Spencer, Sheila et al v. PNC Bank, N.A.
Filing
17
OPINION AND ORDER: The bankruptcy court's orders are AFFIRMED. Signed by District Judge William M. Conley on 4/1/15. (jat)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
SHEILA M. SPENCER,
Appellant,
OPINION AND ORDER
v.
14-cv-422-wmc
PNC BANK, N.A.
Appellee.
Debtor Sheila M. Spencer appeals from a judgment entered against her in the
Bankruptcy Court for the Western District of Wisconsin, which granted appellee PNC
Bank, N.A. motion for relief from the automatic stay under 11 U.S.C. § 362(d)(1), and
motion to dismiss Spencer’s Chapter 13 case. For the reasons that follow, the court
rejects Spencer’s challenges to the bankruptcy court’s decisions.
BACKGROUND
A. Spencer’s Note and Mortgage
On July 29, 2005, Spencer borrowed $209,160 from FNMC, a division of
National City Bank of Indiana. 2/25/15 Hearing Tr. (bankr. dkt. #110-1) 3; Mortgage
(bankr. dkt. #91-2); 2/18/14 Hearing Tr. (bankr. dkt. #113) 38. That same day Spencer
executed a Note. (Bankr. dkt. #91-1).1
1
All citations to the “bankr. dkt.” are to In re Spencer, No. 1-13-15076-cjf (Bankr. W.D.
Wis.).
As the ultimate successor to the Note by virtue of merger, PNC produced the
original Note at the Bankruptcy Court’s February 18, 2014, hearing.2 The Note contains
two endorsements: one from “National City Bank of Indiana” to “National City
Mortgage Co.” and then one by “National City Mortgage Co.” in blank. Id. Spencer
acknowledges her signature on the Note but challenges the validity of the endorsement in
blank on the document produced by PNC. PNC contends that it remained in possession
of the original signed Note and mortgage. A PNC official provided testimony at that
hearing describing custodial arrangements and preservation of those original documents.
Spencer stopped making payments on her mortgage sometime in late 2008,
meaning she has made no payments on her mortgage for more than six years. 2/18/14
Hearing Tr. (bankr. dkt. #113) 50-51, 57 (referring to Ex. 7), 154-155.3 In addition,
Spencer failed to pay for property taxes and insurance on the property during this period.
As of September 13, 2013, PNC had expended over $33,000 in funds for taxes and
insurance. Id. at 59-60 (referring to Ex. 11).
2
National City Bank of Indiana merged into National City Bank, which ultimately
merged into PNC. 2/18/14 Hearing Tr. (bankr. dkt. #113) 34-39 (describing Exhibits 35 concerning the merger of these entities). At the February 18, 2014, hearing, Spencer
challenged the admission of these exhibits demonstrating the merger of PNC’s
predecessors ultimately into PNC as hearsay, but the bankruptcy court overruled the
objections, finding that the documents fit within the exceptions of Federal Rule of
Evidence 803. (Id. at 39.)
3
Spencer attempted to make a payment in December 2008, but that payment was
rejected by PNC, because the amount received was insufficient to reinstate her loan from
default. 2/18/14 Hearing Tr. (bankr. dkt. #113) 54.
2
B. PNC’s Foreclosure Efforts and Spencer’s Chapter 7 Petition
On April 7, 2009, PNC’s predecessors in interest filed a foreclosure action in
Wood County Circuit Court. FNMA, a Div. of Nat’l City Bank of Ind. n/k/a Nat’l City
Bank v. Spencer, No. 2009CV000283 (Wood Cnty. Cir. Ct.); see also 2/18/14 Hearing Tr.
(bankr. dkt. #113) Ex. 28. On May 19, 2010, PNC filed an amended summons and
complaint, identifying itself as the plaintiff. Id.
On July 9, 2010, Spencer filed for bankruptcy under Chapter 7 of the bankruptcy
code effectively staying the foreclosure action in Wood County. In re Spencer, No. 1-1015242 (Bankr. W.D. Wis. (dkt. #1)). In her schedules in the Chapter 7 case, Spencer
listed FNMC as a secured creditor with a mortgage on her home. Id. (dkt. #12). Having
by that time merged with National City Bank, PNC sought and received an unopposed
relief from the automatic stay on September 7, 2010. Id. (dkt. #16); see also 2/18/14
Hearing Tr. (bankr. dkt. #113) Ex. 12. Spencer received a discharge on October 14,
2010. In re Spencer, No. 1-10-15242 (Bankr. W.D. Wis.) (dkt. #18).
Back in state court, the foreclosure judgment was vacated on June 21, 2011, and
the litigation resumed. 2/18/14 Hearing Tr. (bankr. dkt. #113) Ex. 28; 6/21/11 State
Court Order (bankr. dkt. #17-1).
On December 6, 2011, PNC filed its first motion for
summary judgment, which was adjourned until April 5, 2012, allowing Spencer time to
conduct discovery.
Id. Around this time, Spencer’s attorney in the bankruptcy
proceedings, Wendy Alison Nora, entered an appearance in the state court action and
proceeded to file numerous motions seeking, among other things, the disqualification of
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the state court judge and an order striking PNC’s notice of appearance.4
She also
accused the Wood County Circuit Court of manipulating transcripts of hearings. (Id.)
In addition, Attorney Nora filed a motion for contempt against PNC and sought a
restraining order in the bankruptcy court. In re Spencer, No. 1-10-15242 (Bankr. W.D.
Wis.) (dkt. ##21, 22).
On August 13, 2012, Spencer objected to PNC’s prosecution of the state
foreclosure action in its own name. 2/18/14 Hearing Tr. (bankr. dkt. #113) Ex. 28. On
December 21, 2012, the Wood County Circuit Court held that PNC could proceed as
the plaintiff and real party in interest in that action. Id., Exs. 16, 26, 28.
On January 10, 2013, Spencer filed a motion in the bankruptcy court to reopen
her now closed Chapter 7 case. In re Spencer, No. 1-10-15242 (Bankr. W.D. Wis.) (dkt.
#32).
The bankruptcy court denied the motion, as well as Spencer’s motions for
reconsideration, primarily because: (1) Spencer either raised or could have raised these
arguments while the Chapter 7 proceeding was open; and (2) the challenges Spencer
sought to raise involved issues of state law and the bankruptcy court was not the
appropriate forum to resolve them.
Id. (dkt. ##37-38, 39, 40, 41, 42).
Spencer
appealed the denial of her motion to reopen to this court, which affirmed. Id. (dkt.
##43, 51).
Also on January 10, 2013, Spencer removed the foreclosure action from Wood
County Circuit Court to this court on the basis that PNC did not have an interest in the
4
The Seventh Circuit characterized these events as Nora “adopt[ing] object-toeverything litigation strategy and bur[ying] the state court in a blizzard of motions.”
PNC Bank, N.A. v. Spencer, 763 F.3d 650, 652 (7th Cir. 2014).
4
mortgage.
PNC Bank, N.A. v. Spencer, No. 13-cv-21-bbc (W.D. Wis.).
This court
remanded the case back to Wood County on the basis that Spencer waited too long to
remove the 2009 case; the court also noted that the state court is the appropriate forum
for her dispute over the ownership of her mortgage. Id. (dkt. #12.) On May 23, 2013,
this court denied Spencer’s motion for reconsideration, awarding PNC its costs and fees.
Id. (dkt. #22).5 On appeal, the Seventh Circuit affirmed this court’s award of attorney’s
fees and costs for an improper removal pursuant to 28 U.S.C. § 1447(c). PNC Bank,
N.A. v. Spencer, 763 F.3d 650, 652 (7th Cir. 2014).6
Once again back in the state foreclosure action, the court granted PNC’s motion
to strike Spencer’s counterclaims and set a hearing on PNC’s motion for summary
judgment for October 17, 2013. 2/18/14 Hearing Tr. (bankr. dkt. #113) Ex. 28.
C. Current Bankruptcy Proceedings
On October 16, 2013, the day before the hearing on PNC’s motion for summary
judgment in the foreclosure action, Spencer filed a voluntary petition for bankruptcy
under Chapter 13 of the United States Bankruptcy Code, which forms the subject of this
5
Judge Crabb also denied a second motion for reconsideration and granted additional
fees based on PNC’s efforts defending against that motion. PNC Bank, N.A. v. Spencer,
No. 13-cv-21-bbc (W.D. Wis.) (dkt. #27).
6
In that same order, the court also required Nora to show cause why she should not be
sanctioned for litigating a frivolous appeal. Recently, the Seventh Circuit imposed a
sanction of $2,500, but suspended it “until such time, if ever, that Nora submits
additional frivolous or needlessly antagonistic filings.” In re Nora, No. 13-2676, 2015
WL 554396, at *1 (7th Cir. Feb. 11, 2015); see also Rinaldi v. HSBC USA, N.A., Nos. 13–
3865, 14–1887, 2015 WL 554602, at *3 (7th Cir. Feb. 11, 2015) (affirming $1000
sanction entered against Nora in a similar bankruptcy proceeding challenging the validity
of a note for foreclosure purposes).
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appeal. In re Spencer, No. 1-13-15076-cjf (Bankr. W.D. Wis.) (dkt. #1). After receiving
multiple extensions, Spencer filed her Chapter 13 Plan on November 20, 2013, and filed
a First Amended Plan on December 1, 2013. Id. (dkt. ##29, 38). In conjunction with
her original Chapter 13 Plan, Spencer listed $0 in Schedule D - Creditors Holding
Secured Claims. Id. (dkt. #28 at p.1). PNC filed an objection to the confirmation of the
plan, a motion to dismiss the case, and a motion for relief from stay. Id. (dkt. ##41, 42,
46). The Trustee also filed an objection to Spencer’s repayment plan, noting that the
Plan only provides for curing of default “if no mrtg.” Id. (dkt. #50 at p.2). In response
to these objections, Spencer again amended her Chapter 13 Plan, id. (dkt. #63), to which
PNC and the Trustee reasserted its objections (dkt. ##67, 78).
In response to Spencer’s varied machinations, the bankruptcy court held an
evidentiary hearing on February 18, 2014.7 2/18/14 Hearing Tr. (bankr. dkt. #113).
PNC called Timothy Justice, its default litigation coordinator, to testify about Spencer’s
mortgage. PNC also moved several exhibits into evidence, including the “original blue
ink signed copies of the note and the mortgage.” Id. at 10, 14. Spencer’s counsel crossexamined Justice. Finally, Spencer herself testified.
7
The hearing was scheduled to begin at 10:00 a.m. but did not begin until close to noon
because of Spencer and Nora’s late arrival. 2/18/14 Hearing Tr. (bankr. dkt. #113) 5.)
In her oral opinion, Judge Furay found Spencer’s explanation for the delay
“unsatisfactory.” Accordingly, she awarded PNC sanctions in the amount of one hour of
its attorney’s fees. 2/25/14 Hearing Tr. (bankr. dkt. #110-1) 2.) Spencer appeals that
decision as well, but as PNC points out, the award was not reduced to a judgment.
(Appellee’s Opp’n (dkt. #14) 7 n.1.) Moreover, PNC agrees to forego any claim to the
one-hour fee so as to limit the issues on appeal. (Id.) As such, the court will not review
this challenge, but the court finds no basis to fault Judge Furay’s decision after reviewing
the transcript of the hearing.
6
On February 25, 2014, the bankruptcy court conducted a telephonic hearing in
which she read a decision into the record, granting PNC’s motion for relief from stay and
motion to dismiss. 2/15/14 Hearing Tr. (bankr. dkt. #110-1). Final orders were entered
the same day. (Bankr. dkt. ##104, 105.) Spencer’s appeal followed.
OPINION
Pursuant to 28 U.S.C. § 158(a), Spencer now appeals from the bankruptcy court’s
judgment on three bases: (1) PNC lacks standing to seek relief from the automatic stay;
(2) the bankruptcy court erred in granting PNC’s request to lift the stay; and (3) the
bankruptcy court erred in dismissing Spencer’s Chapter 13 petition because of a lack of
good faith. The court’s discussion below of each of these three challenges is relatively
short because (1) the bankruptcy court’s findings of fact are already described at length
above and (2) reviewed deferentially for clear error. See In re Doctors Hosp. of Hyde Park,
Inc., 474 F.3d 421, 426 (7th Cir. 2007) (citing Fed. R. Bankr. P. 8013 and In re
Crosswhite, 148 F.3d 879, 881 (7th Cir. 1998)). While that court’s legal conclusions are
reviewed de novo, the facts essentially compel affirmance.
I. Challenge to PNC’s Standing
As far as the court can discern from Spencer’s rambling brief, her argument
challenging PNC’s standing is based on its apparently undisclosed status as servicer of the
note, while Freddie Mac is the entity that actually holds an interest in the note. “The
threshold for standing to seek relief from stay is that the moving creditor has a ‘colorable
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claim’ to property of the estate.” In re Viterous Steel Prods. Co., 911 F.2d 1223, 1234 (7th
Cir. 1990); see also In re Rinaldi, 487 B.R. 516, 530 (Bankr. E.D. Wis. 2013) (“Having
determined that HSBC is the holder of the Note, and that the holder is entitled to
enforce the security of the Note, in this case, the Mortgage, it follows that HSBC has a
colorable claim and may seek relief from the stay.”).
As described above and as thoroughly explained by the bankruptcy court, PNC
has made a prima facie showing that (1) the Note is a negotiable instrument pursuant to
Wis. Stat. § 403.104(1); (2) PNC is in possession of the Note, and therefore is the
“holder” of the Note under Wis. Stat. § 401.201(km); and (3) the Note is endorsed in
blank, and therefore is payable to the bearer pursuant to Wis. Stat. § 403.25(2).
Regardless of its status as the “servicer” and Freddie Mac as the “owner” of the Note, the
fact is that PNC is the holder of the Note and may enforce it as set forth in Wis. Stat. §
403.301, which provides in pertinent part:
“Person entitled to enforce” an instrument means the holder
of the instrument, a nonholder in possession of the
instrument who has the rights of a holder, or a person not in
possession of the instrument who is entitled to enforce the
instrument under s. 403.309 or 403.418(4). A person may be
a person entitled to enforce the instrument even though the
person is not the owner of the instrument or is in wrongful
possession of the instrument.
See also Dow Family LLC v. PHH Mortgage Corp., 2013 WI App 114, ¶ 23 n.9, 350 Wis.
2d 411, 438 N.W.2d 119, aff’d 2014 WI 56 (“[E]ven if Fannie Mae actually owns the
note, PHH would still be entitled to enforce the note if it were in possession of the note
and if the note were endorsed in blank.” (citing Wis. Stat. §§ 403.205(2), 403.301)).
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Of course, Spencer remains free to raise in state court her challenges to the
veracity of the endorsement in blank, or any other challenges relating to the validity of
the Note, but those arguments do not undermine PNC’s standing in the bankruptcy
proceeding. Moreover, the court finds no error in Judge Furay’s finding of standing.
II. Lifting of Stay
The bankruptcy code provides for an automatic stay of (1) the commencement or
continuation of a judicial action, (2) any act to obtain possession of property, or (3) any
act to enforce any lien against property, among other actions.
11 U.S.C. § 362(a).
Subsection (d)(1), however, provides that the bankruptcy court shall grant relief from the
stay “for cause, including the lack of adequate protection of an interest in property of
such party in interest.” 11 U.S.C. § 362(d)(1). The Seventh Circuit’s decision in In re
Fernstrom Storage & Van Company, 938 F.2d 731 (7th Cir. 1991), defined the following
three-factor test to determine whether “cause” exists to lift the automatic stay:
(1) Any great prejudice to either the bankrupt estate or the
debtor will result from continuation of the civil suit;
(2) the hardship to the [non-bankrupt party] by maintenance
of the stay considerably outweighs the hardship of the debtor;
and
(3) the creditor has a probability of prevailing on the merits.
Id. at 735 (citation omitted).
The bankruptcy court found that all three of these factors weighed in favor of
lifting the stay against PNC. This court agrees. First, the bankruptcy court appropriately
found no prejudice to Spencer in lifting the stay.
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As previously determined by the
bankruptcy court and by this court, the proper forum for resolving issues concerning
PNC’s right to foreclose on the mortgage is best decided in the state court foreclosure
action.
Second, as evidenced by the lengthy description above of PNC’s efforts to
foreclose, any additional delay in the foreclosure action will necessarily to prejudice PNC,
especially in light of Spencer’s failure to make any payments over the last six years and
PNC’s continued payment of insurance and taxes on the subject property. This hardship
on PNC strongly outweighs any potential hardship on Spencer in having to defend
against the foreclosure action in state court.
Finally, the court also agrees with the
bankruptcy court’s determination that PNC is likely to succeed on the merits.
As
described above, PNC’s evidence that it is the holder of the Note, coupled with the
undisputed evidence that Spencer is in default on her mortgage, forms a sound basis for
PNC’s foreclosure action.
III. Dismissing of Chapter 13 Claim
Spencer also challenges the bankruptcy court’s dismissal of her Chapter 13 claim.
While the bankruptcy court cited 11 U.S.C. § 1307(c)(1), which permits dismissal “for
cause,” including “unreasonable delay by the debtor that is prejudicial to creditors,” the
court appears to have primarily relied on a finding of lack of good faith on the part of
Spencer in filing her Chapter 13 petition to dismiss her claim. (2/25/14 Tr. (bankr. dkt.
#110-1) 18 (citing In re Love, 957 F.2d 1350, 1354 (7th Cir. 1992) (“The finding of a
lack of good faith in filing the petition under Section 1307(c) can lead to the dismissal
and termination of the bankruptcy proceedings[.]”)).)
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The Seventh Circuit instructs that a good faith determination is a “fact intensive
inquiry to be determined by looking at the totality of the circumstances” and sets forth
certain factors for bankruptcy courts to consider. Love, 957 F.3d at 1355, 1357. In
reviewing the nonexhaustive list of factors, certain of them provide ample support -- even
standing alone -- for dismissing Spencer’s Chapter 13 petition for lack of good faith.
First, the court considers “the nature of the debt, including the question of whether the
debt would be nondischargeable in Chapter 7 proceeding.” Id. at 1357. This factor
weighs strongly in favor of finding a lack of good faith on the part of Spencer.
As
detailed in Judge Furay’s lengthy opinion, Spencer has few debts to reorganize, thus
calling into question why she would pursue bankruptcy at all, other than for the purpose
of delaying the foreclosure action. Moreover, Spencer received a Chapter 7 discharge
within four years of her Chapter 13 petition date, and therefore is not eligible for a
Chapter 13 discharge, nor is she eligible for another Chapter 7 discharge. 11 U.S.C. §§
1328(f), 727(a)(8).
Next, Love instructs bankruptcy courts to consider “the timing of the petition” and
“the debtor’s motive in filing the petition.” 957 F.2d at 1357. The blatantly suspicious
timing of the filing of the Chapter 13 petition -- the day before PNC’s hearing on its
motion for summary judgment, which itself had been delayed several months to provide
Spencer an opportunity for discovery -- further supports a finding of lack of good faith.
Indeed, Spencer admitted at the February 18, 2014, hearing that she filed the Chapter
13 petition in an attempt to delay the foreclosure action. 2/18/14 Hearing Tr. (bankr.
11
dkt. #113) 174 (reviewing testimony at the 341 hearing in which Spencer stated that she
filed the Chapter 13 petition to stop PNC from “stealing [her] home”).
Two additional factors that weigh in favor of finding a lack of good faith are “how
the debtor’s actions affected creditors,” and “the debtor’s treatment of creditors both
before and after the petition was filed.” Love, 957 F.2d at 1357. As described above,
Spencer has made no payments on her mortgage since 2008, nor has she escrowed funds
to make delinquent payments to whatever entity she believes is the true holder of the
note and mortgage. At the same time, PNC has made significant payments on property
taxes and insurance and has spent years in four courts attempting to foreclose on
Spencer’s mortgage.
Finally, courts may consider “whether the debtor has been forthcoming with the
bankruptcy court and the creditors.” Love, 957 F.3d at 1357. Here, the bankruptcy
court pointed primarily to Spencer’s failure to schedule PNC’s disputed claim. 2/25/14
Hearing Tr. (dkt. #110-1) 24. In her brief to this court, Spencer argues that because
PNC Bank was listed as a party to receive notice of the proceedings, it was not prejudiced
by her lack of scheduling PNC’s claim. But Spencer’s argument fails to appreciate and
respond to the bankruptcy court’s concern. The criticism is not that PNC lacked notice
and therefore was prejudiced; rather, the criticism is that Spencer failed to acknowledge
this secured debt -- even if she disputes PNC’s right to foreclose on it. On this point, the
court entirely agrees with the bankruptcy court.
While not the sole support for the
court’s finding by any means, this factor certainly supports that court’s finding of lack of
good faith.
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On the appellate record as a whole, this court finds no error (clear or otherwise) in
the bankruptcy court’s findings of facts.
The court further finds that the totality of
circumstances strongly supports the conclusion that PNC met its burden of
demonstrating Spencer’s lack of good faith. Love, 957 F.3d at 1355 (burden on party
moving for dismissal to demonstrate lack of good faith). In the end, therefore, the court
upholds the bankruptcy court’s finding that Spencer’s “filing is a blatant abuse of the
bankruptcy process.” 2/25/14 Hearing Tr. (bankr. dkt. #110-1) 20.
ORDER
IT IS ORDERED that the bankruptcy court’s orders are AFFIRMED.
Entered this 1st day of April, 2015.
BY THE COURT:
/s/
__________________________________
WILLIAM M. CONLEY
District Judge
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