Burciaga v. Deutsche Bank Nat'l Trust Co.

• Decision Date: 18 September 2017
• Docket Number: No. 16-40826.,16-40826.
• Citation: 871 F.3d 380
• Parties: Jesse C. BURCIAGA; Edna K. Burciaga, Plaintiffs–Appellants v. DEUTSCHE BANK NATIONAL TRUST COMPANY as Trustee, Defendant–Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

871 F.3d 380

Jesse C. BURCIAGA; Edna K. Burciaga, Plaintiffs–Appellants

v.DEUTSCHE BANK NATIONAL TRUST COMPANY as Trustee, Defendant–Appellee

No. 16-40826.

United States Court of Appeals, Fifth Circuit.

September 18, 2017

Roger M. Yale, Yale Law Group, McKinney Denton, TX, for Plaintiffs–Appellants.

Thomas F. Loose, Esq., Arthur Elex Anthony, Esq., Alexa Rae Watt, Locke Lord, L.L.P., Dallas, TX, for Defendant–Appellee.

Before PRADO, HIGGINSON, and COSTA, Circuit Judges.

STEPHEN A. HIGGINSON, Circuit Judge:

The Burciagas defaulted on their home equity loan in 2011. In 2013, Deutsche Bank filed a foreclosure suit in Texas state court. Without holding a hearing—as required by Texas law—the state court entered a foreclosure order. Although Texas law expressly required that any challenge to the foreclosure order be made in a separate, original proceeding, the Burciagas moved to vacate the foreclosure order in the same proceeding. The state court granted their motion. Several months later, Deutsche Bank foreclosed on the encumbered property. The Burciagas filed suit in another Texas state court challenging the foreclosure sale. Deutsche Bank removed the suit to federal district court, and the district court granted summary judgment to Deutsche Bank on all claims. The Burciagas appealed and we AFFIRM.

I

In 1999, Jesse and Edna Burciaga purchased a house in Flower Mound, Texas (the "Property"). The Burciagas refinanced their mortgage in 2003, and they executed a home equity fixed/adjustable rate note (the "Note") in the original principal amount of $344,000. The Note and interest in the security instrument were assigned to Deutsche Bank.

The Burciagas defaulted on their obligations under the Note in 2011. On July 11, 2011, Deutsche Bank notified the Burciagas of the bank's intent to accelerate the debt if the Burciagas did not cure their default. The Burciagas failed to do so, and Deutsche Bank accelerated the debt.

In October 2013, Deutsche Bank filed a foreclosure suit in Texas state court pursuant to Texas Rule of Civil Procedure 736.1 (the "Foreclosure Action").¹ The Burciagas filed an answer, and a final hearing was set for December 20, 2013. On December 13, 2013, however, the state court issued an order permitting Deutsche Bank to proceed with foreclosure of the loan and sale of the Property (the "Foreclosure Order"). The court closed the Foreclosure Action that same day.

On December 20, 2013, the Burciagas moved to vacate the Foreclosure Order and reopen the case. The state court granted the Burciagas' motion and vacated the Foreclosure Order on January 9, 2014 (the "Vacating Order").

Nonetheless, on April 10, 2014, Deutsche Bank sent a copy of the Foreclosure Order and a Notice of Sale to the Burciagas. Deutsche Bank foreclosed on the Property on May 6, 2014, and purchased the Property at the foreclosure sale for $455,784.96 (the "Foreclosure Sale"). Soon after, Deutsche Bank notified the Burciagas of the bank's intent to take possession of the Property.²

II

On June 4, 2014, the Burciagas filed suit in a different Texas state court, asserting three claims: trespass to try title, violation of the Texas Civil Practice and Remedies Code, and a request for a preliminary injunction. Deutsche Bank removed the case to federal court. Deutsche Bank filed a counterclaim seeking a declaratory judgment, quiet title to the Property, and judicial foreclosure based on breach of contract.

The district court granted summary judgment in favor of Deutsche Bank. The court declared that the May 6, 2014 foreclosure sale was valid and entered an order granting quiet title to the Property to Deutsche Bank. The Burciagas moved for reconsideration, which the district court denied, and the Burciagas timely appealed.

On appeal, the Burciagas make three arguments. First they contend that the district court's assumption of jurisdiction violated the Rooker – Feldman doctrine and that this court should dismiss the appeal for lack of subject-matter jurisdiction. Second, they argue that the district court erred in granting summary judgment to Deutsche Bank because the state court's Vacating Order was proper, and thus, the Foreclosure Order was invalid. Finally, the Burciagas argue that their due process rights under the United States and Texas Constitutions were violated when the state court entered the Foreclosure Order without first holding a hearing as required by Texas law.

III

Before considering the Burciagas' arguments, we briefly review the particular Texas foreclosure process that underlies this case— Texas Rule of Civil Procedure 736. A Rule 736 proceeding is not "an ordinary lawsuit," but rather "a faster, more streamlined alternative to judicial foreclosure." Huston v. U.S. Bank Nat'l Ass'n , 359 S.W.3d 679, 682 (Tex. App.—Houston [1st Dist.] 2011, no pet.). Once the petitioner files a Rule 736 application for foreclosure, if the respondent files a response, Rule 736.6 requires that the court hold an evidentiary hearing before issuing an order on the application. A Rule 736 order "is without prejudice and has no res judicata, collateral estoppel, estoppel by judgment, or other effect in any other judicial proceeding." Tex. R. Civ. P. 736.9. "After an order is obtained, a person may proceed with the foreclosure process under applicable law and the terms of the lien sought to be foreclosed." Id.

Rule 736 also provides an exclusive procedure for challenging an order on a Rule 736 application: "Any challenge to a Rule 736 order must be made in a suit filed in a separate, independent, original proceeding in a court of competent jurisdiction." Id. at 736.8(c) (emphasis added). An order granting or denying a Rule 736 application "is not subject to a motion for rehearing, new trial, bill of review, or appeal." Id. However, if a party files an independent suit challenging a Rule 736 foreclosure order before 5:00 p.m. on the Monday before the scheduled foreclosure sale, the Rule 736 proceeding or order is automatically stayed. Id. at 736.11(a). Once the Rule 736 court is notified that an independent suit has been filed challenging the Foreclosure Order, the court is required to dismiss the Rule 736 proceeding or vacate the foreclosure order. Id. at 736.11(c). "If the automatic stay under [Rule 736.11] is in effect, any foreclosure sale of the property is void." Id. at 736.11(d).

IV

We first address whether we have subject-matter jurisdiction over this appeal. The Burciagas argue that the district court exceeded its jurisdictional authority by "unilaterally reviv[ing] the vacated Foreclosure Order and modif[ying] the final disposition of the foreclosure in the Trial Court" in violation of the Rooker – Feldman³ doctrine.⁴ The court must address challenges to subject-matter jurisdiction before reaching the merits of a case. Del–Ray Battery Co v. Douglas Battery Co. , 635 F.3d 725, 729 (5th Cir. 2011) (citing Steel Co. v. Citizens for a Better Env't , 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) ). We review the district court's determination that Rooker – Feldman does not apply de novo. Ill. Cent. R.R. Co. v. Guy , 682 F.3d 381, 390 (5th Cir. 2012).

" ‘Reduced to its essence, the Rooker – Feldman doctrine holds that inferior federal courts do not have the power to modify or reverse state court judgments' except when authorized by Congress." Truong v. Bank of Am., N.A. , 717 F.3d 377, 382 (5th Cir. 2013) (quoting Union Planters Bank Nat'l Ass'n v. Salih , 369 F.3d 457, 462 (5th Cir. 2004) ). We have described the doctrine as comprising four elements: "(1) a state-court loser; (2) alleging harm caused by a state-court judgment; (3) that was rendered before the district court proceedings began; and (4) the federal suit requests review and reversal of the state-court judgment." Houston v. Venneta Queen , 606 Fed.Appx. 725, 730 (5th Cir. 2015) (unpublished) (citing Exxon Mobil Corp. v. Saudi Basic Indus. Corp. , 544 U.S. 280, 284, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005) ). We have also said that the doctrine applies only to "final judgment[s] rendered by a state's court of last resort." Ill. Cent. , 682 F.3d at 390.⁵ Further, in addition to the precise claims presented to the state court, Rooker – Feldman prohibits federal court review of claims that are "inextricably intertwined" with a state court decision. Feldman , 460 U.S. at 486–87, 103 S.Ct. 1303. "[I]n light of the ‘narrow ground’ Rooker – Feldman occupies," however, "[the doctrine] does not prohibit a plaintiff from ‘presenting some independent claim, albeit one that denies a legal conclusion that a state court has reached in a case to which [the plaintiff] was a party.’ " Truong , 717 F.3d at 382 (alteration omitted) (quoting Exxon , 544 U.S. at 284, 293, 125 S.Ct. 1517 ).

There are two state court orders at issue in this litigation that might implicate the Rooker – Feldman doctrine: the Foreclosure Order and the Vacating Order. Because it was issued later and ostensibly superseded the Foreclosure Order, we first examine application of Rooker – Feldman to the Vacating Order.

A

By arguing that its foreclosure of the Burciagas' property was valid, Deutsche Bank is essentially seeking review of the Vacating Order. Deutsche Bank contends that the Vacating Order was improper because Texas law prohibits parties from challenging Rule 736 foreclosure orders in the Rule 736 proceeding. See Tex. R. Civ. P. 738.8. According to Deutsche Bank, the Foreclosure Order is the state court's only valid and operable order, and the bank was entitled to use it to foreclose on the property. The Rooker – Feldman doctrine is inapplicable to Deutsche Bank's counterclaims for two, independent reasons.

First, the Vacating Order was not a final judgment. See Ill. Cent. , 682 F.3d at 390 (stating that Rooker – Feldman applies only to state court "final judgment[s]"). "To be final a judgment must determine the rights of the parties and dispose of all the issues involved so that no future action by the court will be necessary...