Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 95 C 6341--Paul E. Plunkett, Judge.
Before CUMMINGS, RIPPLE, and EVANS, Circuit Judges.
A class action in Alabama cost Dexter Kamilewicz $91.33 in attorney fees to recover $2.19 on the merits. When he learned of this news, he and the other plaintiffs (his wife and Martha Preston) sued the class action attorneys (as well as certain defendants in the Alabama action) in the District Court for the Northern District of Illinois. There, to add to their chagrin, they ran up against another obstacle--the Rooker-Feldman doctrine. This is their appeal from an order dismissing their federal case for lack of subject matter jurisdiction.
Kamilewicz and the other plaintiffs have had mortgages serviced by BancBoston Mortgage Corporation, one of the defendants. They were among an estimated 715,000 members of a class in a nationwide class action filed in the circuit court for Mobile County, Alabama. The suit--Hoffman, et al. v. BancBoston Mortgage Corp.--challenged the manner in which BancBoston calculated the amount of surplus each member of the class was required to maintain in their escrow accounts. Deposits to the escrow accounts were paid as part of the class members' monthly mortgage payments. There was no question regarding the ultimate ownership of the surplus; it belonged to the mortgagor and was to be returned when the mortgage debt was satisfied. The issue in the lawsuit was the propriety of BancBoston's holding the surplus until the time it would be returned to the mortgagor.
In October 1993, the Alabama court granted partial summary judgment in favor of the plaintiff class. The court found that BancBoston's practice was, in fact, inconsistent with the terms of the mortgages. Then in October 1995, counsel for the class prepared a notice of a proposed settlement of the suit. The notice stated that the settlement was "fair, reasonable, adequate, and in the best interests of the class" and that the attorney fees sought were "reasonable" and would "not exceed one-third of the economic benefit" to the class. Bank of Boston--one of the defendants--objected to the notice because it failed to advise the class that there were "substantial adverse effects" to the proposed settlement.
Those perceived adverse effects were that if BancBoston were ordered to refund the escrow surplus and if the attorneys for the class were to seek attorney fees out of the refund, some class members would suffer an out-of-pocket loss as a result of the lawsuit. It should be noted here that the Bank of Boston and BancBoston had offered, prior to the grant of partial summary judgment in 1993, to settle the litigation. As part of that proposed settlement, the bank and BancBoston would have had to pay $500,000 in attorney fees out of the banks' own funds, and the entire amount of the escrow refund would have gone to the class members.
Nevertheless, the Alabama court approved the proposed notice and held a fairness hearing on January 10 and 11, 1994. On January 24, 1994, the court approved the settlement under which the class members received one-time interest payments ranging from $0.00 to $8.76. The court also found the attorney fees reasonable. The fee award was a percentage of the escrow accounts, or, the complaint in the present case asserts, in excess of $14 million. The fact may be that the award was closer to $8,500,000, but because in either event we are talking about significant amounts of money, the actual amount is not material and, of course, the allegations of the complaint are accepted as true at this point in the litigation. Under the settlement, BancBoston deducted attorney fees from the class members' escrow accounts. The deduction was recorded on the 1994 annual tax and interest statements as a "miscellaneous disbursement." In most cases, the "miscellaneous disbursement" was more--far more--than the interest refund. It was this statement that, understandably, caught Mr. Kamilewicz's eye.
Unhappy with the peculiar result of the class action suit in Alabama, Mr. and Mrs. Kamilewicz and Ms. Preston filed the present federal class action against the bank and the mortgage company, and the plaintiffs' attorneys in the Alabama action. The complaint contained allegations of violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. sec. 1962, and of the Civil Rights Act, 42 U.S.C. sec. 1983, as well as claims of common law fraud, negligent misrepresentation, attorney malpractice, breach of fiduciary duty, and conversion. In turn, the defendants in the federal case filed a motion with the Alabama court seeking an order directed to the Kamilewicz plaintiffs to show cause why they were not bound by the January 1994 order of that court. A hearing was scheduled in Alabama, to which the Kamilewicz plaintiffs sent an attorney for the purpose of stating that they would not participate in the hearing because they contested whether Alabama had personal jurisdiction over them. On January 30, 1996, the Alabama court reaffirmed the order of settlement.
Meanwhile, back in Chicago, on December 15, 1995, Judge Paul Plunkett of the Northern District of Illinois had entered his order dismissing the federal case for lack of subject matter jurisdiction. He found that even though the federal case was "dressed up" as a claim for RICO damages or for attorney malpractice, it was, nevertheless, a collateral attack on a state court judgment which would require that he consider issues "inextricably intertwined" with the state court case. This he was prohibited to do, he concluded, under the doctrine known as Rooker-Feldman.
We review de novo his decision on a motion to dismiss the complaint, taking all well-pleaded allegations as true, and we draw all reasonable inferences in the plaintiffs' favor. Deveraux v. City of Chicago, 14 F.3d 328 (7th Cir. 1994); Rueth v. United States Environmental Protection Agency, 13 F.3d 227 (7th Cir. 1993). Having performed those tasks, we find ourselves in agreement with the district court.
We first note that the exact ground on which the plaintiffs and, for that matter, the Amici, who are attorneys general from several states, stand in this appeal is a little like shifting sand. The plaintiffs argue that the judgment of the Alabama court is null and void because the court did not have personal jurisdiction over them and that the special protections required for class actions--notice, adequate representation, etc.--were not complied with. However, they also say that they are not seeking to overturn the Alabama judgment. Then, they state that where the district court went wrong was to use a state court judgment which was "null and void" as the basis for the Rooker-Feldman bar. In addition, plaintiffs veer into a claim that the January 30, 1996, Alabama court order cannot be a basis for the Rooker-Feldman bar because there was no personal jurisdiction over them, and furthermore that fraud claims are somehow outside the Rooker-Feldman bar. The Amici say that they do not want to establish an exception to the general rule that absent class members may be bound by a nationwide class action settlement, but that on the unusual--and egregious--facts of this case, the Kamilewicz action should be allowed to proceed.
The Rooker-Feldman doctrine grows out of two Supreme Court cases: Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). At its core, the doctrine is a recognition of the principle that the inferior federal courts generally do not have the power to exercise appellate review over state court decisions. In Rooker, the Supreme Court stated that because the jurisdiction of the federal district courts was strictly original, those courts cannot reverse or modify a state court judgment--even if that judgment is wrong. Only the Supreme Court has that power. Feldman involved proceedings denying him a waiver of a bar admission rule which required that applicants have graduated from an approved law school. The first issue was whether the action ...