MEMORANDUM AND ORDER
AUDREY FLEISSIG, Magistrate Judge
This matter is before the Court on Plaintiff's third motion to file an amended complaint. Defendants oppose the motion on the basis that the proposed amendments are frivolous. The Court agrees with Defendants, and the Court will deny the motion.
Standard
Federal Rule of Civil Procedure 15(a) mandates that a court freely allow amendments to a complaint "when justice so requires."
Pursuant to 28 U.S.C. § 1915(e)(2)(B), the Court must review Plaintiff's proposed amended complaint to determine whether it is frivolous, malicious, fails to state a claim upon which relief can be granted, or seeks monetary relief from a defendant who is immune from such relief. An action is frivolous if it "lacks an arguable basis in either law or fact." Neitzke v. Williams, 490 U.S. 319, 328 (1989); Denton v. Hernandez, 504 U.S. 25, 31 (1992). An action is malicious if it is undertaken for the purpose of harassing the named defendants and not for the purpose of vindicating a cognizable right. Spencer v. Rhodes, 656 F. Supp. 458, 461-63 (E.D.N.C. 1987), aff'd 826 F.2d 1059 (4th Cir. 1987). A complaint fails to state a claim if it does not plead "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). If the amended complaint, or any part of it, is dismissible under 28 U.S.C. § 1915(e), the Court may deny the motion to amend. E.g., Coleman v. Ramada Hotel Operating Co., 933 F.2d 470, 473 (7th Cir. 1991) ("Although the federal rules generally favor a liberal amendment policy, justice does not demand that [a party] be given leave to append frivolous or repetitive allegations to [his or] her complaint at any stage in the proceedings.").
Background
Plaintiff originally brought suit against Defendants Higginbotham, Law, Flanagan, and Wiese. On May 26, 2010, Plaintiff filed a motion to amend his complaint, which was denied without prejudice because he did not submit a proposed amended complaint. On June 15, 2010, Plaintiff filed his second motion to amend. In his proposed amended complaint, Plaintiff attempted to add eight individuals and St. Louis County. Plaintiff further attempted to add several new claims. Subsequently, the Court reviewed the amended complaint under 28 U.S.C. § 1915(e) and determined that it stated viable claims against Defendants Higginbotham, Wiese, Whitson, and Law but that it was frivolous as to the other parties. The Court allowed the amendment, but the Court dismissed the frivolous portions of the amended complaint.
The Amended Complaint
Plaintiff's proposed amended complaint is substantially the same as the one he filed in June. Named as Defendants are St. Louis County, Jerry Lee (Chief of Police, St. Louis County Police Department), Jim Buckles (Sheriff, St. Louis County), Craig Higginbotham (Police Officer, St. Louis County Police Department), Douglas Wiese (same), Mark Whitson (same), Jason Law (same), Brian Flanagan (same), Michael Bradly (same), Thomas Noonan (same), Eric Wally (same), James Stoner (same), Allen Williams (same), and Timothy Cunningham (same).
Plaintiff alleges that on May 25, 2007, he was standing on the front porch of his mother's apartment talking to his neighbors. Plaintiff says that Defendant Higginbotham approached him there and ordered him to go inside the apartment but that he refused to do so. Plaintiff claims that Higginbotham then ordered him to produce his state identification and that he again refused to do as Higginbotham ordered. Plaintiff alleges that Higginbotham then took him into custody and took him to the St. Louis County Justice Center. Plaintiff claims he was never charged with any offense as a result of the incident.
Plaintiff alleges that on May 16, 2007, he made a formal complaint against Defendant Whitson, Defendant Wiese, officer Brandt, and officer Fumagalli. Plaintiff maintains that on May 31, 2007, Whitson and Wiese forced their way into his mother's apartment, grabbed him, and pulled him out of the apartment. Plaintiff says one of the Defendants stated that he was under arrest due to a warrant. Plaintiff claims he tried to run away but that either Whitson or Wiese shot him in the back with a Taser. Plaintiff alleges that while he was on the ground and complying with Defendants' commands they shot him with the Taser three or four more times.
Plaintiff states that on July 11, 2007, he heard a commotion outside of his mother's apartment and went out to investigate. Plaintiff says he saw his brother and a few neighbors being detained by several police officers. Plaintiff alleges that Defendant Law then approached Plaintiff and asked him what he was looking at. Plaintiff claims that he told Law that his brother was being detained. Plaintiff contends that Law then told Plaintiff to leave the scene or he would be in trouble. Plaintiff says he refused. Plaintiff alleges that Law then handcuffed him and transported him to the St. Louis County Justice Center. Plaintiff says that Defendants Flanagan, Bradly, Noonan, Wally, Stoner, Williams, and Cunningham were present and allowed Plaintiff to be arrested. Plaintiff claims that Law later falsely charged him with sale of a controlled substance.
Plaintiff alleges that Defendants Buckles and Lee, as officials of St. Louis County with policy making authority, "promulgated, institutionalized, or at least condoned a policy, custom or practice of their subordinates of unconstitutional investigatory stops."
Discussion
To state a claim against St. Louis County, Plaintiff must plead sufficient facts to show that a policy or custom of the County is responsible for the alleged constitutional violation. Monell v. Dep't of Social Services, 436 U.S. 658, 690-91 (1978). While Plaintiff alleges, in a conclusory fashion, that a policy or custom existed, he has failed to plead any facts showing an actual policy or custom that led to the alleged violations. As a result, the proposed amended complaint is frivolous as to St. Louis County. Plaintiff's allegations against Buckles and Lee are frivolous for this reason as well.
Furthermore, naming a government official in his or her official capacity is the equivalent of naming the government entity that employs the official. Will v. Michigan Dep't of State Police, 491 U.S. 58, 71 (1989). As a result, the claims against Defendants in their official capacities are legally frivolous.
Plaintiff's allegations against Flanagan, Bradly, Noonan, Wally, Stoner, Williams, and Cunningham are frivolous because they do not rise to the level of a constitutional violation.
Plaintiff's proposed amendments to the complaint are frivolous, as they were when he presented them to the Court in June. Plaintiff merely added conclusory language to the claims with the apparent hope that doing so would reach a different result. Because the proposed amendments are frivolous and repetitive, the Court will deny Plaintiff's motion to amend.
Accordingly,
IT IS HEREBY ORDERED that Plaintiff's motion to amend the complaint [Doc. #65] is DENIED.
Dated this 22nd day of November, 2010.
en creditor status under § 544(a)(1) and subrogation power under § 551, the trustee may preserve those rights and powers that a lien creditor would have against the bankrupt under [nonbankruptcy] law," and that "the trustee was vested only with the rights the Bank had against [the bankrupt]," which did not include the bank's rights under the subordination agreement with other creditors.
819 F.2d at 24. Accordingly,
Kors stands for the unremarkable proposition that the
in rem rights of a trustee as a holder of an avoided lien are limited to enforcing performance of the underlying obligations whose performance the lien secures, the means of enforcement being the inherent threat
of a foreclosure sale or, if that threat does not prompt performance, an actual foreclosure sale. The lesson of
Kors pertinent here is that so long as the lien remains upon the collateral, that lien remains enforceable pursuant to the lienor's
in rem rights for whatever amount is owed pursuant to the
in personam obligation whose payment it secures (including the right to sell the collateral if there is a default with respect to the
in rem right to performance as a condition to the collateral not being sold). Without the lien securing performance of the payment obligations, it would be worthless.
So if the lien here had not been avoidable, Wachovia could have insisted that as the price of its not repossessing the truck, Wyatt would be required to make his postpetition monthly payments as set forth in the contract whose obligations were secured by the lien. If Wyatt made all of the required monthly payments, and they far exceeded the value of the collateral, Wachovia would not be precluded from retaining the payments even though it was barred by the bankruptcy case from collecting the note obligation as a personal liability of Wyatt.
The court of appeals in Haberman assumes that a trustee's recovery pursuant to an avoided lien is limited by what the collateral would have fetched had a sale been made pursuant to the lien on the petition date. That disregards the reality that often a debtor does not default in making car note payments postpetition, and ends up making payments on account of the lien worth far more than the value of the collateral. The court of appeals reasoned that:
[H]ad the Habermans defaulted on their loan prior to bankruptcy, the only property the Bank could've claimed (assuming a perfected security interest) was the Trans Am, and then only up to the value of the loan. Given that the Trans Am happened to be worth less than the loan balance, the Bank would've been left with a mere unsecured (if perhaps actionable) contractual promise for the difference. So, while Congress provided in Section 551 that the Trustee may take for the estate the value of the Bank's security interest in the Trans Am, the power to take "liens" and "transfers" does not also embrace a right to deprive the Bank of a separate contractual right to be repaid for its debt above and beyond the value of the security interest.
516 F.3d at 1211-1212. That observation, echoing a similar observation by the bankruptcy appellate panel,
disregards two points.
The bankruptcy appellate panel reasoned that although a creditor holding a lien could recover more than the value of the collateral if the debtor elects to keep the collateral and pay the debt in full, "a creditor under that scenario could not rely on its lien on the collateral to ensure full recovery of the debt unless the collateral is worth at least as much as the debt." 347 B.R. at 415. What the panel failed to acknowledge is that if the payments are made only to keep the collateral from being repossessed, the payments are necessarily made on account of the lienor's lien rights and constitute proceeds of that lien.
First, the Habermans did not default on their loan payments: they continued (as did Wyatt here) to make the monthly payments postpetition, and the avoided lien had, by reason of the definition in 11 U.S.C. § 101(37), secured those payments of the debt, and continued as those payments were made to secure the payment of the remaining balance of the debt, without regard to the value of the collateral. Sure, if the Habermans had defaulted and the bank had sold the Trans Am at an auction sale, the trustee's avoidance powers would not have included recovering anything other than the amount the bank realized on the auction sale, and the trustee would not have succeeded as well to the bank's deficiency claim. But that is not what happened, and it does not demonstrate that when payments are made on account of a lien postpetition it is inappropriate to treat those payments as proceeds of the lien.
Second, the court of appeals assumed that the trustee's recovery of postpetition payments in excess of the value of the collateral would represent proceeds of the bank's in personam right to collect the debt as a personal obligation of the Habermans. The court, however, failed to explain how the bank, once bankruptcy intervened, could have any enforceable right to be repaid for the debt other than pursuant to its in rem rights as a lienholder, rights that obviously would prompt payments by the Habermans if they wished to retain the Trans Am and avoid a monetary default leading to an auction sale.
As noted previously, that distinguishes Haberman from this case: the trustee in Haberman apparently failed to argue that (and the court of appeals failed to inquire whether) the Habermans continued to make their monthly payments only because of the bank's in rem right under the lien to insist upon payment of the debt as the price for the Habermans' avoiding repossession of the Trans Am, a lien right, which remained intact despite the intervention of bankruptcy. In this case, White has demonstrated that Wyatt continued to make his monthly payments only because of the in rem rights that existed pursuant to Wachovia's lien, and the record demonstrates that the intervention of bankruptcy barred Wachovia's enforcing its in personam rights (and that such enforcement was eventually enjoined by the injunction arising from Wyatt's discharge).
The court of appeals in Haberman reasoned that Dewsnup does not apply to a trustee who has avoided a lien. This reasoning disregards the holding of Taubel-Scott-Kitzmiller Co., Inc. v. Fox that upon avoidance of a lien, a trustee steps by way of subrogation into the shoes of the lienholder with respect to its lien rights. The reasoning also likely comes as a surprise to many a trustee who has avoided a lien and then has collected payments pursuant to that lien far in excess of the value of the collateral. Under the reasoning of Haberman, such a trustee would not be entitled to retain the payments to the extent that they exceed the fair market value of the collateral on the petition date. That makes no sense. Under the controlling authority of Taubel-Scott-Kitzmiller Co., Inc. v. Fox, the avoided lien, in the hands of the bankruptcy trustee, enjoys the same right it enjoyed in the hands of the prior lienholder to be enforced for the full amount of the debt regardless of the value of the collateral on the petition date.
One of the bases upon which the court of appeals in Haberman rested its conclusion that Dewsnup was inapplicable was that treating Dewsnup as conferring rights on a trustee holding an avoided lien would be inconsistent with pre-Code rules and practice. Haberman, 516 F.3d at 1213-14. But the decisions it cited as evidence of pre-Code rules and practice did not deal with the issue of postpetition payments on an avoided lien and the treatment of those payments as proceeds. Indeed, to quote one of the decisions cited by Haberman in that regard, an avoidable lien or other transfer of property "includes the giving or conveying anything of value, — anything which has debt-paying or debt-securing power." Pirie v. Chicago Title Trust Co., 182 U.S. 438, 443 (1901). An avoided lien's "debt-paying or debt-securing power" includes the power to prompt payment of the debt secured by the lien (lest the collateral be sold upon default at an auction sale) even if the collateral was worth less on the petition date than the amount of the debt.
Indeed, Haberman overlooks an important goal of bankruptcy law enunciated in Pirie: "equality of distribution among [creditors] of the property of the bankrupt," Pirie, 182 U.S. at 449, which remains "the prime bankruptcy policy" under the Bankruptcy Code. Union Bank v. Wolas, 502 U.S. 151, 161 (1991). Yet under the dicta in Haberman, a lender whose lien is avoided is allowed to retain postpetition payments prompted by the lien to the extent that they exceed the value of the collateral on the petition date. Because the lender is rendered the holder of an unsecured claim by reason of the avoidance of its lien, those retained postpetition payments necessarily are applied to the unsecured claim, whereas other creditors holding unsecured claims are not receiving any such postpetition payments (other than what they receive pro rata from the estate). That is a windfall condemned by the policy of equality of distribution.
For all of these reasons, I find Haberman unpersuasive.
Even if this court were to follow Haberman, application of that decision's holding to this case would not bar the court from permitting White to recover postpetition payments made by Wyatt to Wachovia in an amount designed to assure that he recovers the value of the lien as of the petition date. The parties have not established the value of the truck as of the petition date, making it inappropriate to award summary judgment in favor of White under this theory.
Haberman did not address the issue of prejudgment interest on the trustee's recovery of the value of the collateral on the petition date, apparently because the trustee did not raise that issue. Even if a trustee, in recovering postpetition payments, ought only to recover payments equal to the value of the collateral on the petition date, a dollar on the petition date is worth more than a dollar paid at a later date. If a court follows Haberman, the trustee ought to recover as well postpetition-prejudgment interest on the value of the collateral on the petition date at a rate determined by the bankruptcy judge. The issues of the entitlement to postpetition-prejudgment interest and the appropriate rate of such interest disappear if, as I conclude, Haberman ought not be followed and the trustee is entitled to recover as proceeds of the lien all of the postpetition payments secured by the lien and prompted only by the lien. Those necessarily include interest payments that take into account the time value of money.
F
Wachovia also relies on the Tenth Circuit bankruptcy appellate panel's decision in the case of Morris v. Vulcan Chemical Credit Union (In re Rubia), 257 B.R. 324 (B.A.P. 10th Cir.), aff'd, 23 Fed. Appx. 968, 2001 WL 1580933 (10th Cir. Dec. 12, 2001). Like Haberman, Rubia is distinguishable from this case. In Rubia, the debtor continued to make postpetition payments to the bank on a prepetition loan secured by the debtor's vehicle. As of the petition date, the balance due on the loan was $10,440.00, and the debtor made postpetition payments to the creditor totaling $1,136.00. Pursuant to an agreed order between the creditor and the chapter 7 trustee, the trustee avoided and preserved the lien for the benefit of the estate. The trustee then filed a complaint seeking turnover of the postpetition payments made by the debtor to the bank. The bankruptcy court dismissed the complaint, concluding that the trustee was not entitled to recover the payments because they were made from the debtor's postpetition earnings. On appeal, the bankruptcy appellate panel agreed with the bankruptcy court that the trustee could not recover the postpetition payments, but not because they were made from the debtor's postpetition earnings, but rather because it viewed the trustee as having limited rights incident to the avoidance of a lien.
The panel in Rubia concluded that although the trustee preserved the lien for the benefit of the estate under § 551, that interest did not give the trustee the right to collect the related debt from the debtor postpetition. Rather, according to the Rubia panel, although the trustee's avoidance of the lien prevented the creditor from looking to the vehicle to satisfy its claim, the creditor was nevertheless left with an unsecured claim against the debtor's estate for the entire balance of the debt, and the postpetition payments from the debtor to the creditor simply reduced the amount of the creditor's unsecured claim against the estate.
The majority decision in Rubia noted that if the debtor's debt to the credit union had not been discharged, the debtor's postpetition payments to the credit union were merely made towards satisfaction of that debt. 257 B.R. at 327. There thus appears to have been a failure of proof by the trustee as to why the debtor elected to treat this unsecured creditor differently than other unsecured creditors. This is made evident by the majority's statement that the lien preserved under § 551 "[did] not give the Trustee the right to collect [the credit union's claim] from the debtor postpetition. See In re Closson, 100 B.R. 345 (Bankr. S.D. Ohio 1989)." The majority's reliance on Closson is telling. In Closson, unlike here, the debtor had reaffirmed
In affirming the bankruptcy appellate panel, the unpublished opinion issued by the court of appeals makes reference to the debtor's trial testimony, in which he apparently indicated that he intended the postpetition payments to reduce the amount of the car lien. See Rubia, 2001 WL 1580933 (10th Cir. Dec. 12, 2001) (not selected for publication in the Federal Reporter). He also testified, however, that he continued to pay the bank on another unsecured loan, and told the credit union that he intended to pay the credit union without distinguishing between his secured and unsecured loans. It is unclear what, if any, significance was given to this testimony by the trial court, and I mention it here only to note that the bank could theoretically have argued that the debtor intended to pay his debts in full, and that the payments to the credit union were in addition to the amounts that, on the petition date, could be recovered from the collateral. In that regard, the trustee put on no proof regarding the value of the collateral. Regardless, in this case it is unnecessary to speculate about Wyatt's intentions because Wyatt's unrebutted affidavit testimony establishes that the postpetition payments were intended to reduce the lien on Wyatt's truck.
his debt with a credit union, and pursuant to the terms of the original contract with the debtor and the reaffirmation agreement, the credit union received postpetition payments. Accordingly, the Rubia majority can be viewed as holding that the trustee failed to prove that the postpetition payments had not been paid for some reason (as in Closson) other than the credit union's lien rights. Indeed, the Rubia majority treated the payments to the credit union as reducing only the amount of the unsecured claim held by the credit union and as not reducing the amount of the trustee's claim against the collateral. 257 B.R. at 328 n. 4. Here, in contrast, Wyatt clearly intended the payments to reduce the amount of the secured debt.
In Closson, the court rested its decision on the trustee's failure to point to any authority in the Bankruptcy Code for recovery of the postpetition payments. The trustee did not point to 11 U.S.C. § 541(a)(6) as a statutory basis upon which to recover the postpetition payments. Accordingly, Closson is not authority rejecting the utilization of § 541(a)(6) as a basis for recovering postpetition payments when the debtor only paid the debt to keep the collateral from being sold pursuant to the lienor's in rem rights and had no reason to pay the debt as a personal liability.
For example, the debtor may have had an intent to pay the full amount of the debt, both the part secured by the value of the collateral and the unsecured part. If so, the record did not demonstrate the value of the collateral, and the trustee's claim failed as a matter of proof.
Even the dissent recognized that the debtor could have decided to make voluntary payments to the credit union on any portion of its claim that was not secured by the value of the collateral. (Here that is not a possibility because Wyatt intended all of the payments to be applied to reduce amounts secured by the lien.) The dissent reasoned that such a possibility did not exist because it assumed that the collateral must have been worth the entire amount of the debt. 257 B.R. at 330. The dissent accordingly concluded that the payments necessarily were on account of the lien. The majority rejected that assumption as speculation not supported by the record. 257 B.R. at 328 n. 4.
Accordingly, Rubia is distinguishable. Nevertheless, the majority opinion in Rubia contains statements that are fundamentally flawed. First, it necessarily holds that the payments to the credit union can not be treated as reducing the amount of the secured debt. 258 B.R. at 327-28, and 328 n. 4 (the postpetition payments did not reduce the amount of the trustee's lien claim "but rather only reduce the amount of [the creditor's] unsecured claim against the estate"). This raises the prospect that a debtor who makes payments to the creditor to reduce the amount owed under the lien will pay the full amount owed to the trustee (if a sale of the collateral fetches the full amount of the debt) and may, additionally, make payments to the creditor, thus paying more than the debt she was contractually obligated to pay. Congress did not likely intend such a result: the debtor was only liable to pay the debt once. It is no answer (as
suggested by the Rubia majority) that it is the debtor, and not the trustee, who "may or may not have a cause of action against [the creditor] for any postpetition payments that he made. . . ." 257 B.R. at 327. If the debtor intended the payments to reduce the secured claim, the postpetition payments to the secured creditor should be recoverable by the trustee, without the debtor being put to the burden of recovering the payments.
Second, the majority states that "[t]he trustee has no right to any payment made to [the credit union] on the debt, but rather he only has rights in the Ranger up to the amount of [the credit union's claim] on the petition date." 257 B.R. at 328 (footnote omitted). If, as seems implicit, this means that a trustee never can pursue postpetition payments made to a creditor on account of a lien that the trustee avoids, this is plainly wrong. It ignores the reality regarding the payment-inducing power of a lien (the power to induce payments lest the collateral be sold pursuant to enforcement of the lien), and the consequence that payments induced by the lien necessarily are proceeds of the lien under § 541(a)(6) and hence property of the estate. If the Rubia majority's view is followed, it leads a court always to treat postpetition payments as not constituting proceeds of the lien under § 541(a)(6) (because, under Rubia, postpetition payments to the creditor must be treated as being on account of the contractual obligation and not on account of the underlying lien). See Rubia, 257 B.R. at 328 n. 5.
The debt secured by a lien includes any amounts accruing on the secured obligation after the petition date, and thus Rubia is wrong in referring to the amount of the claim on the petition date as a limiting factor. But that is a minor flaw compared to the major flaw implicit in the quoted passage.
Third, the majority rejected the dissent's conclusion that payments on account of a lien are proceeds of the lien, reasoning that payments are not collection of collateral under the Uniform Commercial Code. Id. As explained earlier, such payments on account of a lien are "proceeds" of the lien within the meaning of § 541(a)(6) as a matter of federal law, and, in any event, would be treated as proceeds of the lien even under state law.
Finally, the majority reasoned "that unsecured creditors were not harmed and, in fact, were benefitted by the Postpetition Payments because [the credit union's] unsecured debt has been reduced." 257 B.R. at 329. This disregards the unjustified windfall (discussed earlier) that arises when a lienor is allowed to retain postpetition payments that are proceeds of the lien, and defeats a prime goal of bankruptcy, equality of distribution amongst creditors. Had the trustee recovered the postpetition payments, the credit union would have been able to file an unsecured claim against the estate under Fed.R.Bankr.P. 3002(c)(3), but it would share the disgorged payments only pro rata with the other creditors. The creditors in Rubia did not benefit from the trustee being denied recovery of the postpetition payments.
G
Wachovia also places reliance on Nazar v. North Amer. Savings Bank FSB (In re Born), 357 B.R. 630 (B.A.P. 10th Cir. 2006), which limited a trustee's recovery of postpetition payments (made to the lienor whose lien was avoided) to the value of the collateral on the petition date. Born relied on the flawed reasoning of the Haberman and Rubia decisions, and, accordingly, it is equally unpersuasive.
V
Whatever postpetition payments a trustee is entitled to recover as proceeds of a lien, the trustee would not obtain a judgment for those payments until well after the payments were made. Accordingly, a trustee additionally should recover prejudgment interest on each recoverable payment from the date of the payment. See Webster v. Harris Corp. (In re NETtel Corp., Inc.), 327 B.R. 8, 13 n. 8 (Bankr. D.D.C. 2005).
VI
In accordance with the foregoing, it is
ORDERED that White's motion for summary judgment is GRANTED, and Wachovia's lien is avoided and preserved for the benefit of the estate. It is further
ORDERED that a judgment will be awarded in favor of White against Wachovia for all postpetition payments received by it from Wyatt on the debt secured by the avoided lien, plus prejudgment interest as to each postpetition payment to be calculated from the date each payment was received, at the rate dictated by NETtel, 327 B.R. at 13 n. 8, or prejudgment interest at a lower rate utilized as a matter of computational convenience, or prejudgment interest as agreed by the parties. It is further
ORDERED that White shall file a proposed judgment within 21 days after entry of this order, and Wachovia may file an opposition to the proposed judgment's calculation of interest within 21 days after filing of the proposed judgment.
The document below is hereby signed. Dated: November 16, 2010.