NCLT Memorandum of Law for Motion to Dismiss - PRO SE HOMEOWNER BEAT IT - JUNE 2011

8/6/2019 NCLT Memorandum of Law for Motion to Dismiss - PRO SE HOMEOWNER BEAT IT - JUNE 2011

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UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

Adversary Proceeding No. 10-55357 (KJC)

__________________________________

Bankruptcy Case No. 07-10416 (KJC)

Jointly Administered

NEW CENTURY TRS HOLDINGS, INC., a Delaware corporation, et

al.,

Debtors,

_____________________________________

MOLLY S. WHITE AND RALPH N. WHITE,

Plaintiffs,

v.

NEW CENTURY TRS HOLDINGS, INC.

et al., a Delaware Corporation,

Defendants.

________________________________________

MEMORANDUM OF LAW IN SUPPORT OF THE NEW CENTURY LIQUIDATING

TRUSTS MOTION TO DISMISS ADVERSARY PROCEEDING COMPLAINT

_______________________________________

By: BLANK ROME LLPDavid W. Carickhoff (No. 3715)

Alan M. Root (No. 5427)

1201 Market Street, Suite 800

Wilmington, Delaware 19801

(302) 425-6400 - Telephone

(302) 425-6464 Facsimile

- and -

HAHN & HESSEN LLP

488 Madison Avenue, 15th

FloorNew York, New York 10022

(212) 478-7200 - Telephone

(212) 478-7400 - Facsimile

Attn: Mark S. Indelicato, Esq.

Edward L. Schnitzer, Esq.

Janine M. Cerbone, Esq.

Nicholas C. Rigano, Esq.


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TABLE OF CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . 1

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . 1

RELEVANT BACKGROUND . . . . . . . . . . . . . . . . . . 2

The Whites Loan . . . . . . . . . . . . . . . . . 2

The Debtors Bankruptcy . . . . . . . . . . . . . 3

The Whites Claims . . . . . . . . . . . . . . . . 6

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . 8

Standard for Dismissal under

Fed. R. Civ. P. 12(b)(6) . . . . . . . . . . . . . 8

The Whites Have Failed to Allege

a Plausible Entitlement to Relief . . . . . . . . 9

The Whites Received Proper

Notice of the Bar Date . . . . . . . . . . . 11

The Whites Were Unknown Creditors . . . 14

The Whites Received Constructive

Notice of the Bar Date . . . . . . . . . 17

The Bankruptcy Court Lacks

Subject Matter Jurisdiction . . . . . . . . . . . 19

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . 23


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TABLE OF AUTHORITIES

FEDERAL CASES

Beddall v. State Street Bank and Trust Co., 137 F.3d 12

(1st Cir. 1998) . . . . . . . . . . . . . . . . . . . . . 9

Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955 (2007) . . . 8

Brown v. Sweeney, 526 F. Supp. 2d 126 (D. Mass. 2007) . . 9

Chemetron Corp. v. Jones, 72 F.3d 341 (3d Cir. 1995). 12,14

Citicorp North America, Inv. v. Ogden Martin Systems of

Haverhill, Inc., 8 F. Supp.2d 72 (D. Mass. 1998) . . . . .9

Elsom v. Woodward & Lothrop, 1997 U.S. Dist. Lexis 12112(E.D. Pa. 1997) . . . . . . . . . . . . . . . . . . . . 16

Gentry v. Circuit City Stores, Inc. (In re Circuit City

Stores, Inc.), 2010 U.S. Dist. Lexis 116285

(E.D. Va. 2010) . . . . . . . . . . . . . . . . . . . . 16

Grauman v. Smith (In re U.S. Physicians, Inc.), 2000 Bankr.

Lexis 917 (Bankr. E.D. Pa. 2000) . . . . . . . . . . .9, 11

Greyhound Lines, Inc. v. Rogers (In re Eagle Bus Mfg.

Inc.), 62 F.3d 730 (5th Cir. 1995) . . . . . . . . . . . 12

Harvard Industries, Inc. v. Conway (In re Harvard

Industries, Inc.), 1995 Bankr. LEXIS 932 (Bankr. D. Del.

1995) . . . . . . . . . . . . . . . . . . . . . . . . . 17

Hebell v. NVR, Inc., 1997 U.S. Dist. Lexis 10786 (N.D.

Ill. 1997) . . . . . . . . . . . . . . . . . . . . . 15, 16

In re Aegis Mortgage Corp., 2008 Bankr. LEXIS 1519 (Bankr.

D. Del. 2008) . . . . . . . . . . . . . . . . . 19, 21, 22

In re Celotex Corp. v. Edwards, 514 U.S. 300 (1995) . . .20

In re Charter Co., 125 B.R. 650 (M.D. Fla. 1991) . . . . 14

In re Eagle-Pitcher Indus. Inc., 278 B.R. 437 (S.D. Ohio

2002) . . . . . . . . . . . . . . . . . . . . . . . . . .13


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In re Pacor, 743 F.2d 984 (3d Cir. 1984) . . . . . . 20, 22

Kaiser Group Holdings, Inc. v. Squire Sanders & Dempsey LLP

(In re Kaiser Group International, Inc.), 2010 Bankr. Lexis

2505 (Bankr. D. Del. 2010) . . . . . . . . . . . . . . . 10

Mennonite Bd. Of Missions v. Adams, 42 U.S. 791(1983) . .12

Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306

(1950) . . . . . . . . . . . . . . . . . . . . . . . 12, 13

PacifiCorp and Vancott Bagley Cornwall & McCarthy v. W.R.

Grace, 2006 U.S. Dist. Lexis 57470 (D. Del. 2006) . . . .13

Robert Christopher Associates v. Franklin Realty Group,

Inc. (In re FRG, Inc.), 121 B.R. 710 (Bankr. E.D.Pa.

1990) . . . . . . . . . . . . . . . . . . . . . . . .10, 11

The Charter Co. v. Ziegler, 113 B.R. 725 (M.D. Fl.

1990) . . . . . . . . . . . . . . . . . . . . . . . . . .17

Tulsa Professional Collection Serv., Inc. v. Pope, 485 U.S.

478 (1988) . . . . . . . . . . . . . . . . . . . . . . . 12

Winstar Holdings, LLC v. The Blackstone Group, LP (In re

Winstar Communications Inc.), 435 B.R. 33 (Bankr. D. Del.

2010) . . . . . . . . . . . . . . . . . . . . . . . . . 10

FEDERAL STATUTES AND RULES

28 U.S.C. 157 . . . . . . . . . . . . . . . . . . . . . .19

Fed. R. Civ. P. 12 . . . . . . . . . . . . . . 1, 9, 18, 19


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Introduction

The New Century Liquidating Trust (Trust), by and

through Alan M. Jacobs, the New Century Liquidating

Trustee, (the Trustee) as successor to New Century TRS

Holdings, Inc., et al. (the Debtors), respectfully

submits this memorandum in support of its motion to dismiss

(the Motion to Dismiss) the adversary proceeding

complaint (the Complaint) filed by Molly S. White and

Ralph N. White (together, the Whites) against the pre-

petition Debtors.

By the Motion to Dismiss, the Trust seeks to dismiss

all counts of the Complaint with prejudice based upon the

Whites failure to state a claim upon which relief can be

granted pursuant to Federal Rule of Civil Procedure

12(b)(6). In support of the Motion to Dismiss, the Trust

submits the declarations of Edward L. Schnitzer (the

Schnitzer Declaration), annexed hereto as Exhibit 1,

Diane Denney (the Denney Declaration), annexed to the

Schnitzer Declaration as Exhibit A and Donna Walker (the

Walker Declaration), annexed to the Schnitzer Declaration

as Exhibit B, and states as follows:

Summary of Argument

Any party asserting a claim against the Debtors for

conduct arising prior to the Petition Date (as defined


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below) was required to file a proof of claim in accordance

with the procedures set forth in the Bar Date Order (as

defined below), including filing such claim prior to the

Bar Date (as defined below). While some of the claims

asserted by the Whites are set forth in proofs of claim and

some are set forth in the Complaint (as defined below), the

Complaint is simply a claim by the Whites against the

Debtors based on alleged conduct that occurred pre-

petition. As the Whites filed the Complaint nearly thirty-

nine (39) months after the Bar Date the Complaint is barred

by the Bar Date Order and should be dismissed.

Relevant Background

The Whites Loan

On July 26, 2006, the Whites executed a promissory

note in the principal amount of $272,500.00 (the Loan)

with New Century Mortgage Corporation (NCMC). See Walker

Declaration at 2. The note is secured by a mortgage on

the property located at 5948 Doraville Drive Port Orange,

FL 32127. See Walker Declaration at 2. Thereafter, NCMC

sold the Loan to NC Capital Corporation (NC Capital)

pursuant to a Mortgage Loan Purchase and Servicing

Agreement dated as of December 1, 1998. See Walker

Declaration at 2.


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On May 30, 2006, NC Capital sold the Loan (the

Transfer) pursuant to a Purchase Price and Terms

Agreement, dated as of February 28, 2006, and the Sixth

Amended Restated Mortgage Loan Purchase and Warranties

Agreement, dated as of May 1, 2006, to Morgan Stanley

Mortgage Capital Inc. (Morgan Stanley). See Walker

Declaration at 3. NC Capital thereafter transferred the

original loan file, note, deed of trust and assignment

endorsed in blank as directed by Morgan Stanley to Deutsche

Bank as Trustee. See Walker Declaration at 3. Further,

on or about December 1, 2006, servicing was released

electronically to Countrywide Home Loans Servicing, LP at

the direction of Morgan Stanley. See Walker Declaration

at 3.

The Debtors Bankruptcy

On April 2, 2007 (the Petition Date), the Debtors

(with the exception of New Century Warehouse Corporation)

filed voluntary petitions for relief under Chapter 11 of

Title 11 of the United States Code (the Bankruptcy Code)

with the United States Bankruptcy Court for the District of

Delaware (the Bankruptcy Court). Until the Second

Amended Joint Chapter 11 Plan of the Debtors and the

Official Committee of Unsecured Creditors Dated as of April


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23, 2008 (the Original Plan)1 became effective on August

1, 2008, the Debtors continued in the management and

operation of their businesses pursuant to Bankruptcy Code

1107 and 1108. By order dated June 28, 2007 (the Bar

Date Order), annexed to the Schnitzer Declaration as

Exhibit C, the Bankruptcy Court established August 31, 2007

at 5:00 p.m. (prevailing Pacific Time) as the last date and

time for the filing of proofs of claim in this chapter 11

case (the Bar Date). On July 2, 2007, the Debtors

court-approved claims and noticing agent, XRoads Case

Management Services LLC (the Claims Agent or XRoads)

(a) mailed a copy of the Notice of the Bar Date (the Bar

Date Notice), annexed to the Schnitzer Declaration as

Exhibit D, and a proof of claim form substantially similar

to Official Form No. 10 (Proof of Claim Form) to all

known entities holding potential pre-petition claims and

their counsel (if known), all known potential claimants and

their counsel (if known), all parties that have requested

notice in these cases, the Office of the United States

Trustee and all taxing authorities for the jurisdictions in

which the Debtors conducted business; and (b) published the

1 All capitalized terms not herein defined shall have the same meaning

ascribed to them in the Modified Second Amended Joint Chapter 11

Plan of Liquidation of the Debtors and the Official Committee of

Unsecured Creditors Dated as of September 30, 2009 (the Modified

Plan).


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Bar Date Notice in The Wall Street Journal (National

Edition) and The Orange County Register.

The Debtors filed the Original Plan on April 23, 2008

and the Bankruptcy Court entered the order confirming the

Original Plan (the Original Confirmation Order) on July

15, 2008. The Original Plan became effective on August 1,

2008 (the Original Effective Date). Pursuant to the

terms of the Original Plan, on the Original Effective Date

the New Century Liquidating Trust Agreement (the Trust

Agreement) was executed, thereby creating the Trust and

appointing Alan M. Jacobs as Trustee of the Trust. On the

Original Effective Date, among other things, all Assets of

the Debtors (excluding Access Lending Assets but including

Access Lending Interests) were distributed to the Trust and

all of the remaining members of the Debtors Board of

Directors and Officers ceased to serve in those capacities

by operation of the Original Confirmation Order. The

Notice of (I) Entry of Order Confirming Second Amended

Joint Chapter 11 Plan of Liquidation of the Debtors and the

Official Committee of Unsecured Creditors Dated as of April

23, 2008 (II) Effective Date and (III) Bar Dates for

Administrative Claims, Professional Fee Claims,

Subordination Statements, and Rejection Damage Claims (the

Notice of Effective Date) was filed on August 4, 2008,.


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On June 16, 2009, the United States District Court for

the District of Delaware (the District Court) issued a

Memorandum Opinion and an order reversing the Original

Confirmation Order (together, the Order Reversing

Confirmation). Accordingly, on September 30, 2009, the

Trustee filed the Modified Second Amended Joint Chapter 11

Plan of Liquidation Dated as of September 30, 2009 (the

Modified Plan). The Bankruptcy Court entered an order

confirming the Modified Plan (the Modified Confirmation

Order) on November 20, 2009. The Modified Plan became

effective on December 1, 2009 (the Modified Effective

Date). On the Modified Effective Date, the Modified Plan,

inter alia, (a) confirmed that all actions taken by the

Trustee subsequent to the Original Effective Date were

valid and binding, (b) adopted, ratified and confirmed the

formation of the Trust as of the Original Effective Date,

(c) adopted, ratified and confirmed the Liquidating Trust

Agreement as of the Original Effective Date, and (d)

adopted, ratified and confirmed the appointment of Alan M.

Jacobs as Trustee as of the Original Effective Date.

The Whites Claims

On or around November 22, 2008, the Whites filed claim

number 4073 (Claim 4073) against New Century TRS Holding,

Inc., et. al as a secured and/or priority claim in the


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amount of $272,500 plus accruing interest, alleging that

New Century Mortgage fraudulently induced the Whites to

enter into a refinance of their mortgage causing thousands

of dollars in interest to accrue and enabling New Century

Mortgage to place a loan on a property beyond what the

creditors could afford. Additionally, the Whites filed

claim number 4074 (Claim 4074), and claim number 4080

(Claim 4080, and together with Claim 4073 and Claim 4074,

the Claims) on or around January 21, 2009. Claim 4074

and Claim 4080 are duplicative of Claim 4073. The Claims

are annexed to the Schnitzer Declaration as Exhibit E. On

or around, August 13, 2010, the Trust filed the New Century

Liquidating Trusts Objection to the Claims of Claimant

Ralph N. White and Molly S. White Pursuant to 11 U.S.C.

502(b) and Fed. R. Bankr. P. 3001, 3007 and Local Rule

3007-1 [Substantive] [D.I. 10181] (the Objection to

Claims) asserting that the Claims should be expunged

because they (i) are meritless, and (ii) were filed after

the Bar Date.

After the Trust filed the Objection to Claims, the

Whites filed the Complaint on or around November 12, 2010

seeking (i) compensatory damages, (ii) punitive damages,

(iii) rescission of the Loan, (iv) cancellation of the

security interest related to the Loan, and (v) fees and


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costs associated with the litigation. On the same date,

the Whites filed the Notice of Claimants Ralph N. White

and Molly S. Whites Motion for Relief from the Courts

Order Confirming the Debtors Modified Plan Pursuant to 11

U.S.C. 105(a) and Fed. R. Bankr. P. 9013, 9024, Fed. R.

Civ. P. 60(b)(2), (b)(3), (b)(6), 60(d) and Local Rule

9013-1 and 2002-1(b) [D.I. 10303] (the Motion for

Relief). On December 10, 2010, the Trust filed the New

Century Liquidating Trusts Response to the Motion for

Relief [D.I. 10337] (the Response). By the Response, the

Trust, inter alia, reserved the right to answer or

otherwise respond to the Complaint. Response at 8.

On November 24, 2010, the Bankruptcy Court directed

the Parties to submit a scheduling order under

certification of counsel, whereby the Claims and the

Complaint would be consolidated. The Bankruptcy Court

entered the Scheduling Order on December 13, 2010, which,

inter alia, (i) consolidated the Claims and the Complaint,

and (ii) established certain deadlines.

ARGUMENT

I. Standard for Dismissal under Fed. R. Civ. P. 12(b)(6)

In order to survive a motion to dismiss, a complaint

must allege a plausible entitlement to relief. Bell Atl.

Corp. v. Twombly, 127 S. Ct. 1955, 1967-69, 167 L. Ed. 2d


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929 (2007). A plaintiffs obligation to provide the

grounds of his entitlement to relief requires more than

labels and conclusions, and a formulaic recitation of the

elements of a cause of action will not do. Id. at 1964-

65; see also Brown v. Sweeney, 526 F. Supp. 2d 126, 129 (D.

Mass. 2007) (Conclusory statements do not satisfy the

[Fed. R. Civ. P 12(b)(6)] standard because they merely

demonstrate a possibility and not a plausibility of

entitlement to relief.). In analyzing such a motion, the

court may take into account documents whose authenticity

is not questioned and on which the allegations of the

complaint are expressly based. Citicorp North America,

Inv. v. Ogden Martin Systems of Haverhill, Inc., 8 F.

Supp.2d 72, 74 (D. Mass. 1998), citing Beddall v. State

Street Bank and Trust Co., 137 F.3d 12, 17 (1st Cir. 1998).

II. The Whites Have Failed to Allege a Plausible

Entitlement to Relief

It is without question that a complaint fails to state

a claim upon which relief can be granted if the claims

asserted in that complaint are barred by a claims bar date.

See Grauman v. Smith (In re U.S. Physicians, Inc.), 2000

Bankr. Lexis 917 at 17 (Bankr. E.D. Pa. 2000) (a party who

. . . fails to file a Proof of claim by the prescribed bar

date . . . cannot circumvent the bar arising from a failure


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to file a timely claim by raising that claim in a later

adversary proceeding); Robert Christopher Associates v.

Franklin Realty Group, Inc. (In re FRG, Inc.), 121 B.R. 710

at 714 (Bankr. E.D.Pa. 1990) (Clearly, a creditor cannot

circumvent the temporal proscription of a bar date by the

facile device of filing an adversary proceeding against a

debtor after the bar date has run.); see also Kaiser Group

Holdings, Inc. v. Squire Sanders & Dempsey LLP (In re

Kaiser Group International, Inc.), 2010 Bankr. Lexis 2505

(Bankr. D. Del. 2010) (granting defendants motion to

dismiss on the grounds that the plaintiff failed to state a

claim because the statute of limitations governing the

pertinent causes of action expired); Winstar Holdings, LLC

v. The Blackstone Group, LP (In re Winstar Communications

Inc.), 435 B.R. 33 (Bankr. D. Del. 2010) (granting

defendants motion to dismiss on the grounds that the

plaintiff failed to state a claim because the statute of

limitations governing the pertinent causes of action

expired). As the claims raised in the Claims and the

Complaint are barred by the Bar Date Order, the Claims and

the Complaint should be dismissed.2

2 This Motion only addresses the Complaint because the Trust has already

objected to the Claims as meritless and being late-filed by the

Objection to Claims.


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On June 28, 2007, the Bankruptcy Court entered the Bar

Date Order. Pursuant to the Bar Date Order, the Bankruptcy

Court required that any entity holding a prepetition claim

against one or more of the Debtors [was required to] file a

proof of claim by August 31, 2007. Bar Date Order at

5. In addition, the Bankruptcy Court held that any entity

which failed to abide by the Bar Date Order shall not be

treated as a creditor with respect to such claim for

purposes of voting and distribution. Bar Date Order at

13. As the Whites filed their Complaint more than three

(3) years after the Bar Date, the Whites have failed to

state a claim for which relief can be granted. See U.S.

Physicians, 2000 Bankr. Lexis 917 at 17; FRG, 121 B.R. at

714.

A. The Whites Received Proper Notice of the Bar Date

The Trust presumes that the Whites will assert (much

like they did in their Motion for Relief with respect to

the Modified Confirmation Order) that the Bar Date does not

apply to their claims because they did not receive actual

written notice of the Bar Date. As the Whites were unknown

creditors and therefore, not entitled to actual notice of

the Bar Date, such an argument is meritless and should be

rejected.


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Due process requires notice that is reasonably

calculated to reach all interested parties, reasonably

conveys all the required information, and permits a

reasonable time for a response. Chemetron Corp. v. Jones,

72 F.3d 341, 347 (3d Cir. 1995) (citing Greyhound Lines,

Inc. v. Rogers (In re Eagle Bus Mfg. Inc.), 62 F.3d 730,

735 (5th Cir. 1995)). For notice purposes, bankruptcy law

divides claimants into two typesknown creditors and

unknown creditors. Id. Known creditors must be provided

with actual written notice of a debtors bankruptcy filing

and claims bar date. Id. However, unknown creditors need

only receive notice by publication. Id.

A known creditor is one whose identity is either

known or reasonably ascertainable by the debtor. Id.

(citing Tulsa Professional Collection Serv., Inc. v. Pope,

485 U.S. 478, 490 (1988)). An unknown creditor is one

whose interests are either conjectural or future or,

although they could be discovered upon investigation, do

not in due course of business come to knowledge [of the

debtor]. Id. (citing Mullane v. Central Hanover Bank &

Trust Co., 339 U.S. 306, 317 (1950)).

A creditors identity is reasonably ascertainable if

that creditor can be identified through reasonably

diligent efforts. Id. (citing Mennonite Bd. Of Missions


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v. Adams, 42 U.S. 791, 798 n.4 (1983)). Reasonable

diligence does not require impracticable and extended

searches in the name of due process. Id. (citing

Mullane, 339 U.S. at 317)). A vast open-ended

investigation is not required. Id. The requisite search

instead focuses on the debtors own books and records. Id.

Efforts beyond a careful examination of these documents is

generally not required. Id. Only those claimants who are

identifiable through a diligent search are reasonably

ascertainable and hence known creditors. Id.

In order for a claim to be reasonably ascertainable,

the debtor must have in his possession, at the very least,

some specific information that reasonably suggests both the

claim for which the debtor may be liable and the entity to

whom he would be liable. PacifiCorp and Vancott Bagley

Cornwall & McCarthy v. W.R. Grace, 2006 U.S. Dist. Lexis

57470 at 35 n.19 (D. Del. 2006) (citing In re Eagle-Pitcher

Indus. Inc., 278 B.R. 437, 456 (S.D. Ohio 2002)).

Knowledge of the existence of a creditor is insufficient to

make that creditor a known creditor; it must be shown that

the claim was known. Id. Further, a debtor does not have

a duty to search out each conceivable or possible

creditor and urge that person or entity to make a claim


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against it. Chemetron, 72 F.3d at 346 (citing In re

Charter Co., 125 B.R. 650, 654 (M.D. Fla. 1991).

i. The Whites Were Unknown Creditors

In the case at hand, the Whites are unknown creditors.

While their identities were known to the Debtors (based on

the fact that the Debtors originated the Whites loan prior

to the Petition Date), the Whites alleged claims (which the

Trust believes are meritless) were unknown as no such

claims had been asserted against the Debtors prior to

November 22, 2008, the date that the Whites filed Claim

4073. See Walker Declaration at 4-6; see also Denney

Declaration at 2-7.

On July 26, 2006, the Debtors originated the Loan.

Shortly after origination and before the Petition Date, the

Loan and servicing rights of the Loan were transferred to

third parties. Prior to the Petition Date, the Debtors

only contact with the Whites was (i) collecting monthly

payments from the Whites until the Loan and servicing

rights were transferred, and (ii) advising the Whites that

the Loan and the servicing rights related to the Loan were

being sold to third parties. Prior to the filing of Claim

4073, neither the Debtors nor the Trust received any

communication from the Whites suggesting that the Whites

may have claims against the Debtors. See Denney


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Declaration at 7. Specifically, there is no evidence in

the Debtors Books and Records that the Whites have a claim

against the Debtors or that the Whites ever asserted a

claim against the Debtors prior to November 22, 2008 when

they filed Claim 4073. See Walker Declaration at 4-6;

see also Denney Declaration at 7. Thus, on and prior to

the Bar Date, the Debtors had no reason to believe that the

Whites were creditors of the Debtors.

Nearly identical facts were addressed by the United

States District Court for the Northern District of Illinois

in Hebell v. NVR, Inc., 1997 U.S. Dist. Lexis 10786 (N.D.

Ill. 1997). In NVR, the homeowner-mortgagors, on behalf of

themselves and their putative class, asserted that they

were known creditors entitled to actual notice, because the

debtor received monthly checks from each of them and had

the duty to follow up and to collect late payments. See

id. at 4-5. In denying this argument, the Court stated

that:

The fact that the identities of the

homeowner-mortgagors or the Hebells

themselves may have been reasonably

ascertainable from the loan servicersrecords is not sufficient to make them

known. These records did not

indicate that the Hebells or any

potential class members were or would

file suit in the future, thereby

becoming claimants. At the time, the


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Hebells claims were merely

speculative.

Id. The Hebells and their putative class were thus,

unknown creditors. Id; see also Gentry v. Circuit City

Stores, Inc. (In re Circuit City Stores, Inc.), 2010 U.S.

Dist. Lexis 116285 at 20-21 (E.D. Va. 2010) (the debtors

were not required to provide actual notice of the bar date

to each of the 39,600 people that it once employed despite

being a party to a labor-related class action lawsuit as of

the date they filed their petitions because, inter alia,

uncovering the employees identities (i) would require

more effort than is reasonably required by the

circumstances, (ii) would be expensive and would consume

a disproportionate share of the Debtors resources, and

(iii) the bankruptcy court has an obligation to existing

creditors.); Elsom v. Woodward & Lothrop, 1997 U.S. Dist.

Lexis 12112 at 7 (E.D. Pa. 1997) (although plaintiffs name

and address were available to defendants through the

company records, plaintiff was not yet a creditor of

defendants).

Accordingly, the Debtors were under no obligation to

serve the Whites with the Bar Date Notice as the Whites

were unknown creditor(s) of the Debtors.


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ii. The Whites Received Constructive Notice of

the Bar Date

As unknown creditors, the Whites were only entitled to

receive constructive notice of the Bar Date. The

constructive notice provided by Debtors complied with the

Bar Date Order, and therefore, was sufficient.

Notice is sufficient if it complies with the bar date

order entered by the bankruptcy court. See Harvard

Industries, Inc. v. Conway (In re Harvard Industries,

Inc.), 1995 Bankr. LEXIS 932 at 2 (Bankr. D. Del. 1995)

(notice of the bar date order in the New York Times for two

consecutive business days is consistent with the bar date

order and such notice is consistent with due process); The

Charter Co. v. Ziegler, 113 B.R. 725, 725 (M.D. Fl. 1990)

(notice was proper as the bankruptcy court determined that

the notice provided in the bar date order was reasonably

calculated, under all the circumstances herein present, to

apprise, and thereafter, the debtor abided by said

determination and published notice to unknown creditors

pursuant to the bankruptcy courts order).

In the present case, the Bankruptcy Court entered the

Bar Date Order on June 28, 2007, which established that the

[d]ebtors shall cause the Publication Notice to be

published once in the national edition of the The Wall


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Street Journal and any such other local publication as the

Debtors deem appropriate no less than 30 days prior to the

General Bar Date. Bar Date Order 18 (Italics in the

Original). On July 23, 2007, pursuant to the Bar Date

Order, notice of the Bar Date Order was published in the

national edition of The Wall Street Journal and The Orange

County Register, a local publication where the Debtors

conducted business. See generally Affidavit of Publication

of Julie Trammell for The Orange County Register, annexed

to the Schnitzer Declaration as Exhibit F; see also

Affidavit of Publication of Glenn Hellums Jr. for The Wall

Street Journal, annexed to the Schnitzer Declaration as

Exhibit G. The Debtors published the Bar Date Notice more

than thirty (30) days before the General Bar Date.3

Accordingly, because the Whites were unknown creditors

and therefore, not entitled to actual notice of the Bar

Date and because the publication notice complied with the

Bar Date Order, the Whites are barred from asserting the

causes of action raised in the Complaint and the Claims.

Hence, the Complaint fails to state a claim upon which

relief may be granted and should be dismissed pursuant to

Federal Rule of Civil Procedure 12(b)(6).

3 Pursuant to the Bar Date Order, the General Bar Date was August 31,

2007.


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III. The Bankruptcy Court Lacks Subject Matter Jurisdiction

In addition to being enjoined by the Bar Date, to the

extent the Whites seek declaratory and/or non-monetary

relief with respect to the Loan in Counts II, VI, VIII and

XII of the Complaint, there is no subject matter

jurisdiction to adjudicate the dispute. Pursuant to Rule

12(b)(1) of the Federal Rules of Civil Procedure, it is

without question that a complaint should be dismissed if

the Court lacks subject matter jurisdiction over the relief

sought. See In re Aegis Mortgage Corp., 2008 Bankr. LEXIS

1519 (Bankr. D. Del. 2008).

The limits of federal bankruptcy court jurisdiction

are defined by 28 U.S.C. 1334(b). Section 1334(b) states

that "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." 28

U.S.C. 1334(b); see also 28 U.S.C. 157 (providing that a

district court may refer any or all proceedings arising

under title 11 or arising in or related to a case under

title 11to the bankruptcy judges for the district.)

Accordingly, a bankruptcy court may have subject matter

jurisdiction over actions between non-debtors only if the

court determines that the action relate[s] to a

bankruptcy case.


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The test for determining whether related-to

jurisdiction exists is whether the outcome of that

proceeding could conceivably have an effect on the

administration of the bankruptcy estate. See In re Pacor,

743 F.2d 984, 994 (3d Cir. 1984) (An action is related to

bankruptcy if the outcome could alter the debtors rights,

liabilities, options, or freedom of actionand which in any

way impacts upon the handling and administration of the

bankruptcy estate.). However, bankruptcy courts have no

jurisdiction over proceedings that have no effect on the

estate of the debtor. In re Celotex Corp. v. Edwards, 514

U.S. 300, 308 n.6 (1995).

There is no subject matter jurisdiction over the

relief requested in the Complaint as the action does not in

any way relate to the Trust or the Debtors Chapter 11

cases. By the Complaint, the Whites seek to (i) rescind

the Loan, (ii) cancel the security interest, and (iii)

obtain fees and costs associated with litigating this

claim. However, as stated above and in the Walker

Declaration, neither the Trust, nor the Debtors have any

interest in the Loan or mortgage as the Loan was

transferred.

Accordingly, there is no relationship between the

relief sought in the Complaint and the Trust or the


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Debtors chapter 11 cases. More importantly, as the Trust

and the Debtors have no interest in the Loan, or any

control over the third parties who now own and service the

Loan, the outcome of the Complaint will have no effect on

the Trust or the administration of the Debtors estates.

In fact, a strikingly similar fact pattern was

addressed by Judge Shannon in the Aegis bankruptcy. See

Aegis, 2008 Bankr. LEXIS 1519. There, the plaintiff

granted the debtors a mortgage on his residence to secure a

$250,000 loan from the debtors. The debtors then sold the

mortgage to a third party purchaser prior to the

bankruptcy. Id. at 3. In the debtors chapter 11 cases,

the plaintiff commenced an adversary proceeding asserting a

number of federal and state law claims and requesting

relief in the form of rescission of the mortgage,

declaratory relief, and monetary damages. Id. The

plaintiff also filed an emergency motion seeking a

preliminary injunction enjoining the debtors from taking

any steps to enforce the mortgage until the court could

determine the appropriateness of the relief sought in the

complaint. Id. at 4.

At the hearing to consider the emergency motion

seeking a preliminary injunction, the court found that the

Debtor transferred property from itself to a third party


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purchaser before the bankruptcy, and accordingly the

mortgage, the loan, the note, and any related rights and

responsibilities were not part of this Debtors estate

under 541 of the Bankruptcy Code. Id. at 5 (citing Feb.

5 2008 Hrg Tr. At 10:13-17). Based on this finding, the

Court held that it lacked jurisdiction over the subject

matter of the emergency motion. Id. Subsequently, the

Court dismissed the complaint for lack of subject-matter

jurisdiction to the extent that it sought injunctive relief

because the Mortgages rescission will not harm the

Debtors estates because the estates have no interest in

it[and] a declaration as to the rights of parties under

the Mortgage will not alter the Debtors rights,

liabilities, options or freedom of action because the

Debtors are no longer a party to it. Id. at 14.

Accordingly, pursuant to the plain language of 28

U.S.C. 1334, the standard articulated in Pacor, and the

holding in Aegis, to the extent the Whites seek to rescind

the Loan and/or cancel the security interest associated

with the Loan by Counts II, VI, VIII and XII of the

Complaint, there is no federal subject matter jurisdiction

over the relief sought.


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Conclusion

For the reasons set forth herein, the Trust

respectfully requests that the Bankruptcy Court (i) dismiss

the Complaint in its entirety with prejudice, (ii) expunge

the Claims in their entirety, and (iii) grant such other

relief as it deems just and appropriate.

Dated: December 15, 2010

Wilmington, Delaware

BLANK ROME LLP

By:/s/ Alan M. Root

David W. Carickhoff (No. 3715)

Alan M. Root (No. 5427)

1201 Market Street, Suite 800

Wilmington, Delaware 19801

(302) 425-6400 - Telephone

(302) 425-6464 - Facsimile

- and -

HAHN & HESSEN LLP

488 Madison Avenue

New York, New York 10022

(212) 478-7200 - Telephone

(212) 478-7400 - Facsimile

Attn: Mark S. Indelicato, Esq.

Edward L. Schnitzer, Esq.

Janine M. Cerbone, Esq.

Nicholas Rigano, Esq.

Co-Counsel to the New Century

Liquidating Trust

NCLT Memorandum of Law for Motion to Dismiss - PRO SE HOMEOWNER BEAT IT - JUNE 2011

Documents

Transcript of NCLT Memorandum of Law for Motion to Dismiss - PRO SE HOMEOWNER BEAT IT - JUNE 2011