Summary
stating that Rooker-Feldman prohibits federal courts from addressing any claims "that were previously adjudicated in, or are inextricably intertwined with, that state foreclosure proceeding"
Summary of this case from Barel v. Judiciary Courts of N.J.Opinion
Civ. No. 17-cv-3424 (KM)( MAH)
01-16-2018
DENISE OTTO, Plaintiff, v. JUDICIARY COURTS OF THE STATE OF NEW JERSEY, THE OFFICE OF THE ADMINISTRATOR OF THE COURTS, SUPREME COURT OF NEW JERSEY, SUPERIOR COURT OF NEW JERSEY OFFICE OF FORECLOSURE, SUPERIOR COURT OF NEW JERSEY ESSEX COUNTY VICINAGE, JUDGE KENNETH S. LEVY, JUDGE DAVID M. KATZ, JUDGE PAUL INNES, ARMANDO B. FONTOURA, WELLS FARGO BANK, N.A.; U.S. BANK, NATIONAL ASSOCIATION AS TRUSTEE FOR BNC MORTGAGE LOAN TRUST 2006-2, PHELAN HALLINAN DIAMOND & JONES, PC, LAWRENCE T. PHELAN, ROSEMARIE DIAMOND, FRANCIS S. HALLINAN, JOHN HABERMANN, Defendants.
OPINION
KEVIN MCNULTY , U.S.D.J. :
Denise Otto entered into a $160,000 mortgage in 2006. In 2011, she defaulted, and ultimately a judgment of foreclosure was entered. U.S. Bank, etc. v. Otto, No. F-026230-12 (N.J. Super. Ct., Ch. Div. Essex Cty.). Otto, as borrower and property owner, sues the courts, the judges, the sheriff, the opposing attorneys, her mortgagee, and others. This is her second federal action attempting to undo the foreclosure or seek damages based on the mortgage default and the proceedings surrounding the foreclosure. Before the court is the motion of the three defendants who have been served and have appeared to dismiss the current action. For the reasons stated herein, the motion to dismiss will be granted.
The defendants named in this action fall into four broad categories:
(a) The State judiciary, the courts, and state judges. ("Judiciary defendants")
(b) The (former) Essex County sheriff, Mr. Fontura (the "Sheriff").
(c) Wells Fargo Bank as mortgagee and U.S. Bank as trustee for a mortgage loan trust (the "Bank defendants").
(d) The Phelan law firm, which represented the mortgagee bank in the foreclosure, and individual attorneys of that firm (the "Law Firm defendants").
I. Procedural Background
A. Mortgage and State foreclosure judgment
On November 13, 2012, U.S. Bank filed a foreclosure action in the Superior Court of New Jersey, Chancery Division, Essex County. (U.S. Bank, etc. v. Otto, No. F-026230-12. (ECF no. 3-3) U.S. Bank was represented in the foreclosure by Phelan Hallin & Diamond, PC, named as a defendant here.
The complaint in foreclosure alleged as follows: On August 30, 2006, Denise Otto and Eugene I. Otto entered into a $160,000 note and mortgage with BNC Mortgage, Inc., secured by their property at 139-141 Western Parkway in Irvington. On January 16, 2009, the mortgage was assigned to U.S. Bank National Association, as Trustee for BNC Mortgage Loan Trust 2006-2. On September 18, 2012, it was again assigned to U.S. Bank National Association, as Trustee for BNC Mortgage Loan Trust 2006-2, Mortgage Pass-Through Certificates, Series 2006-2. Otto failed to make the monthly mortgage payment due on June 1, 2011, and all payments thereafter, and the mortgage went into default. Due notice of default was given.
On August 12, 2014, the court entered a final judgment of foreclosure in the amount of $236,762.78, plus interest and counsel fees. A sheriff's sale was ordered.
B. The Prior Federal Action
This action must be understood in the context of a prior, dismissed action, Otto v. Wells Fargo, Civ. No. 15-8240 (the "Prior Federal Action"). In that action, Ms. Otto sued the the Bank defendants and the Law Firm defendants. (Categories (c) & (d). See n.1, supra.) That action was based on matters arising from the same mortgage and the state court judgment of foreclosure upon which this action is based.
The complaint in the Prior Federal Action named the Phelan firm, but the current action also names certain of the Phelan firm attorneys individually. In the Prior Federal Action, Otto did not sue the Judiciary defendants or the Sheriff (categories (a) and (b), supra).
Ms. Otto filed the complaint in the Prior Federal Action on November 24, 2015, some 15 months after the entry of final judgment in the state foreclosure action. It had six Counts:
Count 1: Rescission under the Truth in Lending Act ("TILA"), 15 U.S.C. § 1635
Count 2: Enforcement of rescission under 15 U.S.C. § 1638(a)(1)
Count 3: Enforcement of rescission under 12 C.F.R. § 226.23
Count 4: Assertion that the three-year deadline on rescission has not run because loan not consummated
Count 5: Violation of criminal statute, 15 U.S.C. § 1511, by Wells Fargo and the Phelan firm
Count 6: Restitution under 12 C.F.R. § 1026.23
In the Prior Federal Action, I filed an order and opinion ("Prior Op.") (Otto v. Wells Fargo Bank, Civ. No. 15-8240, 2016 WL 8677313 (July 15, 2016), aff'd, 693 F. App'x 161 (3d Cir. May 31, 2017), which granted motions to dismiss the complaint with prejudice. A copy of that prior Opinion is attached to this Opinion as an appendix.
First, I dismissed the action under the Rooker-Feldman doctrine to the extent that it sought to attack the validity of the mortgage or the other merits issues decided by the state court judgment of foreclosure. (Prior Op. 5-8)
Second, and relatedly, I applied res judicata, and in particular the New Jersey entire controversy rule, to dismiss any claims that were or could have been asserted in the state court foreclosure action. (Prior Op. 9-14)
Third, I held in the alternative that the complaint did not state a claim in several particulars. The claim under the Truth in Lending Act ("TILA") had not been brought within the one-year statute of limitations. Any claim against parties or their attorneys based on positions taken in the state court were barred by the litigation privilege. A criminal statute cited as the basis of a claim, 15 U.S.C. § 1611, does not give rise to a civil cause of action. (Prior Op. 14-15)
My decision dismissing the Prior Federal Action was affirmed by the United States Court of Appeals for the Third Circuit. (Docket No. 16-3385, 693 F. App'x 161 (3d Cir. May 31, 2017)
C. This Action
On May 12, 2017, Ms. Otto filed this federal court action. In this action, as noted above, Ms. Otto has sued four broad categories of defendants (see n.1, supra), based on matters surrounding the mortgage, the default, and the foreclosure. This new action names the Bank Defendants (c) and the Law Firm Defendants (d), who were also sued in the Prior Federal Action. It adds the Judiciary Defendants (a) and the Sheriff (b), who were not sued in the Prior Federal Action. As to the Judiciary and Law Firm defendants in categories (a) and (d), no proof of service has been filed, and they have not appeared. The Sheriff (b) has appeared, as have the Bank defendants (c).
The Complaint contains a great deal of material in the factual allegations, much of it unconnected to any cause of action. The causes of action pled, however, are as follows:
Count 1: Violation of the Civil Rights Act of 1866 (equal rights with respect to property without regard to race)
Count 2: Violation of the Civil Rights Act of 1866 (involuntary servitude)
Count 3: Violation of Universal Declaration of Human Rights
Count 4: Conflict of interest and lack of neutrality of State of New Jersey and New Jersey Courts
Count 5: Fraudulent concealment
Count 6: Covenant of good faith and fair dealing.
The Complaint seeks $50,000,000 in "lawful money" as damages.
D. Motion to Dismiss and Order to Show Cause
On June 20, 2017, the Bank Defendants (Wells Fargo and U.S. Bank) filed a motion to dismiss the Complaint for lack of jurisdiction and failure to state a claim, pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6). (ECF no. 9) That motion is joined by the Sheriff. (ECF no. 10)
On October 4, 2017, I filed an Order to Show Cause providing that if the plaintiff did not file an opposition to the motion to dismiss within 21 days, it might be treated as unopposed and granted. (ECF no. 14)
On October 24, 2017, Ms. Otto filed what is deemed a response. (ECF no. 17) It states that "(a]t this time Otto believes that filing of any opposition to the motion to dismiss her complaint . . . is a waste of time and a futile attempt to bash her head against the proverbial wall of the so called justice of this particular district court who without a doubt in order to protect the criminal activity of the likes of a nationally known criminal enterprise such as Wells Fargo Bank, N.A., who admittedly and knowingly forged millions of customer signatures and fraudulently without customers' knowledge opened millions of fraudulent bank accounts, would claim lack of jurisdiction or failure to state a claim or some other excuse just to dismiss Otto's Civil Rights case." (Id. at 2-4) In support, Ms. Otto cites the Magistrate Judge's grant of the letter request of defense counsel to suspend the discovery schedule pending resolution of the motion to dismiss. (See ECF nos. 11, 12, & 13) She states that the Magistrate Judge belongs to the "same attorney bar club" as Mr. Bender, counsel for the Bank Defendants. No further response on the merits of the motion has been filed.
Grounds for recusal of Judge Hammer do not remotely appear to be present in these allegations. See generally 28 U.S.C. § 455; Liteky v. United States, 510 U.S. 540 (1994), But in any event, nothing about these allegations bears upon the appropriateness of my ruling on this motion to dismiss.
II. Standard on a motion to dismiss
My opinion in the Prior Federal Action (attached) states the relevant standards on a Rule 12(b)(1) or Rule 12(b)(6) motion to dismiss. They will not be repeated here. See generally Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007) (complaint's factual allegations must be sufficient to raise a plaintiff's right to relief above a speculative level, so that a claim is "plausible on its face.") Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); In re: Lipitor Antitrust Litigation, 868 F.3d 231, 249 (3d Cir. 2017) (heightened Rule 9(b) standard for pleading fraud claim). I have given the allegations the liberal construction due a pro se pleading. See Erickson v. Pardus, 551 U.S. 89, 93-94 (2007); Mala v. Crown Bay Manna, Inc., 704 F.3d 239, 245 (3d Cir. 2013).
III. Analysis
Otto has filed no substantive opposition to the motion to dismiss. Beyond that, she has affirmatively waived any such opposition, declaring it to be futile. See Section I.D, supra. Still, the Court will address the merits, if only briefly. See Jones v. Unemployment Comp. Bd. of Review, 381 F. App'x 187, 189 (3d Cir. 2010); Smith, 2017 WL 2560348 at *2.
This analysis should be read in the context of my opinion dismissing the Prior Federal Action, a copy of which is attached. In addition, I rely on the opinion of Chief Judge Linares in Smith v. New Jersey, et al., a case in which the complaint was a virtual duplicate of the Complaint here, except for the names of certain parties. Civ. No. 17-443, 2017 WL 2560348 (D.N.J. June 12, 2017). Compare Smith Second Amended Complaint, Dkt item no. 29-2, with Complaint in this action, ECF no. 1.
A. Rooker-Feldman
Defendants first move, pursuant to Fed. R. Civ. P. 12(b)(1), to dismiss the complaint for lack of jurisdiction under the Rooker-Feldman doctrine. See District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413, 416 (1923).
A federal district court does not sit to hear appeals from state court judgments. Rooker-Feldman operates to prevent a disgruntled party in state court litigation from collaterally attacking the results of that litigation in federal court, claiming constitutional or other error. See also B.S. v. Somerset County, 704 F.3d 250 (3d Cir. 2013). To put it another way, Rooker-Feldman bars "cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments." Exxon Mobil Corp. v. Saudi Basic Indus., Inc., 544 U.S. 280, 284, 125 S.Ct. 1517 (2005).
The Rooker-Feldman doctrine applies when, "in order to grant the federal plaintiff the relief sought, the federal court must determine that the state court judgment was erroneously entered or must take action that would render that judgment ineffectual." FOCUS v. Allegheny County Court of Common Pleas, 75 F.3d 834, 840 (3d Cir. 1996). Thus Rooker-Feldman holds that lower federal courts cannot entertain federal claims that (1) were previously adjudicated in state court or (2) are inextricably intertwined with a prior state court decision. Feldman, supra; Rooker, supra; Guarino v. Larsen, 11 F.3d 1151, 1156-57 (3d Cir. 1993); Port Auth. Police Benev. Ass'n v. Port Auth., 973 F.2d 169, 178 (3d Cir. 1992).
A final judgment of foreclosure was entered in New Jersey Superior Court on August 12, 2014. In the Prior Federal Action I held that this case involves a "state-court judgment[] rendered before the district court proceedings commenced." Exxon Mobil, 544 U.S. at 284. That is, if anything, even more true of the current action.
Rooker-Feldman bars any claims that were previously adjudicated in, or are inextricably intertwined with, that state foreclosure proceeding. Ms. Otto's federal causes of action share a common element: that the 2006 mortgage was never valid and that the foreclosure violated her rights. The state foreclosure judgment necessarily decided against Ms. Otto the following essential elements: the validity of the note and mortgage; the alleged default; and the mortgagee bank's right to foreclose (which would include its standing by assignment or otherwise). See Great Falls Bank v. Pardo, 263 N.J. Super. 388, 394, 622 A.2d 1353, 1356 (Ch. Div. 1993). "If the relief requested in the federal action requires determining that the state court's decision is wrong or would void the state court's ruling, then the issues are inextricably intertwined and the district court has no subject matter jurisdiction to hear the suit." FOCUS, 75 F.3d at 840.
Ms. Otto's claims against the Bank Defendants arise from the alleged invalidity of the mortgage, an issue foreclosed by the State court judgment of foreclosure. Her claims against the Sheriff can only arise from his conducting, or planning to conduct, a sheriff's sale that was ordered as part of the judgment of foreclosure; they rest on the alleged invalidity of the judgment.
Ms. Otto's claims are claims "brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments." Exxon Mobil, 544 U.S. at 284. They are barred by Rooker-Feldman.
Nevertheless, to the extent any claim may be regarded as independent of the foreclosure, 1 consider other grounds for dismissal.
Parallel to the Rooker-Feldman analysis, but not jurisdictional, are doctrines of res judicata, collateral estoppel, and the entire controversy rule. These furnished part of the basis for my dismissal of the Prior Federal Action. (See Opinion, attached.) Such grounds would only be strengthened by the fact that this is a second federal action on the same subject matter.
B. Other Grounds
Count 1: Violation of the Civil Rights Act of 1866 (equal rights with respect to property without regard to race)
Count 2: Violation of the Civil Rights Act of 1866 (involuntary servitude)
As to the first claim, the complaint pleads no facts that suggest any racial or discriminatory animus on the part of the Bank Defendants or the Sheriff. The second claim seems to rest primarily on the theory that Federal Reserve Notes are not legal tender, so that the mortgagee bank's demand for repayment imposes "involuntary servitude." I know of no legal authority for such a claim.
The Complaint alleges that there are no U.S. Dollars as defined by the Coinage Act of 1792 currently in circulation, and that her debt, because payable in Federal Reserve Notes, is therefore fraudulent and invalid. (Cplt. pp. 37-38 ¶¶ 87-92) However, the plaintiff used this loan, denominated in U.S. dollars, to purchase her home.
Count 3: Violation of Universal Declaration of Human Rights
There is no private cause of action for violation of the Universal Declaration of Human Rights. See United States v. Chatman, 351 F. App'x 740, 741 (3d Cir. 2009) (citing Sosa v. Alvarez-Machain, 542 U.S. 692, 734 (2004)).
Count 4: Conflict of interest and lack of neutrality of State of New Jersey and New Jersey Courts
This count appears to be pled only against the Judiciary Defendants.
Count 5: Fraudulent concealment
In general, a fraud claim requires that a plaintiff allege, as to each defendant, "(1) a material misrepresentation of presently existing or past fact; (2) knowledge or belief by the Defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages." Banco Popular N. Am. v. Gandi, 184 N.J. 161, 172-73 (2005) (quoting Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997)). These particulars are not alleged.
To some degree, this Count appears to be a repackaging of the other causes of action described above. It obscurely alleges that a check was not returned to plaintiff. Plaintiff also complains of the use of her mortgage as part of a securitization, but never specifies how this injured her—for example, caused her to owe or pay any amount she would not otherwise have owed or paid. Although replete with references to misrepresentations, false and fraudulent documents, and allegations about Wells Fargo seemingly drawn from news accounts, the Complaint nowhere intelligibly identifies the who, what, when, where, and how of any fraud committed against this plaintiff. See generally In re: Lipitor Antitrust Litigation, 868 F.3d 231, 249 (3d Cir. 2017) (heightened Rule 9(b) standard for pleading fraud claim).
Count 6: Covenant of good faith and fair dealing.
Under New Jersey law, every contract is deemed to contain an implied covenant of good faith and fair dealing. See Sons of Thunder, Inc. v. Borden, Inc., 690 A.2d 575, 587 (N.J. 1997); Emerson Radio Corp. v. Orion Sales, Inc., 253 F.3d 159, 169-70 (3rd Cir. 2001). A cause of action may lie where a party's acts "have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Wade v. Kessler Inst., 798 A.2d 1251, 1262 (N.J. 2002) (internal quotations and citation omitted). "[P]roof of bad motive or intention is vital to an action for breach of the covenant." Westmont Dev. Grp., LLC v. Twp. of Haddon, 625 F. Supp. 2d 178, 195 (D.N.J. 2009) (citing Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 864 A.2d 387, 396 (N.J. 2005)).
The contract at issue is not specified, but presumably it would consist of the loan papers. Acting to foreclose on a mortgage that is in default is not wrongful. The complaint, despite its length, fails to allege any manner in which, for example, plaintiffs default on the mortgage was brought about by some bad faith, improperly motivated act of the defendant. The plaintiff here was not unfairly deprived of the fruits of the parties' agreement.
C. Other Defendants
The causes of action as pled against the remaining defendants have obvious facial defects, such as Eleventh Amendment or judicial immunity. See Smith, supra (discussing the issues in relation to a substantively identical complaint). As to those defendants, however, no proofs of service have been filed, and they have not appeared.
The Complaint was filed on May 12, 2017. These defendants were not served within 90 days, as required by Fed. R. Civ. P. 4(m). No explanation, good or bad, has been proffered by the plaintiff. I will therefore dismiss the Complaint, without prejudice, as against the remaining defendants.
CONCLUSION
The Motion of the Bank Defendants, joined by the Sheriff, to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(1), for lack of jurisdiction under the Rooker-Feldman doctrine, and in the alternative under Rule 12(b)(6) for failure to state a claim, is therefore GRANTED. Because this is a second action based on the same subject matter, and because the plaintiff has declined to respond in any way to the motion to dismiss, the dismissal is with prejudice. As to the remaining defendants, who have not been served and have not appeared, the dismissal is without prejudice. Dated: January 16, 2018
/s/_________
KEVIN MCNULTY
United States District Judge
Image materials not available for display.