The Court denied Defendant’s request that the Court dismiss this adversary proceeding, brought by the United States Trustee (“UST”), due to improper venue. Defendant argued that the UST’s claims must be brought in the district in which he resides because her claims seek monetary relief in amounts below the limits in 28 U.S.C. § 1409(b), which governs venue for claims or proceedings brought by “a trustee in a case.” The Court concluded that “a trustee in a case” refers generally to a person who is appointed or selected to serve as trustee in a particular case under sections 701, 702, 703, 1104, 1163, 1183, 1202, or 1302, and that, while a United States trustee may serve in a dual capacity as a United States trustee and a trustee in a case under certain circumstances, the United States trustee does not act as a “trustee in a case” unless appointed or selected to do so in a specific case. Because the UST has not been appointed or selected to serve as a “trustee in a case” in Debtor’s bankruptcy, she was not serving in the capacity of a “trustee in a case” when she commenced this adversary proceeding. Hence, § 1409(b) does not limit venue to the district where Defendant resides. Rather, § 1409(a) permits the UST to bring this adversary proceeding in the District of New Mexico, the “home court.”

The UST sought to dismiss or convert the debtors’ jointly administered chapter 11 cases based on the debtors’ failure to maintain insurance. The Court found that “cause” existed under § 1112(b)(4)(C) based on the Debtors’ failure to maintain appropriate insurance that poses a risk to the public or to the estate, but ultimately held that the “unusual circumstances” exception applied, and denied the motion. The Debtors committed to file a joint liquidating plan by a date certain committing to distribute the expected $3 million plus of surplus proceeds from the sale of one Debtor’s real property to the estate of the other Debtor to pay its creditors. This scenario is unusual. Debtors were justified in their failure to obtain both property and general liability insurance because of their inability to pay the premiums. The Court required the Debtors to cure the failure to maintain appropriate insurance within a reasonable time fixed by the Court as follows: 1) the Debtor with no real property and little personal property was required to abandon its personal property; and 2) the other Debtor was required to obtain general liability insurance on the real property. Creditors holding mortgage liens against the real property had or could obtain forced place insurance to protect their interests such that the Debtor’s failure to maintain property insurance, while not prudent, did not pose a material risk to the public or to the estate.

Defendants filed motions to dismiss Debtor’s claims for fraudulent misrepresentation, intentional infliction of emotional distress, violations of the Fair Debt Collection Practices Act, and request for declaratory judgment all arising from the chain of transfer of a note and mortgage on Debtor’s principal residence. Defendant/creditor obtained a final foreclosure judgment against the Debtor in state court prior to the filing of Debtor’s bankruptcy case. The Court determined that:  

1) standard for evaluating the motion - the Court could rely on underlying state court judgment and findings of fact and conclusions of law without turning the motions to dismiss into summary judgment motions where the Debtor’s complaint referenced the state court documents and there was no genuine dispute as to authenticity of those documents;

2) fraudulent misrepresentation – the applicable statute of limitations barred Debtor’s claims for fraudulent misrepresentation, and, as to the parties to the state court foreclosure action, the preclusive effect of the foreclosure judgment barred Debtor’s fraudulent misrepresentation claims;

3) Fair Debt Collection Practices Act (“FDCPA”) – creditor/defendant that was seeking to collect its own debt is not subject to the FDCPA, but the other defendant who may only be a mortgage servicer remains subject to the FDCPA; because the Court could not discern from the complaint whether Debtor’s claims for violation of the FDCPA challenge the validity of the foreclosure judgment or the underlying debt itself, the Rooker-Feldman doctrine did not bar Debtor’s FDCPA claims; for the same reason, if Debtor’s claim for violation of the FDCPA challenges collection methods rather than the judgment or debt, such claim does not constitute a compulsory counterclaim that was forfeited because it was not raised in the underlying state court foreclosure action;

4) intentional infliction of emotional distress (“IIED”) - the Court can determine in the first instance whether the alleged behavior meets the standard of extreme and outrageous conduct necessary to support a claim for IIED and Debtor’s factual allegations failed as a matter of law to meet that standard;  alternatively, Debtor’s claim for IIED was barred by the applicable statute of limitations;

5) declaratory judgment - because bankruptcy courts are not courts of the United States under applicable Tenth Circuit law, the Court lacked subject matter jurisdiction over Debtor’s request for declaratory judgment under the Federal Declaratory  Judgment Act; alternatively, no justiciable controversy existed over which the Court could issue a declaratory judgment because the prior state court foreclosure judgment has preclusive effect; alternatively, even if the Court had jurisdiction over the request for declaratory judgment, the Court would exercise its discretion to decline to adjudicate the request.

The Court dismissed all claims against all defendants, except for the claim for violation of the FDCPA asserted against defendant whose only interest in the subject loan may be as a servicer with no ownership interest.

Creditor filed a motion to dismiss debtor’s chapter 13 bankruptcy case on eligibility grounds. Debtors determined not to contest chapter 13 eligibility and filed a motion to convert their chapter 13 case to a subchapter V case under chapter 11. Creditor responded by filing a motion to convert Debtors’ chapter 13 case to chapter 7 premised on Debtors’ bad faith filing and prosecution of their chapter 13 case and certain pre-petition transfers. Debtors later asked to convert to a non-subchapter V chapter 11 case in the alternative. The opinion discusses what a debtor must show to convert a case to chapter 11. It also discusses when a debt is unliquidated for purposes of chapter 13 eligibility. The Court determined that Debtors were not eligible to be Debtors under subchapter V, could not convert to a non-subchapter V case under chapter 11, and did not file or prosecute their chapter 13 case in bad faith. Because the Debtors conceded for purposes of the pending motions that they were not eligible for chapter 13 relief, the only remaining possible outcomes were conversion to another chapter or dismissal. Because Debtors had an absolute right to voluntarily dismiss their chapter 13 case that had not previously been converted, the Court granted Debtors an opportunity to elect voluntary dismissal under § 1307(b). If the Debtors do not elect voluntary dismissal, the Court will convert the case to chapter 7.