IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
Baltimore Division

In re: MARIA SANDOR,

Debtor.

BR No. 97𤖫495 ESD


MARIA SANDOR,
REGINALD COLEMAN

and

JOHN D. RIVERA,

On behalf of themselves and
all others similarly situated,

Plaintiffs,

vs.

NORWEST MORTGAGE, INC.

and

ELLEN COSBY

On behalf of herself and
all others similarly situated,

Defendants.

 

 

 

 

 

 

Adversary No. 985806 ESD

FIRST AMENDED COMPLAINT
AMENDING OBJECTION TO
PROOF OF CLAIM CLASS ACTION

Now come Maria Sandor, Reginald Coleman and John D. Rivera, Plaintiffs, for themselves and all other members of the class hereinafter described, by counsel Brett Weiss, P.C., Brett Weiss, Chung & Press, P.C., and Daniel Press, and sue Defendants Norwest Mortgage, Inc. and Ellen Cosby and all those similarly situated, as more fully stated herein, and state:

JURISDICTION

1. The Court has jurisdiction over this proceeding under 28 U.S.C. 1334. This is a core proceeding pursuant to 28 U.S.C. 157(b)(2).

PARTIES

2. The named Plaintiff, Maria Sandor, is an adult resident of the State of Maryland, and is the Debtor in the above-captioned bankruptcy case.

3. The named Plaintiff, Reginald Coleman, is an adult resident of the State of Maryland, and is a Debtor in a Chapter 13 bankruptcy case currently pending in the Greenbelt Division of this Court, BR No. 97𢴓944 PM.

4. The named Plaintiff, John D. Rivera, is an adult resident of the State of Maryland, and is a Debtor in a Chapter 13 bankruptcy case currently pending in the Baltimore Division of this Court, BR No. 98𤃃150 JS.

5. The persons similarly situated to Plaintiffs are all other members of the class hereinafter described.

6. Norwest Mortgage, Inc. ("Norwest"), is a corporation organized and existing under the laws of the state of California, having its principal office and place of business in the City of Des Moines in the State of Iowa. Norwest is registered as a foreign corporation in the State of Maryland, and, on information and belief, is a lender and servicer of loans throughout the United States.

7. The named Defendant, Ellen Cosby ("Trustee"), is the Chapter 13 Trustee in Maria Sandor and John D. Rivera's Chapter 13 bankruptcy cases, as well as the Chapter 13 Trustee for all Chapter 13 cases in the Baltimore Division of the United States Bankruptcy Court for the District of Maryland. Said trustee is being sued on her own behalf, as well as all those similarly situated, namely all Chapter 13 Trustees in the bankruptcy cases for the members of the Debtor Class (as herein defined). Said Trustees are being named herein as necessary parties, without whom complete relief cannot be granted.

CLASS ACTION ALLEGATIONS

8. This action is brought by the named Plaintiffs as a class action, on their own behalf and on behalf of all others similarly situated, under the provisions of Bankruptcy Rule 7023 and Federal Rules of Civil Procedure Rule 23(a) and (b)(1), (2) and (3), for compensatory and punitive damages, declaratory and injunctive relief, equitable subordination, and relief incident and subordinate thereto, including costs and attorney's fees.

9. The class represented by Plaintiffs in this action, and of which Plaintiffs are themselves members, consists of:

All persons who filed for bankruptcy under the provisions of Chapter 13 of the Bankruptcy Code, whether or not such case is now pending, in which Norwest filed a Proof of Claim containing language the same as or substantially similar to the following:

if the pre-petition arrearages are to be paid through a Chapter 13 plan, that it further demands interest on the pre-petition arrearages at the higher of the contract rate or 12% per annum;

excluding those debtors whose Deed of Trust or Mortgage Note(s) were executed after the effective date of the Bankruptcy Reform Act of 1994 and expressly provide for interest on pre-petition arrearages at a contract rate of at least the rate claimed by Norwest in the applicable Proof of Claim; and excluding any debtor whose objection to the Interest Rate Language has been overruled.

This class shall be referred to herein as the "Debtor Class."

10. The exact size of the Debtor Class is not known, but it is estimated that there are not fewer than 5,000 members. The class is so numerous and so spread over the country that the joinder of individual members herein is impracticable. It is estimated that in the Baltimore Division of this Court alone there are in excess of 130 members of the Debtor Class.

11. The class represented by Defendant Ellen Cosby in this action, and of which Defendant Ellen Cosby is herself a member, consists of all Chapter 13 Trustees who have administered or are administering cases filed by the Debtor Class. This class shall be referred to herein as the "Trustee Class."

12. The exact size of the Trustee Class is not known, but it is estimated that there are not fewer than 150 members. The class is so numerous and so spread over the country that joinder of individual members herein is impracticable.

13. There are common questions of law and fact in this case that relate to and affect the rights of each member of the Debtor Class, and the relief sought is common to the class, namely a cessation of Norwest's actions, a declaration that such actions are barred by the Bankruptcy Code and Rules (collectively referred to hereafter as the "Code"), an injunction prohibiting it from taking such actions in the future, the refund of amounts paid pursuant to impermissible Proofs of Claim, compensatory and punitive damages, equitable subordination, and relief incident and subordinate thereto, including attorney's fees and costs.

14. Plaintiffs are representative of the Debtor Class and have claims typical of the class. The claims of all members of the class, including Plaintiffs, depend on a showing that the acts and omissions of Defendants give rise to the right of Plaintiffs to the relief sought herein. There is no conflict between the named Plaintiffs and other members of the class with respect to this action, or with respect to the claims for relief herein set forth.

15. The Plaintiffs are the representative parties for the Debtor Class, and are able to, and will, fairly and adequately protect the interests of the class.

16. This action is properly maintained as a class action in that the prosecution of separate actions by individual members of the class would create a risk of varying adjudications with respect to individual members of the class that would establish incompatible standards of conduct for the Defendants, who will presumably oppose the class.

17. This action is properly maintained as a class action inasmuch as the Defendants, who will presumably oppose the class, have acted or refused to act, as hereinafter more specifically alleged, on grounds that are generally applicable to the class, and have by reason of such conduct, made appropriate final injunctive relief and corresponding declaratory relief with respect to the entire class, as sought by this action.

18. This action is properly maintained as a class action inasmuch as the questions of law and fact common to the members of the classes predominate over any questions affecting only individual members, and a class action is superior to other available methods for the fair and efficient adjudication of the controversy. In support of the foregoing allegation, Plaintiffs allege that the members of the Debtor Class have had Proofs of Claim filed in their bankruptcy cases in violation of the Code and the terms of the applicable Deed of Trust or Mortgage Notes (referred to collectively hereafter as the "Notes"), and that Norwest collected or sought to collect funds from such members that it was not entitled to, or caused adverse effect upon such members' bankruptcy cases through increasing the payments or term necessary to obtain approval of the members' Chapter 13 Plans. Plaintiffs allege that all members of the Trustee Class have administered Chapter 13 cases filed by members of the Debtor Class and have made payments to and/or collected funds for Norwest in excess of those to which it was entitled, and/or have objected to confirmation of Debtors' plans for failure to comply with the improper and illegal actions by Norwest, as more fully stated herein.

STATEMENT OF FACTS

19. Norwest is the largest originator and servicer of retail mortgages in the United States. According to information contained on its Internet site (www.norwest.com/mortgages-general/aboutus/doc/about.htm):

Norwest Mortgage, Inc. is the nation's leading retail mortgage lender with the ability to originate loans in all 50 states. At the end of second quarter 1997, Norwest Mortgage's loan originations totaled $12.4 billion.

As a result of these transactions, nearly 107,000 families realized the American dream of home ownership. And at year-end 1996, Norwest Mortgage's loan originations totaled a record $51.5 billion - this was the first time a mortgage banking company exceeded $50 billion in originations.

Currently, the company provides funding for approximately one out of every 15 homes financed in the United States and services more than two million customers nationwide. For the second consecutive year, Norwest Mortgage was recognized as the nation's leading lender to minority first-time homebuyers by the Department of Housing and Urban Development (HUD).

Norwest Mortgage is a subsidiary of Norwest Corporation, an $80.2 billion financial services company that provides, through it's subsidiaries and affiliates, banking, insurance, investments, mortgage and consumer finance services through 3,437 stores in all 50 states, Canada, the Caribbean, Central America and elsewhere internationally.

20. Due to its extensive national level of lending, Norwest is also named frequently as a secured creditor in Chapter 13 cases across the country. As a result, it files thousands of Proofs of Claim annually in these cases.

21. Norwest has filed in excess of 130 Proofs of Claim in Chapter 13 cases in the District of Maryland, Baltimore Division, containing the Interest Rate Language, which states: "[I]f the pre-petition arrearages [in such case] are to be paid through a Chapter 13 plan, that it further demands interest on the pre-petition arrearages at the higher of the contract rate or 12% per annum" (emphasis added) (hereinafter referred to as the "Interest Rate Language," which term shall include substantially similar language). Such Proofs of Claim were filed in each of the named Plaintiffs' cases.

22. Plaintiffs believe that Norwest has filed similar Proofs of Claim containing the Interest Rate Language in other Chapter 13 bankruptcy cases across the country.

23. The Interest Rate Language violates the Code in that it forces Debtors, including the named Plaintiffs, to provide in their Chapter 13 Plans for the payment of sums not allowed the Notes or applicable law, and seeks an interest rate in excess of the rate the parties had previously agreed to in the Notes, or to which Norwest is entitled.

24. Norwest, in including the Interest Rate Language in its Proofs of Claim, is in violation of Bankruptcy Rule 9011, in that the claims and other legal contentions therein are not well-grounded in fact or warranted by existing law or by a non-frivolous argument for the extension, modification or reversal of existing law or the establishment of new law.

COUNT I
(Objection to Norwest's Proofs of Claim)

25. Plaintiffs adopt and incorporate Paragraphs 1 through 24 as Paragraph 25.

26. The Proofs of Claim filed by Norwest containing the Interest Rate Language are not allowable under 11 U.S.C. 502(b)(1) in that they are unenforceable against the members of the Debtor Class under the loan agreements and applicable law for reasons other than being contingent or unmatured.

27. Norwest has continued to include in its Proofs of Claim the illegal and impermissible Interest Rate Language, and has continued to assert its entitlement to, collected from the Debtor Class members, and been paid by the Trustee Class members, sums in excess of those allowed by the Code and by the Notes.

28. In the absence of objection, Debtor Class members will be forced to include in and account for the interest rate claimed in the Interest Rate Language in their Chapter 13 Plans.

Wherefore, the Debtor Class prays that this Court sustain their objection to the Interest Rate Language in Norwest's Proofs of Claim.

COUNT II
(Declaratory Judgment)

29. Plaintiffs adopt and incorporate Paragraphs 1 through 28 as Paragraph 29.

30. Due to the uncertainty created by Norwest's actions, the members of the Debtor Class have sustained actual prejudice, and continue to sustain actual prejudice, and seek this Court's declaratory judgment regarding the legality and propriety of Norwest's inclusion of the Interest Rate Language in its Proofs of Claim.

Wherefore, Plaintiffs demand judgment from this Court:

A. Declaring that Norwest's inclusion of the Interest Rate Language in its Proofs of Claim violates the Code; and

B. Ordering such other and further relief as to the Court may seem appropriate.

COUNT III
(Preliminary and Permanent Injunction, Compensatory Damages)

31. Plaintiffs adopt and incorporate paragraphs 1 through 30 as paragraph 31.

32. By reason of Norwest's continuing inclusion of the Interest Rate Language in its Proofs of Claim, Plaintiffs in this Court, and, upon information and belief, members of the Debtor Class across the country, are being forced to provide in their Chapter 13 Plans for a higher rate of interest than that allowed for by the Code, the Notes or applicable law.

33. To accommodate the higher interest payments to Norwest, Plaintiffs and members of the Debtor Class are forced to increase the funding of their Chapter 13 Plans by increasing monthly payments and/or lengthening the term of Plans. Members of the Debtor Class may have had confirmation of their Chapter 13 Plans denied due to inadequate funding, or may have had their cases dismissed or converted due to the inability to adequately fund a Chapter 13 Plan with the interest claimed in the Interest Rate Language. Members of the Debtor Class may have lost their homes and/or property due to the inability to confirm a Chapter 13 Plan as a result of the higher interest claimed in the Interest Rate Language.

34. Members of the Trustee Class have made payments to and/or collected funds for Norwest in excess of those to which it was entitled, at the expense of other creditors and the Debtor Class, and/or have objected to confirmation of Debtors' plans for failure to comply with the improper and illegal actions by Norwest.

35. At a minimum, Plaintiffs and members of the Debtor Class incurred additional time, costs and expenses through objection to Norwest's Proof of Claim and the Interest Rate Language contained therein.

36. These adverse results caused by the Interest Rate Language continue to occur. Norwest continues to file Proofs of Claim with the Interest Rate Language. Plaintiffs and the members of the Debtor Class suffer and continue to suffer immediate, substantial and irreparable injury and harm as a result.

37. The language of the Code and the cases interpreting it make it clear that a mortgage lender whose post-Bankruptcy Reform Act of 1994 (hereinafter referred to as "BRA") mortgage pre-petition arrearage claim is being paid through a Chapter 13 Plan is not entitled to claim any interest at a rate in excess of that provided for by the Notes. It is also clear that pre-BRA mortgage pre-petition arrearage claims being paid through a Chapter 13 Plan are not entitled to claim interest at a rate so substantially in excess of that which is reasonable. The Code and the cases interpreting it demonstrate a substantial likelihood that Plaintiffs and the Debtor Class will succeed on the merits of this action.

38. The actions of Norwest in including the Interest Rate Language have caused and continue to cause Plaintiffs and the members of the Debtor Class severe and permanent damage and loss by forcing them to pay additional interest through their Chapter 13 Plans, by causing them to incur attorney's fees and costs to object to Proofs of Claim filed by Norwest, by resulting in the denial of their Chapter 13 Plans, by causing the dismissal or conversion of their bankruptcy cases, and/or by causing them the loss of their homes and/or property.

Wherefore, Plaintiffs pray that this Court:

A. Issue a preliminary and permanent injunction prohibiting Norwest from including the Interest Rate Language in any Proofs of Claim filed after the date of the injunction;

B. Issue a preliminary and permanent injunction prohibiting Norwest from collecting any sums in excess of the Notes rate of interest;

C. Issue a preliminary and permanent injunction requiring Norwest to file amended Proofs of Claim striking the Interest Rate Language in all cases in which it had previously filed Proofs of Claim containing the Interest Rate Language;

D. Issue a preliminary and permanent injunction requiring the members of the Trustee Class to abstain from paying Norwest any sums pursuant to the Interest Rate Language or objecting to Debtors' Chapter 13 Plans on the basis of failing to provide for the Interest Rate Language;

E. Order the refund of all sums paid to Norwest pursuant to the Interest Rate Language;

F. Award Plaintiffs and the Members of the Debtor Class compensatory damages of Five Hundred Million Dollars ($500,000,000.00);

G. Award Plaintiffs their costs, interest and attorney's fees; and

H. Order such other and further relief as to the Court may seem appropriate.

COUNT IV
(Punitive Damages)

39. Plaintiffs adopt and incorporate paragraphs 1 through 38 as paragraph 39.

40. As the country's largest retail mortgage lender, Norwest is exceptionally sophisticated. It spends millions on legal representation annually, and currently has tens of thousands of cases nationwide in which it has filed proofs of claim and is receiving Plan payments.

41. It is inconceivable that such a business as Norwest could include the Interest Rate Language in its Proofs of Claim through other than an intentional, calculated act designed to extract the maximum amount of money from those least able to contest its will.

42. Including the Interest Rate Language in its Proofs of Claim was taken with the explicit knowledge that its inclusion is not supported by the Code or the cases interpreting it and that there is no justification for the collection of any interest in excess of the rate called for in the Notes or at the rate called for in the Interest Rate Language.

43. These acts, taken in intentional disregard of the letter and the spirit of the Code, abusing the Proof of Claim system and causing untold hardship (including the loss of their homes and/or property) to the members of the class, were: (i) taken intentionally, maliciously, and with the intent to cause members of the Debtor Class injury and harm; (ii) taken with the anticipation and expectation that members of the Debtor Class would have confirmation of their Chapter 13 Plans denied; (iii) taken with the anticipation and expectation that members of the Debtor Class would lose their homes and/or property as a result; and/or (iv) were reckless, extreme and outrageous so as to indicate a disregard for the rights of the members of the Debtor Class, and/or a conscious indifference to their consequences.

Wherefore, Plaintiffs pray for:

A. Punitive damages of One Billion Dollars ($1,000,000,000.00), plus costs and attorney's fees;

B. An adjudication and declaration of the rights of the class members to the relief requested in this Complaint; and

C. Such other and further relief as to the Court may seem appropriate.

COUNT V
(Equitable Subordination)

44. Plaintiffs adopt and incorporate paragraphs 1 through 43 as paragraph 44.

45. By filing Proofs of Claim with the Interest Rate Language, Norwest has engaged in inequitable conduct, such conduct being overreaching and tantamount to fraud.

46. Norwest's misconduct has resulted in substantial prejudice and injury to the Debtor Class and to the creditors thereof, and conferred an unfair advantage on Norwest vis-a-vis other creditors.

47. Equitable subordination is consistent with the letter and spirit of the Code under the circumstances herein presented, and is, in fact, compelled thereby.

Wherefore, Plaintiffs pray for:

A. An Order pursuant to 11 U.S.C. 510(c)(1) equitably subordinating Norwest's claims to all other claims in the cases of the Debtor Class;

B. An Order pursuant to 11 U.S.C. 510(c)(2) that any liens securing such claims be transferred to the Estates of the Debtor Class;

C. An Order that Norwest refund all post-petition payments based on any claims so subordinated or liens so transferred; and

D. This Court to order such other and further relief as to it may seem appropriate.

Respectfully Submitted,

BRETT WEISS, P.C.

 

By: __________________________
BRETT WEISS, No. 2980
18200 Littlebrooke Drive
Olney, Maryland 20832
(301) 5708976
lawyer@erols.com

CHUNG & PRESS, P.C.

 

By: __________________________
DANIEL PRESS, No. 07300
6723 Whittier Avenue, Suite 302
McLean, Virginia 22101
(703) 7343800
dpress@chung-press.com