Kamilewicz v. Bank of Boston Corp.

• Decision Date: 22 November 1996
• Docket Number: No. 96-1019,96-1019
• Citation: 100 F.3d 1348
• Parties: DEXTER J. KAMILEWICZ, GRETCHEN L. KAMILEWICZ, and MARTHA E. PRESTON, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. BANK OF BOSTON CORPORATION, BANCBOSTON MORTGAGE CORPORATION, BURR & FORMAN, T. THOMAS COTTINGHAM, EZELL & SHARBROUGH, EDELMAN & COMBS, DANIEL A. EDELMAN, LAWRENCE WALNER & ASSOCIATES, LAWRENCE WALNER, and JOHN or JANE DOES 1 THROUGH 50, Defendants-Appellees
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1348

100 F.3d 1348

DEXTER J. KAMILEWICZ, GRETCHEN L. KAMILEWICZ, and MARTHA E. PRESTON, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. BANK OF BOSTON CORPORATION, BANCBOSTON MORTGAGE CORPORATION, BURR & FORMAN, T. THOMAS COTTINGHAM, EZELL & SHARBROUGH, EDELMAN & COMBS, DANIEL A. EDELMAN, LAWRENCE WALNER & ASSOCIATES, LAWRENCE WALNER, and JOHN or JANE DOES 1 THROUGH 50, Defendants-Appellees.

No. 96-1019

United States Court of Appeals Seventh Circuit

NOVEMBER 22, 1996

John J. Arado, Michael L. McCluggage, Andrew E. Skopp, Wildman, Harrold, Allen & Dixon, Chicago, IL, Ralph G. Wellington, Nancy Winkelman, Arlin M. Adams, Schnader, Harrison, Segal & Lewis, Philadelphia, PA, for Plaintiffs-Appellants.

Alexander S. Vesselinovitch, Raymond J. Kelly, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, Gary A. Spiess, Bank of Boston, Boston, MA, for Bank of Boston Corporation.

Alexander S. Vesselinovitch, Raymond J. Kelly, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, Thomas H. Fish, BancBoston Mortgage Corporation, Jacksonville, FL, for BancBoston Mortgage Corporation

Alexander S. Vesselinovitch, Raymond J. Kelly, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, for Burr & Forman.

Alexander S. Vesselinovitch, Raymond J. Kelly, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, T. Thomas Cottingham, Burr & Forman, Birmingham, AL, for T. Thomas Cottingham.

Mark Ezell, John W. Sharbrough, III, Ezell & Sharbrough, Mobile, AL, for Ezell & Sharbrough.

Edward M. Kay, James T. Ferrini, Susan Condon, Imelda Terrazino, Michael R. Grimm, Kevin P. Mohr, Clausen & Miller, Chicago, IL, Barbara Stackler, Ronald E. Stackler, Samuel M. Greenberg, Stackler & Stackler, Chicago, IL, for Edelman & Combs, Daniel A. Edelman.

Lawrence Walner, Walner & Associates, Chicago, IL, Steven H. Mora, Ellen L. Flannigan, Mora & Baugh, Chicago, IL, for Walner & Associates, Lawrence Walner.

Jeffery L. Amestoy, Elliot Burg, Office of the Attorney General, Montpelier, VT, Walter L. Maroney, Office of the New Hampshire Attorney General, Consumer Protection Bureau, Concord, NH, for State of Vermont, State of New Hampshire, Amici Curiae.

On Petition For Rehearing With Suggestion For Rehearing En Banc

ORDER

A panel decided this case on August 8, 1996. On August 22, 1996, the plaintiffs-appellants filed a petition for rehearing and suggestion for rehearing en banc. Subsequently, the judges on the panel voted to deny the petition for rehearing, and a vote was requested on the suggestion for rehearing en banc. A majority of the active members of the court have voted to deny rehearing en banc. Chief Judge Posner and Circuit Judges Easterbrook, Manion, Rovner, and Diane P. Wood voted to grant rehearing en banc.

IT IS THEREFORE ORDERED that the petition for rehearing is hereby DENIED. Because a majority of judges voted to deny rehearing en banc, the suggestion to do so is also

DENIED.

EASTERBROOK, Circuit Judge, with whom POSNER, Chief Judge, and MANION, ROVNER, and DIANE P. WOOD, Circuit Judges, join, dissenting from the denial of rehearing en banc.

A class action contending that the Bank of Boston and its affiliates (collectively, the Bank) did not promptly post interest to real estate escrow accounts was filed in Alabama by a Chicago law firm. Hoffman v. Banc-Boston Mortgage Corp., No. CV-91-1880 (Mobile Cty. Cir. Ct.). Settlement ensued, and the class members learned only what the notice told them. Few opted out or objected, because the maximum award to any class member was less than $9. Any recovery, however small, seemed preferable to initiating a separate suit or even bearing the costs of protesting the settlement's terms. After the state judge approved the pact, the Bank carried out its part: it disbursed more than $8 million to the class attorneys in legal fees and credited most accounts with paltry sums. Problem: the fees, equal to 5.32 percent of the balance in each account, were debited to the accounts. For many accounts the debit exceeded the credit. Dexter J. Kamilewicz, for example, received a credit of $2.19 and a debit of $91.33, for a loss of $89.14.

Outraged account holders hired new lawyers to sue their "champions" from the state case for malpractice, breach of fiduciary duty, indeed for fraud. Defendants insist that most members of the class emerged with net benefits, but they do not deny that many suffered net losses -- and that these impending losses, known to those who negotiated the settlement, were not disclosed to the class members. Kamilewicz believes that even when the credit exceeded the debit the account holder lost, because the credit would have been made when the mortgage terminated and the escrowed sum was released; the real economic benefit was not the amount of the credit but the interest that could be earned from investing the payment sooner.

Kamilewicz and the other representative plaintiffs sued not only the lawyers for the plaintiff class in Hoffman but also the Bank and the Bank's lawyers. Everything the Bank did to affect Kamilewicz's interests was authorized by the judgment based on the settlement, so the Bank's inclusion in the case marked an effort to obtain collateral review of the state court's judgment. Kamilewicz argued that the judgment is void with respect to account holders who live outside Alabama -- for what right does Alabama have to instruct financial institutions in Florida to debit the accounts of citizens of Maine and other states? (Despite its name, BancBoston's headquarters are in Florida, and the Kamilewiczes hail from Maine.) Class members are not bound when a state court exceeds its jurisdiction. The Attorneys General of Florida, Maine, and seven other states have filed a brief as amicus curiae to protest their citizens' treatment by Alabama. According to Kamilewicz, the Alabama judgment is doubly flawed, because the notice was so misleading that it denied the class members due process of law. A deficient notice means that the class members' right to opt out was defeated, which has jurisdictional consequences of its own. Lack of jurisdiction and unconstitutional procedures are recognized grounds for disregarding a judgment in a class action. Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985); Richards v. Jefferson County, 116 S. Ct. 1761 (1996). But by asking for collateral review of a judgment, the Kamilewicz class invited the response: "In federal court?" Under the Rooker-Feldman doctrine, named after Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983), the Supreme Court of the United States is the only federal court authorized to review a state court's judgment in civil litigation. Defendants invoked this rule and argued that the Kamilewicz class could obtain relief only from a state court. The district court agreed and dismissed the entire complaint for want of jurisdiction, and a panel of this court affirmed. 92 F.3d 506 (1996).

Suppose A sues B in a state that lacks any connection to B or to the dispute. B refuses to appear and the court enters a default judgment, which A attempts to collect using the processes of the federal court under the diversity jurisdiction. Would the court really direct B to pay, without inquiring into the jurisdiction of the state court? Certainly not in the fifth circuit, which has held that the Rooker-Feldman doctrine permits the kinds of collateral attacks that any state court of general jurisdiction could entertain. Davis v. Bayless, 70 F.3d 367, 375-76 (5th Cir. 1995). ("Any" is an important qualifier, for reasons discussed in Homola v. McNamara, 59 F.3d 647, 650 (7th Cir. 1995), and Harris Trust & Savings Bank v. Ellis, 810 F.2d 700 (7th Cir. 1987).) When Hansberry v. Lee, 311 U.S. 32 (1940), held that a judgment rendered without personal jurisdiction over members of the class is not entitled to full faith and credit, the Justices did not add: "except in federal court." Granted, the defendants in today's case are not trying to execute a judgment; they want to fend off a challenge to the status quo. But the difference between offensive and defensive use of a judgment is not important to the panel's conclusion, or to mine -- which is that a judgment that is not entitled to full faith and credit does not acquire extra force via the Rooker-Feldman doctrine.

Collateral attacks based on lack of personal or subject matter jurisdiction are proper, no less in class actions than in other cases -- indeed, they are especially appropriate where class members are stunned to find that, although aligned as plaintiffs, they are net losers, just as if the original defendants had filed and prevailed on a counter-claim of which they received no notice and over which the state court had no jurisdiction. In effect, though not in name, this was a defendant class, attempting (unbeknownst to its members) to fend off predatory lawyers' claims to the balances in the escrow accounts. The substantial jurisdictional problems entailed by defendant classes, see Phillips Petroleum, 472 U.S. at 808, 811 & n.3; Diane P. Wood, Adjudicatory Jurisdiction and Class Actions, 62 Ind. L.J. 597, 607-12 (1987), were aggravated by the class members' ignorance of their exposure.

In Matsushita Electric Industrial Co. v. Epstein, 116 S. Ct. 873 (1996), members of a class in a securities case filed in state court initiated an independent action in federal court for the purpose of attacking the terms on which the state case had been settled. They argued that the state court lacked jurisdiction to resolve claims based on federal securities law. Ultimately they lost -- but not on Rooker-Feldman grounds. The Supreme Court concluded that state judges may accept and enforce settlements of federal claims. This it held on the merits. It did not mention the possibility that the federal court lacked jurisdiction, which I think signifies how obvious it...