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Carter v. HSBC Mortgage Services, Inc.

United States District Court, S.D. Indiana, Indianapolis Division

September 21, 2016




         This matter is before the Court on a Motion to Dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(6) by Defendants HSBC Mortgage Services, Inc. (“HSBC”) and HSBC Bank USA, National Association (collectively, “the Defendants”). (Filing No. 5.) After paying HSBC a total of $31, 611.63 through a bankruptcy proceeding, Plaintiff Georgia Carol Carter (“Ms.Carter”), filed a Complaint alleging violation of the automatic stay, Racketeer Influenced and Corrupt Organizations Act (“RICO”), RICO conspiracy, actual fraud, constructive fraud, restitution, and unjust enrichment. (Filing No. 2.) The Defendants seek to dismiss Ms. Carter's Complaint for failure to state a claim. For the following reasons, the Court GRANTS the Motion to Dismiss.

         I. BACKGROUND

         In July 2003, Ms. Carter obtained a mortgage with Accredited Home Lenders, Inc. for $71, 000.00. The mortgage was secured by Ms. Carter's residence, located at 1233 South Whittier Place, Indianapolis, Indiana. (Filing No. 2 at 8, ¶ 12.) The mortgage was later transferred to Mortgage Electronic Registration Systems, Inc. (“MERS”). MERS serves as a nominee on mortgages and its parent company owns and operates an electronic registry which is designed to track and service rights and ownership of mortgages and mortgage backed securities. Id. Unbeknownst to Ms. Carter, on July 27, 2009, MERS recorded a Satisfaction of Mortgage, releasing the secured mortgage on Ms. Carter's residence. Id. at 9, ¶ 22. At some point, HSBC began servicing Ms. Carter's mortgage. Id. at 2 ¶6. After the Satisfaction of Mortgage was recorded, Ms. Carter received telephone calls from HSBC stating that her residence would be foreclosed upon if she did not pay $6, 000.00. Id. at 10, ¶ 25. In fear of losing her residence, on May 4, 2010, Ms. Carter filed a voluntary petition under Chapter 13 of the Bankruptcy Code. Id. at 10, ¶ 26.

         On July 13, 2010, HSBC filed a proof of claim in Ms. Carter's bankruptcy case, alleging a secured claim in the amount of $60, 820.16. Id. at 10, ¶ 30. In October 2010, Ms. Carter's bankruptcy plan was confirmed. (Filing No. 6 at 3.) From September 2010 to August 2014, Ms. Carter made monthly payments to the Trustee, who in turn paid HSBC a total of $31, 611.63. (Filing No. 2 at 12, ¶ 47.) This consisted of $24, 088.32 for post-filing mortgage payments and payments of $7, 523.31 in pre-petition arrears. Id. On July 9, 2013, HSBC filed a withdrawal of its proof of claim. Id. at 10, ¶34. Nearly four months later, on November 7, 2013, HSBC amended its withdrawal by reducing only the amount of arrears. Id. at 11, ¶ 35. HSBC filed another amended proof of claim on December 22, 2014 withdrawing its rights to receive any additional payments. Id. at 11, ¶ 40.

         In March 2015, Ms. Carter visited the Marion County Recorder's office to determine who the lienholder of her mortgage was, so that she could begin making mortgage payments directly to the mortgage company. (Filing No. 2 at 39). On this occasion, she learned of the Satisfaction of Mortgage record and notified her attorney. (Filing No. 12, ¶ 43). In July 2015, the Chapter 13 Trustee filed an objection to HSBC's secured claim. The Bankruptcy Court sustained the objection in August 2015 and ordered HSBC to repay the $31, 611.63 it received from the Trustee under the bankruptcy plan. HSBC repaid the amount in its entirety. On August 6, 2015, Ms. Carter sought relief by filing a Complaint in the bankruptcy court, alleging that the Defendants willfully filed a false proof of claim in violation of the automatic stay, RICO, RICO conspiracy, actual fraud, constructive fraud, restitution, and unjust enrichment. (Filing No. 2.) On December 9, 2015, the bankruptcy court judge recommended withdrawal of the reference of this adversary proceeding. On December 17, 2016, this Court instructed the parties to refile their pleadings in the district court. (Filing No. 4.) On December 28, 2015, the Defendants filed the instant Motion to Dismiss.


         Federal Rule of Civil Procedure 12(b)(6) authorizes a defendant to move to dismiss a complaint that fails to “state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). When deciding a motion to dismiss under Rule 12(b)(6), the court construes the complaint in the light most favorable to the plaintiff, accepts all factual allegations as true, and draws all reasonable inferences in favor of the plaintiff. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). However, courts “are not obliged to accept as true legal conclusions or unsupported conclusions of fact.” Hickey v. O'Bannon, 287 F.3d 656, 658 (7th Cir. 2002).

         While a complaint need not include detailed factual allegations, a plaintiff has the obligation to provide the factual grounds supporting his entitlement to relief; and neither bare legal conclusions nor a formulaic recitation of the elements of a cause of action will suffice in meeting this obligation. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Stated differently, the complaint must include “enough facts to state a claim to relief that is plausible on its face.” Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009) (citation and quotation marks omitted). To be facially plausible, the complaint must allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).


         The Defendants argue that the Complaint should be dismissed because Ms. Carter failed to state sufficient facts to support claims of automatic stay violation, RICO, RICO conspiracy, actual fraud, constructive fraud, restitution, and unjust enrichment. They also argue in the alternative, that Ms. Carter's actual fraud, constructive fraud, unjust enrichment, and restitution claims are preempted by the federal Bankruptcy Code. (Filing No. 5.) Each claim is addressed below.

         A. Automatic Stay Violation

         Ms. Carter asserts in Count I of her Complaint that the Defendants violated the automatic stay provision under the Bankruptcy Code by collecting on a debt falsely labeled “secured by real-estate, ” when in fact the debt owed to HSBC was unsecured. The “automatic stay” bars, among other things, any “act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case.” 11 U.S.C. § 362(a)(6). The purpose of the automatic stay is to “preserve what remains of the debtor's insolvent estate and to provide a systematic equitable liquidation procedure for all creditors, secured as well as unsecured, ” in order to prevent a “chaotic and uncontrolled scramble for the debtor's assets in a variety of uncoordinated proceedings in different courts.” In re Holtkamp, 669 F.2d 505, 508 (7th Cir. 1982) (citing In re Frigitemp Corp., 8 B.R. 284, 289 (D.C.S.D.N.Y.1981)).

         The Defendants contend that they never attempted to recover a debt in violation of the automatic stay provision because payments from the Trustee to HSBC were made pursuant to a confirmed bankruptcy plan. Confirmation of a bankruptcy plan triggers a Chapter 13 trustee's duty to distribute funds received from the debtor to creditors. Bullard v. Blue Hills Bank, 135 S.Ct. 1686, 1692 (2015); 11 U.S.C. § 1326(a)(2). Ms. Carter argues that the Defendants received payments prior to confirmation of a bankruptcy plan in violation of the automatic stay. However, it is undisputed that at the time of Ms. Carter's bankruptcy filing, the Defendants were thought to have a secured interest in Ms. Carter's residence. This mistaken belief was shared by Ms. Carter as well as the creditor, HSBC. It is also clear from Ms. Carter's Exhibit 4, that the pre-confirmation payments, made September 2 and October 1, 2010, amounted to “adequate protection” payments. (Filing No. 2 at 60-61.) “The Bankruptcy Code provides secured creditors various rights, including the right to adequate protection, and these rights replace the protection afforded by possession.” United States v. Whiting Pools, Inc.,462 U.S. 198, 207 (1983) (emphasis added). Under the Bankruptcy Code, a debtor is required to “commence making payments not later than 30 days after the date of filing of the plan or the order for relief, whichever is earlier, in the amount that …. provides adequate protection directly to a creditor holding an allowed claim secured by personal property . . . .” 11 U.S.C. § 1326 (a)(1)(C) (emphasis added). Thus, the payments that the Defendants received did not violate the bankruptcy stay because the Trustee made the bankruptcy plan payments as required under the bankruptcy plan. In other ...

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