The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of a borrower’s lawsuit against his mortgagee, its former employees, counsel and appellate counsel, and the original mortgagee’s software platform creator, under various federal and state consumer protection statutes and common law torts.

In so ruling, and despite the borrower’s assertion that new and previously unknown claims were being asserted, the Court held that all causes of action brought by the borrower in the federal action were necessarily adjudicated in a prior state court foreclosure action and barred by the Rooker-Feldman doctrine.

A copy of the opinion in Mains v. Citibank, NA is available at: Link to Opinion.

After falling behind on his mortgage payments, a borrower applied for a modification with his mortgage loan servicer three times before discontinuing payments altogether. After a default and acceleration notice was sent to the borrower, a foreclosure action was initiated by the mortgagee.

The mortgagee filed a motion for summary judgment, but withdrew the motion months later while it was under investigation for alleged improper foreclosure practices. The motion for summary judgment was later re-filed and granted. The borrower appealed the foreclosure judgment, arguing that the mortgagee was not the proper party to foreclosure, that it had committed fraud because it was not the real party of interest, and that it had instructed its employees to fraudulently sign documents. The appellate court affirmed the trial court’s order, and the Indiana Supreme Court denied the borrower’s motion for transfer.

The borrower then brought suit in federal court, filing a rambling 90-page complaint alleging new evidence of fraud that allegedly could not be presented to the state court, including supposed undisclosed consent judgments, alleged undisclosed parties in interest, and supposed evidence of robosigning. He also claimed to have rescinded his mortgage after the foreclosure action was filed.

The complaint named multiple defendants including former employees of the original mortgagee, the mortgagee’s counsel and appellate counsel, and a computer software and form provider for the former mortgagee. The federal complaint asserted violations of a number of federal statutes, including the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. §§ 2605 et seq. and its implementing regulation, Regulation Z, 12 CFR Part 226; the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq.; the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq.; and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq., as well as state law claims under Indiana Code § 32-30-10.5 (relating to foreclosure prevention agreements), intentional infliction of emotional distress, negligent misrepresentation, common law fraud, and negligence.

The trial court dismissed the borrower’s complaint reasoning that it lacked subject matter jurisdiction under the Rooker-Feldman doctrine. See Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). The instant appeal followed.

On appeal the borrower argued that Rooker-Feldman did not apply because the federal complaint asserted new evidence of fraud that was not known to the state court and it would be unfair in light of that to hold him to the state court’s judgment.

As you may recall, the Rooker-Feldman doctrine prevents federal courts from exercising jurisdiction over cases challenging state-court judgments. ExxonMobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005). Even claims that were not raised in state court may be subject to Rooker-Feldman if they are closely enough related to a state-court judgment. Sykes v. Cook Cnty. Cir. Ct. Prob. Div., 837 F.3d 736, 742 (7th Cir. 2016).

On appeal, the Seventh Circuit agreed that the foundation of the lawsuit rested on the borrower’s claims that the state court’s foreclosure judgment was in error, as it rested on fraud perpetrated by the defendants, and that redressing that supposed wrong is prohibited under Rooker-Feldman.

First, the Seventh Circuit examined the borrower’s RESPA claims alleging improper accounting and imposition of fees long before the state court’s judgment. Although these claims may have been independent of the state court’s judgment, the appellate court concluded that the amounts due on the loan were nonetheless already determined by the state court’s judgment, and thus subject to dismissal under Rooker-Feldman.

As to the borrower’s claims that the prior and current mortgagees violated TILA by misrepresenting payments and amounts due, these too were barred by Rooker-Feldman because the state court judgment had already determined the amounts due and owing. As to claims that the defendants failed to respond to his “rescission” in a timely manner, the Seventh Circuit held that these claims were separately barred by TILA’s three year time limit for a rescission. See 15 U.S.C. § 1635(f).

Because the borrower’s RICO conspiracy claims were also dependent upon, and interwoven with the state-court litigation, the Seventh Circuit held that these claims also failed under Rooker-Feldman.

Next, the Court examined the borrower’s FDCPA claims, which argued (i) that the prior mortgagee used “false, deceptive, or misleading representations or means to collect money and attempt to seize his property,” because the debt allegedly no longer existed due to his rescission, and (ii) that the defendants attempted to collect a debt it knew was invalid because of “defective and falsified documents.”

The Seventh Circuit agreed with the trial court’s reasoning that the collection attempts are not only independent nor extricable from the state-court judgment, and thus disallowed under Rooker-Feldman, but that the purported rescission is also time-barred. However, the claims that trying to collect a debt that they knew to be invalid because of “defective and falsified documents” may be viewed as resting on conduct and injury that predated the state litigation, and not barred by Rooker-Feldman, because the relief may be granted without setting aside the foreclosure judgment. Nonetheless, the Seventh Circuit concluded that the claims were barred by issue preclusion, because the state court had already established that the mortgagee was authorized to collect the debt.

As to the borrower’s causes of action against the mortgagee’s former employee, these not only failed under Rooker-Feldman, but also under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), which divests courts of jurisdiction over any claim involving an act or omission of a depository institution placed in receivership by the FDIC until the claimant has exhausted his administrative remedies. 12 U.S.C. § 1821(d)(13)(D); Farnik v. FDIC, 707 F.3d 717, 720– 21 (7th Cir. 2013).

In sum, the Seventh Circuit concluded that all of the borrower’s claims must be dismissed — most under Rooker-Feldman and a few for issue preclusion or other reasons — and affirmed the trial court’s dismissal.

However, because the trial court lacked subject-matter jurisdiction, its dismissal with prejudice was inappropriate because “that’s a disposition on the merits, which only a court with jurisdiction may render.” Frederiksen v. City of Lockport, 384 F.3d 437, 438 (7th Cir. 2004).

As such, the Seventh Circuit affirmed the dismissal, but modified the trial court’s judgment to show that most of the borrower’s federal and state law claims are dismissed without prejudice, and the remainder are dismissed with prejudice.