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UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE Adversary Proceeding No.

10-55357 (KJC) __________________________________ Bankruptcy Case No. 07-10416 (KJC) Jointly Administered NEW CENTURY TRS HOLDINGS, INC., a Delaware corporation, et al., Debtors, _____________________________________ MOLLY S. WHITE AND RALPH N. WHITE, Plaintiffs, v. NEW CENTURY TRS HOLDINGS, INC. et al., a Delaware Corporation, Defendants. ________________________________________ MEMORANDUM OF LAW IN SUPPORT OF THE NEW CENTURY LIQUIDATING TRUSTS MOTION TO DISMISS ADVERSARY PROCEEDING COMPLAINT _______________________________________ By: BLANK ROME LLP David W. Carickhoff (No. 3715) Alan M. Root (No. 5427) 1201 Market Street, Suite 800 Wilmington, Delaware 19801 (302) 425-6400 - Telephone (302) 425-6464 Facsimile - and HAHN & HESSEN LLP 488 Madison Avenue, 15th Floor New York, New York 10022 (212) 478-7200 - Telephone (212) 478-7400 - Facsimile Attn: Mark S. Indelicato, Esq. Edward L. Schnitzer, Esq. Janine M. Cerbone, Esq. Nicholas C. Rigano, Esq.

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TABLE OF CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . 1

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . 1 RELEVANT BACKGROUND . . . . . . . . . . . . . . . . . . 2 The Whites Loan . . . . . . . . . . . . . . . . . 2 The Debtors Bankruptcy . . . . . . . . . . . . . 3

The Whites Claims . . . . . . . . . . . . . . . . 6 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . 8

Standard for Dismissal under Fed. R. Civ. P. 12(b)(6) . . . . . . . . . . . . . 8 The Whites Have Failed to Allege a Plausible Entitlement to Relief . . . . . . . . The Whites Received Proper Notice of the Bar Date . . . . . . . . . . . The Whites Were Unknown Creditors . . .

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14

The Whites Received Constructive Notice of the Bar Date . . . . . . . . . 17 The Bankruptcy Court Lacks Subject Matter Jurisdiction . . . . . . . . . . . CONCLUSION . . . . . . . . . . . . . . . . . . . . . .

19 23

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TABLE OF AUTHORITIES

FEDERAL CASES Beddall v. State Street Bank and Trust Co., 137 F.3d 12 (1st Cir. 1998) . . . . . . . . . . . . . . . . . . . . . 9 Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955 (2007) . . . 8

Brown v. Sweeney, 526 F. Supp. 2d 126 (D. Mass. 2007) . . 9 Chemetron Corp. v. Jones, 72 F.3d 341 (3d Cir. 1995). 12,14 Citicorp North America, Inv. v. Ogden Martin Systems of Haverhill, Inc., 8 F. Supp.2d 72 (D. Mass. 1998) . . . . .9 Elsom v. Woodward & Lothrop, 1997 U.S. Dist. Lexis 12112 (E.D. Pa. 1997) . . . . . . . . . . . . . . . . . . . . 16 Gentry v. Circuit City Stores, Inc. (In re Circuit City Stores, Inc.), 2010 U.S. Dist. Lexis 116285 (E.D. Va. 2010) . . . . . . . . . . . . . . . . . . . .

16

Grauman v. Smith (In re U.S. Physicians, Inc.), 2000 Bankr. Lexis 917 (Bankr. E.D. Pa. 2000) . . . . . . . . . . .9, 11 Greyhound Lines, Inc. v. Rogers (In re Eagle Bus Mfg. Inc.), 62 F.3d 730 (5th Cir. 1995) . . . . . . . . . . . 12 Harvard Industries, Inc. v. Conway (In re Harvard Industries, Inc.), 1995 Bankr. LEXIS 932 (Bankr. D. Del. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . 17 Hebell v. NVR, Inc., 1997 U.S. Dist. Lexis 10786 (N.D. Ill. 1997) . . . . . . . . . . . . . . . . . . . . . 15, 16 In re Aegis Mortgage Corp., 2008 Bankr. LEXIS 1519 (Bankr. D. Del. 2008) . . . . . . . . . . . . . . . . . 19, 21, 22 In re Celotex Corp. v. Edwards, 514 U.S. 300 (1995) . . .20 In re Charter Co., 125 B.R. 650 (M.D. Fla. 1991) . . . . 14 In re Eagle-Pitcher Indus. Inc., 278 B.R. 437 (S.D. Ohio 2002) . . . . . . . . . . . . . . . . . . . . . . . . . .13
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In re Pacor, 743 F.2d 984 (3d Cir. 1984) . . . . . . 20, 22 Kaiser Group Holdings, Inc. v. Squire Sanders & Dempsey LLP (In re Kaiser Group International, Inc.), 2010 Bankr. Lexis 2505 (Bankr. D. Del. 2010) . . . . . . . . . . . . . . . 10 Mennonite Bd. Of Missions v. Adams, 42 U.S. 791(1983) . .12 Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950) . . . . . . . . . . . . . . . . . . . . . . . 12, 13 PacifiCorp and Vancott Bagley Cornwall & McCarthy v. W.R. Grace, 2006 U.S. Dist. Lexis 57470 (D. Del. 2006) . . . .13 Robert Christopher Associates v. Franklin Realty Group, Inc. (In re FRG, Inc.), 121 B.R. 710 (Bankr. E.D.Pa. 1990) . . . . . . . . . . . . . . . . . . . . . . . .10, 11 The Charter Co. v. Ziegler, 113 B.R. 725 (M.D. Fl. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . .17 Tulsa Professional Collection Serv., Inc. v. Pope, 485 U.S. 478 (1988) . . . . . . . . . . . . . . . . . . . . . . . 12 Winstar Holdings, LLC v. The Blackstone Group, LP (In re Winstar Communications Inc.), 435 B.R. 33 (Bankr. D. Del. 2010) . . . . . . . . . . . . . . . . . . . . . . . . . 10

FEDERAL STATUTES AND RULES 28 U.S.C. 157 . . . . . . . . . . . . . . . . . . . . . .19 Fed. R. Civ. P. 12 . . . . . . . . . . . . . . 1, 9, 18, 19

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Introduction The New Century Liquidating Trust (Trust), by and through Alan M. Jacobs, the New Century Liquidating Trustee, (the Trustee) as successor to New Century TRS Holdings, Inc., et al. (the Debtors), respectfully submits this memorandum in support of its motion to dismiss (the Motion to Dismiss) the adversary proceeding complaint (the Complaint) filed by Molly S. White and Ralph N. White (together, the Whites) against the prepetition Debtors. By the Motion to Dismiss, the Trust seeks to dismiss all counts of the Complaint with prejudice based upon the Whites failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). In support of the Motion to Dismiss, the Trust

submits the declarations of Edward L. Schnitzer (the Schnitzer Declaration), annexed hereto as Exhibit 1, Diane Denney (the Denney Declaration), annexed to the Schnitzer Declaration as Exhibit A and Donna Walker (the Walker Declaration), annexed to the Schnitzer Declaration as Exhibit B, and states as follows: Summary of Argument Any party asserting a claim against the Debtors for conduct arising prior to the Petition Date (as defined
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below) was required to file a proof of claim in accordance with the procedures set forth in the Bar Date Order (as defined below), including filing such claim prior to the Bar Date (as defined below). While some of the claims

asserted by the Whites are set forth in proofs of claim and some are set forth in the Complaint (as defined below), the Complaint is simply a claim by the Whites against the Debtors based on alleged conduct that occurred prepetition. As the Whites filed the Complaint nearly thirty-

nine (39) months after the Bar Date the Complaint is barred by the Bar Date Order and should be dismissed. Relevant Background The Whites Loan On July 26, 2006, the Whites executed a promissory note in the principal amount of $272,500.00 (the Loan) with New Century Mortgage Corporation (NCMC). Declaration at 2. the property FL 32127. See Walker

The note is secured by a mortgage on

located at 5948 Doraville Drive Port Orange, Thereafter, NCMC

See Walker Declaration at 2.

sold the Loan to NC Capital Corporation (NC Capital) pursuant to a Mortgage Loan Purchase and Servicing Agreement dated as of December 1, 1998. Declaration at 2. See Walker

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On May 30, 2006, NC Capital sold the Loan (the Transfer) pursuant to a Purchase Price and Terms Agreement, dated as of February 28, 2006, and the Sixth Amended Restated Mortgage Loan Purchase and Warranties Agreement, dated as of May 1, 2006, to Morgan Stanley Mortgage Capital Inc. (Morgan Stanley). Declaration at 3. See Walker

NC Capital thereafter transferred the

original loan file, note, deed of trust and assignment endorsed in blank as directed by Morgan Stanley to Deutsche Bank as Trustee. See Walker Declaration at 3. Further,

on or about December 1, 2006, servicing was released electronically to Countrywide Home Loans Servicing, LP at the direction of Morgan Stanley. at 3. The Debtors Bankruptcy On April 2, 2007 (the Petition Date), the Debtors (with the exception of New Century Warehouse Corporation) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code) with the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court). Until the Second See Walker Declaration

Amended Joint Chapter 11 Plan of the Debtors and the Official Committee of Unsecured Creditors Dated as of April

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23, 2008 (the Original Plan)1 became effective on August 1, 2008, the Debtors continued in the management and operation of their businesses pursuant to Bankruptcy Code 1107 and 1108. By order dated June 28, 2007 (the Bar

Date Order), annexed to the Schnitzer Declaration as Exhibit C, the Bankruptcy Court established August 31, 2007 at 5:00 p.m. (prevailing Pacific Time) as the last date and time for the filing of proofs of claim in this chapter 11 case (the Bar Date). On July 2, 2007, the Debtors

court-approved claims and noticing agent, XRoads Case Management Services LLC (the Claims Agent or XRoads) (a) mailed a copy of the Notice of the Bar Date (the Bar Date Notice), annexed to the Schnitzer Declaration as Exhibit D, and a proof of claim form substantially similar to Official Form No. 10 (Proof of Claim Form) to all known entities holding potential pre-petition claims and their counsel (if known), all known potential claimants and their counsel (if known), all parties that have requested notice in these cases, the Office of the United States Trustee and all taxing authorities for the jurisdictions in which the Debtors conducted business; and (b) published the

All capitalized terms not herein defined shall have the same meaning ascribed to them in the Modified Second Amended Joint Chapter 11 Plan of Liquidation of the Debtors and the Official Committee of Unsecured Creditors Dated as of September 30, 2009 (the Modified Plan).

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Bar Date Notice in The Wall Street Journal (National Edition) and The Orange County Register. The Debtors filed the Original Plan on April 23, 2008 and the Bankruptcy Court entered the order confirming the Original Plan (the Original Confirmation Order) on July 15, 2008. The Original Plan became effective on August 1, Pursuant to the

2008 (the Original Effective Date).

terms of the Original Plan, on the Original Effective Date the New Century Liquidating Trust Agreement (the Trust Agreement) was executed, thereby creating the Trust and appointing Alan M. Jacobs as Trustee of the Trust. On the

Original Effective Date, among other things, all Assets of the Debtors (excluding Access Lending Assets but including Access Lending Interests) were distributed to the Trust and all of the remaining members of the Debtors Board of Directors and Officers ceased to serve in those capacities by operation of the Original Confirmation Order. The

Notice of (I) Entry of Order Confirming Second Amended Joint Chapter 11 Plan of Liquidation of the Debtors and the Official Committee of Unsecured Creditors Dated as of April 23, 2008 (II) Effective Date and (III) Bar Dates for Administrative Claims, Professional Fee Claims, Subordination Statements, and Rejection Damage Claims (the Notice of Effective Date) was filed on August 4, 2008,.
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On June 16, 2009, the United States District Court for the District of Delaware (the District Court) issued a Memorandum Opinion and an order reversing the Original Confirmation Order (together, the Order Reversing Confirmation). Accordingly, on September 30, 2009, the

Trustee filed the Modified Second Amended Joint Chapter 11 Plan of Liquidation Dated as of September 30, 2009 (the Modified Plan). The Bankruptcy Court entered an order

confirming the Modified Plan (the Modified Confirmation Order) on November 20, 2009. The Modified Plan became

effective on December 1, 2009 (the Modified Effective Date). On the Modified Effective Date, the Modified Plan,

inter alia, (a) confirmed that all actions taken by the Trustee subsequent to the Original Effective Date were valid and binding, (b) adopted, ratified and confirmed the formation of the Trust as of the Original Effective Date, (c) adopted, ratified and confirmed the Liquidating Trust Agreement as of the Original Effective Date, and (d) adopted, ratified and confirmed the appointment of Alan M. Jacobs as Trustee as of the Original Effective Date. The Whites Claims On or around November 22, 2008, the Whites filed claim number 4073 (Claim 4073) against New Century TRS Holding, Inc., et. al as a secured and/or priority claim in the
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amount of $272,500 plus accruing interest, alleging that New Century Mortgage fraudulently induced the Whites to enter into a refinance of their mortgage causing thousands of dollars in interest to accrue and enabling New Century Mortgage to place a loan on a property beyond what the creditors could afford. Additionally, the Whites filed

claim number 4074 (Claim 4074), and claim number 4080 (Claim 4080, and together with Claim 4073 and Claim 4074, the Claims) on or around January 21, 2009. and Claim 4080 are duplicative of Claim 4073. Claim 4074 The Claims On

are annexed to the Schnitzer Declaration as Exhibit E.

or around, August 13, 2010, the Trust filed the New Century Liquidating Trusts Objection to the Claims of Claimant Ralph N. White and Molly S. White Pursuant to 11 U.S.C. 502(b) and Fed. R. Bankr. P. 3001, 3007 and Local Rule 3007-1 [Substantive] [D.I. 10181] (the Objection to Claims) asserting that the Claims should be expunged because they (i) are meritless, and (ii) were filed after the Bar Date. After the Trust filed the Objection to Claims, the Whites filed the Complaint on or around November 12, 2010 seeking (i) compensatory damages, (ii) punitive damages, (iii) rescission of the Loan, (iv) cancellation of the security interest related to the Loan, and (v) fees and
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costs associated with the litigation.

On the same date,

the Whites filed the Notice of Claimants Ralph N. White and Molly S. Whites Motion for Relief from the Courts Order Confirming the Debtors Modified Plan Pursuant to 11 U.S.C. 105(a) and Fed. R. Bankr. P. 9013, 9024, Fed. R. Civ. P. 60(b)(2), (b)(3), (b)(6), 60(d) and Local Rule 9013-1 and 2002-1(b) [D.I. 10303] (the Motion for Relief). On December 10, 2010, the Trust filed the New

Century Liquidating Trusts Response to the Motion for Relief [D.I. 10337] (the Response). By the Response, the Trust, inter alia, reserved the right to answer or otherwise respond to the Complaint. Response at 8.

On November 24, 2010, the Bankruptcy Court directed the Parties to submit a scheduling order under certification of counsel, whereby the Claims and the Complaint would be consolidated. The Bankruptcy Court

entered the Scheduling Order on December 13, 2010, which, inter alia, (i) consolidated the Claims and the Complaint, and (ii) established certain deadlines. ARGUMENT I. Standard for Dismissal under Fed. R. Civ. P. 12(b)(6) In order to survive a motion to dismiss, a complaint must allege a plausible entitlement to relief. Bell Atl.

Corp. v. Twombly, 127 S. Ct. 1955, 1967-69, 167 L. Ed. 2d


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929 (2007).

A plaintiffs obligation to provide the

grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Id. at 1964-

65; see also Brown v. Sweeney, 526 F. Supp. 2d 126, 129 (D. Mass. 2007) (Conclusory statements do not satisfy the [Fed. R. Civ. P 12(b)(6)] standard because they merely demonstrate a possibility and not a plausibility of entitlement to relief.). In analyzing such a motion, the

court may take into account documents whose authenticity is not questioned and on which the allegations of the complaint are expressly based. Citicorp North America,

Inv. v. Ogden Martin Systems of Haverhill, Inc., 8 F. Supp.2d 72, 74 (D. Mass. 1998), citing Beddall v. State Street Bank and Trust Co., 137 F.3d 12, 17 (1st Cir. 1998). II. The Whites Have Failed to Allege a Plausible Entitlement to Relief It is without question that a complaint fails to state a claim upon which relief can be granted if the claims asserted in that complaint are barred by a claims bar date. See Grauman v. Smith (In re U.S. Physicians, Inc.), 2000 Bankr. Lexis 917 at 17 (Bankr. E.D. Pa. 2000) (a party who . . . fails to file a Proof of claim by the prescribed bar date . . . cannot circumvent the bar arising from a failure
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to file a timely claim by raising that claim in a later adversary proceeding); Robert Christopher Associates v. Franklin Realty Group, Inc. (In re FRG, Inc.), 121 B.R. 710 at 714 (Bankr. E.D.Pa. 1990) (Clearly, a creditor cannot circumvent the temporal proscription of a bar date by the facile device of filing an adversary proceeding against a debtor after the bar date has run.); see also Kaiser Group Holdings, Inc. v. Squire Sanders & Dempsey LLP (In re Kaiser Group International, Inc.), 2010 Bankr. Lexis 2505 (Bankr. D. Del. 2010) (granting defendants motion to dismiss on the grounds that the plaintiff failed to state a claim because the statute of limitations governing the pertinent causes of action expired); Winstar Holdings, LLC v. The Blackstone Group, LP (In re Winstar Communications Inc.), 435 B.R. 33 (Bankr. D. Del. 2010) (granting defendants motion to dismiss on the grounds that the plaintiff failed to state a claim because the statute of limitations governing the pertinent causes of action expired). As the claims raised in the Claims and the

Complaint are barred by the Bar Date Order, the Claims and the Complaint should be dismissed.2

This Motion only addresses the Complaint because the Trust has already objected to the Claims as meritless and being late-filed by the Objection to Claims.

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On June 28, 2007, the Bankruptcy Court entered the Bar Date Order. Pursuant to the Bar Date Order, the Bankruptcy

Court required that any entity holding a prepetition claim against one or more of the Debtors [was required to] file a proof of claim by August 31, 2007. 5. Bar Date Order at

In addition, the Bankruptcy Court held that any entity

which failed to abide by the Bar Date Order shall not be treated as a creditor with respect to such claim for purposes of voting and distribution. 13. Bar Date Order at

As the Whites filed their Complaint more than three

(3) years after the Bar Date, the Whites have failed to state a claim for which relief can be granted. See U.S.

Physicians, 2000 Bankr. Lexis 917 at 17; FRG, 121 B.R. at 714. A. The Whites Received Proper Notice of the Bar Date

The Trust presumes that the Whites will assert (much like they did in their Motion for Relief with respect to the Modified Confirmation Order) that the Bar Date does not apply to their claims because they did not receive actual written notice of the Bar Date. As the Whites were unknown

creditors and therefore, not entitled to actual notice of the Bar Date, such an argument is meritless and should be rejected.

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Due process requires notice that is reasonably calculated to reach all interested parties, reasonably conveys all the required information, and permits a reasonable time for a response. Chemetron Corp. v. Jones, 72 F.3d 341, 347 (3d Cir. 1995) (citing Greyhound Lines, Inc. v. Rogers (In re Eagle Bus Mfg. 735 (5th Cir. 1995)). Inc.), 62 F.3d 730,

For notice purposes, bankruptcy law

divides claimants into two typesknown creditors and unknown creditors. Id. Known creditors must be provided

with actual written notice of a debtors bankruptcy filing and claims bar date. Id. However, unknown creditors need Id.

only receive notice by publication.

A known creditor is one whose identity is either known or reasonably ascertainable by the debtor. Id.

(citing Tulsa Professional Collection Serv., Inc. v. Pope, 485 U.S. 478, 490 (1988)). An unknown creditor is one

whose interests are either conjectural or future or, although they could be discovered upon investigation, do not in due course of business come to knowledge [of the debtor]. Id. (citing Mullane v. Central Hanover Bank &

Trust Co., 339 U.S. 306, 317 (1950)). A creditors identity is reasonably ascertainable if that creditor can be identified through reasonably diligent efforts.

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Id. (citing Mennonite Bd. Of Missions


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v. Adams, 42 U.S. 791, 798 n.4 (1983)).

Reasonable

diligence does not require impracticable and extended searches in the name of due process. Mullane, 339 U.S. at 317)). Id. (citing

A vast open-ended Id. The requisite search Id.

investigation is not required.

instead focuses on the debtors own books and records.

Efforts beyond a careful examination of these documents is generally not required. Id. Only those claimants who are

identifiable through a diligent search are reasonably ascertainable and hence known creditors. Id.

In order for a claim to be reasonably ascertainable, the debtor must have in his possession, at the very least, some specific information that reasonably suggests both the claim for which the debtor may be liable and the entity to whom he would be liable. PacifiCorp and Vancott Bagley

Cornwall & McCarthy v. W.R. Grace, 2006 U.S. Dist. Lexis 57470 at 35 n.19 (D. Del. 2006) (citing In re Eagle-Pitcher Indus. Inc., 278 B.R. 437, 456 (S.D. Ohio 2002)).

Knowledge of the existence of a creditor is insufficient to make that creditor a known creditor; it must be shown that the claim was known. Id. Further, a debtor does not have

a duty to search out each conceivable or possible creditor and urge that person or entity to make a claim

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against it. Chemetron, 72 F.3d at 346 (citing In re Charter Co., 125 B.R. 650, 654 (M.D. Fla. 1991). i. The Whites Were Unknown Creditors In the case at hand, the Whites are unknown creditors. While their identities were known to the Debtors (based on the fact that the Debtors originated the Whites loan prior to the Petition Date), the Whites alleged claims (which the Trust believes are meritless) were unknown as no such claims had been asserted against the Debtors prior to November 22, 2008, the date that the Whites filed Claim 4073. See Walker Declaration at 4-6; see also Denney

Declaration at 2-7. On July 26, 2006, the Debtors originated the Loan. Shortly after origination and before the Petition Date, the Loan and servicing rights of the Loan were transferred to third parties. Prior to the Petition Date, the Debtors

only contact with the Whites was (i) collecting monthly payments from the Whites until the Loan and servicing rights were transferred, and (ii) advising the Whites that the Loan and the servicing rights related to the Loan were being sold to third parties. Prior to the filing of Claim

4073, neither the Debtors nor the Trust received any communication from the Whites suggesting that the Whites may have claims against the Debtors.
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See Denney

Declaration at 7.

Specifically, there is no evidence in

the Debtors Books and Records that the Whites have a claim against the Debtors or that the Whites ever asserted a claim against the Debtors prior to November 22, 2008 when they filed Claim 4073. See Walker Declaration at 4-6; Thus, on and prior to

see also Denney Declaration at 7.

the Bar Date, the Debtors had no reason to believe that the Whites were creditors of the Debtors. Nearly identical facts were addressed by the United States District Court for the Northern District of Illinois in Hebell v. NVR, Inc., 1997 U.S. Dist. Lexis 10786 (N.D. Ill. 1997). In NVR, the homeowner-mortgagors, on behalf of

themselves and their putative class, asserted that they were known creditors entitled to actual notice, because the debtor received monthly checks from each of them and had the duty to follow up and to collect late payments. id. at 4-5. that: The fact that the identities of the homeowner-mortgagors or the Hebells themselves may have been reasonably ascertainable from the loan servicers records is not sufficient to make them known. These records did not indicate that the Hebells or any potential class members were or would file suit in the future, thereby becoming claimants. At the time, the
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See

In denying this argument, the Court stated

Hebells claims were merely speculative. Id. The Hebells and their putative class were thus, Id; see also Gentry v. Circuit City

unknown creditors.

Stores, Inc. (In re Circuit City Stores, Inc.), 2010 U.S. Dist. Lexis 116285 at 20-21 (E.D. Va. 2010) (the debtors

were not required to provide actual notice of the bar date to each of the 39,600 people that it once employed despite being a party to a labor-related class action lawsuit as of the date they filed their petitions because, inter alia, uncovering the employees identities (i) would require more effort than is reasonably required by the circumstances, (ii) would be expensive and would consume a disproportionate share of the Debtors resources, and (iii) the bankruptcy court has an obligation to existing creditors.); Elsom v. Woodward & Lothrop, 1997 U.S. Dist. Lexis 12112 at 7 (E.D. Pa. 1997) (although plaintiffs name and address were available to defendants through the company records, plaintiff was not yet a creditor of defendants). Accordingly, the Debtors were under no obligation to serve the Whites with the Bar Date Notice as the Whites were unknown creditor(s) of the Debtors.

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ii.

The Whites Received Constructive Notice of the Bar Date

As unknown creditors, the Whites were only entitled to receive constructive notice of the Bar Date. The

constructive notice provided by Debtors complied with the Bar Date Order, and therefore, was sufficient. Notice is sufficient if it complies with the bar date order entered by the bankruptcy court. See Harvard

Industries, Inc. v. Conway (In re Harvard Industries, Inc.), 1995 Bankr. LEXIS 932 at 2 (Bankr. D. Del. 1995) (notice of the bar date order in the New York Times for two consecutive business days is consistent with the bar date order and such notice is consistent with due process); The Charter Co. v. Ziegler, 113 B.R. 725, 725 (M.D. Fl. 1990) (notice was proper as the bankruptcy court determined that the notice provided in the bar date order was reasonably calculated, under all the circumstances herein present, to apprise, and thereafter, the debtor abided by said determination and published notice to unknown creditors pursuant to the bankruptcy courts order). In the present case, the Bankruptcy Court entered the Bar Date Order on June 28, 2007, which established that the [d]ebtors shall cause the Publication Notice to be published once in the national edition of the The Wall
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Street Journal and any such other local publication as the Debtors deem appropriate no less than 30 days prior to the General Bar Date. Original). Bar Date Order 18 (Italics in the

On July 23, 2007, pursuant to the Bar Date

Order, notice of the Bar Date Order was published in the national edition of The Wall Street Journal and The Orange County Register, a local publication where the Debtors conducted business. See generally Affidavit of Publication

of Julie Trammell for The Orange County Register, annexed to the Schnitzer Declaration as Exhibit F; see also Affidavit of Publication of Glenn Hellums Jr. for The Wall Street Journal, annexed to the Schnitzer Declaration as Exhibit G. The Debtors published the Bar Date Notice more

than thirty (30) days before the General Bar Date.3 Accordingly, because the Whites were unknown creditors and therefore, not entitled to actual notice of the Bar Date and because the publication notice complied with the Bar Date Order, the Whites are barred from asserting the causes of action raised in the Complaint and the Claims. Hence, the Complaint fails to state a claim upon which relief may be granted and should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6).

Pursuant to the Bar Date Order, the General Bar Date was August 31, 2007.

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III. The Bankruptcy Court Lacks Subject Matter Jurisdiction In addition to being enjoined by the Bar Date, to the extent the Whites seek declaratory and/or non-monetary relief with respect to the Loan in Counts II, VI, VIII and XII of the Complaint, there is no subject matter jurisdiction to adjudicate the dispute. Pursuant to Rule

12(b)(1) of the Federal Rules of Civil Procedure, it is without question that a complaint should be dismissed if the Court lacks subject matter jurisdiction over the relief sought. See In re Aegis Mortgage Corp., 2008 Bankr. LEXIS

1519 (Bankr. D. Del. 2008). The limits of federal bankruptcy court jurisdiction are defined by 28 U.S.C. 1334(b). Section 1334(b) states

that "district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. 1334(b); see also 28 U.S.C. 157 (providing that a district court may refer any or all proceedings arising under title 11 or arising in or related to a case under title 11to the bankruptcy judges for the district.) Accordingly, a bankruptcy court may have subject matter jurisdiction over actions between non-debtors only if the court determines that the action relate[s] to a bankruptcy case.
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The test for determining whether related-to jurisdiction exists is whether the outcome of that proceeding could conceivably have an effect on the administration of the bankruptcy estate. See In re Pacor,

743 F.2d 984, 994 (3d Cir. 1984) (An action is related to bankruptcy if the outcome could alter the debtors rights, liabilities, options, or freedom of actionand which in any way impacts upon the handling and administration of the bankruptcy estate.). However, bankruptcy courts have no

jurisdiction over proceedings that have no effect on the estate of the debtor. In re Celotex Corp. v. Edwards, 514

U.S. 300, 308 n.6 (1995). There is no subject matter jurisdiction over the relief requested in the Complaint as the action does not in any way relate to the Trust or the Debtors Chapter 11 cases. By the Complaint, the Whites seek to (i) rescind

the Loan, (ii) cancel the security interest, and (iii) obtain fees and costs associated with litigating this claim. However, as stated above and in the Walker Declaration, neither the Trust, nor the Debtors have any interest in the Loan or mortgage as the Loan was transferred. Accordingly, there is no relationship between the relief sought in the Complaint and the Trust or the
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Debtors chapter 11 cases.

More importantly, as the Trust

and the Debtors have no interest in the Loan, or any control over the third parties who now own and service the Loan, the outcome of the Complaint will have no effect on the Trust or the administration of the Debtors estates. In fact, a strikingly similar fact pattern was addressed by Judge Shannon in the Aegis bankruptcy. Aegis, 2008 Bankr. LEXIS 1519. There, the plaintiff See

granted the debtors a mortgage on his residence to secure a $250,000 loan from the debtors. The debtors then sold the

mortgage to a third party purchaser prior to the bankruptcy. Id. at 3. In the debtors chapter 11 cases,

the plaintiff commenced an adversary proceeding asserting a number of federal and state law claims and requesting relief in the form of rescission of the mortgage, declaratory relief, and monetary damages. Id. The

plaintiff also filed an emergency motion seeking a preliminary injunction enjoining the debtors from taking any steps to enforce the mortgage until the court could determine the appropriateness of the relief sought in the complaint. Id. at 4.

At the hearing to consider the emergency motion seeking a preliminary injunction, the court found that the Debtor transferred property from itself to a third party
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purchaser before the bankruptcy, and accordingly the mortgage, the loan, the note, and any related rights and responsibilities were not part of this Debtors estate under 541 of the Bankruptcy Code. Id. at 5 (citing Feb. 5 2008 Hrg Tr. At 10:13-17). Based on this finding, the

Court held that it lacked jurisdiction over the subject matter of the emergency motion. Id. Subsequently, the

Court dismissed the complaint for lack of subject-matter jurisdiction to the extent that it sought injunctive relief because the Mortgages rescission will not harm the Debtors estates because the estates have no interest in it[and] a declaration as to the rights of parties under the Mortgage will not alter the Debtors rights, liabilities, options or freedom of action because the Debtors are no longer a party to it. Id. at 14.

Accordingly, pursuant to the plain language of 28 U.S.C. 1334, the standard articulated in Pacor, and the holding in Aegis, to the extent the Whites seek to rescind the Loan and/or cancel the security interest associated with the Loan by Counts II, VI, VIII and XII of the Complaint, there is no federal subject matter jurisdiction over the relief sought.

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Conclusion For the reasons set forth herein, the Trust respectfully requests that the Bankruptcy Court (i) dismiss the Complaint in its entirety with prejudice, (ii) expunge the Claims in their entirety, and (iii) grant such other relief as it deems just and appropriate. Dated: December 15, 2010 Wilmington, Delaware BLANK ROME LLP

By:/s/ Alan M. Root David W. Carickhoff (No. 3715) Alan M. Root (No. 5427) 1201 Market Street, Suite 800 Wilmington, Delaware 19801 (302) 425-6400 - Telephone (302) 425-6464 - Facsimile - and HAHN & HESSEN LLP 488 Madison Avenue New York, New York 10022 (212) 478-7200 - Telephone (212) 478-7400 - Facsimile Attn: Mark S. Indelicato, Esq. Edward L. Schnitzer, Esq. Janine M. Cerbone, Esq. Nicholas Rigano, Esq. Co-Counsel to the New Century Liquidating Trust

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