Court Opinion

ID: 215657
Source: CourtListenerOpinion
Date Created: 2011-04-28 20:07:33+00
Date Added: 2024-06-11T17:28:25.144071
License: Public Domain

NOT PRECEDENTIAL

                 UNITED STATES COURT OF APPEALS
                      FOR THE THIRD CIRCUIT
                           ____________

                               No. 10-3431
                              ____________

DENNIS A. RHODES; GERARD A. BENDER; EDWARD H. WOLFERD, JR.,
         individually and on behalf of all others similarly situated,
                                                                Appellants

                                    v.

ROSEMARY DIAMOND; FRANCIS S. HALLINAN; DANIEL G. SCHMIEG;
 LAWRENCE T. PHELAN; JUDITH T. ROMANO; FRANCIS FEDERMAN;
  THOMAS M. FEDERMAN; PHELAN HALLINAN & SCHMIEG, LLP;
                 FEDERMAN & PHELAN, LLP
                       ____________

              On Appeal from the United States District Court
                  for the Eastern District of Pennsylvania
                           (D.C. No. 09-cv-01302)
               District Judge: Honorable C. Darnell Jones, II
                               ____________

                Submitted Under Third Circuit LAR 34.1(a)
                             April 26, 2011

      Before: BARRY, HARDIMAN and NYGAARD, Circuit Judges.

                          (Filed: April 28, 2011)

                              ____________

                       OPINION OF THE COURT
                            ____________
HARDIMAN, Circuit Judge.

       Dennis A. Rhodes, Gerald A. Bender, and Edward H. Wolferd, Jr., individually

and as named representatives of a putative class, appeal from the District Court‟s order

dismissing their complaint and denying their motion for leave to amend. We will vacate

the order and remand for further proceedings.

                                              I

       Because we write for the parties, who are familiar with the facts and procedural

history, we summarize them only briefly.

       On March 25, 2009, Rhodes, Bender, and Wolferd (collectively, Appellants) filed

on behalf of themselves and all similarly situated individuals a complaint against the law

firm of Phelan Hallinan & Schmieg, LLP (formerly Federman & Phelan, LLP) and seven

PHS attorneys (collectively, PHS) seeking damages and injunctive relief for violations of:

(a) the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1962 et seq., (b)

equivalent Pennsylvania state statutes (i.e., the Fair Credit Extension Uniformity Act, 73

PA. CONS. STAT. ANN. § 2270.1 et seq., and the Unfair Trade Practices and Consumer

Protection Law, 73 PA. CONS. STAT. ANN. § 201-1 et seq.), and (c) Pennsylvania and New

Jersey common law governing tortious interference with contractual relations.

       The essence of the complaint was that PHS illegally increased the debts of

Appellants and others by filing in bankruptcy courts proofs of claim that included

artificially inflated mortgage foreclosure fees. Specifically, the complaint alleged that

                                              2
PHS factored into its proofs of claim deposits necessary to initiate sheriffs‟ sales, but

failed to amend the proofs of claim when the sheriffs‟ sales were cancelled and some

portion of the fees were refunded to the mortgagee.

       PHS moved to dismiss the complaint under Federal Rule of Civil Procedure

12(b)(6), arguing that any issues arising from proofs of claim must be litigated in the

bankruptcy court. Appellants opposed the motion and sought leave to amend their

complaint under Rule 15(a)(2). The proposed amended complaint added defendants

Wells Fargo & Company, Wells Fargo Bank, NA, Countrywide Financial Corporation,

Countrywide Home Loans Servicing, LP, Countrywide Home Loans, Inc., and Bank of

America (collectively, Lenders). It also included new bases for relief, including FDCPA

and state law claims arising from PHS‟s and Lenders‟ attempts to collect debts of

borrowers who had resolved their debts through loan modifications or distress sales

without ever filing for bankruptcy.

       The District Court dismissed the complaint with prejudice, finding that PHS‟s

“failure to promptly amend [proofs of claim] form[ed] the basis for all of [Appellants‟]

claims” and the Appellants “fail[ed] to provide any legal basis for . . . the existence of a

duty to amend a Proof of Claim.” Rhodes v. Diamond, Civil No. 09-1302, 2010 WL

2804821, at *2 (E.D. Pa. July 14, 2010). The Court also found that the Appellants‟

causes of action “cannot serve to convert this bankruptcy matter into one that would be

proper before this Court,” but rather “redress for [Appellants‟] allegations of „systematic‟

                                              3
violations by [PHS] for filing allegedly inflated Proofs of Claims lie solely within the

Bankruptcy Court.” Id. at *3, *4. Consistent with that legal conclusion, the Court denied

Appellants‟ motion for leave to amend, holding that “in light of the reasons for granting

Defendants‟ Motion to Dismiss, amendment would be futile.” Id. at *1 n.1.

                                              II

       Appellants argue that the District Court erred by dismissing their initial complaint

and denying their motion for leave to amend.1 “We review a district court‟s decision

granting a motion to dismiss under a plenary standard,” Fowler v. UPMC Shadyside, 578

F.3d 203, 206 (3d Cir. 2009) (citation omitted), and its “decision to deny [a] request to

amend for abuse of discretion,” Lake v. Arnold, 232 F.3d 360, 373 (3d Cir. 2000) (citation

omitted). A district court abuses its discretion when it fails to provide justification for

denying leave to amend. See Foman v. Davis, 371 U.S. 178, 182 (1962).

       Here, the District Court correctly found that Appellants‟ claims arising from PHS‟s

conduct in bankruptcy proceedings—i.e., its filing of, and subsequent failure to amend,

allegedly inflated proofs of claim—cannot give rise to FDCPA or state law causes of

action. See, e.g., In re Chaussee, 399 B.R. 225, 239 (B.A.P. 9th Cir. 2008) (“Attempting

to reconcile the debt validation procedure contemplated by FDCPA with the claims

objection process under the [Bankruptcy] Code results in the sort of confusion and

       1
        The District Court had jurisdiction under 28 U.S.C. § 1331. We have jurisdiction
to review the District Court‟s final order pursuant to 28 U.S.C. § 1291.

                                              4
conflicts that persuades us that Congress intended that FDCPA be precluded in the

context of bankruptcy cases.”); In re Pariseau, 395 B.R. 492, 495 (Bankr. M.D. Fla.

2008) (“[T]he vast majority of courts have held that the Bankruptcy Code preempts state

law claims allegedly arising from an abusive bankruptcy filing or other wrongful conduct

committed during the course of a bankruptcy case.” (citations omitted)). To the extent

Appellants‟ proposed amended complaint simply brings the same claims against

additional defendants, it would be futile for the reasons explained in the District Court‟s

memorandum accompanying its order dismissing the initial complaint.

       As Appellants correctly note, however, the proposed amended complaint is

broader than the initial complaint insofar as it alleges FDCPA and state law violations

involving homeowners who refinanced their loans or opted for distress sales, but did not

file for bankruptcy. The District Court did not address these alternative claims for relief,

probably because they were scattered throughout Appellants‟ “extensive dissertation

regarding the[] perceived victimization of mortgag[or]s throughout the economic

downturn of the past several years.” Rhodes, 2010 WL 2804821, at *2. In light of our

agreement with the District Court‟s holding regarding the futility of the claims made by

putative class members who filed for bankruptcy, on remand, the parties and the District

Court shall focus on claims asserted by non-bankrupt putative class members.

                                             III

                                              5
       For the reasons stated, we will vacate the order of the District Court and remand

for further proceedings consistent with this opinion.

                                             6