Opinion
22-11891 Adv. 22-1087
05-22-2023
In re: SANDRA ARLENE SHEAR Debtor v. WELLS FARGO BANK, N.A. Defendant SANDRA ARLENE SHEAR Plaintiff
Chapter 13
MEMORANDUM OPINION GRANTING DEFENDANT WELLS FARGO BANK, N.A.'S MOTION TO DISMISS PLAINTIFF'S COMPLAINT [DOCKET NUMBER 4]
BETH A. BUCHANAN, UNITED STATES BANKRUPTCY JUDGE
[Not intended for publication]
This matter is before this Court on Defendant Wells Fargo Bank, N.A. ("Wells Fargo")'s Motion to Dismiss Plaintiff's Complaint [Docket Number 4] ("Motion"); Plaintiff-Debtor Sandra Arlene Shear ("Debtor")'s Answers in Response [Docket Number 9 and 10]; and Wells Fargo's Reply [Docket Number 8]. This Court also considered Wells Fargo's Supplemental Brief [Docket Number 13] and Debtor's Entry of Oral Argument [Docket Number 18].
In her initial response to the motion to dismiss, the Debtor noted that Wells Fargo failed to serve the Motion on her because Wells Fargo's counsel inappropriately relied on electronic service through this Court's electronic case filing system. The Debtor noted that she only became aware of the Motion when her husband reviewed the docket. Because his review of the docket allowed the Debtor to file timely responses to the Motion, any additional service of the Motion has been waived. Nonetheless, this Court strongly advises Wells Fargo's counsel to make himself aware of the service requirements on unrepresented parties that cannot participate in this Court's electronic case filing system and are not served electronically. See Local Bankruptcy Rules 7004-1 and 9013-3; and this Court's Administrative Procedures for Electronic Case Filing.
It appears that Wells Fargo may have received copies of the Debtor's responses to which it replied prior to the Debtor's filing of the responses in this Court.
On February 8, 2023, a joint evidentiary hearing was held to consider Wells Fargo's Motion in this adversary proceeding as well as matters in the Debtor's main bankruptcy case.
The matters heard during the joint evidentiary hearing included a motion for in rem relief from the automatic stay and the co-debtor stay filed by Wells Fargo in the Debtor's bankruptcy case.
Upon careful review of the testimony and exhibits admitted at the hearing, this Court determines that it lacks jurisdiction to grant the relief requested in Debtor's adversary complaint pursuant to the Rooker-Feldman doctrine. Accordingly, this Court finds Wells Fargo's Motion well taken and the Debtor's adversary complaint is dismissed.
Wells Fargo filed identical sets of exhibits in the main bankruptcy case and in the adversary proceeding [Case No. 22-11891, Docket Number 59; Adv. Proc. No. 22-1087, Docket Number 15]. The parties agreed to the admission of Wells Fargo's exhibits for the matters scheduled for the joint hearing in the main bankruptcy case and the adversary proceeding. Wells Fargo's exhibits will be referred to in this opinion as "Def. Ex. __." The Debtor similarly filed identical sets of exhibits in the main bankruptcy case and in the adversary proceeding [Case No. 22-11891, Docket Number 61; Adv. Proc. No. 22-1087, Docket Number 17]. Except as excluded based on objections sustained during the joint hearing, the Debtor's exhibits were likewise admitted for purposes of the matters scheduled for the joint hearing.
I. FACTUAL AND PROCEDURAL BACKGROUND
On November 29, 2022, the Debtor, unrepresented by an attorney, filed a complaint initiating this adversary proceeding against Wells Fargo [Docket Number 1]. Her one page complaint contains only one request - a declaratory determination that Wells Fargo does not hold the promissory note for money borrowed by the Debtor and her husband Patrick Charles Shear (collectively the "Shears") nor the mortgage against the Shears' residential property at 539 Chaswil Drive, Cincinnati, Ohio 45255 (the "Property"). On that basis, the Debtor requests that any claim Wells Fargo might assert should be "discharged" in her bankruptcy case. To support this relief, she alleges in the complaint that Washington Mutual Bank was the original lender holding the note and mortgage and that Chase Bank purchased Washington Mutual Bank in 2008. She further alleges that Wells Fargo purchased Wachovia Bank and not Washington Mutual Bank and, accordingly, Wells Fargo does not hold the note and mortgage.
To the adversary complaint, the Debtor attaches a partial copy of a mortgage agreement executed by the Shears and granting a mortgage lien to Washington Mutual Bank.
On December 15, 2022, Wells Fargo filed a motion to dismiss the adversary complaint pursuant to Federal Rule of Procedure 12(b)(1) for lack of subject matter jurisdiction and 12(b)(6) for failure to state a claim upon which relief could be granted. In the motion, Wells Fargo agrees that in February of 2004, the Shears executed a promissory note to borrow $483,000 from Washington Mutual Bank and that the debt was secured by a mortgage lien on the Property. However, Wells Fargo asserts that it became the holder of the note and mortgage giving it standing to file a state court foreclosure action against the Shears that resulted in a pre-petition final judgment of foreclosure against the Shears.
At the evidentiary hearing, Wells Fargo presented a certified copy of the Complaint for Foreclosure filed by Wells Fargo against the Shears in the Hamilton County Ohio Court of Common Pleas on August 1, 2018 [Def. Ex. A] ("State Court Complaint"). In the State Court Complaint, Wells Fargo alleged that the Shears were in default under the terms of their promissory note and mortgage. Although not the original lender, Wells Fargo asserted its standing to foreclose and, in support, attached exhibits to the State Court Complaint demonstrating its status as the current holder of the note and mortgage. Specifically, Exhibit A to the State Court Complaint was the Shears' promissory note with lender Washington Mutual Bank, which was endorsed in blank. Exhibit B to the State Court Complaint was the mortgage agreement signed by the Shears granting Washington Mutual Bank a mortgage lien against the Property to secure the debt.
In addition, Wells Fargo attached to the State Court Complaint the two mortgage assignments by which Wells Fargo was assigned the Shears' mortgage in June of 2014. Specifically, Exhibit C to the State Court Complaint was the assignment of mortgage in which the Federal Deposit Insurance Corporation, acting as receiver for Washington Mutual Bank, assigned the Shears' mortgage to JP Morgan Chase Bank, N.A. Exhibit D to the State Court Complaint was a second assignment of mortgage in which the mortgage was assigned by JP Morgan Chase Bank, N.A. to Wells Fargo. The mortgage and two assignments were also attached to Wells Fargo's motion for summary judgment filed in the foreclosure action along with an affidavit affirming that Wells Fargo, directly or through its agent, was in possession of the original note prior to and at the time of filing the State Court Complaint [Def. Ex. B].
Wells Fargo's motion for summary judgment against the Shears was granted by Magistrate's Decision [Def. Ex. C] ("Magistrate's Decision"). The Magistrate's Decision includes the determination that Plaintiff Wells Fargo was the real party in interest when it filed the State Court Complaint and maintained the requisite standing at all times material to the action [Id., p. 2]. Hamilton County Common Pleas Court Judge Terry Nestor overruled the Shears' objection to the Magistrate's Decision and adopted the Magistrate's Decision in a final order entered on July 11, 2019 [Def. Ex. D] ("Final Entry").
The Shears filed various post-judgment motions and appeals of the Magistrate's Decision and Final Entry in the foreclosure action, including challenges to Wells Fargo's standing to foreclose, which have been unsuccessful [See generally, Def. Exs. E, H, K - R, U - W, Z, AA -BB, DD - FF].
II. STANDARD FOR DETERMINATION OF A MOTION TO DISMISS
Wells Fargo moves this Court to dismiss the Debtor's complaint in this adversary proceeding for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(1) and for failure to state a claim pursuant to Rule 12(b)(6) asserting that the Debtor's sole claim in the complaint has been finally determined in state court. This Court finds that Wells Fargo's argument regarding lack of subject jurisdiction is dispositive. As such, this Court does not reach Wells Fargo's alternate argument regarding failure to state a claim.
Rule 12(b) is incorporated into bankruptcy adversary proceedings by Federal Rule of Bankruptcy Procedure 7012(b).
"Rule 12(b)(1) motions to dismiss for lack of subject-matter jurisdiction generally come in two varieties: a facial attack or a factual attack." Gentek Bldg. Prods., Inc. v. Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir. 2007); Tubbs v. Long, 2022 U.S. Dist. LEXIS 29588, at *5-6, 2022 WL 508895, at *3 (M.D. Tenn. Feb. 17, 2022) aff'd 2022 U.S. App. LEXIS 29606, 2022 WL 1398300 (6th Cir. Oct. 24, 2022). A facial attack merely questions the sufficiency of the pleadings. Gentek, 491 F.3d at 330. When reviewing a facial attack, the court must take the allegations in the complaint as true making the assessment similar to that under a Rule 12(b)(6) motion to dismiss for failure to state a claim. Id.
On the other hand, a factual attack raises a factual controversy concerning whether subject matter jurisdiction exists. Id. When there is a factual attack on subject matter jurisdiction, there is no presumptive truthfulness applied to the complaint's allegations. Id. Instead, the court "must weigh the conflicting evidence to arrive at the factual predicate that subject-matter does or does not exist." Id. A court has wide discretion to allow affidavits, documents and even a limited evidentiary hearing to resolve jurisdictional facts. Id.
In this case, Wells Fargo asserts that this Court lacks jurisdiction under the Rooker-Feldman doctrine. A challenge to subject matter jurisdiction pursuant to Rooker-Feldman may be either a facial or factual attack. Tubbs, 2022 U.S. Dist. LEXIS 29588, at *7, 2022 WL 508895, at *4. In this case, resolution of the jurisdictional issue requires this Court to look beyond the limited factual assertions in the Debtor's adversary complaint and, particularly, to consider the circumstances of the state court foreclosure action that preceded the bankruptcy filing. Accordingly, this Court exercises its discretion to resolve the motion to dismiss based on the evidence presented at the February 8, 2023 hearing.
III. LEGAL ANALYSIS
Under the Rooker-Feldman doctrine, federal lower courts lack jurisdiction to review a case litigated and decided in state court. Rooker v. Fidelity Trust Co., 263 U.S. 413, 415-16 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983); Lance v. Dennis, 546 U.S. 459, 463 (2006) (stating that, "under what has come to be known as the Rooker-Feldman doctrine, lower federal courts are precluded from exercising appellate jurisdiction over final state-court judgments"). In recent years, the Supreme Court has emphasized that Rooker-Feldman's application is limited in nature. Specifically, the doctrine "is confined to 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." Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005); accord Skinner v. Switzer, 562 U.S. 521, 531 (2011).
Although application of the Rooker-Feldman doctrine is limited, this adversary proceeding is one of the narrow type of cases to which it applies. In granting Wells Fargo summary judgment in the foreclosure action, the Magistrate's Decision, adopted in the Final Entry, specifically and necessarily concluded that Wells Fargo was the real party in interest with standing to file and maintain the foreclosure action. In other words, the Magistrate's Decision and Final Entry determined that Wells Fargo is the holder of the note and mortgage. A challenge to this determination in the foreclosure action must be pursued in state court, not in bankruptcy court. Although the Shears did file post-judgment motions and appeals in state court, including objections to Wells Fargo's standing to foreclose, none was successful.
Under Ohio law, the holder of a promissory note has the right to enforce it. Ohio Revised Code § 1303.31(A)(1); Wells Fargo Bank, N.A. v. Horn, 142 Ohio St.3d 416, 422 (Ohio 2015) ("the holder of a note has the right to enforce the note if the note is endorsed to that holder or it is endorsed in blank" (citation omitted)).
The Debtor's adversary complaint requests a determination that Wells Fargo does not hold the Shears' note and mortgage against the Property. The Debtor's claim and the relief she requests is a direct challenge to the Final Entry in the state court foreclosure action, which is a challenge that this Court lacks jurisdiction to entertain. See In re Smith, 2019 Bankr. LEXIS 3068, at *6-8, 2019 WL 4897030, at *3 (Bankr.N.D.Ohio Sept. 30, 2019) (determining that the debtor's arguments before the bankruptcy court "mainly focus on numerous defects in the documents transferring the note and mortgage [and that after] years of [unsuccessful] litigation in the state court, including appeals, [the debtor] continues to challenge the state court decisions allowing [the bank] to prosecute the foreclosure judgment. Since these decisions are the source of [the debtor's] injury, the Rooker-Feldman doctrine leaves this court unable to review the state court foreclosure judgment or the decisions refusing to overturn or modify it."). See also, Valladares v. Ginnie Mae, 2016 U.S. Dist. LEXIS 41870, at *11, 2016 WL 1243804, at *4 (D. N.J. March 29, 2016) ("Here, the main thrust of Plaintiff's Complaint is that, due to the improper 'securitization' of Plaintiff's mortgage, Defendants had no right to foreclose on the Property, and thus should not have received a foreclosure judgment in the state court proceeding. The Court's review of the Complaint indicates that each outstanding Count relates directly to Defendants' alleged 'right to foreclose' on the Property, or to harm that was allegedly caused by the obtaining of a foreclosure judgment in state court. Thus, it is clear that these claims constitute the type of 'attack on the state court judgment of foreclosure' which the Rooker-Feldman doctrine was intended to prohibit."); Forrest v. New Century Mortg. Corp. (In re New Century TRS Holdings, Inc.), 423 B.R. 467, 473-474 (Bankr. Del. 2010) (holding that the relief sought by the homeowner in an adversary proceeding before the bankruptcy court was a direct attack on the state court summary judgment and judgment in foreclosure in favor of the bank such that the bankruptcy court lacked jurisdiction over the claims under the Rooker-Feldman doctrine).
Accordingly, Wells Fargo's Motion to Dismiss [Docket Number 4] is GRANTED for lack of subject matter jurisdiction.
This Court will enter an order of dismissal consistent with this opinion.
SO ORDERED.