Charles Smalley v. Shapiro & Burson, LLP, No. 12-1266 (4th Cir. 2013)
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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-1266 CHARLES SMALLEY; PAMELA BALL, On behalf of themselves and as a class, Plaintiffs - Appellants, v. SHAPIRO & BURSON, LLP; JOHN S. BURSON, Esq.; WILLIAM M. SAVAGE, Esq.; JASON MURPHY, Esq., Defendants Appellees, and KRISTINE D. BROWN, Esq.; ERIK W. YODER, Esq.; GREGORY N. BRITTO, Esq., Defendants. Appeal from the United States District Court for the District of Maryland, at Greenbelt. J. Frederick Motz, Senior District Judge. (8:11-cv-00906-JFM) Argued: March 22, 2013 Decided: April 16, 2013 Before WILKINSON and DAVIS, Circuit Judges, and Jackson L. KISER, Senior United States District Judge for the Western District of Virginia, sitting by designation. Vacated and remanded by unpublished opinion. Senior Judge Kiser wrote the opinion, in which Judge Wilkinson and Judge Davis joined. ARGUED: Ian Stumpf, JR HOWELL & ASSOCIATES, Washington, D.C., for Appellants. Robert A. Scott, BALLARD SPAHR, LLP, Baltimore, Maryland; William Joseph Carter, CARR MALONEY, PC, Washington, D.C., for Appellees. ON BRIEF: Glenn A. Cline, BALLARD SPAHR, LLP, Baltimore, Maryland; Bizhan Beiramee, BIZHAN BEIRAMEE, ESQ., P.C., McLean, Virginia, for Appellees Shapiro & Burson, LLP, John S. Burson, Esq., and William M. Savage, Esq. Unpublished opinions are not binding precedent in this circuit. 2 KISER, Senior District Judge: Appellants action are ask not us to barred hold under that their Maryland federal claim causes preclusion of law because the claims could not have been asserted in the state foreclosure proceedings. Because we decide that the district court lacked jurisdiction to reach the merits of the case under the Rooker-Feldman question. doctrine, we do not need to resolve that Accordingly, we vacate the district court s judgment and remand the case with instructions to dismiss Appellants actions without prejudice. I. Charles Smalley Appellants ), are and Pamela African-American Ball residents (collectively of Maryland. Appellee Shapiro & Burson, LLP, is a Maryland law firm. In 2009, Appellee foreclosed on Appellants homes on behalf of large number of Appellants mortgage lenders. Appellee foreclosures Shapiro in & Maryland Burson and conducts other a jurisdictions. Appellees John Burson, William Savage, and Jason Murphy were all attorneys for Appellee Shapiro & Burson. 1 Burson, Savage, and Murphy were 1 Appellees refers to Shapiro & Burson, LLP, John Burson, William Savage, and Jason Murphy collectively, all of whom were parties to the action in the district court. 3 all appointed as substitute trustees conducting the foreclosures at issue. for the purpose of (J.A. 150.) Pamela Ball The was foreclosure instituted in proceeding November of against Appellant Pamela 2007. Appellant Ball Ball never sought an injunction to stop the sale, nor did she file any exceptions to the sale, as she could have done pursuant to Md. Rule 14-305[,] auction. to challenge the conduct (Br. for Appellees pg. 5.) employees (not the substitute of the foreclosure When Shapiro & Burson trustees) filed the Order to Docket Foreclosure against Appellant Ball, the signing affiant swore that Appellees were the note holders and that they had the right to foreclose on the property. Additionally, the affiant swore that a copy of the note was attached to the Order to Docket and that the note was a true and accurate copy of the original. Appellants maintain that none of those statements were true. (See J.A. 152.) Appellants allege that Appellees were never in possession of the note. The same month that the (Id.) Order to Docket was filed, Appellees sold Appellant Ball s property, allegedly without ever seeing or possessing the promissory note as represented. (Id.) In December of 2007, Appellees sent Appellant Ball an eviction notice, ordering her to vacate her property within three days; she complied. (Id.) Several months after insisting Appellant 4 Ball vacate the property, Appellees informed the state court that the Order to Docket was defective, and they filed a Motion to Accept Lost Note Affidavit at that Appellant Ball did not oppose the motion. time. (See id.) (See J.A. 235-41.) Despite the defective Order and original affidavit, the state court ratified the foreclosure. On December Appellant Ball s 23, 2008, home, (J.A. 152.) over the a state year after court auditor auditor s report pursuant to Md. Rule 14-305. 46.) Appellees filed sold the (J.A. 236, 245- The report set forth, among other things, the distribution of the proceeds from the sale, including the fees charged by Appellee Shapiro & Burson. (J.A. 245-46.) Appellant Ball filed an exception to this report by way of a Motion for Exception to the Audit. (J.A. 247-48.) On January 12, 2009, the state court issued a final order of ratification of the audit and closed the case. (J.A. 249.) Appellant Ball subsequently appealed the order of the state court ratifying the auditor s report. (See J.A. 251.) The Maryland Court of Special Appeals held that Appellant Ball s appeal was procedurally premature because her January 21, 2009, Motion to Nullify the Judgment operated as a motion to alter or amend that judgment and, because that motion had not been ruled upon, the appeal was premature. (See J.A. 255.) The Court of Special Appeals additionally held, however, that the principles 5 of res judicata and collateral estoppel barred Appellant Ball s allegations of wrongdoing related to the report of sale because that judgment became final when the appellate court issued its mandate dismissing the appeal. On remand, following (Id.) a March 4, 2011, hearing on Appellant s Ball s outstanding motions, the state court denied the audit motion and ratified the audit. appeal was filed. (J.A. 234-41.) (See J.A. 258.) No Appellant Ball did file a Motion for Emergency Hearing, claiming that the state court should not have ratified the audit because it never ruled on several motions. She sought to re-open the case and filed an Amendment to the Open Motion Dated January 21, 2009. 259-62.) (J.A. In that motion, Appellant Ball re-asserted allegations related to the Lost Note Affidavit. (See id.) hearing, the state court denied the motion. Following a (See J.A. 240.) Appellant Ball appealed, but the state court was affirmed. (See Br. of Appellee Addendum 1.) Charles Smalley On May Foreclosure 21, 2009, against Appellees Appellant filed Charles an Order Smalley. to Docket (J.A. 159.) Appellee Jason Murphy allegedly signed the Order, but Shapiro & Burson employees had prepared the affidavit. an affidavit that asserted that the The Order included substitute trustee had verified that the party ordering the foreclosure was the owner 6 of the Note that is the subject of this foreclosure action and that the copy of the Note filed in this foreclosure case is a true and accurate copy of said Note. (J.A. 159-60.) Although the affidavit certified that Barclays Capital Real Estate, Inc., ( Barclays ) was the noteholder, the Note itself indicated on its face that (J.A. 160.) it was payable to Fremont Investment & Loan. Appellees did not produce any record of a transfer of ownership of the mortgage prior to the filing of the Order to Docket Foreclosure. (See id.) Appellant Smalley alleges that Appellees did not take any steps to confirm that Barclays was actually the noteholder. (See id.) The substitute trustees ultimately sold Appellant Smalley s property at a foreclosure sale in April 2010. (Id.) Prior to the sale, Appellant Smalley did not seek an injunction to stop the sale, nor did he move to dismiss the foreclosure action pursuant to the applicable state rules. (See J.A. 263-64.) state court ratified the sale on October 21, 2010. The Just as in Appellant Ball s case, Appellees received a commission on the sale. In addition, the legal fees Appellees charged were passed on to Appellants from their respective foreclosures. On June 25, 2010, Appellant Smalley filed a Memorandum of Law Bank Fraud, in which he challenged the foreclosure. J.A. 264.) (See The substitute trustees filed a Motion to Strike, arguing that the time for filing exceptions has lapsed. 7 (See id.) The state court granted the Motion to Strike on October 20, 2010. (Id.) foreclosure sale. The next day, the state court ratified the (See J.A. 264-65.) On January 14, 2011, the state court ratified the audit, which included the distribution from the sale, as well as all fees charged by Appellee Shapiro & Burson. the (See J.A. 269-70.) ratification auditor s report. of the Appellant Smalley never appealed sale or the ratification of the (See J.A. 263-66.) On January 24, 2011, Appellant Smalley filed a 15-count declaratory judgment complaint in the state court against his mortgage lender, Barclays, and the purchaser, 50 by 50 REO, LLC. (See J.A. 271-89.) among other Appellant In that lawsuit, Appellant Smalley alleged, things, Smalley s that Barclays promissory was note and not the that holder the of Smalley foreclosure action was brought by entities that had no interest in the Smalley property, the note, or the mortgage. (See J.A. 274.) Barclay s Appellant representation of Smalley an further ownership alleged interest as that a basis for instituting the foreclosure, the foreclosure action itself, and all of the representations and activities undertaken to commence, execute, and finalize the sale constituted unfair and deceptive trade practices under the Maryland Consumer Protection Act. (See J.A. 276-77.) The state court dismissed the action 8 on res judicata grounds, Appeals affirmed. In March investigation and the Maryland Court of Special (See J.A. 268; Appellee s Rule 28(j) filing.) of 2011, into the state alleged Appellee Shapiro & Burson. prosecutors launched practices robo-signing (J.A. 156.) an of In cooperation with the criminal investigation, José Portillo, a paralegal who worked at Shapiro & Burson forward with from details April 2008 regarding directed him to undertake. until February practices 2011, came Appellees allegedly (See J.A. 44-47, 153.) Portillo detailed how he and other paralegals were directed to prepare deeds and affidavits for Appellee William Savage to sign. different attorney who did not work for Shapiro & A Burson, however, routinely signed Appellee Savage s names to trustee s deeds that transferr[ed] the foreclosed property back to the lender who purchased the property at auction. an affidavit, Portillo included several (J.A. 44.) deeds that In were purportedly signed by Appellee Savage but were not, in fact, signed by him, as well as several deeds which actually were signed by Appellee Savage. (See J.A. 45, 48-102.) Notaries, such as Portillo, were then instructed to notarize the deeds. None of the allegedly fraudulent documents included with the Portillo affidavit, however, foreclosure. 9 concerned any Appellant s On April 7, 2011, shortly after Appellees robo-signing practices came to light, Appellants sought to bring a class action in the United States District Court for the District of Maryland. (See Appellants contended unreasonable, diligence J.A. and and 147-182.) that the pattern in of the federal imposed fees inappropriate the In were light of unlawful, the complaint, excessive, lack fraudulent of due conduct [Appellees] undertook in reporting that those fees were actually earned. (J.A. 157.) Although they did not claim any aspect of the affidavits submitted to the state court were false, they alleged that Appellants lack of diligence in confirming the facts to which they attested was unfair and unconscionable and that the rampant signatures forgery. on (J.A. imposition of excessive submission of false their federal the affidavits 173-74.) and rights. They unearned affidavits (See, to were e.g., state J.A. result of that the as the contended fees, the the as well court, 167.) violated Appellants asserted claims for fraud, violations of the Maryland Consumer Protection Act, and violations of the federal RICO statute, Fair Debt Collection Rights Act. Practices Act, Fair (See J.A. 166-180.) Housing Act, and Civil Appellees filed a motion to dismiss, pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), arguing that Appellants claims were barred by the doctrine of claim preclusion. The District Court granted the 10 motion and dismissed the action. Appellants then instituted this appeal. II. The dismissal of a complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) is reviewed under the de novo standard of review. (4th Cir. evidence See Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 1993). in the In its light review, most the favorable Court to construes the the non-movant, E.E.O.C. v. Seafarers Int l Union, 394 F.3d 197, 200 (4th Cir. 2005), and should accept as true all well-pleaded allegations and should view the complaint in a light most favorable to the plaintiff, Mylan Labs., 7 F.3d at 1134. Additionally, although Appellants bring this action on behalf of a purported class, if none of the named plaintiffs purporting to represent a class establishes the requisite of a case or controversy with the defendants, none may seek relief on behalf of himself or any other member of the class. O Shea v. Littleton, 414 U.S. 488, 493-95 (1974). Although the district court dismissed this action on claim preclusion grounds, Appellees have raised a jurisdictional issue that we are required to address before reaching the merits. See Jones v. Am. Postal Workers Union, 192 F.3d 417, 422 (4th Cir. 1999). Appellees argue that this case is barred by the Rooker- Feldman doctrine, which precludes a federal court from deciding 11 what is, in essence, an appeal of a state court judgment. See Johnson v. De Grandy, 512 U.S. 997, 1005-06 (1994). III. This Court doctrine as has consistently jurisdictional, and treated the [b]ecause Rooker-Feldman the Rooker-Feldman doctrine is jurisdictional, we are obliged to address it before proceeding Dunlap, 290 further F.3d in 191, our analysis. 195-96 (4th Friedman s, Cir. 2001); see Inc. also v. Am. Reliable Ins. Co. v. Stillwell, 336 F.3d 311, 316 (4th Cir. 2003); Brown & Root, Inc. v. Breckenridge, 211 F.3d 194, 198-99 (4th Cir. 2000); Jordahl v. Democratic Party of Va., 122 F.3d 192, 199 (4th Cir. 1997). Under the Rooker-Feldman doctrine, a party losing in state court is barred from seeking what in substance would be appellate review of the state judgment in a United States district court. Johnson, 512 U.S. at 1005-06. This is so because Congress has vested the power to entertain an appeal of a state court judgment only with the Supreme Court. See 28 U.S.C. § 1257(a); Brown & Root, Inc., 211 F.3d at 198-99. A litigant may not circumvent these jurisdictional mandates by instituting a federal action which, although not styled as an appeal, amounts to nothing more than an attempt to seek review of [the state court s] decision by a lower federal court. Stillwell, 336 F.3d at 316 (quoting Plyler v. Moore, 129 F.3d 728, 733 (4th Cir. 1997)). The controlling question in the 12 Rooker-Feldman analysis is whether a party seeks the federal district court to review a state court decision and pass upon the merits of that state court decision, not whether the state court judgment is presently subject to reversal or modification. Put another way, if in order to grant the federal plaintiff the relief sought, the federal court must determine that the [state] court judgment was erroneously entered or must take action that would render implicated. the judgment ineffectual, Rooker-Feldman Jordahl, 122 F.3d at 202 (quoting Ernst v. Child & Youth Servs., 108 F.3d 486, 491 (3d Cir. 1997)). applies not is only to matters directly addressed The doctrine by the state court, but also to claims which are inextricably intertwined with state court decisions. Brown & Root, Inc., 211 F.3d at 198 (quoting District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 486-87 (1983)). Although Appellants do not seek to undo the state court judgment foreclosing on their homes, permitting their case to go forward would, in essence, hold that the state court judgments which affirmed the legal fees and commissions and held the allegedly false affidavits sufficient to warrant foreclosure was in error. This is not proper under Rooker-Feldman because their federal causes of action are inextricably intertwined with the state court foreclosure actions. This prong of the doctrine bars a claim that was not actually decided by the state court 13 but where success on the federal claim depends upon a determination that the state court wrongly decided the issues before it. Brown & Root, Inc., 211 F.3d at 198 (quoting Plyler, 129 F.3d at 731). review of the state If Appellants are not seeking a court s judgment, their success on the merits would necessitate a finding that the state court wrongly decided the issues before it. Id. Accord Harper v. Chase Manhattan 130, 133 Bank, 138 F. App x (11th Cir. 2008) (unpublished) ( Harper s claims under the . . . FDCPA [Fair Debt Collection Practices Act] . . . were inextricably intertwined with the foreclosure proceeding in state court . . . . ). Here, the by state decision about alleged court source judgments of that Appellants necessarily harm rested is on shielded a which Appellants now complain; therefore, Appellants are limited to whatever relief they are afforded in the state court system. Other courts have relied on Rooker-Feldman to bar the same or similar causes of action Appellants asserted below. See Harper, 138 F. App x at 132-33 (dismissing Fair Debt Collection Practices Act claims); Figueroa v. Merscorp, Inc., 766 F. Supp. 2d 1305, 1316 (S.D. Fla. 2011) (dismissing a RICO claim under Rooker-Feldman); Distant v. Bayview Loan Servicing, LLC, No. 0961460-CIV, 2010 WL 1249129, at *3 (S.D. Fla. Mar. 25, 2010) (unpublished)( Although plead as conspiracy claims . . . , Plaintiff is clearly asking this Court to invalidate the state 14 court action by ruling that the state court foreclosure judgment is somehow void. Under the Rooker-Feldman doctrine, . . . this Court lacks subject matter jurisdiction, as Plaintiff seeks a de facto appeal of a previously litigated state court matter. ); Simpson v. Putnam Cnty. Nat l Bank of Carmel, 20 F. Supp. 2d 630, 633 (S.D.N.Y. 1998) (holding that a foreclosure judgment was not subject to federal review under Rooker-Feldman, and noting that the fact that plaintiff alleges that the . . . foreclosure judgment was procured by fraud and conspiracy [does not] change that result. ); Smith v. Wayne Weinberger, P.C., 994 F. Supp. 418, thinly-veiled foreclosure 424 (E.D.N.Y. effort judgment, to in 1998) (rejecting invalidate contravention the of a plaintiff s State Court s Rooker-Feldman, by alleging fraud). Moreover, Appellants admit that the state court decision is the source of their harm. In their brief, Appellants state: In the present case, Plaintiffs causes of action under the FDCPA [Fair Debt Collection Practices Act], MCPA [Maryland Consumer Protection Act], FHA [Fair Housing Act], and CRA [Civil Rights Act] did not completed. accrue until the foreclosure (Br. for Appellants pg. 15.) actions were If Appellants allege they did not possess a cognizable legal injury until the state court entered its judgment, it follows that they allege that the state court judgment was the source 15 of their harm, as no relevant conduct occurred after the judgments were entered. Thus, because Appellants allege that the state court s judgment caused their injury, 2 their actions are clearly barred under Rooker-Feldman. See Johnson, 512 U.S. at 1005-06 ( [A] party losing in state court is barred from seeking what in substance would be an appellate review of the state judgment in a United States district court, based on the losing party s claim that the state judgment itself violates the loser s federal rights. (emphasis added)). In Exxon Mobil Corp. v. Saudi Basic Indus. Corp., the Supreme Court sought to refocus lower courts that had extended the Rooker-Feldman doctrine far Rooker and Feldman cases . . . . beyond the contours of the 544 U.S. 280, 283 (2005). The Court held that the Rooker-Feldman doctrine is confined to cases of the kind from which the doctrine acquired its name: 2 We recognize that Appellants are placed in a precarious position. They argue their claims did not exist until the state court action was finalized, which they contend precludes a finding that their claims could have been raised in the state court proceedings. See Anyanwutaku v. Fleet Mortg. Grp., Inc., 85 F. Supp. 2d 566, 570 (D. Md. 2000) (noting that the doctrine of res judicata, or claim preclusion, applies to relitigation of matters previously litigated between the parties and their privies, as well as those claims that could have been asserted and litigated in the original suits. ). In an effort to avoid a ruling that their claims were precluded by res judicata because they did not exist at the time of the state foreclosure action, however, they have essentially admitted that the Rooker-Feldman doctrine bars their actions. 16 cases brought by state-court losers complaining of injuries by state-court proceedings judgments commenced rendered and before inviting rejection of those judgments. what Appellants seek here. the district district court Id. at 284. court review and That is exactly Their primary complaints are: the imposition of attorneys fees; the award of a commission; and the allegedly fraudulent, but not false, affidavits. By affirming the foreclosures, the Maryland state court necessarily passed judgment on the amount of the attorneys commissions and the content of the affidavits. fees and Permitting this action to proceed would necessarily invite the District Court to review and reject[] those judgments. Id. Because Rooker- Feldman prohibits this, the District Court lacked subject-matter jurisdiction. At oral argument, Appellants pointed us to two Sixth Circuit Court of Appeals cases which they maintain establish that their actions are not barred by Rooker-Feldman. We are not swayed by the facts or conclusions of Todd v. Weltman, Weinberg & Reis Co., LPA, 434 F.3d 432 (6th Cir. 2006), or Brown v. First Nationwide Mortgage Corporation, 206 F. App x 436, 437 (6th Cir. 2006) (unpublished). We are, however, persuaded by the logic espoused by the Southern District of Florida in Figueroa v. Merscorp, Inc., 766 F. Supp. 2d 1305 (S.D. Fl. 2011), a post-Exxon Mobil decision 17 addressing a foreclosed party s attempt to hold their lender accountable under the federal RICO statute. Like Appellants here, Figueroa filed a purported class action months after the defendants foreclosed on his home. Id. at 1310. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that the Rooker-Feldman. district court Id. at 1315. lacked jurisdiction under After a lengthy discussion of the doctrine and Exxon Mobil, see id. at 1315-20, the district court concluded that the plaintiff s action was barred because it was inextricably judgment. intertwined Id. at 1321-22. with the state court foreclosure The district court held that the suit was barred because Plaintiff s claims can only succeed if the Court implicitly or explicitly determines the Florida state court wrongly decided the foreclosure issue. . . . The only way Plaintiff (and putative class members) could have been damaged by the loss . . . of their homes is if those foreclosures were wrongful. In fact, Figueroa concedes as much in his Opposition, acknowledging he suffered no damages until the Florida state court entered foreclosure judgment. Id. at 1323-24. The same is true here; Appellants explicitly argue that they were not damaged until the state court entered its foreclosure judgments and the Orders adopting the auditors reports. Moreover, like Appellants, Figeuroa s federal claims can only succeed to the extent the [state] court erred, 18 and the Court cannot grant Figueroa his requested foreclosure judgment. relief without disturbing the [state] It is for the state appeals court and the U.S. Supreme Court to tell the state court it was wrong. Court has no such role. Examining This Id. at 1324. Appellants contentions, it is clear that the injuries they complain of, regardless of when they accrued, stem from the state court judgments. The unfair but truthful affidavits only have relevance or effect once adopted by the state court; the fees and commissions were only imposed on Appellants when the state court adopted the auditors reports that accepted them. The injur[ies] alleged by [Appellants] in all of these allegations [are] a direct result of the judicial order and fail[] to assert an independent claim that would bring the case outside the ambit of Rooker-Feldman. Guffee, 371 F. App x 590, 596 (6th Cir. 2010) Reguli v. (unpublished) (citing Exxon Mobil, 544 U.S. at 293). Because we conclude that the district court did not have subject matter jurisdiction, we are compelled to conclude that the judgment of the district court must be vacated. The court below judicata. held Appellants actions were barred by res Such a decision amounts to a dismissal on the merits. See, e.g., Thomas v. Consolidation Coal Co., 380 F.2d 69, 80 (4th Cir. 1967). The district court did not have jurisdiction to enter a judgment on the merits, so the matter must be vacated 19 and remanded to the district court with instructions that it be dismissed without prejudice for want of jurisdiction. Durbin v. Dubuque, 348 F. App x 294, 295 (9th Accord Cir. 2009) (unpublished); Beth-El All Nations Church v. City of Chicago, 486 F.3d 286, 294 (7th Cir. 2007). IV. Appellants seek to re-litigate matters that are inextricably intertwined with judgments entered by the state court in the foreclosure actions. Such actions are barred by the this Rooker-Feldman court lacked doctrine. subject matter For reason, jurisdiction over the district Appellants actions, and thus lacked the authority to reach the merits of the case and dismiss the action with prejudice. We therefore vacate the judgment of the district court and remand this case with instructions that it be dismissed without prejudice for lack of jurisdiction. IT IS SO ORDERED. 20
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