financial Services, Inc.
(“Grid”), which was acting as the collection agent on the delinquent loan. Plaintiffs allege that a
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Grid employee advised Houck to stop making any mortgage payments so that she could qualify
for a modification of the loan. Plaintiffs contend that the employee knew that Grid and Lifestore
would not approve a modification.
On or about July 19, 2011, Defendant Substitute Trustee Services, Inc. (“STS”) initiated
a foreclosure action in Ashe County Superior Court at the request of Lifestore.
On August 23, 2011, an Assistant Clerk of Superior Court issued an Order Allowing
Foreclosure of the Property.
On September 12, 2011, Houck filed for Chapter 13 Bankruptcy protection in the United
States Bankruptcy Court for the Western District of North Carolina, Case No.: 11-51141 (the
“first petition”).

According to the Second Amended Complaint, only LifeStore was sent notice

of the first petition. The foreclosure proceeding was stayed the following day.
On September 30, 2011, the Court dismissed the first petition.
On November 4, 2011, STS moved to re-open the foreclosure proceeding.
On December 16, 2011, Houck again filed for Chapter 13 Bankruptcy protection in the
United States Bankruptcy Court for the Western District of North Carolina, Case No.: 11-51513
(the “second petition”). Houck failed to file a matrix, schedule and other information necessary
to properly serve her creditors. That same day, the Court issued a Notice of Deficient Filing and
Order to Appear and Show Cause (W.D.N.C. Bankr. 11-51513 Docs. 2 and 3). According to the
Second Amended Complaint, only LifeStore was sent notice of the second petition. There is no
allegation that Grid ever received notice of the second petition.
On December 20, 2011, STS sold the Property at a foreclosure sale.
On December 21, 2011, the second petition was dismissed (W.D.N.C. Bankr. 11-51513
Doc. 9).
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On April 26, 2013, Plaintiffs filed their Complaint, which as amended, asserts a claim
pursuant to 11 U.S.C. § 362(k) for conducting a foreclosure sale in violation of the bankruptcy
stay. Plaintiffs also assert state law claims for unfair and deceptive trade practices, unfair debt
collection, breach of contract, fraud, constructive fraud, intentional and negligent infliction of
emotional distress, and civil conspiracy. The gravamen of the claims is that Lifestore and Grid
conspired to cause Plaintiffs to fall behind on their mortgage payments so that Lifestore could
foreclose. Plaintiffs assert that Lifestore had notice of the second petition and violated the
bankruptcy stay by conducting the foreclosure sale.
On October 1, 2013, the Court granted Defendant STS’s Motion to Dismiss. The only
claims pled against STS were for violation of the bankruptcy stay. Plaintiffs did not allege that
STS had notice of the second petition. See “Memorandum and Order” at 4-5 (document #51).
On January 15, 2014, the Court granted in part Lifestore’s “Motion to Dismiss Second
Amended Complaint” (document #52) as to Plaintiffs’ claims for intentional and negligent
infliction of emotional distress. See “Memorandum and Order” (document #69). The Court also
granted in part Grid’s “Motion to Dismiss … Second Amended Complaint” (document #54) as
to Plaintiffs’ claims brought under 11 U.S.C. § 362(k) and N.C. Gen. Stat § 75-55, as well as
those for breach of contract and intentional and negligent infliction of emotional distress.
On January 22, 2014, Grid filed its Motion to Dismiss for lack of subject matter
jurisdiction. As Grid argues, “11 U.S.C. §§ 362 does not create a private cause of action outside
of the Bankruptcy Court for violations of the automatic stay.” Scott v. Wells Fargo Home
Mortgage Inc., 326 F. Supp. 2d 709, 719 (E.D. Va. 2003)), aff'd sub nom., 67 Fed. App. 238 (4th
Cir. 2003) (per curiam); see also Bankruptcy Law Manual § 7.57 (“[T]he bankruptcy court has
exclusive jurisdiction to adjudicate a debtor’s claim for damages under this provision of the
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Code.”) (citing Eastern Equipment & Servs. Corp. v. Factory Point Nat. Bank, 236 F.3d 117 (2d
Cir. 2001)).

Houck’s second petition was dismissed by the Bankruptcy Court. Therefore,

dismissal of the § 362 claim is the appropriate remedy here.
Once all federal claims have been dismissed, district courts may decline to exercise
supplemental jurisdiction over remaining state law claims. 28 U.S.C. § 1367(c)(3); Shanaghan v.
Cahill, 58 F.3d 106, 110 (4th Cir. 1995) (under § 1367(c), the district courts “enjoy wide latitude
in determining whether or not to retain [supplemental] jurisdiction over state claims when all
federal claims have been extinguished”) (citing Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343,
350 (1988)). Declining supplemental jurisdiction where all federal claims have been dismissed is
consistent with the general principle that federal jurisdiction is limited. Chesapeake Ranch
Water Co. v. Board of Com'rs of Calvert County, 401 F.3d 274, 277 (4th Cir. 2005) (having
dismissed federal claims, district court properly declined supplemental jurisdiction of state
claims). See also Mercer v. Duke University, 401 F.3d 199, 202 (4th Cir. 2005); Pineville Real
Estate Operation Corp. v. Michael, 32 F.3d 88, 90 (4th Cir. 1994).
“[I]t is well-settled that a district court's power to remand pendent state claims to state
court is inherent in statutory authorization to decline supplemental jurisdiction under § 1367(c).”
Battle v. Seibels Bruce Ins. Co., 288 F.3d 596, 606 (4th Cir. 2002) (citing Hinson v. Norwest
Fin. S.C., Inc., 239 F.3d 611, 617 (4th Cir. 2001) (noting that circuit courts of appeal
unanimously hold that power to remand is inherent in § 1367(c))).
Accordingly, the Court declines supplemental jurisdiction of Plaintiff’s surviving state
law claims.

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III. ORDER
IT IS THEREFORE ORDERED THAT:
1. “Defendant Grid Financial Services, Inc.’s Motion to Dismiss for Lack of Subject
Matter Jurisdiction” (document #70) is GRANTED.

The Second Amended Complaint is

DISMISSED WITHOUT PREJUDICE.
2.

The Clerk is directed to send copies of this Memorandum and Order to the parties’

counsel.
SO ORDERED.

Signed: February 20, 2014

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