Fischer v. Bank of Am., N.A. (In re Fischer)

• Citation: 483 B.R. 877
• Decision Date: 27 December 2012
• Docket Number: Bankruptcy No. 12–24850–svk.,Adversary No. 12–2338.
• Parties: In re Adam L. FISCHER and Sharon M. Fischer, Debtors. Adam L. Fischer, et al., Plaintiffs, v. Bank of America, N.A., et al., Defendants.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Eastern District of Wisconsin

483 B.R. 877

In re Adam L. FISCHER and Sharon M. Fischer, Debtors.Adam L. Fischer, et al., Plaintiffs,

v.Bank of America, N.A., et al., Defendants.

Bankruptcy No. 12–24850–svk.

Adversary No. 12–2338.

United States Bankruptcy Court,

E.D. Wisconsin.

Dec. 27, 2012.

Grant D. Glynn, Lake View Law Offices, S.C., Sheboygan, WI, for Plaintiffs.

Andrew E. Houha, Johnson, Blumberg & Assoc. LLC, Chicago, IL, Robert N. Duimstra, Menn Law Firm, Appleton, WI, for Defendants.

MEMORANDUM DECISION ON FIRST STATE BANK'S MOTION FOR SUMMARY JUDGMENT AND DEBTORS' MOTION FOR JUDGMENT ON THE PLEADINGS

SUSAN V. KELLEY, Bankruptcy Judge.

After filing a Chapter 13 bankruptcy petition, the Debtors instituted this adversary proceeding to determine the priority of certain liens against their residence. The problem is that in a pre-bankruptcy foreclosure action, a state court already decided which lien had first position. Therefore, the issue is whether the Rooker–Feldman doctrine and the doctrine of claim preclusion bar the Debtors' causes of action in this Court. The Rooker–Feldman doctrine prohibits “state-court losers complaining of injuries caused by state-court judgments” from inviting federalcourt review and rejection of such judgments. Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005). In a similar vein, the underpinnings of claim preclusion are “to establish and fix the rights of individuals, to relieve parties of the cost and vexation of multiple lawsuits, to conserve judicial resources, to prevent inconsistent decisions, and to encourage reliance on adjudication.” Kruckenberg v. Harvey, 2005 WI 43, ¶ 20, 279 Wis.2d 520, 694 N.W.2d 879. The Debtors here are seeking to do exactly what these doctrines prohibit—collaterally attacking a state court foreclosure judgment. This Court lacks subject matter jurisdiction to consider the Debtors' claims, and even if it had jurisdiction, the doctrine of claim preclusion bars consideration of the claims.

Factual Background

On May 16, 2012, the Debtors filed their Complaint against Bank of America, N.A. (“Bank of America”), Mortgage Electronic Registration Systems, Inc. (“MERS”), First State Bank (“First State”), and North Shore Bank, F.S.B. (“North Shore”). The Complaint concerns property located at N5386 Plier Road, Cecil, Wisconsin 54111 (the “Property”). The Debtors have granted numerous mortgages against the Property in various refinancing transactions.

According to the Complaint, Adam Fischer (the “Debtor”) purchased the Property on March 30, 2001 and granted mortgages to MERS as nominee for Bank of America and to Bank One. On August 28, 2002, the Debtor deeded the Property to himself and to his wife, co-Debtor Sharon Fischer (collectively, the “Debtors”). At that time, the Debtors refinanced the mortgages and granted one mortgage to Washington Mutual Bank, F.A. (“WaMu”) (the “2002 mortgage”). Bank One and MERS filed satisfactions of their mortgages with the Register of Deeds.

On July 2, 2003, the Debtors again refinanced their mortgage and granted a mortgage to WaMu in the amount of $100,050 (the “2003 mortgage”). WaMu filed a satisfaction of its 2002 mortgage with the Register of Deeds.

On April 29, 2005, in order to secure a business loan, the Debtors granted a mortgage to First State in the amount of $226,989.59. This mortgage was in second position behind the 2003 mortgage.

On May 25, 2005, instead of assigning the 2003 mortgage, the Debtors refinanced the 2003 mortgage and granted a new mortgage to Bank of America. As part of this transaction, Bank of America paid off the balance due on the 2003 WaMu mortgage. WaMu filed a satisfaction of the 2003 mortgage with the Register of Deeds on July 5, 2005. On August 24, 2005, Bank of America assigned its mortgage to MERS. On August 14, 2007, the Debtors granted a mortgage to North Shore in the amount of $10,000.

On October 13, 2010, First State filed a foreclosure complaint in Shawano County Circuit Court (Case No. 10–cv–480) against the Debtors, MERS, North Shore, and Riverside Finance, Inc. First State's Shawano County Complaint avers in pertinent part:

4. The defendant, [MERS] ... is joined by virtue of being the assignee of a mortgage by the [Debtors] to Bank of America in the amount of $116,000.00 dated May 25, 2005 and recorded June 3, 2005 as Document No. 607917, the assignment thereof being dated August 24, 2005 and recorded September 9, 2005 as Document No. 611872.

...

13. [The Debtors] hold fee simple title to the subject property in Shawano County, Wisconsin and executed a Mortgage dated April 29, 2005 and recorded on May 18, 2005 at 11:11 a.m. as Document No. 607342, granting [First State] a security interest in [the Property.]

14. Said Mortgage secures the original stated principal note amount of $226,989.56 together with all other additional sums loaned by or owed to [First State].

...

18. [First State] is entitled to senior and superior priority in and to [the Property.]

19. The defendants, [MERS, North Shore and Riverside Finance] have, claim to have, or may have an interest in the mortgaged Shawano County property, by virtue of said defendants' respective recorded mortgages from or docketed judgments filed as judgment liens or encumbrances against [the Debtors], but said interests are junior, subordinate, and subsequent in priority to the senior and superior interest of plaintiff, [First State], therein.

On November 12, 2010, after MERS failed to answer or otherwise respond, the Shawano County Circuit Court entered Default Judgment against it. The Default Judgment declared and determined that First State held the first priority lien on the Debtors' Property: “IT IS HEREBY ADJUDGED: That the plaintiff, [First State], has and holds senior and superior priority in the [Property] which is the subject matter of the above-captioned action and that any interests of the defendant, [MERS], therein are junior, subordinate, and subsequent to the senior and superior priority of [First State].” (Kuehl Decl., Exh. A). On March 28, 2011, MERS moved to vacate the Default Judgment, but the court denied the motion by Order entered April 12, 2011. (Kuehl Decl., Exh. C). Bank of America ¹ also moved to intervene in the action, but the court denied that motion as well.

On September 26, 2011, the Shawano County Circuit Court issued Findings of Fact, Conclusions of Law, and Judgment of Foreclosure and granted First State summary judgment against the Debtors and the other defendants. In this judgment the Court granted First State a non-deficiency foreclosure judgment with respect to the Property. (Kuehl Decl., Exh. B). The Findings of Fact provide that no “objection or opposition” was filed to First State's motion for summary judgment. ( Id.) First State was the high bidder at the sheriff's sale on the Property on April 11, 2012. (Kuehl Decl., Exh. D). The Debtors filed their Chapter 13 petition on April 12, 2012, prior to confirmation of the sheriff's sale.²

Since Bank of America paid off the 2003 mortgage which was in first position, the Debtors contend, under the theory of equitable subrogation, that Bank of America's mortgage should be given priority above First State's mortgage. Subrogation is an equitable doctrine intended to avoid unjust enrichment. The Wisconsin Supreme Court explained: “Under what is generally termed ‘conventional subrogation,’ a lender will be granted subrogation where money is advanced in reliance upon a justifiable expectation that the lender will have security equivalent to that which his advances have discharged, provided that no innocent third parties will suffer.” Rock River Lumber Corp. v. Universal Mortg. Corp., 82 Wis.2d 235, 241, 262 N.W.2d 114, 117 (1978) (internal citation omitted). Assuming they prevail on their request to equitably subrogate Bank of America's position to the priority of WaMu's 2003 mortgage, the Debtors ask to strip off First State's and North Shore's junior mortgages because there is no equity for these mortgages after property taxes and the Bank of America mortgage.³

On September 13, 2012, the Debtors filed a Motion for Judgment on the Pleadings. On September 14, 2012, First State filed a Motion for Summary Judgment.⁴ In its Motion, First State alleged that the Rooker–Feldman doctrine and res judicata (a/k/a claim preclusion) bar the Debtors' claims against First State.⁵

Analysis

A party may move for judgment on the pleadings after the complaint and answer have been filed. Fed. R. Bankr.P. 7012(b). A court reviews a motion for judgment on the pleadings “by employing the same standard that applies when reviewing a motion to dismiss for failure to state a claim under Rule 12(b)(6).” Buchanan–Moore v. County of Milwaukee, 570 F.3d 824, 827 (7th Cir.2009) (citing Pisciotta v. Old Nat. Bancorp, 499 F.3d 629, 633 (7th Cir.2007)). The Court will “view the facts in the complaint in the light most favorable to the nonmoving party and will grant the motion ‘only if it appears beyond doubt that the plaintiff cannot prove any facts that would support his claim for relief.’ ” Id. (quoting Northern Indiana Gun and Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir.1998)).

With respect to First State's Motion, summary judgment is appropriate only when the evidence presented shows that no genuine issue of material fact exists, and the moving party is entitled to judgment as a matter of law. Fed. R. Bankr.P. 7056; Eisencorp, Inc. v. Rocky Mountain Radar, Inc., 398 F.3d 962, 965 (7th Cir.2005). All inferences are drawn in the light most favorable to the non-moving party. Id.

The Rooker–Feldman Doctrine

First State argues that the Rooker–Feldman doctrine prevents this Court from altering the Shawano County Circuit Court's judgment on the priority of liens. The Rooker–Feldman doctrine is jurisdictional in nature; its applicability must be determined before any other affirmative defense, including claim preclusion....