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Harlow v. Wells Fargo (In re Harlow) (Case No. 17-71487; A.P. No. 20-07028) 12.12.22

The Plaintiffs filed a class action adversary proceeding against Wells Fargo Bank and its parent company for actions related to the debtors having their mortgage loans placed in forbearance status by Wells Fargo without their permission, knowledge or request. The Defendants filed a motion to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. The Defendants assert that the notices of forbearance explicitly disclaimed compliance with Rule 3002.1, that the Rule does not give rise to a private cause of action and that the court lacks jurisdiction over claims involving debtors from other courts. The Court denied the motion to dismiss on the count involving the violation of Rule 3002.1. The Defendants assert that the count involving the alleged violation of the automatic stay should also be dismissed as providing forbearance relief and filing notices of forbearance are not attempts to collect a debt or conduct otherwise prohibited by 11 U.S.C. Section 362. The Court found that the sufficient facts were alleged to support a plausible claim for violation of Section 362(a)(3) , but not as to Section 362(a)(6). The Plaintiffs also asked the Court to invoke its inherent powers and powers under 11 U.S.C. Section 105(a) to sanction the Defendants for abuse of process, contempt of court and fraud on the court. The Court held that the Plaintiffs made a plausible claim that Wells Fargo engaged in a maneuver or scheme sufficient to undermine the integrity of the bankruptcy system and for contempt under the Court’s inherent powers and Section 105 powers, but not for fraud on the court. Finally, the Court dismissed the parent company as a defendant as the Plaintiffs did not allege sufficient facts to support piercing the corporate veil to hold the parent company liable for the acts of its subsidiary.

Monday, December 12, 2022
Automatic Stay
Burden of Proof
Rule 12(b)(6)
Sanctions and contempt