Opinion
Case No.: 13-30560 Adv. Pro. No. 13-3078
03-31-2014
In Re: Timothy Randolph and Andrea Guice, Debtors. Timothy Randolph, et al., Plaintiffs, v. HSBC Bank USA, Defendant.
The court incorporates by reference in this paragraph and adopts as the findings and orders of this court the document set forth below. This document has been entered electronically in the record of the United States Bankruptcy Court for the Northern District of Ohio.
_______________
United States Bankruptcy Judge
Chapter 13
Hon. Mary Ann Whipple
MEMORANDUM OF DECISION AND ORDER GRANTING MOTION TO DISMISS
This adversary proceeding is before the court on a motion to dismiss filed by Defendant HSBC Bank USA, National Association, as Trustee for Home Equity Loan Trust Series ACE 2005-HE5 ("HSBC") [Doc. # 5], Plaintiffs' responses [Doc. ## 8 &16], and HSBC's reply [Doc. # 17]. Plaintiffs are debtors in the underlying Chapter 13 case. In their complaint, Plaintiffs allege that HSBC engaged in acts of fraud with respect to documents relating to a first mortgage on Plaintiffs' home. Plaintiffs seek an order that HSBC is not a proper party in interest to prosecute a foreclosure action and is not entitled to collect mortgage payments from Plaintiffs. In addition, Plaintiffs seek both compensatory and punitive damages. HSBC's motion is brought pursuant to Federal Rule of Civil Procedure 12(b)(1) and (6), which applies in this proceeding pursuant to Federal Rule of Bankruptcy Procedure 7012. In its motion, HSBC argues that the court lacks subject matter jurisdiction under the Rooker-Feldman doctrine, that Plaintiffs' claims are barred by res judicata, that they lack standing to challenge assignment of the mortgage at issue and that the complaint fails to state a claim for fraud. Having considered HSBC's motion and the parties' briefs in support of their respective positions, for the reasons that follow, the court will grant the motion to dismiss.
BACKGROUND
Plaintiffs state in their complaint that they "bring this adversary proceeding . . . to disallow any claims of the Defendant, or their (sic) agents or assigns, pursuant to 11 U.S.C. section 502 to collect any mortgage payments on the first lien on the domicile of the Plaintiffs." [Doc. # 1, Complaint, p. 1]. Plaintiffs further state that they seek "to show that, in the alternative, the Defendant committed willful fraud when they (sic) knowingly and intentionally made false and untrue statements that indicate that they are not the proper party in interest to stand before this court and ask for and seek payments from the Plaintiffs regarding a first lien on their domicile." [Id. at 2].
The following factual allegations are set forth in the complaint. HSBC "did not indicate or profess to own or have the rights to receive mortgage payments" from Plaintiffs in their earlier Chapter 7 bankruptcy case, Case No. 07-30486, and that instead, Fremont Investment & Loan asserted its superior rights to receive such payment. [Id. at pp. 4-5, ¶¶ 2-3]. HSBC engaged in acts of fraud when it "purposely allowed needed and necessary mortgage papers to be wrongfully signed by other parties, under their control, management or supervision and which parties had no right to sign such mortgage papers and which papers did purportedly obligate the Plaintiffs to pay mortgage payments to HSBC and or their assigns, including Wells Fargo Bank, servicing agent. . . ." [Id. at pp. 5-6, ¶ 2]. Plaintiffs allege that HSBC's fraudulent acts "commenced in the year of 2007 and forward." [Id. at p. 6, ¶ 5]. Plaintiffs allege in a conclusory fashion that HSBC's fraud precludes it from raising the defense of res judicata or collateral estoppel since acts of fraud are not covered by such affirmative defenses. [Id. at ¶ 4].
The relief sought by Plaintiffs include a determination that "HSBC is not a proper party in interest to prosecute any act of foreclosure against Plaintiffs" and is prohibited from "attempting any legal act" to collect mortgage payments from Plaintiffs or their bankruptcy estate." [Id. at pp. 7-8]. In addition, Plaintiffs ask for compensatory and punitive damages for fraud. [Id. at 7].
In support of their jurisdictional argument and their argument that res judicata applies, HSBC offers a final judgment and decree in foreclosure ("Judgment") entered on September 24, 2012, by the Lucas County, Ohio, Court of Common Pleas pursuant to its Opinion and Judgment Entry ("Opinion") entered on May 1, 2012, granting HSBC's motion for summary judgment and denying Plaintiffs' motion for partial summary judgment. [Doc. # 5, Exs. 2 & 3]. The court takes judicial notice of the state court Judgment and Opinion. See Fed. R. Bankr. P. 9017; Fed. R. Evid. 201(b)(2); Winget v. JP Morgan Chase Bank, N.A., 537 F.3d 565, 576 (6th Cir. 2008) (finding no error where, on a motion to dismiss, the district court took judicial notice of another court's opinion not for the truth of the matter recited therein, but for the existence of the opinion); Buck v. Thomas M. Cooley Law School, 597 F.3d 812, 816 (6th Cir. 2010) (stating that a court may take judicial notice of other court proceedings without converting a motion to dismiss into one for summary judgment).
In ruling on the parties' motions for summary judgment in the state court action brought by HSBC to foreclose a mortgage against Plaintiffs' home ("Mortgage"), the state court rejected Plaintiffs' argument that HSBC lacks standing to enforce the note ("Note") and the Mortgage securing the Note. [Doc. # 5, Ex. 2, pp. 6-11]. The state court found that HSBC is the holder of the Note as Trustee for Home Equity Loan Trust Series ACE 2005-HE5 and has the right to enforce the Note. [Id. at pp. 3, 7-9]. The state court further found that the Mortgage was assigned to HSBC, as Trustee for Home Equity Loan Trust Series ACE 2005-HE5, and that as Trustee, HSBC has standing to enforce the Mortgage. [Id. at pp. 10-11]. The state court rejected equitable defenses of unclean hands and estoppel that had been advanced by Plaintiffs as well as numerous counterclaims, including fraud and conspiracy to commit fraud based upon facts other than those alleged in this proceeding. [See id. at pp. 12-30]. The state court Judgment was then entered on September 24, 2012, granting HSBC the right to foreclose the Mortgage. [Doc. # 5, Ex. 3].
LAW AND ANALYSIS
As indicated above, the grounds for HSBC's motion to dismiss include that the court lacks subject matter jurisdiction under the Rooker-Feldman doctrine, that Plaintiffs' claims are barred by res judicata, that they lack standing to challenge assignment of the mortgage at issue, and that the complaint fails to state a claim for fraud. For the reasons discussed below, the court finds that the Rooker-Feldman doctrine does not apply in this case and that it has subject matter jurisdiction to finally determine the issues presented but that Plaintiff's claims are barred, in their entirety, by res judicata. The court thus need not address HSBC's remaining arguments. A. Rooker-Feldman Doctrine
"A Rule 12(b)(1) motion can either attack the claim of jurisdiction on its face, in which case all allegations of the plaintiff must be considered as true, or it can attack the factual basis for jurisdiction, in which case the trial court must weigh the evidence and the plaintiff bears the burden of proving that jurisdiction exists." DLX, Inc. v. Kentucky, 381 F.3d 511, 516 (6th Cir. 2004). In this case, HSBC's assertion that the court lacks subject matter jurisdiction under the Rooker-Feldman doctrine is a facial attack on Plaintiffs' jurisdictional claim. See Reguli v. Guffee, 371 Fed. Appx. 590, 595 (6th Cir. 2010).
The principles set forth in Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983), have become known as the Rooker-Feldman doctrine. In both cases, where the losing party in state court sought review and rejection of the state court judgment in federal district court based on claims that the judgment violated the loser's federal rights, the United States Supreme Court held that the federal district court lacked subject matter jurisdiction since authority to review a state court's judgment rests solely in the Supreme Court. Exxon Mobil Corp. v. Saudi Basic Industries Corp., 544 U.S. 280, 291 (2005). In Exxon Mobil Corp., the Supreme Court clarified the scope of the doctrine, holding that it "is confined to cases of the kind from which the doctrine acquired its name: cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments." Id. at 284. However, Rooker-Feldman does not preclude a district court from exercising subject-matter jurisdiction "simply because a party attempts to litigate in federal court a matter previously litigated in state court." Id. at 293. " 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.'" Id. (citation omitted).
In distinguishing between a claim that attacks a state court judgment, which is within the scope of the Rooker-Feldman doctrine, and an independent claim over which a district court may exercise jurisdiction, the Sixth Circuit has explained that the inquiry focuses on the source of the injury the plaintiff alleges in the federal complaint. McCormick v. Braverman, 451 F.3d 382, 393-94 (6th Cir. 2006). "If the source of the injury is the state court decision, then the Rooker-Feldman doctrine would prevent the district court from asserting jurisdiction. If there is some other source of injury, such as a third party's actions, then the plaintiff asserts an independent claim." Id. at 393. As the Sixth Circuit further explained, "the doctrine is confined to those cases exemplified by Rooker and Feldman themselves: when a plaintiff asserts before a federal district court that a state court judgment itself was unconstitutional or in violation of federal law." Id. at 395.
In this case, any injury asserted by Plaintiffs is based upon their allegations of wrongful acts of HSBC. They do not allege that the state court judgment itself is unconstitutional or in violation of federal law. The Rooker-Feldman doctrine thus does not preclude this court from exercising subject matter jurisdiction in this proceeding.
B. Rule 12(b)(6)
1. Rule 12(b)(6) Standard
HSBC also brings its motion under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. In deciding a Rule 12(b)(6) motion to dismiss, "the court must construe the complaint in the light most favorable to the plaintiff, accept all factual allegations as true, and determine whether the complaint 'contains enough facts to state a claim to relief that is plausible on its face.'" United States v. Ford Motor Co., 532 F.3d 496, 502 (6th Cir. 2008) (quoting Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1974 (2007)). Although typically courts may not consider matters beyond the complaint in determining a Rule 12(b)(6) motion, as stated above, the court may take judicial notice of another court's opinion without converting the motion into one for summary judgment. Buck v. Thomas M. Cooley Law School, 597 F.3d 812, 816 (6th Cir. 2010) (citing Winget v. JP Morgan Chase Bank, N.A., 537 F.3d 565, 576 (6th Cir. 2008)).
2. Res Judicata
Under 28 U.S.C. § 1738, the federal full faith and credit statute, a federal court must accord a state court judgment the same preclusive effect the judgment would have in state court. Corzin v. Fordu (In re Fordu), 201 F.3d 693, 703 (6th Cir. 1999). Under Ohio law, a claim is barred by the doctrine of res judicata if the following elements are present: "(1) a prior final, valid decision on the merits by a court of competent jurisdiction; (2) a second action involving the same parties, or their privies, as the first; (3) a second action raising claims that were or could have been litigated in the first action; and (4) a second action arising out of the transaction or occurrence that was the subject matter of the previous action." Portage Cty. Bd. of Commrs. v. Akron, 109 Ohio St.3d 106, 123 (2006).
In this case, the state court Judgment granting HSBC the right to foreclose against Plaintiffs' home is a final judgment on the merits. See Italiano v. Comm'l Fin. Corp., 148 Ohio App. 3d 261, 268 (Ohio App. 2002) ("It is the law in Ohio that debtors must immediately appeal an order of foreclosure, rather than waiting until a subsequent order confirming a foreclosure sale."). There is no dispute that Plaintiffs and HSBC were both parties in the state court action and that this proceeding arises out of the same transaction that was the subject matter of the state court action transaction, namely, the Mortgage against Plaintiffs' home. Finally, the state court specifically found that HSBC has standing to enforce the Mortgage. Plaintiffs' claims in this proceeding of HSBC's fraud and lack of standing to enforce the Mortgage based upon such fraud are claims that were or could have been litigated in the state court action.
Nevertheless, Plaintiffs argue that their assertion of fraud creates an exception to application of the doctrine of res judicata. The court disagrees. Plaintiffs allege that HSBC did not assert any rights under the Mortgage in Plaintiff's 2007 bankruptcy case and engaged in acts of fraud with respect to the execution of documents relating to the Mortgage that gave HSBC rights under the Mortgage. Plaintiffs argue that HSBC's claims "contradict [their] previous bankruptc