Opinion
Case No. 8:19-bk-07188-RCT
09-23-2020
In re: William Dale Thorlton, Debtor.
Chapter 13 MEMORANDUM DECISION AND ORDER GRANTING SECURED CREDITOR'S MOTION FOR SUMMARY JUDGMENT , AND OVERRULING DEBTOR'S OBJECTION TO SECURED CREDITOR'S CLAIM
This chapter 13 case is before the Court on the Motion for Summary Judgment (Doc. 37) (the "Motion") filed by U.S. Bank National Association, not in its individual capacity, but solely as Trustee of NRZ Pass-Through Trust X ("U.S. Bank"), Debtor's opposition to the Motion (Doc. 45), and U.S. Bank's reply (Doc. 47). U.S. Bank seeks summary judgment on Debtor's Objection to Claim No. 3 of U.S. Bank National Association (Doc. 22) (the "Objection to Claim").
In addition to exhibits attached to its Motion, U.S. Bank offers in support of its Motion the affidavit, with exhibits, of A.J. Loll, Vice President of Nationstar Mortgage LLC dba Mr. Cooper (Doc. 38) (the "Loll Aff."). Nationstar services the loan on behalf of U.S. Bank. Loll Aff. ¶ 1.
Having considered the papers, the underlying pleadings, as well as the relevant case law, the Court concludes that the Motion should be granted.
As the Court prepared this decision, Debtor filed an amended response (Doc. 52). The amended response was filed without leave and well after the deadline established by the court's scheduling order (Doc. 41). As such, the Court has not considered the amended response and, accordingly, U.S. Bank's motion to strike the amended response (Doc. 53) will be denied as moot by separate order. For much the same reason, the Court also has not considered the supplemental affidavit filed by U.S. Bank in support of the Motion (Doc. 50).
Docs. 22 & 25. Debtor recently filed an amended objection to U.S. Bank's claim (Doc. 54). The amended objection makes fundamentally the same claims and raises the same issues as the original objection. The amended objection is due to be overruled for the same reasons explained herein. A separate order will issue.
Procedural Background
Debtor William Dale Thorlton ("Debtor") commenced this case on July 30, 2019, and timely filed his proposed chapter 13 plan on August 13, 2019. His plan proposes a nominal $100 monthly payment for 60 months and pays attorney's fees and unsecured creditors "pro rata." He proposes to pay his secured creditors directly and outside of the plan, except for U.S. Bank. As to U.S. Bank, the plan states:
Docs. 1 & 10.
Debtor disputes the mortgage and lien on his Homestead at 1727 Stream Avenue, Sebring, FL 33875 and the automatic stay shall remain in effect.
U.S. Bank timely filed its proof of claim on September 30, 2019. The claim, in the amount of $485,932.95, is filed as a fully secured claim. U.S. Bank asserts it is secured by a mortgage on Debtor's homestead. Per the claim, prepetition arrears total $280,136.01.
Claim 3-1.
Thereafter, and consistent with his plan, Debtor objected to U.S. Bank's claim, alleging that his signature on the underlying note and a construction rider were forged. Debtor offers a purportedly expert-prepared handwriting analysis in support of his objection.
Doc. 22 Ex. A. The "Revised Letter of Opinion" is dated November 6, 2015 (the "Opinion Letter"). The Opinion Letter was prepared by Jan Leach, who claims to be a certified forensic document examiner.
U.S. Bank responded to the Objection to Claim, disputing the forgery claim and asserting that even if Debtor's claims were true, they were or should be raised in the state court foreclosure action between these parties. U.S. Bank asserts Debtor is improperly seeking a "friendlier" forum, noting that these very claims were raised and rejected in state court. U.S. Bank holds a final, non-appealable judgment of foreclosure and asks the Objection to Claim be overruled or, alternatively, for the Court to abstain pursuant to 28 U.S.C. § 1334(c)(1).
Undisputed Facts
In early April 2003, Debtor and his wife (the "Thorltons") executed a contract for the construction of a home on real property located in Highland County, Florida. On May 13, 2003, the Thorltons executed a series of documents related to the construction of the home including a note in favor of Wachovia Mortgage Corporation ("Wachovia"), a mortgage, a construction rider to the mortgage, and a HUD Settlement Statement.
Loll Aff. Ex. B.
Loll Aff. Exs. C & D. The Court acknowledges that Debtor disputes the validity of his signature on the note and the construction rider to the mortgage. But it is undisputed that Mrs. Thorlton signed these documents. And it is not disputed that Debtor executed at least some of these documents or that the Thorltons secured a mortgage from Wachovia and used funds from the underlying loan to construct their home.
Construction was complete by December, at which time the Thorltons executed an owner's affidavit for purposes of finalizing the loan with Wachovia. On December 18, 2003, the Thorltons signed a mortgage modification agreement acknowledging, inter alia, that construction had been completed in accord with the applicable agreements and that a principal balance of $289,000 was then owed to Wachovia on the mortgage loan. The Thorltons do not dispute that the loan proceeds were used to construct their home.
Loll Aff. Ex. E.
Loll Aff. Ex. F.
For some five years, the Thorltons made their monthly payments on the mortgage without incident. But by December 2008, the loan had fallen into default.
See Loll Aff. ¶ 13 & Ex. H.
Chase Home Finance LLC, then the mortgage servicer, filed a foreclosure complaint on December 29, 2008. The complaint was amended twice thereafter. In answering the various complaints, the Thorltons admitted to executing the note, mortgage, construction rider, and the modification agreement. The forgery issue was not specifically raised in their answers.
Motion Exs. 3 & 4. The Thorltons' answers do include, as the first affirmative defense, a notice of contesting authenticity pursuant to Fla. Stat. § 673.3081. But this defense appears included as a matter of course to hold the foreclosure plaintiff to its proof rather than a specific defense upon which they intended to rely. In any event, the state court expressly found in its final judgment that the Thorltons failed to establish any of their affirmative defenses.
The foreclosure complaint was subject of a two-day trial in March 2017. At trial, the forgery issue was not raised. In fact, upon direct inquiry by the court during trial, the Thorltons' counsel acknowledged that they did not dispute the signatures on the underlying note.
Motion Ex. 5 (Paragraph 6a & Ex. A of the Thorltons' motion to vacate the final judgment of foreclosure).
A final judgment of foreclosure was entered on April 18, 2017, in favor of successor plaintiff Nationstar Mortgage LLC (the "Final Judgment"). In its detailed findings of fact supporting the Final Judgment, the state court expressly found that both Debtor and Mrs. Thorlton executed the note with Wachovia and that they admitted they had failed to pay as required. The state court also detailed the tortured, near decade-long procedural history of the foreclosure proceeding as well as the evidence adduced at trial, which largely related to matters between the Thorltons and the various loan servicers after the payment default occurred.
Motion Ex. 7.
Motion Ex. 6.
The Thorltons moved for rehearing on the Final Judgment, but the motion was denied. Their appeal of the Final Judgment was unsuccessful.
Motion Exs. 8 & 9. The forgery issue appears to have been raised for the first time, albeit tangentially, in the motion for rehearing. However, paragraph 15 of the state court's findings of fact as well as Mrs. Thorlton's letter attached to the motion for rehearing suggest that the forgery issue may have been raised as early as November 2015.
Thorlton v. Nationstar Mortg., LLC, 257 So. 3d. 596 (Fla. Dist. Ct. App. 2018).
Approximately three months after the Final Judgment was affirmed on appeal, the Thorltons filed a motion to vacate the Final Judgment. In that motion, the Thorltons clearly put the forgery issue before the foreclosure court. But the court denied the motion, finding that the Thorltons' allegations should have been pled and proven at trial but were not. The court rejected the Opinion Letter as "newly discovered evidence" and noted that the Thorltons' claims were set forth previously on their motion for rehearing. The state court concluded that the forgery issue was either "previously litigated or ha[d] been waived." The Thorltons took no appeal of the order denying their motion to vacate, and the order became final and non-appealable prior to the bankruptcy.
Motion Ex. 5.
Motion Ex. 10.
Nationstar Mortgage LLC assigned the bid on the Final Judgment to U.S. Bank on June 30, 2019. Debtor filed his bankruptcy case two days before the scheduled foreclosure sale.
Arguments on Summary Judgment
U.S. Bank argues that summary judgment in its favor is appropriate because (1) collateral estoppel bars relitigating the forgery issue, (2) this Court lacks authority to review the state court's determination under the Rooker-Feldman doctrine, and (3) if considered, the forgery claim would fail on its merits.
Debtor responds that (1) U.S. Bank cannot rely on collateral estoppel because the state court did not decide the forgery issue as part of rendering the Final Judgment nor was the forgery issue actually litigated and (2) the Rooker-Feldman doctrine is inapplicable because the claim objection is a core proceeding that "directly implicate[s] the Code." Debtor also asserts that once considered, the forgery claim would succeed on its merits.
Doc. 45 ¶ 53.
Summary Judgment Standard
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The moving party bears the initial burden of showing the absence of a triable issue of fact and its entitlement to judgment as a matter of law. Thereafter, the burden shifts and the non-moving party must set forth specific facts to show that there is a genuine issue for trial. All inferences to be drawn from the facts must be viewed in the light most favorable to the non-movant.
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c) (1963) (later amended and relocated, in part, to Fed. R. Civ. P. 56(a))); see Fed. R. Civ. P. 56(a) (incorporated here by Fed. R. Bankr. P. 7056).
Kernel Records Oy v. Mosley, 694 F.3d 1294, 1300-01 (11th Cir. 2012).
Discussion
The Court finds U.S. Bank's argument under the Rooker-Feldman doctrine to be dispositive.
The Rooker-Feldman doctrine provides that "federal courts below the Supreme Court must not become a court of appeals for state court decisions." Review of a state court final's judgment is reserved to the appropriate state appellate court or, as a "last resort," to the United States Supreme Court. The doctrine, while sometimes noted to be of "narrow" application, applies squarely in "cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the [federal] court proceedings commenced and inviting [federal] court review and rejection of those judgments." Through often phrased with reference to district courts, the doctrine applies with equal measure in the bankruptcy courts.
Vasquez v. YII Shipping Co., 692 F.3d 1192, 1195 (11th Cir. 2012); see, e.g., Lozman v. City of Riviera Beach, 713 F.3d 1066, 1072 (11th Cir. 2013) ("The Rooker-Feldman doctrine states that federal district courts have no authority to review final judgments of a state court[.]" (internal quotation omitted)).
Casale v. Tillman, 558 F.3d 1258, 1260 (11th Cir. 2009)
Id. at 1261 (quoting Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005)); see also Vasquez, 692 F.3d. at 1195-96.
E.g., High-Top Holdings, Inc. v. RREF II BB Acquisitions, LLC (In re High-Top Holdings, Inc.), 564 B.R. 784, 793 (Bankr. N.D. Ga. 2017).
Rooker-Feldman applies "both to federal claims raised in the state court and to those 'inextricably intertwined' with the state court's judgment." "A claim is inextricably intertwined if it would 'effectively nullify' the state court judgment . . . or it 'succeeds only to the extent that the state court wrongly decided the issues.'"
Casale, 558 F.3d. at 1260.
Id. (quoting, respectively, Powell v. Powell, 80 F.3d 464, 467 (11th Cir. 1996) and Goodman ex rel. Goodman v. Sipos, 259 F.3d 1327, 1332 (11th Cir. 2001)).
Application of the Rooker-Feldman doctrine is recognized to be jurisdictional in nature. It is similar in concept to res judicata but has two important differences. First, while Rooker-Feldman is jurisdictional in nature, res judicata is a waivable affirmative defense. Second, invoking Rooker-Feldman requires that the state court judgment be both final and not subject to further appeal. Res judicata may bar claims once a final judgment is entered, even if the time for appeal has not passed or has been stayed by a bankruptcy.
See, e.g., Vasquez, 692 F.3d at 1195; Casale, 558 F.3d at 1260-61; see generally Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 291-93 (2005) (discussing the contours of the Rooker-Feldman doctrine, including contrasting its "jurisdictional" nature with that of preclusion law).
See GASH Assocs. v. Vill. of Rosemont, 995 F.2d 726, 728 (7th Cir. 1993) ("Equating the Rooker-Feldman doctrine with preclusion is natural; both sets of principles define the respect one court owes to an earlier judgment. But the two are not coextensive.").
Compare Jackson v. Farmers Ins. Grp., 391 F. App'x 854, 856-57 (11th Cir. 2010), and Casale, 558 F.3d at 1260-61, with Norfolk S. Corp. v. Chevron, U.S.A., Inc., 371 F.3d 1285, 1289 (11th Cir. 2004), and Boyd v. Boyd, 874 So. 2d 696, 698 (Fla. Dist. Ct. App. 2004).
See Nicholson v. Shafe, 558 F.3d. 1266, 1275-79 (11th Cir. 2009) (concluding that Rooker-Feldman did not apply where the state court proceeding had not ended); Figueroa v. Merscorp, Inc., 766 F. Supp. 2d 1305, 1321 (S.D. Fla. 2011), aff'd, 477 F. App'x 558 (11th Cir. 2012).
See Figueroa, 766 F. Supp. 2d at 1321-23; see generally Exxon Mobil Corp., 544 U.S. at 292-93 (discussing Rooker-Feldman, preclusion, and abstention doctrines as applied to parallel state and federal litigations).
Here, the state court foreclosure action is final in every respect, and Debtor did not prevail. Debtor's appeal of the Final Judgment also was unsuccessful. And the order denying his later attempt to vacate the Final Judgment became non-appealable before this bankruptcy was filed.
Nevertheless, Debtor objects to U.S. Bank's secured claim on the theory that its mortgage is not valid due to a forgery on the underlying note. Debtor thus implicitly complains that the state court wrongly determined that U.S. Bank held a valid mortgage entitling it to foreclose on his homestead. He asks this Court to examine the forgery issue and determine that the note, and by necessary implication the mortgage, to be invalid. Indeed, Debtor asks this Court to "review and reject" the Final Judgment. This is precisely what the Rooker-Feldman doctrine prohibits.
See Figueroa, 766 F. Supp. 2d at 1323-25; see also Nivia v. Nationstar Mortg., LLC, 620 F. App'x 822, 824-25 (11th Cir. 2015) (finding Rooker-Feldman applicable with regard to a homeowner's claim advanced under the Florida Deceptive and Unfair Trade Practices Act but inapplicable with regard to the homeowner's damages claim asserted under the Troubled Asset Relief Program and the Home Affordable Modification Program).
Debtor argues that the state court never determined the forgery issue in rendering the Final Judgment. But even if true, to find that the note was a forgery necessarily requires "a determination that the state court entered the [foreclosure] judgment 'wrongly,' i.e., that the judgment was legally invalid." Debtor's own argument supports this conclusion. Thus, Debtor's forgery claim is "inextricably intertwined" with the Final Judgment. Consideration of his objection to U.S. Bank's claim therefore is prohibited by the Rooker-Feldman doctrine.
Nivia, 620 F. App'x at 825; see Figueroa, 766 F. Supp. 2d at 1323-25 ("[B]y entering judgments of foreclosure, the Florida state courts determined the foreclosures were proper.").
Doc. 45 ¶¶ 48-49 ("An abundance of case law exists solidifying the fundamental principle of law wherein a foreclosure cannot go forward without a valid note showing a debt owed.").
Debtor next argues that Rooker-Feldman does not apply because his Objection to Claim is a core matter directly implicating the Bankruptcy Code. This argument also is unavailing. Debtor relies exclusively on the Third Circuit's decision in In re Philadelphia Entertainment & Development Partners, LP ("Philadelphia Entertainment"). This reliance is misplaced. Philadelphia Entertainment did not involve an objection to claim but rather a liquidating trustee's fraudulent transfer claims as to the Pennsylvania Gaming Control Board's revocation of a slot machine license. Although the circuit court reversed the lower courts' determinations that Rooker-Feldman barred review, it did not do so on the basis that the adversary proceeding was a core proceeding. Nor, for that matter, was the court's decision based upon a right or claim arising under the Bankruptcy Code. Rather, examining its own jurisprudence, the Third Circuit concluded that to decide the liquidating trustee's fraudulent transfer claims would not require the bankruptcy court "to reject or even review the [state board's revocation] order" and, thus, the Rooker-Feldman doctrine did not apply.
Philadelphia Entm't & Dev. Partners, LP v. Dep't of Revenue (In re Philadelphia Entm't & Dev. Partners, LP), 879 F.3d 492 (3rd Cir. 2018).
Id. at 498-503 ("In sum, the Trustee is not 'complaining of an injury caused by the state-court judgment and seeking review and rejection of that judgment.'" (quoting Exxon Mobil Corp., 544 U.S. at 291)).
Because Debtor now attacks an adverse, final foreclosure judgment entered by the state court and because his forgery claims are "inextricably intertwined" with that foreclosure judgment, this Court lacks jurisdiction to hear his Objection to Claim under the Rooker-Feldman doctrine.
Given its conclusion, the Court need not decide the remaining issues argued by the parties. Still, his contentions, namely that his state court counsel refused to assert a forgery defense despite the Thorltons' numerous pleas, warrant a brief mention. Assuming Debtor's allegations to be true, given counsel's statement at trial, it would suggest that state court counsel made the conscious decision that a forgery defense was not the best trial strategy. Such decision, right or wrong, is the type of litigation strategy that cannot be undone under principles of res judicata. See Pleming v. Universal-Rundle Corp., 142 F.3d 1354, 1356 (11th Cir. 1998) ("Res judicata acts as a bar not only to the precise legal theory presented in the previous litigation, but to all legal theories and claims arising out of the same operative nucleus of fact." (internal quotation omitted)). --------
Accordingly, it is ORDERED:
1. The Motion (Doc. 37) is GRANTED.
2. Debtor's Objection to Claim (Doc. 22) is OVERRULED.
3. Claim No. 3-1 of U.S. Bank National Association is ALLOWED as filed.
4. Within thirty (30) days of entry of this Order, Debtor shall file an amended chapter 13 plan that provides an appropriate treatment for U.S. Bank's secured claim. Failure to timely file an amended plan as directed shall, without further notice or hearing, result in the termination of the automatic stay as to U.S. Bank.
ORDERED. Dated: September 23, 2020
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Service of this Order other than by CM/ECF is not required. Local Rule 9013-3(b).