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Decided: July 1, 2015

The Fourth Circuit vacated the judgment awarded by the district court, reversed its order dismissing the plaintiff’s claims against the Substitute Trustee, and remanded for further proceedings.

This appeal stemmed from the district court’s grant of defendant’s motion to dismiss concluding that Houck failed to allege facts that plausibly supported her claim that the violation of the automatic stay was willful, a required element of a 11 U.S.C. § 362(k) claim. Houck was deeded land in North Carolina, and Houck and her fiancé, Ricky Penley placed a mobile home on the property after receiving financing from a predecessor of LifeStore Bank. After refinancing in 2007, Houck lost her job and struggled making her loan payments. Later, Houck and Penley got married and asked LifeStore for a loan modification. LifeStore referred Houck to Grid Financial Services, who denied her request because she was unemployed. Soon, Houck defaulted on the loan.

In July of 2011, the Hutchens Law Firm served Penley with a notice of foreclosure. Houck, acting pro se, filed a Chapter 13 bankruptcy petition to stop the foreclosure proceedings. The bankruptcy court dismissed Houck’s petition because she failed to file certain required schedules and statements, and the Substitute Trustee, by its counsel, the Hutchens Law Firm, reactivated the foreclosure proceedings. Later, Houck filed a second Chapter 13 bankruptcy petition, and Penley called the Hutchens Law Firm to notify it of the filing. Also, Penley notified LifeStore who told Penley that it intended to wait for notice from the bankruptcy court before taking any action. A few days later, the Substitute Trustee, represented by Hutchens, sold Houck’s home at a foreclosure sale. The next day, the bankruptcy court dismissed Houck’s petition, and she did not object because her home had already been sold. Houck commenced this action against the Substitute Trustee, LifeStore, and Grid Financial asserting a claim under 11 U.S.C. § 362(k) for violation of the automatic stay.

The Fourth Circuit determined that they had jurisdiction to hear Houck’s appeal under the doctrine of cumulative finality. Cumulative finality exists in circumstances where all claims are dismissed, albeit at different times, before the appeal taken from the first dismissal order is considered. See Equip. Fin. Grp., Inc. v. Traverse Computer Brokers, 973 F.2d 345, 347 (4th Cir. 1992). Because the district court’s February 20, 2014 order disposed the entire case, the order was a final judgment and the doctrine of cumulative finality must be considered. Here, Houck’s claims against the Substitute Trustee were dismissed in its October 1, 2013 order, leaving open the claims against LifeStore and Grid Financial. Because the district court could have certified such an order as a final judgment under Rule 54(b) and because the court later entered final judgment against the other defendants in its February 20, 2014 order before Houck’s interlocutory appeal was considered by the Fourth Circuit, the Fourth Circuit held that the doctrine of cumulative finality applied, and their jurisdiction is appropriate.

Additionally, the district court dismissed Houck’s federal claim on the ground that it lacked subject matter jurisdiction. The district court concluded that a claim under § 362(k) could only be brought in a bankruptcy court, not in a district court. However, the cases relied upon by the district court, analyzed the pre-1984 version of § 362, which lacked subsection (k)’s private cause of action. In 1984, with the enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984, Congress created a private cause of action for the willful violation of a stay. See 11 U.S.C. § 362(k). By creating this cause of action, Congress did not specify which courts possess jurisdiction over a § 362(k) claim. Therefore, the Fourth Circuit determined that in no circumstance did the Act, in conferring such adjudicatory authority give exclusive jurisdiction to a bankruptcy court, and subject matter jurisdiction was appropriate.   

Houck argues that the district court erred in dismissing her 362(k) claim against the Substitute Trustee, claiming that the court applied the incorrect legal standard and that her complaint was sufficient under the correct standard. The district court focused on the elements of a § 362(k) claim and noted that Houck failed to provide notice to the Substitute Trustee, precluding any allegation of willfulness. The Fourth Circuit determined that while the district court correctly accepted the complaint’s factual allegations as true, the district court incorrectly undertook to determine whether a lawful alternative explanation appeared more likely. In order to survive a motion to dismiss, a plaintiff need not demonstrate her right to relief is probable or that alternative explanations are less likely; rather, she must merely advance her claim “across the line from conceivable to plausible.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The inquiry of the district court as to whether an alternative explanation was more probable violated the plausibility standard. Further, the Substitute Trustee argued that Houck failed to provide it with notice of her bankruptcy petition in writing and could not have willfully violated the automatic stay. However, the Fourth Circuit determined that the requirements of § 362(k) did not include any provision that a particular form of notice be given. Ultimately, the Fourth Circuit concluded that Houck stated a plausible claim under § 362(k).

Finally, the Substitute Trustee, as an alternative ground for dismissal of Houck’s claims, contended that Houck was not an eligible debtor when she filed her second bankruptcy petition within 180 days of her first petition and did not trigger the stay automatically under § 362(a). The Fourth Circuit determined that the issue of whether Houck was an eligible debtor when she filed her second petition is a question of fact that will require evidentiary support.

Full Opinion

Austin T. Reed