The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of several actions by a borrower against a mortgagee, and in so ruling also held that it did not have jurisdiction to review the lower court’s remand order, and that the borrower had waived his right to challenge an award of attorney fees and costs in connection with the remand.
A copy of the opinion in CitiMortgage, Inc. v. Jerome Davis is available at: Link to Opinion.
The dispute encompassed three lawsuits: (1) a bankruptcy proceeding where the borrower (Mortgagor) challenged Mortgagee’s debt and security interest; (2) Mortgagee’s foreclosure action against the Mortgagor; and (3) Mortgagor’s separate lawsuit against Mortgagee alleging unfair debt collection practices.
In 2005, Mortgagor executed a mortgage loan secured by his residence, and later defaulted. After defaulting, Mortgagor entered bankruptcy. Mortgagee filed a proof of claim as to its loan secured by Mortgagor’s residence.
The Chapter 13 bankruptcy plan was approved in 2012 and incorporated an agreement between the parties that conditioned the automatic stay on Mortgagor making monthly mortgage payments to Mortgagee. Pursuant to the agreement, if Mortgagor defaulted on the payments to Mortgagee, the stay would lift and Mortgagee could foreclose on the residence. Mortgagor stopped making the mortgage loan payments in 2014, at which time Mortgagee withdrew its proof of claim and notified the bankruptcy court that the stay had terminated.
Mortgagor then filed an adversary proceeding challenging Mortgagee’s debt and security interest. While the adversary proceeding was pending, Mortgagor completed the Chapter 13 plan and received a bankruptcy discharge. The adversary proceeding concluded in 2019, when the bankruptcy court granted Mortgagee’s motion to dismiss, ruling the bankruptcy discharge did not cover the debt owed to Mortgagee. The court held the debt was either a long-term debt provided for under Section 1322(b)(5) of the Bankruptcy Code or was not a debt provided for by the confirmed Chapter 13 plan. Mortgagor did not appeal the bankruptcy court’s ruling within the statutorily required time period.
After dismissal, Mortgagee filed a foreclosure action which Mortgagor attempted to remove to the bankruptcy court, arguing that Mortgagor was seeking a personal deficiency judgment against him, which contravened the bankruptcy discharge. Mortgagee moved to remand arguing there was no federal jurisdiction on the face of its foreclosure proceeding. The bankruptcy court instructed Mortgagor to respond to the remand motion and show why it had jurisdiction but Mortgagor failed to do so. As Mortgagor had no basis to assert federal question jurisdiction, the bankruptcy court found the removal unreasonable and awarded Mortgagor attorney fees and costs under 28 U.S.C § 1447(c).
Mortgagor appealed the remand order to the trial court, but the order was affirmed. Mortgagor then appealed to the Seventh Circuit and also sought review of the attorney fees and costs awarded to Mortgagee.
Finally, Mortgagor sued Mortgagee in federal trial court, alleging violations of the federal Fair Debt Collection Practices Act and the 2018 bankruptcy discharge injunction. Mortgagee moved to dismiss and the trial court granted dismissal as the bankruptcy court had held that the debt owed to Mortgagee was not subject to the 2018 discharge. Mortgagor appealed the dismissal of this lawsuit also.
On reviewing Mortgagor’s claims, the Seventh Circuit first determined whether it had jurisdiction to review the remand order. Pursuant to 28 U.S.C. § 1447(c), “[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise.” Further, 28. U.S.C. § 1452(b) states that a remand order issued “on any equitable ground” “is not reviewable by appeal or otherwise by the court of appeals…or by the Supreme Court of the United States.” Thus, the ability to review the trial court’s affirmance of the remand order was foreclosed by the two statutes.
Mortgagor relied on City of Waco v. United States Fidelity & Guaranty Co., 293 U.S. 130 (1934) in which the Supreme Court of the United States determined that although the remand was not appealable, the order of dismissal was reviewable because it preceded the remand order “in logic and in fact.” Id. at 143. Mortgagor alleged that, because his appeal of the remand order contested the bankruptcy court’s conclusion that his discharge did not cover the debt rather than disputing the court’s holding that it lacked subject matter jurisdiction, it fit within Waco.
The Court of Appeals found this argument unpersuasive, as the Court has expressly stated that “Waco does not permit an appeal when there is no order separate from the unreviewable remand order.” Powerex Corp. v. Reliant Energy Servs., Inc., 551 U.S. 224, 236 (2007). The Seventh Circuit added that Mortgagor had every opportunity to timely appeal the court’s conclusion that his bankruptcy discharge did not cover the debt owed to Mortgagee but chose not to do so.
Next, Mortgagor argued that the attorney fees and costs awarded to Mortgagee should be reversed because he had a reasonable basis to contest that his bankruptcy discharge covered the debt owed to Mortgagee. The Seventh Circuit found that Mortgagor had waived these arguments, as Mortgagor offered no argument before the trial court as to why the bankruptcy court’s fees and costs award was improper. Further, the Appellate Court found that, because Mortgagor’s argument against the fees and costs before their court differed from the challenge to the award in the trial court, he had waived his current argument.
Finally, Mortgagor challenged the dismissal of his suit against Mortgagee claiming violations under the federal Fair Debt Collection Practices Act, the Illinois Consumer Fraud and Deceptive Practices Act, and the 2018 bankruptcy discharge injunction. The Seventh Circuit found that all of Mortgagor’s claims hinged on the question of whether the debt owed Mortgagee was covered under the bankruptcy discharge, which had already been resolved in the bankruptcy court action, which Mortgagor did not appeal. Thus, the Court held, the appeal was an impermissible collateral attack.
Mortgagor raised three arguments to avoid the Court’s conclusion. First, Mortgagor argued that the bankruptcy court’s dismissal of his adversary action was not a final order and therefore should not be given a preclusive effect. The Seventh Circuit quickly dispensed with this argument finding that the bankruptcy court dismissed the adversary proceeding, and “[a] final resolution of any adversary proceeding is appealable, as it is equivalent to a stand-alone lawsuit.” Fifth Third Bank, Ind. v. Edgar Cnty. Bank & Tr., 482 F.3d 904, 905 (7th Cir. 2007).
Next, Mortgagor argued that the bankruptcy court’s analysis regarding the scope of the discharge was dicta. The Seventh Circuit found this a mischaracterization of the court’s decision. The Appellate Court found that the bankruptcy court dismissed the proceeding because it had devolved into “a two-party dispute under state law” that “[did] not implicate bankruptcy rights.” Thus, the conclusion was reached because Mortgagor’s bankruptcy discharge did not implicate the debt owed Mortgagee and therefore, the court’s analysis on the scope of the bankruptcy discharge was central to the court’s decision.
Finally, Mortgagor argued he was denied adequate notice and an opportunity to respond to the bankruptcy discharge issue because Mortgagee did not file a motion or objection challenging his right to a discharge. The Seventh Circuit found Mortgagor had no basis to contend he did not have a constitutionally sufficient notice that the bankruptcy court could make findings or determinations on the scope of his bankruptcy discharge in the adversary proceedings as Mortgagor was the one who originally placed the scope of his discharge before the court. Further, if Mortgagor believed the decision in the bankruptcy court denied him due process, he had every right and opportunity to appeal the bankruptcy court’s final order but he failed to do so.
Therefore, the Seventh Circuit dismissed the appeal of the remand order and affirmed the fees and costs award and the trial court’s dismissal with prejudice of Mortgagor’s suit against Mortgagee.