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Cole v. Midfirst Bank

United States District Court, N.D. Alabama, Northeastern Division

December 11, 2018

BRENDA COLE, Plaintiff,



         This case is before the court on Defendant's Motion to Withdraw the General Order of Reference (Doc. # 1-2), filed August 30, 2018. The Motion requests that the court withdraw the reference and relieve the Bankruptcy Court of jurisdiction over the subject adversary proceeding pursuant to 28 U.S.C. § 157(d) and Federal Rule of Bankruptcy Procedure 5011. (Doc. # 1-2). The Motion has been fully briefed (6, 9) and is ripe for review. After careful review, and for the reasons explained below, the court concludes that Defendant's Motion is due to be granted.

         I. Background

         Plaintiff Brenda Cole filed a Chapter 13 bankruptcy petition on July 12, 2017. (Doc. # 6 at 2). On September 1, 2017, Defendant MidFirst Bank filed a proof of claim in Plaintiff's Chapter 13 case for an amount of $30, 422.94. (Doc. # 1-2 at 1). In April 2018, Defendant mailed the disputed “modified monthly mortgage statement” (the “Mortgage Statement”) to Plaintiff. (Id. at 3).[1] Plaintiff filed this adversary proceeding in the Bankruptcy Court on June 29, 2018 alleging that Defendant violated the automatic stay under 11 U.S.C. §' 362(a)(3) and (a)(6) by mailing Plaintiff the Mortgage Statement after the commencement of her bankruptcy case. (Id. at 18). In its present Motion, Defendant argues the General Order of Reference should be withdrawn because resolution of Plaintiff's claim would require “material and substantial consideration of non-bankruptcy federal law, ” specifically the recently amended mortgage servicing regulations from the Consumer Financial Protection Bureau (“CFPB”)[2] and the “mini-Miranda” language of the Fair Debt Collection Practices Act (“FDCPA”).[3] (Doc. # 1-2 at 1).

         II. Analysis

         District courts possess “original and exclusive jurisdiction of all cases under title 11” of the Bankruptcy Code. 28 U.S.C. § 1334(a). District courts are permitted, however, to refer all cases to the bankruptcy court to the extent that they arise under, arise in, or relate to a case under Title 11. Id. at § 157(a). This court has entered such a general order of reference. See United States v. ILCO, Inc., 48 B.R. 1016, 1020 (N.D. Ala. 1985). The court's reference which applies to this Chapter 13 case, however, is not absolute. Title 28 U.S.C. § 157(d) provides for the withdrawal of the reference under limited circumstances, either as a mandatory or permissive matter. The court addresses each theory in turn, and for the reasons outlined below, the court agrees that withdrawal of the reference here is appropriate.

         A. Mandatory Withdrawal

         Defendant argues that the court is required to withdraw the reference in this proceeding because resolution of the issues raised in Plaintiff's Complaint expressly involves substantial and material consideration of federal non-Bankruptcy Code law. The court agrees.

         Mandatory withdrawal by a district court is required “if the court determines that resolution of the proceeding requires consideration of both Title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.” 28 U.S.C. § 157(d). Some courts, citing the statute's plain language, have held that withdrawal is required if any consideration of a non-Title 11 federal law is necessary to resolve a dispute. See, e.g., In re Kiefer, 276 B.R. 196, 199 (E.D. Mich. 2002). However, district courts within the Eleventh Circuit have found that “withdrawal should be granted only if the current proceeding could not be resolved without substantial and material consideration of the non-Code federal law.” See, e.g., Birgans v. Magnolia Auto Sales, 2012 WL 6000339, *2 (N.D. Ala. Nov. 30, 2012) (citation omitted); In re Price, 2007 WL 2332536, at *2 (M.D. Ala. Aug. 13, 2007); Abrahams v. Phil-Con Servs., LLC, 2010 WL 4875581, *2 (S.D. Ala. Nov. 23, 2010). Under this approach, in order for withdrawal to be warranted, “the issues in question [must] require more than the mere application of well-settled or hornbook' non-bankruptcy law; significant interpretation of the non-Code statute must be required.” Abrahams, 2010 WL 4875581, at *2 (citation omitted). Consistent with other courts in this circuit, the court will follow this latter approach in addressing each of Defendant's arguments.

         The newly amended CFPB regulations and the FDCPA are undisputedly non-Code federal laws affecting interstate commerce. 15 U.S.C. § 1692a(6). Therefore, whether withdrawal is required turns on whether substantial and material consideration of these laws is necessary to resolve the dispute.

         In her Complaint, Plaintiff expressly seeks relief from the court that would determine that the Mortgage Statement Defendant sent to Plaintiff was “not required, mandated, nor authorized under the newly enacted [CFPB] regulations.”[4] (Doc. # 1-2 at 18) (emphasis in original). Despite her contention that “the resolution of MidFirst's [defense] is not as complicated as it may appear” (Doc. # 6 at 5), Plaintiff “candidly acknowledges that the CFPB regulations have only recently been enacted, and certainly the issue raised by MidFirst is one of first impression. Moreover, Plaintiff further acknowledges that the resolution of MidFirst's [defense] certainly requires the material consideration of non-bankruptcy law.” (Id. at 4-5). In light of these admissions, “the court has no trouble concluding that this issue extends beyond the application of well-settled, non-bankruptcy law.” McGregor v. Asset Acceptance, LLC, 2015 WL 3751986, at *1 (N.D. Ala. July 16, 2015); see also Holmes v. Grubman, 315 F.Supp.2d 1376, 1379 (M.D. Ga. 2004) (noting that withdrawal is mandatory especially where there are “matters of first impression or where there is a conflict between bankruptcy and other laws”)).[5]

         The court is persuaded that in order to resolve Plaintiff's claim, a Bankruptcy Court would have to “(1) review and analyze a brand new non-bankruptcy mortgage servicing regulation to determine its ambit and operation, (2) determine whether MidFirst's Mortgage Statement complies with the new regulation, (3) determine whether compliance with the new regulation provides a defense to MidFirst as to the automatic stay, and (4) if such a defense does not exist, [decide if] compliance with the regulation is a factor in determining whether the automatic stay was violated.” (Doc. # 1-2 at 12). Furthermore, because Plaintiff asserts that her injury derives at least in part from the “mini-Miranda language” in the Mortgage Statement, a Bankruptcy Court would also have to “interpret the FDCPA and apply it to the unique factual circumstances presented by the CFPB-required statement” in order to determine whether the automatic stay was violated. (Id. at 13).

         Although it would be improper for the court to weigh in on the merits of the dispute at this juncture of the proceedings, the court recognizes that the undeniable influence of the CFPB and the FDCPA over Plaintiff's claims means that resolution will necessarily involve a substantial and material consideration of non-Code federal laws. Consequently, the court must withdraw the reference.

         B. ...

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