In re Randall

• Decision Date: 01 November 2006
• Docket Number: Adversary No. 06-0397.,Bankruptcy No. 06 11832.
• Citation: 358 B.R. 145
• Parties: In re Cheryl A. RANDALL, Debtor. Cheryl A. Randall, Plaintiff, v. Bank One National Association As Trustee and Bankers First Mortgage Co., Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

358 B.R. 145

In re Cheryl A. RANDALL, Debtor.

Cheryl A. Randall, Plaintiff, v. Bank One National Association As Trustee and Bankers First Mortgage Co., Defendants.

Bankruptcy No. 06 11832.

Adversary No. 06-0397.

United States Bankruptcy Court, E.D. Pennsylvania.

November 1, 2006.

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Devon E. Sanders, Esq., Community Legal Services, Inc., Philadelphia, PA, for debtor.

Joseph F. Riga, Esq., Maple Shade, NJ, for Bank One.

MEMORANDUM

BRUCE FOX, Bankruptcy Judge.

The chapter 13 debtor, Cheryl A. Randall, has commenced an adversary proceeding against defendants Bank One, N.A. and Bankers First Mortgage Co.¹ Defendant Bank One has filed a motion to dismiss this proceeding pursuant to Fed. R. Bankr.P. 7012, incorporating Fed. R.Civ.P. 12(b)(1) and (b)(6).

As will be discussed below, Bank One contends that the claims against it are barred by the Rooker-Feldman doctrine, res judicata, collateral estoppel and the statute of limitations. The plaintiff contends that none of her claims warrant dismissal.

For the following reasons, the defendant's motion to dismiss will be granted in part and denied in part. Rather than dismiss any of the counts in the complaint, however, it is more appropriate to strike certain requested relief as unavailable, pursuant to Fed. R. Bankr P. 7012, incorporating Fed.R.Civ.P. 12(f).

I.

The plaintiff alleges in her complaint that she entered into a loan agreement with defendant Bankers Trust in December 2000 in connection with home improvements to be made by an entity known as Classic Exteriors by Alan Cherry, Inc. Bankers Trust, as a collateral for this loan, obtained a security interest in real property (which property is not identified expressly, but implicitly is 6112 Upland Street, Philadelphia, Pennsylvania). The plaintiff alleges that at the loan closing she was charged unreasonable and excessive fees, and was given improper notice of her right to cancel the loan transaction. She further asserts that the amount financed was incorrectly disclosed.

The complaint avers that the loan and security interest were ultimately assigned to defendant Bank One, and that this assignee should have been aware of the loan disclosure errors made by Bankers Trust. On April 28, 2003, the plaintiff served upon Bank One notice that she was rescinding the loan transaction.

The plaintiff also alleges that she filed the instant chapter 13 case on May 2, 2006. Bank One thereafter filed a secured proof of claim in the amount of $56,600.

Based upon these allegations, the plaintiff asserts three claims, presumably against both defendants.

In Count I she contends that the defendants violated the Pennsylvania Home Improvement Finance Act, 73 P.S. §§ 500-101, et seq. She seeks treble damages (plus costs and attorneys' fees) against Bankers Trust, and recoupment against Bank One.

In Count II, she maintains that both defendants violated the federal Truth in Lending Act, 15 U.S.C. §§ 1601, et seq. These violations consisted of material misdisclosures entitling the plaintiff to rescind the loan transaction resulting in the "termination of any security interest, in the Plaintiffs property" and actual or statutory damages of $2,000 and recoupment of the same amount (plus costs and attorneys' fees). Complaint, ¶ 45.

In Count III, the plaintiff asserts that the December 2000 loan was governed by The Home Ownership Equity Protection Act of 1994 ("HOEPA") which necessitated that Bankers Trust make additional loan disclosures to the plaintiff. Such disclosures allegedly were never provided. As a result, the plaintiff seeks to rescind the loan transaction and actual or statutory damages of $2,000 and recoupment of the same amount (plus costs and attorneys' fees).

In its motion to dismiss, defendant Bank One asserts that it obtained a state court judgment by default in mortgage foreclosure on the Upland Street property on November 4, 2005, in the amount of $44,757.76. In support of this allegation, the defendant attached a copy of its request of the court clerk to enter judgment and a copy of the docket entries showing that such request was granted in the amount stated above. The defendant also asserts that the plaintiff filed two prior chapter 13 cases, both of which were dismissed.

The defendant's motion to dismiss is based upon the existence of this state court default judgment as well as the two prior chapter 13 cases.

II.

A.

At the outset, Bank One maintains that the state court foreclosure judgment prevents this court from obtaining subject matter jurisdiction over this adversary proceeding.

Federal Rule of Bankruptcy Procedure 7012(b) incorporates Fed. R. Civ. P 12(b)-(h). Rule 12(b)(1) permits a party to seek dismissal of a complaint for lack of subject matter jurisdiction, when appropriate. See generally American Int'l Specialty Lines Ins. Co. v. Towers Financial Corp., 198 B.R. 55, 57 (S.D.N.Y.1996). Here, the defendant contends that jurisdiction is lacking solely due to the Rooker-Feldman doctrine. Bank One maintains that the instant adversary proceeding is a direct challenge to the state court's entry of judgment in mortgage foreclosure. See generally, In re Knapper, 407 F.3d 573 (3d Cir.2005); McAllister v. Allegheny County Family Div., 128 Fed.Appx. 901, 2005 WL 902102 (3d Cir.2005).²

The so-called Rooker-Feldman doctrine provides that federal courts, other than the United States Supreme Court, lack subject matter jurisdiction to review and reverse judgments rendered by state courts. See Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983); see also 28 U.S.C. § 1257 (conferring certiorari power solely upon the United States Supreme Court).³ The bases of this doctrine are both prudential and statutory. Coquillette, et al., 18 Moore's Federal Practice, § 133.30[3][a] at 133-25 (3d ed.2006). Application of this doctrine is limited to federal litigation commenced after the relevant state court adjudication has been entered. See, e.g., Federacion de Maestros de Puerto Rico v. Junta de Relaciones del Trabajo de Puerto Rico, 410 F.3d 17, 24 (1st Cir. 2005).

The Third Circuit Court of Appeals recently explained that Rooker-Feldman "`prohibits District Courts [as well as Bankruptcy court] from adjudicating actions in which the relief requested requires determining whether the state court's decision is wrong or voiding the state court's ruling.'" In re Knapper, 407 F.3d at 580 (quoting Walker v. Horn, 385 F.3d 321, 329 (3d Cir.2004)). As was previously observed by the Third Circuit in the context of bankruptcy litigation:

The bankruptcy court is also prohibited from reviewing the state court's judgment by the Rooker-Feldman doctrine, which prohibits lower federal courts from sitting as effective courts of appeal for state court judgments. See, e.g., D.C. Court of Appeals v. Feldman, 460 U.S. 462, 476[, 103 S.Ct. 1303, 75 L.E.2d 206] . . . (1983) (citing Rooker v. Fidelity Trust Co., 263 U.S. 413[, 44 S.Ct. 149, 68 L.Ed. 362] . . . (1923)); Besing v. Hawthorne (In re Besing), 981 F.2d 1488, 1496 (5th Cir.1993) ("The Bankruptcy Code was not intended to give litigants a second chance to challenge a state court judgment nor did it intend for the Bankruptcy Court to serve as an appellate court [for state court proceedings]") (quoting In re G & R Mfg. Co., 91 B.R. 991, 994 (Bankr. M.D.Fla.1988)).

In re Wilson, 116 F.3d 87, 90 (3d Cir.1997) (citations omitted). This jurisdictional limitation is applicable to state court default judgments as well as judgments entered after a trial on the merits. See, e.g., In re Knapper; Crutchfield v. Countrywide Home Loans, 389 F.3d 1144 (10th Cir. 2004); Salem v. Paroli, 79 Fed.Appx. 455 (2d Cir.2003).

In Knapper, which involved a debtor's challenge to prepetition default judgments entered in state court, the Third Circuit Court of Appeals explained the appropriate scope of the doctrine:

[A] claim is barred by Rooker-Feldman under two circumstances; first, if the federal claim was actually litigated in state court prior to the filing of the federal action or, second, 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 either case, Rooker-Feldman bars a litigant's federal claims and divests the District Court of subject matter jurisdiction over those claims.

Id., 407 F.3d at 580.⁴

In ITT Corp. v. Intelnet International Corp., 366 F.3d 205 (3d Cir.2004), the Court of Appeals explained when a claim has been actually litigated, for purposes of Rooker-Feldman:

In Desi's Pizza [Desi's Pizza, Inc. v. City of Wilkes-Barre, 321 F.3d 411 (3d Cir.2003)], we noted the factors for determining whether an issue was "actually litigated" by the state courts: a plaintiff must present its federal claims to the state court, and the state court must decide those claims . . . . Ordinarily, it will be more difficult to demonstrate that a claim was "actually litigated" than to show that the federal claim is "inextricably intertwined" with the state court judgment. The former requires that the state court has considered and decided precisely the same claim that the plaintiff has presented in the federal court. Conversely, two claims may proceed on different theories or involve different parties and yet be inextricably intertwined if the District Court's judgment would "prevent a state court from enforcing its orders." . . .

The actually litigated prong is principally useful where the claims before the state and federal courts are in all respects identical. In such cases, the straightforward application of the "actually litigated" test avoids the more complicated "inextricably intertwined" inquiry.

Id. at 211...