Saturday, February 25, 2012

When An Argument Doesn't Turn Out As Well As Expected

Sometimes a legal argument which seems clever in the abstract can look downright silly when placed in context. That was the case with several arguments rejected by the court in Smith v. Citimortgage, Inc., et al, Adv. No. 11-5136 (Bankr. W.D. Tex. 2/21/12), which can be found here.

Argument #1:

39. None of the Plaintiffs’ first three (3) claims, which assert that the Defendants are in “breach” or “violation” of the Court’s orders entered in the Plaintiffs’ bankruptcy, come close to meeting the facial plausibility standard. The Plaintiffs have already settled and released these claims through the Court-approved Settlement. Specifically, through the Settlement, they have “release[d]” “Citimortgage . . . and [its] agents and employees . . . from all claims of any kind . . . that [the Plaintiffs’] may have with respect to the . . . [Plaintiffs’] Bankruptcy . . . or any other matters[.]”

40. The Plaintiffs’ allegations that the Defendants are in violation of the Court’s orders are claims with respect to the Plaintiffs’ bankruptcy. Even if the Plaintiffs’ factual allegations are taken as true for the moment, through the Court-approved Settlement, the Plaintiffs’ (sic) traded their rights to enforce the related orders for a contract right to enforce the Settlement pursuant to Texas-state law. They have no right to rescission of the Settlement and cannot now assert claims against any of the Defendants that they affirmatively gave up through the Settlement.

Renewed Motion to Dismiss, pp. 14-15, Dkt #17.

At first blush, the argument that the Debtors released certain claims and are now attempting to pursue them appears to be quite plausible. However, the Bankruptcy Court’s opinion adds the relevant context.

The court declines to read this provision as precluding claims for breach of the settlement agreement itself and violation of the court order approving it. The court also declines to read this provision as precluding claims for violation of the discharge injunction that arise after execution of the settlement agreement. The provision above is best understood as applying to claims that the Smiths had at the time of execution of the settlement agreement.

Opinion, p. 9.

While the argument appeared plausible on its face, it quickly turned outrageous when it became manifestly clear that the plaintiffs were suing for violation of the settlement agreement and the order approving the settlement agreement, each of which necessarily occurred after execution of the underlying agreement. While the power to compromise claims is broad, an agreement which negates its own enforcement is no agreement at all. To put it another way, a release, no matter how broad, cannot release the right to enforce the agreement in which it is contained. Also, I am not aware of any legal principal which would allow a party to release wrongs yet to occur. What is really insidious about the argument in this case is that it appears that Citimortgage was arguing that because the discharge occurred in the bankruptcy case, that the Debtors released their right to ever enforce the discharge against Citimortgage. That is an audacious claim.

Argument #2:

28. The Fifth Circuit has long recognized that in order for a bankruptcy court to have jurisdiction over a matter, “the outcome of that proceeding [must] conceivably have an[] effect on the estate being administered in bankruptcy. (citation omitted). Once administration of a case concludes and a Court closes the case, no bankruptcy case is “being administered”—the bankruptcy court’s jurisdiction over all matters therefore ends at closure of the case. (citations omitted).

29. The Court’s closure of the Plaintiffs’ bankruptcy on September 1, 2011 ended its jurisdiction over any and all related matters. Even if the Adversary were “related to” the Plaintiffs’ bankruptcy for the purposes of 28 U.S.C. Section 157 when filed (which the Defendants deny), the Court’s jurisdiction over the Adversary would have terminated on September 1.

Renewed Motion to Dismiss, p. 11.

Close, but no cigar as noted by the Bankruptcy Court:

None of the cases relied on by Citimortgage involve a debtor’s post-discharge attempt to hold a defendant in contempt for violating court orders. For this reason, Citimortgage’s argument can be easily dispensed with. Bankruptcy courts always retain jurisdiction to interpret and enforce their own orders. (lengthy list of citations omitted). (emphasis added).

Opinion, p. 7.

Never tell a judge that he lacks authority to enforce his own order. By arguing that the court lacked authority to enforce its own orders, Citimortgage struck at the court’s authority. Orders issued by a court which cannot enforce them are not worth the paper they are written on (or in the case of electronically stored data, the PDFs into which they are converted).

What of Citimortgage’s other arguments? They were on the money. Ten out of eleven statutes relied upon by the Plaintiffs for jurisdiction were either not jurisdictional at all or were inapplicable. The court found that it lacked jurisdiction over the Plaintiffs’ Fair Debt Collection Practices Act claim and its state law claims. The court dismissed the claims brought against two employees of Citimortgage. It could be said that the Plaintiffs’ claims contained several grains of wheat among an excess of chaff.

Had the defendants excluded just two arguments from their motion, they would have done a valuable service in helping the court separate the wheat from the chaff. However, by overreaching with grimace-inducing* arguments, they attacked the very integrity of the court from which they sought relief. Better to accept a strong half-victory than to generate an opinion which is equal parts rebuke to both sides.

*--Readers, can you come up with a better term? Originally, I was going to use OMG-inducing, but when I looked it up in the Urban Dictionary, it was defined as a term overused by teenage girls in chat rooms who are incapable of spelling out entire words. I tried forehead-slap, as in Homer Simpson saying "Doh!" but that didn't quite work either. I went with grimace-inducing, even though it is a bit staid, because I could not come up with something more powerful.

1 comment:

Anonymous said...

Oh, I see. I read too fast and thought we were still on the preference claim. Never mind (Emily Litella voice).