Jacobson v. Wells Fargo Bank, N.A. (In re Jacobson)

• Decision Date: 13 March 2020
• Docket Number: Adv. Proc. No. 19-02094-gmh,Case No. 19-20090-gmh
• Citation: 614 B.R. 321
• Parties: IN RE: Lisa L. JACOBSON, Debtor. Lisa L. Jacobson, Plaintiff, v. Wells Fargo Bank, N.A., Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Wisconsin

614 B.R. 321

IN RE: Lisa L. JACOBSON, Debtor.Lisa L. Jacobson, Plaintiff,

v.Wells Fargo Bank, N.A., Defendant.

Case No. 19-20090-gmh

Adv. Proc. No. 19-02094-gmh

United States Bankruptcy Court, E.D. Wisconsin.

Signed March 13, 2020

Stephanie L. Dykeman, Litchfield Cavo LLP, Brookfield, WI, Jay J. Pitner, Gray & Associates, LLP, New Berlin, WI, for Defendant.

David G. Kingstad, Kingstad Law Firm, LLC, Greenfield, WI, for Plaintiff.

DECISION AND ORDER

G. Michael Halfenger, Chief United States Bankruptcy Judge

Wells Fargo Bank, N.A., filed a proof of claim in Lisa Jacobson's bankruptcy case for $126,382 owed on a note secured by a mortgage on Jacobson's residence. Jacobson brought this adversary proceeding against Wells Fargo alleging that the note and mortgage are void or voidable because her ex-husband conspired with a mortgage broker and one or more lenders to fraudulently obtain a guaranty from the U.S. Department of Veterans Affairs. Jacobson seeks disallowance of Wells Fargo's claim or a determination that the claim is not secured, as well as an order voiding the mortgage and awarding her damages, costs and expenses, and attorney fees under Wisconsin Statutes chapter 224, subchapter III, which governs the acts and practices of mortgage bankers, loan originators, and brokers. Wis. Stat. § 224.80(2).

Wells Fargo moved to dismiss the adversary proceeding. It contends that Jacobson's claims were already adjudicated to final judgment in state court and that she effectively seeks this court's review and rejection of the state court's judgments, requiring an exercise of appellate jurisdiction that this court lacks. Wells Fargo further asserts that, even if this court has jurisdiction to hear any or all of Jacobson's claims, she is precluded from litigating them here because she litigated them, or could have litigated them, in state court.

I

For purposes of resolving Wells Fargo's motion to dismiss, the court accepts as true the complaint's well-pleaded factual allegations and draws all reasonable inferences in Jacobson's favor. Erickson v. Pardus , 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (per curiam). The court also considers judicially noticeable information from Jacobson's bankruptcy case, this proceeding, and the state-court proceedings discussed in the complaint and Wells Fargo's motion to dismiss. Williamson v. Curran , 714 F.3d 432, 436 (7th Cir. 2013).

The operative, second amended complaint alleges as follows: In 2011 Jacobson's then-husband, Robin, applied for a mortgage loan through a broker, Commonwealth Mortgage Group. Robin conspired with Commonwealth and representatives of the prospective lender, M&I Bank, or its immediate successor, BMO Harris Bank, N.A., or both, to obtain a guaranty from the Department of Veterans Affairs by misrepresenting his marital status and the extent of his debts, among other things. Robin used the borrowed funds to buy the residence subject to a mortgage. BMO Harris later assigned the mortgage to Wells Fargo. Jacobson was awarded the residence in 2015 when she and Robin divorced.

In 2015 Jacobson sued Wells Fargo, BMO Harris, and others in the Wisconsin Circuit Court for Milwaukee County. Jacobson v. Commonwealth Mortgage LLC , No. 2015CV3668 (Wis. Cir. Ct. filed Apr. 28, 2015). She alleged that, in 2011, Robin "falsely state[d]" in his loan application that he was unmarried, had an ex-wife, and was not obligated to pay child support. ECF No. 24, at 35, ¶¶12–14 (also referring to a "HUD/VA Addendum"). She further alleged that Robin's real estate agent, the mortgage loan originator, the title insurance company, and others, knew or should have known that Robin lied, though Jacobson could not have discovered his fraud until October 2014 when she "saw the loan application and origination documents on her home computer." Id. at 36, ¶¶20 & 22. She sought rescission "[b]ased on actual fraud in the formation of the contract" and an award of damages, costs, and attorney fees. Id. at 37–38, ¶¶29 & 30. In 2016 Jacobson agreed to dismiss her claims against Wells Fargo with prejudice, see id. at 39, and amended her complaint, abandoning her claims and instead requesting only monetary relief under Wisconsin Statutes section 224.80(2), id. at 42–43, ¶5. The circuit court granted summary judgment to BMO Harris, Jacobson appealed, and the Wisconsin Court of Appeals affirmed. See Jacobson v. Commonwealth Mortgage Group, LLC , No. 2017AP1452, 2019 WL 2017525 (Wis. Ct. App. May 7, 2019) (per curiam).

While Jacobson's case was pending, Wells Fargo commenced a foreclosure proceeding on her residence. Wells Fargo Bank, N.A. v. Jacobson , No. 2015CV6810 (Wis. Cir. Ct. filed Aug. 18, 2015). Jacobson answered the foreclosure complaint but did not dispute the validity of the note and mortgage until Wells Fargo moved for summary judgment, when she asserted "two new defenses": "(1) as a non-signing spouse, the mortgage was not enforceable against her, and (2) the note and mortgage were invalid pursuant to 15 U.S.C. § 1639c," which requires mortgage lenders to determine, before making a residential mortgage loan, that the borrower will be able to repay the loan. See ECF No. 24, at 23–25, ¶¶9 & 12. At a hearing on Wells Fargo's summary-judgment motion, Jacobson "raised another new defense", asserting that the equities weighed against foreclosure. See id. at 26, ¶14. The circuit court granted summary judgment to Wells Fargo. Jacobson appealed, and the Wisconsin Court of Appeals affirmed. See Wells Fargo Bank, NA v. Jacobson , No. 2016AP2292, 2018 WL 623603 (Wis. Ct. App. Jan. 30, 2018) (per curiam).

Jacobson then commenced her bankruptcy case and this adversary proceeding.

II

Wells Fargo contends that the Rooker - Feldman doctrine deprives this court of subject-matter jurisdiction to hear Jacobson's claims. 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). In both Rooker and Feldman , a party who lost in state court filed suit in federal district court "after the state proceedings ended, complaining of an injury caused by the state-court judgment", and asked the district court "to overturn the injurious state-court judgment." Skinner v. Switzer , 562 U.S. 521, 531, 131 S.Ct. 1289, 179 L.Ed.2d 233 (2011). The Supreme Court held that the district court "lacked subject-matter jurisdiction" because Congress "vest[ed] authority to review a state court's judgment solely in [the Supreme] Court." Id. at 531–32, 131 S.Ct. 1289 (quoting Exxon Mobil Corp. v. Saudi Basic Indus. Corp. , 544 U.S. 280, 292, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005) ) (citing 28 U.S.C. § 1257 ).

A

Jacobson is the plaintiff here, and she lost to Wells Fargo in state court. Her adversary complaint does not "directly seek to set aside a state court judgment", but the Rooker - Feldman doctrine applies beyond such "de facto appeals" to claims that "are ‘inextricably intertwined’ with a state court judgment." Taylor v. Fed. Nat'l Mortg. Ass'n , 374 F.3d 529, 532–33 (7th Cir. 2004) (quoting Brokaw v. Weaver , 305 F.3d 660, 664 (7th Cir. 2002) ). "While ‘inextricably intertwined’ is a somewhat metaphysical concept, the ‘crucial point is whether "the district court is in essence being called upon to review the state-court decision." ’ " Id. at 533 (quoting Ritter v. Ross , 992 F.2d 750, 754 (7th Cir. 1993) ). The Supreme Court clarified this point in Exxon Mobil : "If a federal plaintiff ‘present[s] some independent claim, albeit one that denies a legal conclusion that a state court has reached in a case to which he was a party ..., then there is jurisdiction and state law determines whether the defendant prevails under principles of preclusion.’ " 544 U.S. at 293, 125 S.Ct. 1517 (alteration and omission in original) (quoting GASH Assocs. v. Village of Rosemont , 995 F.2d 726, 728 (7th Cir. 1993) ).

Jacobson's complaint is not a model of clarity, but it acknowledges Wells Fargo's state-court foreclosure judgment and alleges that Wells Fargo procured that judgment by fraud on the state court. ECF No. 18, at 5, ¶22 ("Wells Fargo's refusal and failure to divulge its knowledge of the defective loan to the state court foreclosure action constituted a fraud upon the court in that case."). Wisconsin law might allow Jacobson to collaterally attack the judgment if she could show that it was procured by fraud. See Boots v. Boots (In re Estate of Boots) , 73 Wis.2d 207, 243 N.W.2d 225, 229 (1976) (noting that "in Wisconsin ... fraud is a ground for collateral attack" on a judicial order or judgment); Hammes v. First Nat'l Bank & Tr. Co. of Racine , 79 Wis.2d 355, 255 N.W.2d 555, 564 (1977) (Hansen, J., concurring) ("While a direct attack should be initiated in the court which entered the initial judgment or order, a collateral attack based upon actual or constructive fraud upon the court may be brought in a different court."). But the Seventh Circuit conceives of such claims as requesting an exercise of appellate jurisdiction proscribed by Rooker - Feldman . See Taylor , 374 F.3d at 533 ("[T]he relief granted when a claim of fraud on the court succeeds is that the party claiming fraud is relieved from the judgment, i.e., the judgment is set aside."); see also Mains v. Citibank, N.A. , 852 F.3d 669, 676 (7th Cir. 2017) ("If we were to delve into the question whether fraud tainted the state court's judgment, the only relief we could give would be to vacate that judgment. That would amount to an exercise of de facto appellate jurisdiction, which is not permissible.").

Aside from its allegation that Wells Fargo defrauded the state court during the underlying proceedings, Jacobson's complaint does not directly or indirectly attack a state-court judgment. For the most part, the complaint asserts claims for relief based on alleged fraud and other misconduct that occurred years before the underlying state-court actions...