COMPLAINT FOR INJUNCTIVE RELIEF AND SANCTIONS PARTIES

[Pages:12]Case 08-01176-AJC Document 1 Filed 03/01/2008 Page 1 of 12

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA MIAMI DIVISION

In re:

JOSE SANCHEZ and FANNY SANCHEZ,

Case No.: 01-42230-BKC-AJC Chapter 13

Debtors. /

Donald F. Walton United States Trustee,

Adv. No.:

Plaintiff,

vs.

COUNTRYWIDE HOME LOANS, INC.

Defendant. /

COMPLAINT FOR INJUNCTIVE RELIEF AND SANCTIONS

Plaintiff, Donald F. Walton, United States Trustee for Region 21 (the "United States

Trustee"), by and through his duly authorized counsel, seeks injunctive relief and sanctions, pursuant

to 11 U.S.C. ? 105(a) and this Court's inherent equitable powers, against Countrywide Home Loans,

Inc. ("Countrywide") for engaging in bad faith conduct that abused the judicial process.

PARTIES

1. Donald F. Walton is the United States Trustee for Region 21. 28 U.S.C.

?? 581(a)(21) and 585(a).

2. Countrywide is a corporation incorporated under the laws of the State of New York.

It maintains its principal place of business in the State of California. Countrywide's agent for

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service of process is the Prentice-Hall Corporation System, Inc., 2730 Gateway Oaks Drive, Suite 100, Sacramento, CA 95833.

JURISDICTION 3. The Court has jurisdiction over this lawsuit because it involves a core matter pursuant to 28 U.S.C. ? 1334 and 28 U.S.C. ?? 157(a), (b)(2)(A), (b)(2)(B), (b)(2)(G). 4. This adversary proceeding relates to In re Jose Sanchez and Fanny Sanchez, a chapter 13 case pending before the United States Bankruptcy Court for the Southern District of Florida, Miami Division, docketed as case number 01-42230-BKC-AJC. 5. Countrywide submitted itself to the jurisdiction of this Court when it filed a proof of claim in this case on or about February 19, 2002, which is docketed as claim number 3-1 (the "Proof of Claim"). A true copy of the Proof of Claim is attached as Exhibit 1. 6. Venue for this matter is proper pursuant to 28 U.S.C. ? 1409.

FACTS A. Background

7. On November 19, 2001 (the "Petition Date"), Jose Sanchez and Fanny Sanchez (collectively, the "Sanchezes" or the "debtors") filed a voluntary chapter 13 petition.

8. The Sanchezes filed an amended chapter 13 plan on or about January 17, 2002 (the "Plan"), a true copy of which is attached as Exhibit 2.

9. Among other provisions, the Plan recited that "the Debtors are stripping off the second mortgage of Countrywide Home Loans, Inc." Accordingly, pursuant to 11 U.S.C. ? 506(a) and Fed. R. Bankr. P. 3012, the Plan sought to value the collateral securing Countrywide's claim at zero.

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10. Countrywide did not file an objection to the Plan. 11. On January 17, 2002, the Court entered an order confirming the Plan. The confirmation order provided, among other terms, that "[t]o the extent the Plan sought a determination of valuation pursuant to Bankruptcy Rule 3012, and no objections were filed or any objections were resolved, the terms of the Plan will be binding upon the affected secured creditors, and any allowed proof of claim will be secured only to the extent of the value as provided for in the Plan and unsecured as to the balance of the claim." Confirmation order at ? 8. A true copy of the confirmation order is attached as Exhibit 3. 12. On February 19, 2002, Countrywide filed its Proof of Claim. The Proof of Claim asserted a claim secured by real estate of $24,430.92, including an arrearage of $162.31. Attached to the Proof of Claim was a copy of a home equity loan agreement dated April 2, 1998, between the Sanchezes and America's Wholesale Lender, under which America's Wholesale Lender was granted a junior security interest in real property at 9494 SW 156th Place, Miami, Florida (the "Property"). The Proof of Claim did not contain any documents evidencing an assignment of an interest in such mortgage from America's Wholesale Lender to Countrywide. 13. On April 4, 2003, the Sanchezes filed a Motion for Recordable Order Stripping Off Second Mortgage in Accordance with Confirmed Chapter 13 Plan (the "Motion for Recordable Order"). The Motion for Recordable Order alleged that Countrywide's interest in the Property had been avoided as a result of confirmation of the Plan, and requested that the Court enter an "order with the legal description and recording information, suitable for recording in the Miami-Dade County Public Records, indicating that the second mortgage is `stripped off' and avoided pursuant to 11 U.S.C ? 506." A true copy of the Motion for Recordable Order is attached as Exhibit 4.

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14. Countrywide did not file an objection to the Motion for Recordable Order. 15. On April 24, 2003, following a hearing on the matter, the Court entered an order granting the Motion for Recordable Order. Among other findings, the Court's order stated that Countrywide's mortgage had been "stripped off" by operation of the Plan, Countrywide no longer held a valid lien against the Property, and that Countrywide's claims were to be treated as unsecured claims. Id. at ?? 4-7. A true copy of the Court's April 24, 2003 order is attached as Exhibit 5. B. Countrywide files two factually inaccurate motions for relief from the automatic stay 16. On November 13, 2003, Countrywide filed a motion for relief from stay with respect to the Property (the "First Motion"). Notwithstanding the relief previously ordered by the Court in connection with the Plan and the Motion for Recordable Order, the First Motion recited, among other allegations, that Countrywide was the holder of a claim secured by the Property, and sought relief from the automatic stay on the basis of an alleged lack of adequate protection for its security interest. A true copy of the First Motion is attached as Exhibit 6. 17. On December 4, 2003, the Court denied the First Motion for lack of prosecution. A true copy of the Court's December 4, 2003 order is attached as Exhibit 7. 18. On January 9, 2004, Countrywide filed a second motion for relief from the automatic stay (the "Second Motion"). The factual allegations and requests for relief set forth in the Second Motion were identical to those of the First Motion. A true copy of the Second Motion is attached as Exhibit 8. 19. On January 28, 2004, Countrywide withdrew the Second Motion without prejudice. A copy of the withdrawal is attached as Exhibit 9.

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C. Countrywide commences a state court foreclosure action in violation of the Plan and the discharge order

20. On December 13, 2006, the Court entered an order discharging the Sanchezes upon the completion of their chapter 13 plan. A true copy of the discharge order is attached as Exhibit 10.

21. On June 15, 2007, Countrywide filed a complaint in the Circuit Court of Miami-Dade County, Florida, seeking to foreclose on the Property (the "Foreclosure Complaint"). The Foreclosure Complaint represented, among other allegations, that Countrywide was the holder of a mortgage on the Property under the April 2, 1998, home equity credit agreement, and further alleged that Countrywide was entitled to foreclose on the Property due to the Sanchezes' default for the June 15, 2003 payment and all payments arising thereafter. A true copy of the Foreclosure Complaint is attached as Exhibit 11.

22. On June 26, 2007, the Sanchezes filed an answer to the Foreclosure Complaint. In pertinent part, the Sanchezes' answer denied that Countrywide was the holder of a mortgage against the Property, on the grounds that such mortgage had been "stripped" as a result of this Court's order granting the Motion for Recordable Order. A true copy of the Sanchezes' answer is attached as Exhibit 12.

23. On August 9, 2007, the Sanchezes filed a Motion to Reopen Chapter 13 Case, Enjoin Countrywide Home Loans, Inc.'s Efforts to Collect on a "Stripped Off" Second Mortgage, Hold Countrywide in Contempt of Court for Violation of the Discharge Injunction and for Attorney's Fees and Other Sanctions (the "Contempt Motion"). A copy of the Contempt Motion is attached as Exhibit 13.

24. On October 29, 2007, Countrywide voluntarily dismissed its Foreclosure Complaint. 5

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A true copy of Countrywide's dismissal notice is attached as Exhibit 14. 25. On October 30, 2007, the Court entered an order reopening the Sanchezes' chapter

13 case. A true copy of the Court's reopening order is attached as Exhibit 15. 26. On November 1, 2007, the Debtors filed a notice withdrawing the Contempt Motion

without prejudice. A true copy of the Debtors' withdrawal notice is attached as Exhibit 16. Countrywide's pattern of conduct

27. Countrywide is a national lender and servicer of secured loans. Countrywide regularly appears before this and other United States bankruptcy courts around the country, asserting claims seeking the payment of money from bankruptcy estates and/or prosecuting motions seeking relief from the automatic stay to foreclose on consumer mortgages.

28. Countrywide failed to ensure the accuracy of a proof of claim and two motions for relief from the automatic stay that contained allegations that were inaccurate and/or misleading concerning the secured nature of Countrywide's claim.

29. Countrywide thereafter violated the discharge injunction of 11 U.S.C. ?? 524(a)(2) and 1328(a), the Plan, and the order granting the Motion for Recordable Order by attempting to foreclose on the Property pursuant to a lien that previously had been stripped by this Court.

30. Countrywide's failure to ensure the accuracy of its pleadings and to abide by the orders of this Court is not an isolated incident. In recent years, Countrywide and its representatives have been sanctioned for filing inaccurate pleadings and other similar abuses within the bankruptcy system.

31. Cases in which bankruptcy courts sanctioned Countrywide and/or its representatives include: In re Robert and Kathleen Ennis, Case No. 05-11985 (Bankr. W.D. Pa. July 31, 2006)

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(sanctioning Countrywide and its counsel for failing to make reasonable inquiry prior to filing factually inaccurate motion for relief from the automatic stay); In re James Allen, Case No. 0660121 (Bankr. S.D. Tex. Jan. 9, 2007) (sanctioning Countrywide's attorneys based upon finding that Countrywide's objection to a chapter 13 plan "had no basis in fact or law and was materially disruptive to the efficient and effective operation of this Court"); In re Paul Mann, Case No. 0382973 (Bankr. M.D.N.C. March 8, 2004) (awarding punitive damages against Countrywide for repeated violations of the automatic stay and finding that Countrywide's conduct was "aggravated and egregious").

32. Countrywide's failure to ensure the accuracy of its claims and pleadings has resulted in an abuse of the bankruptcy process and has prejudiced, and will continue to prejudice, parties in interest in the bankruptcy cases in which Countrywide participates. Absent injunctive relief by this Court, Countrywide's practices and conduct are likely to continue to prejudice parties in interest and result in additional abuses of the bankruptcy process.

33. United States Trustees have brought complaints against Countrywide in Ohio and Georgia to address Countrywide's sustained bad faith conduct in failing to ensure the accuracy of its claims and pleadings in attempting to obtain money or property from debtors and/or the bankruptcy estates.

COUNT I (Materially Inaccurate And/or Misleading

Representations of Fact) 34. The United States Trustee hereby repeats and reasserts the allegations contained in the preceding 33 paragraphs, as if fully set forth herein. 35. Countrywide authorized, directed and caused the filing of the Proof of Claim and two

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motions for relief from the automatic stay that represented that Countrywide held a valid secured claim against the Property.

36. Countrywide's continued assertion of a secured claim after January 17, 2003, was factually inconsistent with, and in violation of, this Court's order confirming the Plan and its order granting the Motion for Recordable Order, both of which determined that Countrywide's secured interest in the Property had been avoided.

37. Countrywide directed and caused the filing of the Proof of Claim and two motions for relief from the automatic stay that contained inaccurate and/or misleading representations of fact. Countrywide failed to take adequate precautions to ensure the accuracy of its pleadings. Countrywide filed its claim and these motions in an attempt to obtain money or property from the debtors and/or the bankruptcy estate. Countrywide's conduct and practices in filing its claim and these motions created unnecessary delay and expense in administration of this bankruptcy case. By filing its claim and these motions for relief, Countrywide has acted in bad faith in the conduct of litigation before the Court in this case and that conduct cannot be adequately sanctioned by applicable rules. Countrywide's conduct and practices in filing its claim and these motions for relief from stay is sanctionable under the Court's inherent powers.

38. Countrywide directed and caused the filing of the Proof of Claim and two motions for relief from the automatic stay that contained inaccurate and/or misleading representations of fact. Countrywide failed to take adequate precautions to ensure the accuracy of its pleadings. Countrywide filed its claim and these motions in an attempt to obtain money or property from the debtors and/or the bankruptcy estate. Countrywide's conduct and practices in filing its claim and these motions created unnecessary delay and expense in administration of this bankruptcy case. By

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