In re Madera

Decision Date12 November 2009
Docket NumberNo. 08-2205.,08-2205.
Citation586 F.3d 228
PartiesIn re Deborah A. MADERA, Debtor. Deborah A. Madera; Michael Madera, Appellants v. Ameriquest Mortgage Company.
CourtU.S. Court of Appeals — Third Circuit

David A. Scholl, Regional Bankruptcy Center of Southeastern Pennsylvania, Newtown Square, PA, Attorney for Appellant.

Sandhya M. Feltes, Kaplin, Stewart, Meloff, Reiter & Stein, Blue Bell, PA, Attorney for Appellee.

Before: SLOVITER, FUENTES, and HARDIMAN, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

Appellants Deborah and Michael Madera (the Maderas) appeal the District Court's affirmance of the Bankruptcy Court's grant of summary judgment in favor of Appellees, Ameriquest Mortgage Company and AMC Mortgage Services, Incorporated ("Ameriquest" and "AMC," respectively). The Maderas challenge the Bankruptcy Court's sua sponte ruling that it lacked jurisdiction to review their rescission claims because of the Rooker-Feldman doctrine, its dismissal of their damages claim under the Truth in Lending Act ("TILA"), and its denial of the Maderas' motion for leave to amend their complaint, all of which were affirmed by the District Court.1

I.

The Maderas are co-owners of real property located in Warminster, Pennsylvania. In January 2005, they obtained a loan from Option One Mortgage Company, secured by a mortgage on that property (the "Option One loan"). They used this loan to pay off a prior mortgage and to help finance their son's college tuition. After making one payment on that mortgage, they defaulted.

In June 2005, less than six months later, they entered into another loan transaction, this time with Ameriquest (the "Ameriquest loan"), again secured by a mortgage on their home. They used the Ameriquest loan to repay the Option One loan.

The Maderas made only one payment under the Ameriquest loan before defaulting, and in March 2006, Deutsche Bank National Trust Company, as assignee of the loan, initiated foreclosure proceedings in the Court of Common Pleas of Bucks County. Although the Maderas contend that they filed a pro se Answer to the Complaint seeking foreclosure, the Court of Common Pleas entered a default foreclosure judgment against them in May 2006.2

Deborah Madera then filed for Chapter 13 bankruptcy protection on July 19, 2006. Moreover, in August 2006, the Maderas instituted the first of two adversary actions in the Bankruptcy Court against Ameriquest (Madera I).

The Maderas raised four claims. As pertinent to this appeal, they alleged that Ameriquest failed to accurately disclose the terms of the Ameriquest loan as required under TILA, 15 U.S.C. § 1601, et seq., because, they argue, the title insurance charges were excessive and this overcharge should have been disclosed as a "finance charge." Based on TILA, they sought rescission of the Ameriquest loan as well as damages.3

After discovery, Ameriquest filed its summary judgment motion, after which the Maderas filed a motion for leave to amend their complaint.4 In November 2006, the Bankruptcy Court held a hearing on Ameriquest's summary judgment motion and the Maderas' motion to amend. At that hearing, the Bankruptcy Court orally denied the motion to amend. In February 2007, the Bankruptcy Court filed a Memorandum Opinion and Order granting Ameriquest's summary judgment motion and reiterating its denial of the Maderas' motion to amend.5

The Bankruptcy Court reasoned that the Rooker-Feldman doctrine barred its jurisdiction over the Maderas' claims for rescission because rescinding the loan would invalidate the aforementioned foreclosure judgment entered by the Court of Common Pleas. In addition, the Bankruptcy Court dismissed the Maderas' TILA claim for damages regarding Ameriquest's failure to disclose title insurance fees, finding that the Maderas presented insufficient evidence to prove they were entitled to a lower rate because they had not shown that they obtained prior title insurance in connection with the Option One loan, or that Ameriquest knew or should have known of any such prior title insurance. The Bankruptcy Court also explained that it had denied the motion to amend on the ground that it was untimely, futile, and would unduly prejudice Ameriquest and AMC.

The Maderas filed a Motion Requesting Reconsideration of the Memorandum Opinion and Order, which was denied. On appeal, the District Court affirmed the Bankruptcy Court's grant of summary judgment for Ameriquest, its denial of the Maderas' motion to amend, and its order denying reconsideration, adopting and extending the Bankruptcy Court's reasoning.

II.

Before us, the Maderas first challenge the conclusion of the Bankruptcy and District Courts that they lacked subject-matter jurisdiction under the Rooker-Feldman doctrine to hear the Maderas' claims seeking rescission. See District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983), and Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923). The Rooker-Feldman doctrine precludes lower federal courts "from exercising appellate jurisdiction over final state-court judgments" because such appellate jurisdiction rests solely with the United States Supreme Court. See Lance v. Dennis, 546 U.S. 459, 463, 126 S.Ct. 1198, 163 L.Ed.2d 1059 (2006). We have held that this doctrine applies equally to federal bankruptcy courts. See In re Knapper, 407 F.3d 573, 582 (3d Cir.2005).

The Rooker-Feldman doctrine is implicated 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). Accordingly, a claim is barred by Rooker-Feldman under two circumstances: (1) "if the federal claim was actually litigated in state court prior to the filing of the federal action" or (2) "if the federal claim is inextricably intertwined with the state adjudication, meaning that federal relief can only be predicated upon a conviction that the state court was wrong." In re Knapper, 407 F.3d at 580.

Moreover, a federal claim is "inextricably intertwined" with an issue adjudicated by a state court when (1) the federal court must determine that the state court judgment was erroneously entered in order to grant the requested relief, or (2) the federal court must take an action that would negate the state court's judgment. Id. at 581 (quoting Walker v. Horn, 385 F.3d 321, 330 (3d Cir.2004)).

The Bankruptcy and District Courts both held that Rooker-Feldman precluded their jurisdiction over the Maderas' rescission claim because that claim was inextricably intertwined with the Court of Common Pleas' foreclosure judgment. They reasoned that granting rescission would amount to finding that no valid mortgage existed, which would negate the foreclosure judgment, as a "mortgage foreclosure action depends upon the existence of a valid mortgage." App. at 24. We agree. Indeed, a favorable decision for the Maderas in the federal courts would prevent the Court of Common Pleas from enforcing its order to foreclose the mortgage. See In re Knapper, 407 F.3d at 581 ("Rooker-Feldman does not allow a plaintiff to seek relief that, if granted, would prevent a state court from enforcing its orders.") (quoting Walker, 385 F.3d at 330).

The Maderas next contend that the Bankruptcy and District Courts were incorrect in rejecting their TILA claim seeking damages for Ameriquest's failure to disclose the title insurance charge, which was set at the "basic rate," rather than the lower "refinance rate."

The Bankruptcy Court granted summary judgment against the Maderas on their TILA damages claim on the ground that they failed to create a genuine issue of material fact as to whether they had prior title insurance in connection with the Option One loan. We conclude that was an adequate basis for the Bankruptcy Court's grant of summary judgment.

TILA requires certain disclosures of credit terms so that customers may compare the various terms available to them and avoid the uninformed use of credit. See, e.g., 15 U.S.C. §§ 1602(u), 1638(a). One fee subject to disclosure under TILA is the "finance charge"—the sum of all those charges "payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit." 15 U.S.C. § 1605(a).

The statute expressly exempts title insurance fees from the definition of "finance charge." 15 U.S.C. § 1605(e)(1). The regulations interpreting TILA, however, mandate that title insurance costs are to be treated as finance charges if they are not "bona fide and reasonable in amount." 12 C.F.R. § 226.4(c)(7). Put another way, under the regulations, title insurance fees must be disclosed under TILA to the extent they are not "reasonable in amount." Ameriquest concedes that it did not disclose title insurance charges in the loan agreement, but it argues that it was not obligated to do so because the Maderas did not put Ameriquest on actual or constructive notice of their entitlement to a lower rate prior to or at closing.6

The problem is not that the Maderas failed to put Ameriquest on notice of their eligibility for a lower rate. Rather, as the Bankruptcy Court found, it is that they failed to create a question of fact as to whether they had indeed purchased title insurance in association with the Option One loan.

The Maderas argue that TILA does not place a burden on borrowers to notify lenders of eligibility for reduced title insurance rates, but rather that TILA simply requires the lender to disclose title insurance fees if the amount charged is higher than it should be under the TIRBOP Manual. The Maderas assert that the disclosure provision of TILA imposes strict liability,...

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