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Okoro v. Wells Fargo Bank, N.A.

United States District Court, D. Maryland

April 20, 2017

HENRIETTA OKORO, et al., Appellants,
WELLS FARGO BANK, N.A., et al., Appellees.


          PAULA XINIS United States District Judge

         Henrietta and Cyriacus Okoro (“Debtors”) appeal two orders of the United States Bankruptcy Court for the District of Maryland dismissing their adversary proceeding for lack of subject matter jurisdiction and denying their motion for reconsideration. Appellate Record, ECF No. 1.[1] Oral argument is deemed unnecessary because the facts and legal arguments are adequately presented in the briefs and record, and the decisional process would not be significantly aided by oral argument. See Fed. R. Bankr. P. 8019(b)(3); see also Local Rule 105.6. For the reasons stated below, the October 18, 2016 and November 18, 2016 decisions of the bankruptcy court are AFFIRMED.

         I. BACKGROUND

         On March 3, 2016, before filing for bankruptcy, Debtors brought a civil action in this Court against several defendants, including Wells Fargo Bank, N.A. (“Wells Fargo”). Okoro v. Wells Fargo Bank, et al., No. 16-CV-616-PX (the “District Court Action”). The District Court Action asserted claims for violations of the Real Estate Settlement Procedures Act (“RESPA”) and other laws related to Debtors' mortgage loan that was serviced by Wells Fargo. The property at 7211 Oakley Rd. in Glenn Dale, Maryland (the “Real Property”) secured the disputed mortgage. See Appellate Record, ECF No. 4 at 7 (Appellants' Br.). The District Court Action was dismissed for failure to state a claim on October 6, 2016, which the Fourth Circuit affirmed on April 7, 2017. See Okoro v. Wells Fargo Bank, N.A., No. CV PX 16-0616, 2016 WL 5870031 (D. Md. Oct. 6, 2016), aff'd sub nom., No. 16-2274, 2017 WL 1291278 (4th Cir. Apr. 7, 2017).

         On February 16, 2016, Debtors initiated bankruptcy proceedings under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland. In re Okoro, 16-11751 (D. Md. Bankruptcy Court) (petition filed February 16, 2016) (hereinafter “Bankruptcy Proceedings”). Debtors listed the District Court Action and the Real Property as assets on the Schedules A/B of Real and Personal Property they filed in the Chapter 7 Bankruptcy Case. Bankruptcy Proceedings, ECF No. 38 at 9 (Amended Schedule A/B).

         On April 8, 2016, Debtors initiated an adversary proceeding in Bankruptcy Court against Wells Fargo and Manufacturers and Traders Trust Company, a/k/a M&T Bank, successor by merger to Hudson City Savings Bank, FSB (collectively “Appellees”), alleging violations of RESPA and fraud and seeking a declaratory judgment that Wells Fargo lacked a valid mortgage on Debtors' property. Okoro v. Wells Fargo Bank Home Mortgage et al., 16-00185 (D. Md. Bankr.), ECF No. 1 (hereinafter the “Adversary Proceeding”); Appellate Record, ECF No. 2-1. Meanwhile in the Bankruptcy Proceedings, the Chapter 7 Trustee filed a Report of No Distribution on May 19, 2016, finding that no assets were in the bankruptcy estate to administer to creditors. Bankruptcy Proceedings, ECF No. 47.

         On June 2, 2016, the bankruptcy court issued an order for Debtors to show cause why the Adversary Proceeding should not be dismissed, explaining that only the Chapter 7 trustee has standing to prosecute an action on behalf of the bankruptcy estate. Appellate Record, ECF No. 2-7. On June 6, 2016, Debtors moved for an order of abandonment of the claims asserted in the District Court Action, and the Chapter 7 Trustee did not object. Bankruptcy Proceedings, ECF No. 50. On June 28, 2016, the bankruptcy court granted Debtors' motion, and ordered that the claims in the District Court Action were abandoned pursuant to 11 U.S.C. § 554 and Fed.R.Bankr.P. 6007. Bankruptcy Proceedings, ECF No. 51.

         On August 8, 2016, the bankruptcy court dismissed the Adversary Proceeding because the trustee had abandoned the District Court Action, and the court found those claims were identical to those raised in the Adversary Proceeding. Appellate Record, ECF No. 2-9. The bankruptcy court determined that the District Court Action, therefore, was no longer part of the bankruptcy estate. Id. Accordingly, the bankruptcy court concluded that it lacked jurisdiction to adjudicate the Adversary Proceeding on the identical claims and dismissed the action. Id. at 4-5.

         Debtors moved for reconsideration of the bankruptcy court's order of dismissal on August 18, 2016. Appellate Record, ECF No. 2-10. Before the Court ruled on this motion, the Debtors' discharge was issued on October 7, 2016. Bankruptcy Proceedings, ECF No. 53.Then, on October 18, 2016, the bankruptcy court denied Debtors' motion for reconsideration, finding it lacked subject matter jurisdiction because the Debtors failed to state a dischargeability claim under the Bankruptcy Code and the claims raised in the Adversary Proceeding would have no conceivable effect on the bankruptcy estate because the trustee had abandoned both the Real Property and the claims raised in the District Court Action. Appellate Record, ECF No. 2-13. The instant appeal followed on October 27, 2016. Appellate Record, ECF No. 1.


         A district court reviews the bankruptcy court's conclusions of law de novo. See Cypher Chiropractic Ctr. v. Runski, 102 F.3d 744, 745 (4th Cir. 1996). Whether the bankruptcy court erred when it dismissed the Adversary Proceeding for lack of subject matter jurisdiction is a question of law, and so the bankruptcy court's decision here is reviewed de novo. Moreover, the decision of a bankruptcy court “must be affirmed if the result is correct” even if the lower court relied upon “‘a wrong ground or gave a wrong reason.'” SEC v. Chenery Corp., 318 U.S. 80, 88 (1943) (quoting Helvering v. Gowran, 302 U.S. 238, 245 (1937)); see also Cty. Fuel Co. v. Equitable Bank Corp., 832 F.2d 290, 294 (4th Cir. 1987) (citing Chenery and affirming district court's judgment in a bankruptcy case on different grounds). This principle guides district courts to “affirm the bankruptcy court on any ground supported by the record.” Wells Fargo Bank, N.A. v. Farag, No. 5:15-CV-422-BO, 2016 WL 2944561, at *2 (E.D. N.C. May 18, 2016) (quoting In re Cobham, 551 B.R. 181, 189 (E.D. N.C. ), aff'd, 669 F. App'x 171 (4th Cir. 2016), reh'g denied (Nov. 29, 2016) (quoting Helvering, 302 U.S. at 238)). Otherwise “[i]t would be wasteful to send a case back to a lower court to reinstate a decision which it had already made but which the appellate court concluded should properly be based on another ground within the power of the appellate court to formulate.” Chenery, 318 U.S. at 88 (1943).

         III. ANALYSIS

         Subject matter jurisdiction must be determined at the time an action commences, even if the facts supporting this jurisdiction subsequently change. See Freeport-McMoRan, Inc. v. K N Energy, Inc.., 498 U.S. 426, 428 (1991) (“[I]f jurisdiction exists at the time an action is commenced, such jurisdiction may not be divested by subsequent events.”); In re Celotex Corp., 124 F.3d 619, 626 (4th Cir. 1997) (“[I]f ‘related to' [bankruptcy] jurisdiction actually existed at the time of Rapid's removal of the Contribution Action to the district court, ” the subsequent resolution of the bankruptcy estate “could not divest the district court of that subject matter jurisdiction.”); cf. In re Roy, Bankruptcy No. 09-2972, 2010 WL 2928463, at *4 (Bankr. N.D.W.Va. July 26, 2010) (“Because the bankruptcy court had subject matter jurisdiction over the Debtors' adversary complaint at the time it was filed, the court has not lost subject matter jurisdiction over the adversary complaint even though . . . the Debtors' main bankruptcy case has closed.”).

         A bankruptcy court's jurisdiction to review claims is limited to those that (1) “arise under” the Bankruptcy Code; (2) “arise in” the Bankruptcy Code; or (3) “relate to” cases brought under the Bankruptcy Code. In re Kirkland, 600 F.3d 310, 316-18 (4th Cir. 2010).[2] Debtors contend their claim “arises under” the Bankruptcy Code because they brought their adversary proceeding to determine the “dischargeability” of the mortgage debt. 20. Debtors also argue that the bankruptcy court had “related to” jurisdiction over its pre-confirmation adversary proceeding. Appellate Record, ECF No. 4 at 22 (Appellants' Br.). Finally, Debtors assert that because the trustee's abandonment of the claim “has no ...

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