Ryder et al v. Jim Walter Homes, LLC et al

Filing 34

MEMORANDUM OPINION AND ORDER granting in part and denying in part plaintiffs' 7 MOTION to abstain, remand this case to state court, and assess costs; granting said motion to abstain and remand; and denying said motion with respect to assessment of costs and fees. The Court REMANDS this case to the Circuit Court of Kanawha County for further proceedings. Signed by Judge Thomas E. Johnston on 3/19/2013. (cc: attys; any unrepresented party) (taq)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION

THOMAS RYDER, et al.,

Plaintiffs,
v.

CIVIL ACTION NO. 2:12-cv-02255

JIM WALTER HOMES, LLC, et al.
Defendants.

MEMORANDUM OPINION AND ORDER
Several motions are pending in this case: (1) Plaintiffs’ motion to abstain, remand this case
to state court, and assess costs [ECF 7]; (2) Defendant Jim Walter Homes, LLC’s motion to set
aside default [ECF 25]; (3) Plaintiffs’ motion to reinstate claims against Defendants Green Tree
Servicing, LLC, Bobby Willis, and Nancy Willis [ECF 29]; and (4) Defendant Green Tree
Servicing, LLC’s, Bobby Willis’s, and Nancy Willis’s motion for leave to file a response to
Plaintiffs’ motion to reinstate claims [ECF 32]. No Defendant filed a response to Plaintiffs’
motion to abstain and remand.
For the reasons that follow, the Court GRANTS IN PART and DENIES IN PART
Plaintiffs’ motion to abstain, remand this case, and assess costs and fees. The Court GRANTS
the motion to abstain and remand, but DENIES the motion with respect to assessment of costs and
fees.

I. BACKGROUND
This matter arises from Plaintiffs’ purchase of a home from Defendant Jim Walter Homes,
LLC (“Jim Walter Homes”) in the spring of 2003. According to Plaintiffs’ Complaint, Plaintiffs,
West Virginia residents, entered into a building contract with Jim Walter Homes, a Florida
company licensed to do business in West Virginia. Plaintiffs signed the contract at Jim Walter
Homes’s office in Cross Lanes, Kanawha County, West Virginia. Among other things, the
contract provided that the total cost of the constructed home was $93,400. The contract further
provided that the amount to be financed was $84,260 at a nine-percent interest rate and was to be
repaid in 360 monthly installments. A deed of trust secured the debt with the real property on
which the home was to be built. This deed of trust, which was allegedly blank when Plaintiffs
signed it, stated that the total amount financed was $244,044. Defendant Walter Mortgage
Company, LLC (“Walter Mortgage”), and later, Green Tree Servicing, LLC (“Green Tree”),
serviced Plaintiffs’ mortgage. Plaintiffs moved into the home in November 2003, but allege in
their Complaint that the construction of the home was beset with defective materials,
workmanship, and other problems.
On September 28, 2005, Plaintiffs filed a voluntary bankruptcy petition under Chapter 7 of
the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of West
Virginia. (In Re: Thomas Moorman Ryder IV and Lorie Ann Ryder, 2:05-bk-23368, ECF 1.) On
the schedule listing secured creditors, Plaintiffs list “Midstate Homes” in Tampa, Florida as being
the creditor for Plaintiffs’ 2003 mortgage. The amount Plaintiffs list for this creditor’s claim is

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$90,000.1

On January 11, 2006, the Bankruptcy Court entered an Order of Discharge and, on

February, 23, 2006, closed the bankruptcy case. (Id., at ECF 10, 12.)
Beginning in 2007 and continuing through the spring of 2012, Defendants Bobby and
Nancy Willis, debt collectors, and Defendants Walter Mortgage and Green Tree are alleged to
have engaged in a variety of actionable practices. For example, the Willis Defendants are alleged
to have repeatedly and illegally harassed Plaintiffs regarding late mortgage payments. In addition
to other harassing actions, Plaintiffs claim that Defendant Bobby Willis assaulted Plaintiff Thomas
Ryder and his teenage son on one occasion and verbally abused Plaintiff Lorie Ryder on another.
Plaintiffs also allege that Defendants Walter Mortgage and Green Tree made misrepresentations
about the amounts of Plaintiffs’ past due mortgage payments, threatened to assess illegal fees,
failed to timely apply payments on Plaintiffs’ mortgage, and failed to provide Plaintiffs with
account statements. Green Tree is alleged to have repeatedly contacted Plaintiffs even though it
knew that Plaintiffs were represented by counsel at the time.
On March 3, 2012, Plaintiffs moved to reopen their bankruptcy case alleging that
subsequent to the closing of their bankruptcy case, lawyers advised them that they had actionable
legal claims against Defendants. (Id., ECF 16.) The stated purpose of reopening the bankruptcy
case was to amend Plaintiffs’ bankruptcy schedules and exempt their putative lawsuit as an asset of
the bankruptcy estate. On March 19, 2012, the Bankruptcy Court granted Plaintiffs’ motion to
re-open their case. (Id., ECF 19.) The order directed that “any creditor added to the Debtor’s
schedules” file “objections to exempt property of the Debtor” within thirty days (Id.) Midstate
Homes was among the creditors who received notice of the Bankruptcy Court’s Order re-opening
1 Based on Defendant Green Tree’s Notice of Removal, it appears that it is uncontested that this claim pertains to
Plaintiffs’ mortgage notwithstanding the fact that Midstate Homes is not named or otherwise referenced in Plaintiffs’
Complaint.

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the case. On April 9, 2012, Plaintiffs filed their amended schedules which claimed as an exempt
asset their legal claims against Defendants. On the schedule Plaintiffs listed the value of the
claimed exemption as “$50,000” but stated that the “current value of property without deducting
exemption” is “$90,000”. (Id., ECF 21 at 5.) On May 18, 2012, Plaintiffs filed suit in the Circuit
Court of Kanawha County, West Virginia stating fourteen state law causes of action against
Defendants: Counts I and II allege, respectively, claims for an unconscionable contract and an
illegal referral sales scheme against Jim Walter Homes and Walter Mortgage; Count III alleges an
invasion of privacy claim against both Willis Defendants; Count IV alleges assault against
Defendant Bobby Willis; Counts VXI allege claims against Defendants Walter Mortgage and
Green Tree for abusive and illegal debt collection practices in violation of the West Virginia
Consumer Credit Act (West Virginia Code §§ 46A-2-101, et seq.); Counts XIIXIII allege an
illegal debt collection claim and a failure to provide a statement of account claim (in violation of
West Virginia Code § 46A-2-114(2)) against Defendant Green Tree; and Count XIV alleges a joint
venture claim against all Defendants.
On June 7, 2012, Plaintiffs filed a stipulation in their bankruptcy case. (Id., ECF 29.)
The stipulation memorialized Plaintiffs’ agreement with the Bankruptcy Trustee to prosecute their
civil suit in their own names against Defendants and to report to the Trustee if Plaintiffs received a
judgment in excess of the exemptions permitted by the Bankruptcy Court. The Stipulation further
requires Plaintiffs to report to the Trustee prior to settling their lawsuit and also requires that any
proposed settlement in excess of the exemption amounts “must be brought before this Court in
conjunction with [the] Trustee.” (Id.)

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On June 22, 2012, Defendant Green Tree removed Plaintiffs’ suit from Kanawha County
Circuit Court to federal court. Green Tree asserts removal jurisdiction under 28 U.S.C. §§ 1334,
1446, and 1452 because the case “arises in or is related to” the Plaintiffs’ bankruptcy case. (ECF
1 at 3.) Green Tree further states that the outcome of Plaintiffs’ lawsuit “will affect the Plaintiffs’
bankruptcy case as potentially converting the case from a no asset case to an asset case, with
potential distribution to creditors, thereby requiring administration of the bankruptcy estate.”
(Id., at 4.)
On July 9, 2012, Plaintiffs again amended their bankruptcy schedules. (In Re: Ryder,
2:05-bk-23368, ECF 33.) The only change was to correct “a typographical error”, that is, change
the “$90,000” value of their lawsuit to “$50,000.” (Id.)
Over the next eight months, the parties filed various motions.

On June 29, 2012,

Defendant Green Tree moved to compel arbitration and dismiss the case or, alternatively, moved
to stay the case pending arbitration (ECF 4). On July 9, 2012, Plaintiffs moved to abstain and
remand the case to state court [ECF 7]. On July 12, 2012, Plaintiffs filed their amended complaint
adding an additional count against Defendants Jim Walter Homes and Walter Mortgage alleging
that the building contract contained an unconscionable arbitration clause. (ECF 11.) On August
8, 2012, Plaintiffs, Defendants Green Tree and the Willises filed their stipulation to arbitrate.
Based on that stipulation, the Court denied Green Tree’s motion to dismiss as moot and dismissed
the claims against Green Tree and the Willises without prejudice. On December 19, 2012, the
Clerk entered default against Defendant Jim Walter Homes based on its failure to file an answer or
otherwise plead to Plaintiffs’ Complaint. On December 21, 2012, Plaintiffs filed their motion to
dismiss Defendant Walter Mortgage without prejudice based on Walter Mortgage’s apparent

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merger with Defendant Green Tree. On January 10, 2013, Defendant Jim Walter Homes moved
to set aside entry of default and requested leave to file a responsive pleading to the Complaint. On
January 25, Plaintiffs moved to reinstate their claims against Green Tree and the Willises.
Finally, on February 8, 2013, Green Tree and the Willises moved for leave to file a response to
Plaintiffs’ motion to reinstate their claims against them.
II. LEGAL STANDARDS
Pursuant to 28 U.S.C. § 1334(b), federal district courts shall have “original but not
exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases
under title 11.” In pertinent part, 28 U.S.C. § 1452(a) provides: “A party may 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 this title.” Section 1452(b) provides: “The court to which such claim or cause of action is
removed may remand such claim or cause of action on any equitable ground.”
Notwithstanding a proper grant of subject matter jurisdiction under 28 U.S.C. § 1334,
abstention principles may prevent a district court from adjudicating a case. Abstention may be
mandatory or permissive.

Mandatory abstention is applicable to removed actions under §

1452(a). Barge v. W. S. Life Ins. Co., 307 B.R. 541, 546 (S.D. W. Va. 2004) (Copenhaver, J.)
(citing cases). Mandatory abstention is governed by 28 U.S.C. § 1334(c)(2) and permissive
abstention is governed by 28 U.S.C. § 1334(c)(1).
Removal jurisdiction is strictly construed because of the “significant federalism concerns”
implicated by it. Lontz v. Tharp 413 F.3d 435, 440 (4th Cir. 2005) (citing Maryland Stadium
Auth. v. Ellerbe Becket Inc., 407 F.3d 255, 260 (4th Cir. 2005)). The proponent of federal

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jurisdiction bears the burden of demonstrating the legitimacy of its exercise. Id.; see also Dixon
v. Coburg Dairy, Inc., 369 F.3d 811, 816 (4th Cir. 2004); Sonoco Prods. Co. v. Physicians Health
Plan, Inc., 338 F.3d 366, 370 (4th Cir. 2003); Mulcahey v. Columbia Organic Chems. Co., 29 F.3d
148, 151 (4th Cir. 1994).
III. DISCUSSION
At the outset, the Court notes that no Defendant ever responded to Plaintiffs’ motion to
abstain and remand. Local Rule 7.1 of the Local Rules of the Southern District of West Virginia
provides, “Memoranda and other materials in response to motions shall be filed and served on
opposing counsel and unrepresented parties within 14 days from the date of service of the motion.”
Plaintiffs’ motion to abstain and remand was filed on June 29, 2012, nearly nine months ago.
Defendant Green Tree, the removing Defendant, bears the burden of demonstrating the propriety
of this Court’s exercise of subject matter jurisdiction over this state law-based lawsuit. By failing
to respond to Plaintiffs’ motion to abstain and remand, Defendant Green Tree necessarily fails to
carry its burden.
Notwithstanding Defendant Green Tree’s failure to defend this matter, the Court is
convinced that it should abstain from this case and remand it to state court. In its Notice of
Removal, Defendant Green Tree predicated removal jurisdiction on 28 U.S.C. §§ 1334(b) and
1452 because the case “arises in or is related to Plaintiffs’ bankruptcy case.” (ECF 1 at 3.)
Although Green Tree offers no explanation to support its assertion that the civil lawsuit “arises in”
the bankruptcy case, Green Tree does state that the lawsuit is related to the bankruptcy case “in that
the outcome of the litigation will affect the Plaintiffs’ bankruptcy case as potentially converting

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the case from a no asset case to an asset case, with potential distribution to creditors, thereby
requiring administration of the bankruptcy estate.” (Id. at 4.) Green Tree further states:
Plaintiffs’ claims against Green Tree are predicated upon voiding Plaintiffs’
financial responsibility for the Plaintiffs’ Loan on the grounds of
unconscionability, as well as seeking damages for alleged impermissible charges,
fees, and failure to properly apply payments. Plaintiffs’ Loan was scheduled in the
Chapter 7 bankruptcy case filed by Plaintiffs. The Amended Schedules and
Stipulation indicate funds could be obtained above the exemptions that would
impact the administration of the estate. Indeed, Plaintiffs are required to inform
the Trustee of any potential settlement for review and must also turn over any
settlement amount in excess of their exemption to the Bankruptcy Court and
Chapter 7 Trustee.
(Id.)
Defendant Green Tree filed its Notice of Removal on June 22, 2012. At that time, as
stated by Green Tree in its Notice of Removal, Plaintiffs’ bankruptcy schedules did in fact indicate
that the value of the lawsuit exceeded the amount of Plaintiffs’ exemption. Plaintiffs, however,
amended their bankruptcy schedules on July 9, 2012. The amendment corrected what Plaintiffs
claim was a typographical error. The correction reduced the stated value of Plaintiffs’ lawsuit
from “$90,000” to “$50,000”, the latter figure reflecting the amount of their exemption.
Defendant Green Tree filed no objection to this amendment and, on August 30, 2012, the
Bankruptcy Court entered a final decree discharging the Trustee and closing the case. The
bankruptcy docket reflects that Green Tree was notified of entry of the final decree. (Id., ECF
34-1.) Defendant Green Tree, having filed no response in opposition to Plaintiffs’ motion to
abstain and remand, fails to offer any discussion of what the effect of Plaintiffs’ amendment to
their bankruptcy schedules might have on what appears to be a pertinent fact in its removal
jurisdiction argument.

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The Court has “original but not exclusive jurisdiction” to adjudicate this case pursuant to
28 U.S.C. § 1334(b) because Plaintiffs’ lawsuit is “related to” the bankruptcy case. Defendant
Green Tree appears to admit as much in its Notice of Removal. Plainly, Plaintiffs’ claims are
created by state law, not Title 11, and do not arise as part of the bankruptcy administration. Thus,
the claims do not “arise under”, or are they “in a case under”, Title 11 and, thus, they are merely
“related to” a case under Title 11. See Loudin v. J.P. Morgan Trust Co., N.A., 481 B.R. 388, 392
(S.D. W. Va. 2012) (Goodwin, C.J.). Whether the Court should exercise its jurisdiction, or
whether it must or should abstain, however, are other matters.
Mandatory abstention requires that a timely motion be made by a party to the proceeding.
Further, the proceeding must: (1) be based on a state law claim or cause of action; (2) lack a federal
jurisdictional basis absent the bankruptcy; (3) be commenced in a state forum of appropriate
jurisdiction; (4) be capable of timely adjudication; and (5) be a non-core proceeding. Id. (citing
In re Dow Corning Corp., 113 F.3d 565, 570 (6th Cir. 1997)). “Mandatory abstention applies
only to non-core proceedings—that is, proceedings ‘related to a case under title 11’, but not
‘arising under title 11, or arising in a case under title 11.’ ” Id. (citing In re Gober, 100 F.3d 1195,
1206 (5th Cir.1996)). Permissive abstention is governed by 28 U.S.C. § 1334(c)(1), which
provides in pertinent part:
[N]othing in this section prevents a district court in the interest of justice, or in the
interest of comity with State courts or respect for State law, from abstaining from
hearing a particular proceeding arising under title 11 or arising in or related to a
case under title 11.
The Court must abstain from this case. This Court has previously stated, “When a case is
related to bankruptcy proceedings, 28 U.S.C. § 1334(b) gives the district court jurisdiction to hear
the case.

However, the district court can only exercise that jurisdiction as long as the
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requirements for mandatory abstention in § 1334(c)(2) are not met.”

Loudin v. J.P. Morgan

Trust Co., N.A., 481 B.R. at 392 (citing Marshall v. Marshall, 547 U.S. 293, 309 n.3 (2006)).
The requirements for mandatory abstention are met. First, Plaintiffs’ motion to remand
was timely filed. Defendant Green Tree removed the case on June 22, 2012, and Plaintiffs filed
their motion to abstain and remand two weeks later, that is, on July 9, 2012. Second, Plaintiffs’
lawsuit is based entirely on state law claims. Third, this Court would not otherwise have subject
matter jurisdiction over this matter absent Plaintiffs’ bankruptcy case. Fourth, Plaintiffs’ civil
lawsuit was filed in Kanawha County Circuit Court and, thus, the lawsuit was “commenced in a
state forum of appropriate jurisdiction.” Fifth, no party has contended that this matter cannot be
adjudicated timely in state court and, thus, the Court finds that Kanawha County Circuit Court is
able to timely address this matter. Finally, as noted above, because this case is “related to”
Plaintiffs’ bankruptcy case and does not “arise under” or “arise in” a case under Title 11, the Court
finds this case is a non-core proceeding.
Although mandatory abstention under 28 U.S.C. § 1334(c)(2) applies to this case, the
Court would, in any event, permissively abstain under 28 U.S.C. § 1334(c)(1) from adjudicating
the case. Twelve factors guide permissive abstention analysis:
(1) the effect or lack thereof on the efficient administration of the estate if a Court
recommends abstention, (2) the extent to which state law issues predominate over
bankruptcy issues, (3) the difficulty or unsettled nature of the applicable law, (4)
the presence of a related proceeding commenced in state court or other bankruptcy
court, (5) the jurisdictional basis, if any, other [than] 28 U.S.C. § 1334, (6) the
degree of relatedness or remoteness of the proceeding to the main bankruptcy case,
(7) the substance rather than form of an asserted “core” proceeding, (8) the
feasibility of severing state law claims from core bankruptcy matters to allow
judgments to be entered in state court with enforcement left to the bankruptcy
court, (9) the burden of [the bankruptcy court’s] docket, (10) the likelihood that the
commencement of the proceeding in bankruptcy court involves forum shopping by

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one of the parties, (11) the existence of a right to a jury trial, and (12) the presence
in the proceeding of nondebtor parties.
Barge v. W.S. Life Ins. Co., 307 B.R. at 547 (citations omitted).
Permissive abstention would be appropriate based on several of the Barge factors. First,
there is no evidence or argument that the efficient administration of Plaintiffs’ bankruptcy case
would be adversely impacted by the Court’s abstention. Second, as noted earlier, Plaintiffs’ claims
are rooted entirely in state law. Any “bankruptcy issues” would be limited to the bankruptcy
Court’s possible administration of settlement sums or a damages award in excess of Plaintiffs’
$50,000 exemption. Thus, state law issues substantially predominate over potential bankruptcy
issues. Third, Plaintiffs’ state law claims are run-of the-mill consumer law and contract claims
that present no difficult, novel, or unsettled areas of law. Next, there is no other basis for this
Court’s subject matter jurisdiction aside from Plaintiffs’ bankruptcy case.

Also, this case

involves several non-debtor parties. Finally, Plaintiffs’ bankruptcy case was originally filed in
2005 and was closed in January 2006, and is, thus, remote in time. The only effect Plaintiffs’
lawsuit might have on the bankruptcy case is that, in the event Plaintiffs were to recover an award
in excess of $50,000, that excess amount would need to be administered by the Bankruptcy
Trustee. Should this occur, the Court is confident that it is a matter that can be readily and
efficiently administered by the Bankruptcy Court. Accordingly, these factors weigh heavily in
favor of an exercise of permissive abstention.
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART,
Plaintiffs’ motion to abstain, remand, and assess costs [ECF 7]. The Court GRANTS the motion
to abstain and remand. The Court DENIES the motion insofar as it requests an award for costs
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and fees because the Court cannot find that Defendant Green Tree lacked an objectively
reasonable basis for removing the case. See Martin v. Franklin Capital Corp. 546 U.S. 132, 141
(2005) (“Absent unusual circumstances, courts may award attorney’s fees under [28 U.S.C.] §
1447(c) only where the removing party lacked an objectively reasonable basis for seeking
removal.”)
The Court REMANDS this case to the Circuit Court of Kanawha County for further
proceedings.
IT IS SO ORDERED.
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
unrepresented party.
ENTER:

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March 19, 2013