525 F.3d 855 (9th Cir. 2008), 06-35850, Reusser v. Wachovia Bank, N.A.

Docket Nº:06-35850
Citation:525 F.3d 855
Party Name:Kenneth L. REUSSER; Gertrude Reusser, Plaintiffs-Appellants, v. WACHOVIA BANK, N.A.; Washington Mutual Bank, FA, Defendants-Appellees, and Georgianna K. Nakamoto; Steven C. Nakamoto, Defendants.
Case Date:May 08, 2008
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
FREE EXCERPT

Page 855

525 F.3d 855 (9th Cir. 2008)

Kenneth L. REUSSER; Gertrude Reusser, Plaintiffs-Appellants,

v.

WACHOVIA BANK, N.A.; Washington Mutual Bank, FA, Defendants-Appellees,

and

Georgianna K. Nakamoto; Steven C. Nakamoto, Defendants.

No. 06-35850

United States Court of Appeals, Ninth Circuit

May 8, 2008

Argued and Submitted Dec. 6, 2007.

Page 856

Charles R. Markley, Greene & Markley, P.C., Portland, OR, argued the cause for the plaintiffs-appellants and filed briefs.

Thomas R. Johnson, Perkins Coie LLP, Portland, OR, argued the cause for the defendants-appellees and filed a brief; Amber A. Hollister, Perkins Coie LLP, Portland, OR, was on the brief.

Appeal from the United States District Court for the District of Oregon; Ancer L. Haggerty, Chief District Judge, Presiding. D.C. No. CV-06-00112-HA.

Before: DIARMUID F. O'SCANNLAIN, SUSAN P. GRABER, and CONSUELO M. CALLAHAN, Circuit Judges.

O'SCANNLAIN, Circuit Judge.

We must decide whether alleged fraud in a state court home foreclosure proceeding during the homeowners' bankruptcy can be re-visited in federal court.

I

A

In December 2001, Kenneth and Gertrude Reusser received an $860,000 loan from Long Beach Mortgage Company, placing as collateral a home that had been in Kenneth's family for more than 100 years. Five months after receiving the loan, the Reussers stopped making payments. In April 2003, Long Beach Mortgage Company assigned its interest to Wachovia Bank, which gave notice to the Reussers that it intended to foreclose on

Page 857

the property through Washington Mutual Bank, its loan servicing institution.

On August 27, 2003, the Reussers declared bankruptcy, which automatically stayed the foreclosure sale under 11 U.S.C. § 362(a)(3). However, Washington Mutual applied for and received a bankruptcy court order granting it relief from stay, thereby allowing the foreclosure sale to proceed. The bankruptcy court's order was worded, in relevant part, as follows:

It appears . . . that the stay should be lifted as to enforcement of the deed of trust that is the subject of Washington Mutual Bank, F.A.'s motion and further as to the [Reussers'] property . . .

IT IS THEREFORE ORDERED that, pursuant to 11 U.S.C. § 362(d), the automatic stay is terminated as to Washington Mutual Bank, F.A., its successors and assigns, so that it may pursue its state remedies to enforce its security interest in the Property and/or as to enforcement of the deed of trust that is the subject of [its] motion.1

Wachovia was not a party to Washington Mutual's motion before the bankruptcy court, nor did Wachovia directly seek relief from the automatic stay.

Despite the bankruptcy court order, the Reussers remained on the property, prompting Wachovia to institute a Forcible Entry and Detainer (FED) proceeding in Oregon state court. The accompanying Residential Eviction Complaint stated that Wachovia was entitled to possession of the residence and that the Reussers were required to appear in court on March 1, 2004, or a default judgment would be granted to Wachovia. After receiving the summons and complaint, the Reussers wrote "Rejected for Cause Without Dishonor" across the front page and returned it to the state court by registered mail, along with a "First Amendment [sic] Petition for Abatement of Action" challenging the merits of the FED proceeding. Wachovia was served with a copy of the petition.

A parade of errors followed, leading to the present action. The Reussers failed to include a required $95 filing fee with their petition, and a state court clerk therefore attempted to return the petition by mailing it to the Reussers. However, the clerk mailed the rejected petition to the wrong address. The undelivered petition eventually was returned to the state court, which took no further action. Then, under the mistaken belief that their petition was filed and constituted an appearance, the Reussers did not show up to the scheduled FED hearing. At the hearing, Wachovia did not inform the state court that it had been served with the "First Amendment Petition" by the Reussers. Accordingly, the state court entered a default judgment in favor of Wachovia.

On May 7, 2005, the Reussers filed a motion in state court to vacate the default judgment, which was followed by a hearing. There, the Reussers argued that their failure to appear was excused by Wachovia's alleged failure to provide requisite notice that it would seek a default judgment, and by Wachovia's failure to inform the state court that it had been served with the Reussers' petition.2 The state court denied the Reussers' motion

Page 858

without specifying the grounds for its holding, and the Reussers' appeal was dismissed as moot after the Reussers' property was sold in a subsequent foreclosure sale.

B

Following their failed attempt to vacate the default judgment in Oregon state court, the Reussers filed a complaint against Wachovia and Washington Mutual in the United States District Court for the District of Oregon, alleging two federal claims. First, the Reussers brought a claim under 42 U.S.C. § 1983, arguing that Wachovia "acted jointly with Washington County officers, clerks, judges and sheriffs under color of law" wrongfully to evict the Reussers in violation of their right to property. Second, the Reussers alleged that Wachovia foreclosed on their property in violation of § 362, arguing that the bankruptcy court's order granted relief from the stay only to Washington Mutual and therefore did not apply to Wachovia. The Reussers also brought three state-law claims against Wachovia, alleging that Wachovia...

To continue reading

FREE SIGN UP