In re Faust
Decision Date | 26 September 2006 |
Docket Number | Bankruptcy No. 06-11599.,Adversary No. 06-0253. |
Citation | 353 B.R. 94 |
Parties | In re Sadie B. FAUST, Debtor. Sadie B. Faust, Plaintiff, v. Deutsche Bank National Trust Company, Chase Manhattan Mortgage Corporation Advanta Corporation, and New World Mortgage, Inc., Defendants. |
Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
James P. McGarrity, Philadelphia, PA, for Debtor.
The Debtor has filed suit against Deutsche Bank National Trust Company (Deutsche), Advanta Corporation (Advanta), Chase Manhattan Mortgage Corporation (Chase) and New World Mortgage, Inc. (New World) under federal and state consumer lending law. Deutsche, Chase and New World have filed motions to dismiss the complaint. The Debtor opposes the motions. The motions were heard on July 25, 2006, after which the Court took them under advisement. For the reasons set forth below, the motion will be granted in part and denied in part.1
The Complaint pleads four counts: rescission under the Unfair Trade Practices and Consumer Protection Law (UDAP),2 violations of the Truth in Lending Act (TILA),3 a failure to disclose under the Real Estate Settlement Procedures Act (RESPA),4 and common law fraud which constitutes violations of the Pennsylvania Credit Services Act and Loan Brokers Trade Practices Regulations.5 The UDAP count is directed at Deutsche and Advanta.6 The TILA count is directed solely at Deutsche. The RESPA claim is directed to Chase as servicer of the loan. Finally, the Credit Services Act and Loan Broker claims are directed to New World, the mortgage broker in this transaction.
All three movants argue that a prepetition foreclosure judgment effectively deprives this court of subject matter jurisdiction. Accordingly, they proceed under F.R.C.P. 12(13)(1)7 which challenges the jurisdiction of the court to address the merits of the plaintiff's complaint. Vieth v. Pennsylvania, 188 F.Supp.2d 532, 537 (M.D.Pa.2002). A motion to dismiss under Rule 12(b)(1) may present either a facial or factual challenge to subject matter jurisdiction. See Carpet Group Int'l v. Oriental Rug Imps. Ass'n, 227 F.3d 62, 69 (3d Cir.2000); 2 Moore's Federal Practice § 12.30[4] (Matthew Bender 3d ed.) (Rule 12(b)(1)) the difference between a facial and factual challenge to subject matter jurisdiction pursuant to . In this case, although the challenge to this Court's jurisdiction is based on a fact not alleged in the Complaint, it is essentially facial: Deutsche asserts that it obtained a prepetition judgment in mortgage foreclosure which operates to preclude the Plaintiff's claims. The Plaintiff may point out in her brief that the Complaint never mentions the foreclosure judgment; however, the point is never genuinely disputed and is implicitly admitted. See T-11, 12, 17, 20. Moreover, the fact that a foreclosure sale took place is easily established. See copy of state court docket attached to Deutsche Bank's brief. For purposes of this motion, it will be assumed. The question presented is what preclusive effect, if any, does that judgment have on this Court's competence to hear Plaintiffs claims?
Under the Rooker-Feldman8 doctrine, "lower federal courts may not sit in direct review of the decisions of a state tribunal." Gulla v. North Strabane Township, 146 F.3d 168, 171 (3d Cir.1998). Because jurisdiction to review a state court's decision rests solely in the United States Supreme Court, see 28 U.S.C. § 1257, federal district courts lack subject matter jurisdiction "over challenges to state-court decisions in particular cases arising out of judicial proceedings even if those challenges allege that the state court's action was unconstitutional." D.C. Court of Appeals v. Feldman, 460 U.S. 462, 486, 103 S.Ct. 1303, 1317, 75 L.Ed.2d 206 (1983). "Although § 1257 refers to orders and decrees of the highest state court, the Rooker-Feldman doctrine has been applied to final decisions of lower state courts." In re Knapper, 407 F.3d 573, 580 (3d Cir. 2005).
Specifically, a claim is barred by the Rooker-Feldman doctrine if: (1) "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." Id. In assessing whether a claim was "actually litigated" in state court, the court must look to the substance of the claims adjudicated in the state court compared to the plaintiffs claims in the federal action. Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 354 F.3d 102, 105 (3d Cir.2004), rev'd on other grounds, 544 U.S. 280, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005). A federal claim is inextricably intertwined with a state adjudication when "(1) the federal court must determine that the state court judgment was erroneously entered in order to rant the requested relief, or (2) the federal court must take action that would negate the state court's judgment." Knapper, 407 F.3d at 581. Thus, a plaintiff is foreclosed from seeking relief in federal court that would "prevent a state court from enforcing its orders." Id.
In arguing that Rooker-Feldman applies, Deutsche and Chase maintain that all9 of the Plaintiffs claims are "inextricably intertwined" with the state court foreclosure judgment. They explain that the UDAP claim is settled inasmuch as the state court found the mortgage to be valid; that the TILA claims are similarly judged as no defenses or offsets were raised as to the mortgage; and that the RESPA claims were extinguished along with the mortgage once the foreclosure judgment was entered. Finally, they direct the Court's attention to the Third Circuit's opinion Knapper, supra, which, they maintain, applied Rooker-Feldman to dismiss a challenge by a foreclosure judgment debtor from bringing an adversary proceeding in her bankruptcy to set aside that judgment. The Knapper Court explained that a federal court could set aside such judgment only where it found that the judgment was improperly obtained. That authority, Deutsche and Chase maintain, is on all fours with this case and is, therefore, dispositive of the Plaintiff's claims. See generally, Deutsche/Chase Brief.
Similarly, New World argues that the claims in the Complaint are "inextricably entwined" with the state court judgment. New World maintains that all of the factual allegations in this Complaint which are directed at it would have been defenses to the foreclosure action. The effect of allowing the Plaintiff to prosecute these claims would be to overrule the state court judgment. See generally New World's Brief.
The Plaintiff disagrees that Rooker-Feldman applies. She first maintains that her claims do not attack the state court judgment although she then concedes that her rescission claim indirectly does. T-12. Regardless, such claims were not actually litigated in the state court neither were they inherently part of that action. Debtor's Brief 4.
The Court finds neither party to be entirely correct. This is due, in large part, to the fact that the holder of the judgment is only one of the four defendants in this adversary proceeding. Beginning with Count I (rescission under UDAP), it is indisputable that rescinding the loan would negate the state court judgment. Thus, the Court must find that the hearing of the UDAP claim violates Rooker-Feldman. This Count, therefore, must be dismissed.
But Count II (TILA) is a different matter. That claim seeks to recoup money damages against the amount of the judgment. As will be explained, infra, such claims could not have been litigated in the state court; neither would they negate the judgment. What Debtor seeks here is to reduce the amount of the judgment — now a secured claim in this Chapter 13 proceeding — with the money damages arising from the TILA violations. The Court has jurisdiction, therefore, to hear such claim, and the motion to dismiss will be denied.
The claims raised in Counts III and IV likewise would not compromise the integrity of the judgment. At the outset, the Court is struck by the fact that neither count is directed to Deutsche, the judgment holder. Count III asserts a claim under RESPA against the loan servicer, Chase. Count IV alleges that New World violated the state credit services act and the state code regulations which govern the practices of loan brokers. The Court wonders, how then, can these counts undo the prior judgment?10 This is never explained and the Court concludes that these counts are similarly not barred under Rooker-Feldman.11
Alternatively, the movants argue that under preclusionary rules of procedure, the counts must be dismissed under F.R.C.P. 12(b)(6).12 They rely here on res judicata, collateral estoppel, and the statute of limitations. Although all three theories constitute affirmative defenses, each may be raised on a motion to dismiss for failure to state a claim if the defect appears on the face of the pleading. See Brody v. Hankin, 299 F.Supp.2d 454, 458 (E.D.Pa.2004) rev'd on other grounds 145 Fed.Appx. 768 (3d Cir.2005) ( ); see also W.G. Nichols, Inc. v. Ferguson, 2003 WL 22158794 *2 n. 5 (E.D.Pa.) (); and see also Benak ex rel. Alliance Premier Growth Fund v. Alliance Capital Mgmt., LP, 435 F.3d...
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...a TILA rescission action concerning the loan that gave rise to the mortgage is also supported by the recent decision in In re Faust, 353 B.R. 94 (Bankr.E.D.Pa.2006). In Faust, Bankruptcy Judge Raslavich held that the debtor's rescission claim was barred by Rooker-Feldman. Id., at 100 ("Begi......
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