Hansen v. Miller

• Docket Number: Docket No. 20-3591,August Term, 2021
• Decision Date: 28 October 2022
• Citation: 52 F.4th 96
• Parties: Joan HANSEN, Plaintiff-Appellant, v. Matthew MILLER, Rachel Miller, Stillwell Road Inc., Gilbert L. Balanoff, Gilbert L. Balanoff, P.C., Douglas M. Lieberman, Markotsis & Lieberman, P.C., Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

52 F.4th 96

Joan HANSEN, Plaintiff-Appellant,

v.Matthew MILLER, Rachel Miller, Stillwell Road Inc., Gilbert L. Balanoff, Gilbert L. Balanoff, P.C., Douglas M. Lieberman, Markotsis & Lieberman, P.C., Defendants-Appellees.

Docket No. 20-3591

August Term, 2021

United States Court of Appeals, Second Circuit.

Argued: January 10, 2022

Decided: October 28, 2022

Paula A. Miller, Paula A. Miller, P.C., Smithtown, NY, for Plaintiff-Appellant.

Brian J. Isaac, Pollack, Pollack, Isaac & DeCicco, LLP, New York, NY (Steven Cohn, Alan S. Zigman, Law Office of Steven Cohn, PC, Carle Place, NY, on the brief), for Defendants-Appellees Matthew Miller, Rachel Miller and Stillwell Road, Inc.

Nicole Feder, L'Abbate, Balkan, Colavita & Contini, L.L.P., Melville, NY, for Defendants-Appellees Gilbert L. Balanoff and Gilbert L. Balanoff, P.C.

Matthew K. Flanagan, Catalano, Gallardo, & Petropoulos, LLP, Jericho, NY, for Defendants-Appellees Douglas M. Lieberman and Markotsis & Lieberman, P.C.

Before : Carney, Menashi, and Pérez, Circuit Judges.

Judge Menashi concurs in a separate opinion.

Carney, Circuit Judge:

In 2013, Rachel Miller ("Rachel") initiated a New York state court foreclosure action against Stillwell Road, Inc. ("SRI"). In the foreclosure action, Rachel asserted her interests in a residential property in Laurel Hollow, New York (the "Property") under her recorded mortgage (the "Rachel Mortgage"). Foreclosure would eliminate Plaintiff-Appellant Joan Hansen's unrecorded security agreement and related interest in the Property. In time, the state court issued a foreclosure judgment in favor of Rachel. It rejected Hansen's counterclaims, in which Hansen alleged that the Rachel Mortgage was invalid and unenforceable.

In 2019, Hansen initiated the present action against, inter alia , Douglas M. Lieberman, Esq.; Markotsis & Lieberman, P.C.; Gilbert L. Balanoff, Esq.; and Gilbert L. Balanoff, P.C. (the two individuals and the P.C.’s jointly, the "Attorney Defendants," and Balanoff and his P.C. together, the "Balanoff Defendants"). Hansen, in relevant part, brought claims for fraud in the enforcement of the Rachel Mortgage, fraud upon the court, collusion and deceit upon the court in violation of New York State Judiciary Law § 487,¹ and negligence. The district court dismissed Hansen's claims, explaining that in light of the prior state court judgment, the Rooker - Feldman doctrine precluded it from adjudicating her claims and that, in the alternative, principles of res judicata or collateral estoppel barred her from pursuing her claims. Hansen v. Miller , No. 19-cv-04519, 2020 WL 5802289 (E.D.N.Y. Sept. 29, 2020). Hansen then brought this appeal.

On review, we conclude that the Rooker - Feldman doctrine does not require the dismissal of Hansen's claims against the Attorney Defendants; that res judicata does not bar Hansen's claims against the Balanoff Defendants; and that collateral estoppel bars Hansen's fraud and negligence claims but not her claims against the Attorney Defendants under section 487. The judgment entered on September 30, 2020, is therefore AFFIRMED IN PART and VACATED IN PART, and the case is REMANDED for further proceedings consistent with this Opinion.

BACKGROUND

In 2008, Joan Hansen made a $300,000 loan to her coworker, Matthew Miller ("Matthew"), through his company, SRI, in connection with his planned purchase, development, and resale of the Property. Matthew executed and delivered to Hansen a promissory note from SRI for $300,000 and secured by, among other things, an interest in the Property and its fixtures pursuant to an associated security agreement with SRI (the "Hansen Security Agreement"). The Hansen Security Agreement was never recorded.

Matthew then obtained an additional loan to SRI from a local bank (the "Bank Loan"). With the proceeds of Hansen's loan and the Bank Loan, Matthew purchased and developed the Property in 2008 and 2009, as planned. As time passed, however, he was unable to make the anticipated sale. In 2010, Matthew repaid the Bank Loan with his own funds. He then executed and delivered to Rachel, his wife, a new acquisition loan mortgage note for $400,500 and a new construction loan mortgage note for $1,234,222.86, creating, by virtue of the related Rachel Mortgage, a new lien on the Property. The Rachel Mortgage was recorded on April 22, 2013.

SRI defaulted on the Rachel Mortgage. In August 2013, Rachel, represented by Douglas M. Lieberman, Esq., initiated a state court action against SRI seeking to foreclose on the Property and to eliminate Hansen's unrecorded interest. SRI was represented in the foreclosure action by Gilbert L. Balanoff, Esq. During the foreclosure proceedings, Hansen asserted that the Rachel Mortgage was fraudulent and that her interest in the Property was superior to Rachel's.

Almost four years later, in June 2017, and following a seven-day bench trial, the state court issued a final foreclosure judgment in Rachel's favor. The state court justice who presided over the trial concluded in part that another state court justice—ruling at an earlier stage in the proceedings—had found the Rachel Mortgage to be valid. Accordingly, the state court justice addressing the issue in 2017 ruled, applying the law of the case doctrine, that the Rachel Mortgage was both valid and properly recorded. It was therefore senior to Hansen's unrecorded security interest in the Property, and Hansen's interest was properly extinguished.²

Hansen initiated the present action in August 2019, asserting several causes of action sounding generally in fraud against the Millers, SRI, Lieberman, Balanoff, and the attorneys’ respective firms. The district court dismissed her action in its entirety.

Hansen now appeals from the district court's dismissal of her New York state law claims against the Attorney Defendants. Those claims include fraud in the enforcement of the Rachel Mortgage, fraud upon the court, collusion and deceit on the court in violation of section 487, and negligence. She asserts that the district court erred in dismissing her claims for want of jurisdiction based on the Rooker - Feldman doctrine and that, in the alternative, it also erred in its application of principles of collateral estoppel and res judicata.

DISCUSSION

I. The Rooker - Feldman doctrine does not require dismissal of Hansen's claims

We agree with Hansen that the Rooker - Feldman doctrine did not deprive the district court of jurisdiction over her damages claims against the Attorney Defendants and likewise that it does not preclude this Court from exercising jurisdiction over this appeal. The Rooker - Feldman doctrine prohibits federal courts from exercising jurisdiction over suits challenging final state court orders when doing so would "essentially amount to appeals of state court judgments." Vossbrinck v. Accredited Home Lenders, Inc. , 773 F.3d 423, 426 (2d Cir. 2014) ; see also D.C. Ct. of Appeals v. Feldman , 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983) ; Rooker v. Fid. Tr. Co. , 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923).³ Our Court has emphasized that the Rooker - Feldman doctrine bars district courts from exercising jurisdiction over otherwise properly adjudicated claims only if the plaintiff "complain[s] of injuries caused by a state court judgment." Hoblock v. Albany Cnty. Bd. of Elections , 422 F.3d 77, 85 (2d Cir. 2005). Accordingly, as we explained in Vossbrinck v. Accredited Home Lenders, Inc. , the doctrine generally does not affect a federal court's jurisdiction over claims for damages against third parties for alleged misconduct occurring in the course of a state court proceeding, because the adjudication of such claims would "not require the federal court to sit in review of the state court judgment." 773 F.3d at 427 ; see also Sykes v. Mel S. Harris & Assocs. LLC , 780 F.3d 70, 94–95 (2d Cir. 2015) (finding Rooker - Feldman inapplicable where plaintiff's claims "sp[oke] not to the propriety of the state court judgments, but to the fraudulent course of conduct that defendants pursued in obtaining such judgments"). Here, Hansen's claims against the Attorney Defendants for fraud in the procurement of the state court foreclosure judgment can be considered independently of the merits of that foreclosure judgment. The Rooker - Feldman doctrine therefore does not bar the federal district court from hearing these claims.

II. Res judicata does not bar Hansen's claims against the Balanoff Defendants

We also conclude that the doctrine of res judicata does not preclude Hansen from pursuing her claims against Balanoff and his firm in this action.⁴ Res judicata bars litigation on a claim if an "earlier decision was (1) a final judgment on the merits, (2) by a court of competent jurisdiction, (3) in a case involving the same parties or their privies, and (4) involving the same cause of action." Cho v. Blackberry Ltd. , 991 F.3d 155, 168 (2d Cir. 2021). We apply New York law of res judicata to claims brought under New York law. See Ferris v. Cuevas , 118 F.3d 122, 125–26 (2d Cir. 1997). New York takes "a pragmatic and flexible attitude toward claim preclusion, recognizing that the doctrine, if applied too rigidly, could work considerable injustice." Simmons v. Trans Express Inc. , 37 N.Y.3d 107, 111, 170 N.E.3d 733 (2021).

We conclude that Balanoff has not demonstrated that he and his firm stand in privity with SRI, as is required for him to raise a res judicata bar arising from the state foreclosure judgment against SRI. He asserts such privity based on his attorney-client relationship with SRI in that action. In support, he cites two federal court decisions applying New York law: Ray Legal Consulting Grp. v. Gray , 37 F. Supp. 3d 689, 701–02 (S.D.N.Y. 2014), and Lipman v. Rodenbach , 852 F. App'x 578, 581–82 (2d Cir. 2021) (summary order). But, unlike the circumstances presented in Ray Legal and Lipman , where the attorneys each had a personal interest in the subject of the earlier action, Balanoff did not have...