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Cynthia A. Stone; Patricia Martinez; Jose A. Cruz, Jr.; Eledia v. Washington Mutual Bank; J.P. Morgan-Chase & Co.; Dlj Mortgage

August 19, 2011

CYNTHIA A. STONE; PATRICIA MARTINEZ; JOSE A. CRUZ, JR.; ELEDIA TORRES; RONDELL MUHAMMAD; SHARON MUHAMMAD; JAMES M. AMI; SHARON K. AMI; BETTYE JEAN BROWN; MOHSIN M. DHANJI; WAHIDA M. DHANJI; DONNA R. LOVE; EDWARD REVIS; AND EXIQUIO CAMACHO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
WASHINGTON MUTUAL BANK; J.P. MORGAN-CHASE & CO.; DLJ MORTGAGE CAPITAL, INC.; DLJ CAPITAL CORP.; CREDIT SUISSE; CREDIT SUISSE (USA,) INC.; CREDIT SUISSE GROUP AG; DOUGLAS ROSEMAN; PATRICK A. REMMERT; ANDREW KIMURA; LORI M. RUSSO; BRUCE KAISERMAN; ANGELO BULONE; MICHAEL CRISCITO; JAMES D. CRISCITO; LUBOMIR PENEV; TERENCE DOLCE; SELECT PORTFOLIO SERVICING, INC.; TIMOTHY O'BRIEN; CODILIS & ASSOCIATES P.C.; ERNEST J. CODILIS, JR.; JEANELLE GRAY; CHRISTINA ALLEN; KLUEVER & PLATT LLC; JASON D. ALTMAN; CITIBANK N.A.; WELLS FARGO BANK; BANK OF AMERICA N.A.; PNC BANK N.A.; U.S. BANK N.A.; AND HSBC BANK (USA) N.A., DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:

MEMORANDUM OPINION AND ORDER

Cynthia Stone and thirteen other current or former homeowners have sued various entities in connection with their mortgage loans. They contend that the defendants engaged in a multi-year conspiracy to fraudulently foreclose on their homes. They assert claims under federal and state law. Defendants have filed eleven separate motions to dismiss plaintiffs' claims. The Court addresses these motions collectively and, for the reasons stated below, grants them in part and denies them in part.

Background

The Court takes the following facts from plaintiffs' first amended complaint and state court records relating to the underlying foreclosure actions. See Anderson v. Simon, 217 F.3d 472, 474-75 (7th Cir. 2000) ("In ruling on a 12(b)(6) motion, a district court may take judicial notice of matters of public record without converting the 12(b)(6) motion into a motion for summary judgment").

Plaintiffs are fourteen Illinois residents who are current or former defendants in nine state court mortgage foreclosure lawsuits. Defendants are thirty-one banks, mortgage-servicing agents, law firms, and individuals. Plaintiffs allege that the defendants are engaged in a conspiracy to fraudulently foreclose upon and seize properties belonging to plaintiffs and other similarly situated persons. Specifically, plaintiffs contend that defendants combined or confederated among themselves to form an association-in-fact for the purpose, by their joint efforts, of filing false and deceptive documents with State and federal courts in tens of thousands of mortgage-foreclosure cases nationwide for the purpose of illegally seizing and converting homes using straw-man mortgage foreclosure plaintiffs (that have no interest in the taken properties) and fraudulent documents.

Am. Comp. ¶ 1.

Though plaintiffs' complaint is not a model of clarity, it appears to allege that the foreclosure actions are fraudulent because the defendant banks have "bifurcated" plaintiffs' loans by selling their mortgage notes to other entities. See id. ¶ 2. This alleged scheme allows defendants to obtain multiple repayments for each mortgage loan. Each defendant bank receives money once when it sells a mortgage note to investors in mortgage-backed securities, and again after it prevails in a foreclosure lawsuit and sells the collateral. Id. Plaintiffs allege that the banks that filed the foreclosure lawsuits are "straw man plaintiffs" because they hold no legal interest in the mortgage note or the underlying property. Id. ¶ 68. They also contend that defendants decide which bank will serve as plaintiff in each foreclosure lawsuit based upon "which bank has contributed the most into the association-in-fact, . . . which bank needs to avoid tax liability, and . . . which bank needs to avoid legal liability." Id.

Plaintiffs also assert that the defendant banks filed fraudulent affidavits during the foreclosure actions to conceal the fact that they lacked an enforceable interest in the underlying properties. See id. ¶¶ 4, 10, 12, 14, 17, 21, 28, 32, 36. Individuals known colloquially as "robo-signers" signed these affidavits despite having no personal knowledge of the facts contained in them. See id. ¶ 70. Based in large part on such affidavits, plaintiffs allege, seven of the nine foreclosure actions against plaintiffs proceeded to judgments in favor of the defendant banks. By contrast, the foreclosure action against Stone resulted in a judgment that was later vacated, and the Muhammads' foreclosure case proceeded to judgment but was dismissed following a judicial sale of the property. The state court dismissed Brown's foreclosure case prior to judgment.

Plaintiffs allege economic and emotional injuries resulting from the foreclosure actions brought against them. See id. ¶ 56. They seek relief based upon defendants' violations of federal criminal statutes (count one), state laws regarding conspiracy, unjust enrichment, and intentional infliction of emotional distress (count two), the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 (count three), 42 U.S.C. § 1983 (count four), and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1962(a)-(d) (counts six and seven). In count five, plaintiffs seek certification of this lawsuit as a class action under Federal Rule of Civil Procedure 23.

Discussion

Defendants have moved to dismiss plaintiffs' amended complaint under, inter alia, Rules 12(b)(1) and 12(b)(6). In addressing these arguments, the Court accepts plaintiffs' allegations as true and draws reasonable inferences in their favor. Parish v. City of Elkhart, 614 F.3d 677, 679 (7th Cir. 2010); Johnson v. Apna Ghar, Inc., 330 F.3d 999, 1001 (7th Cir. 2003).

The party asserting jurisdiction bears the burden of persuasion under Rule 12(b)(1). United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2003). The Court may consider evidence outside of the complaint in assessing whether it has subject matter jurisdiction. Ezekiel v. Michel, 66 F.3d 894, 897 (7th Cir. 1995).

To survive defendants' motions to dismiss under Rule 12(b)(6), plaintiffs must provide "a short and plain statement" showing that they are entitled to relief. Fed. R. Civ. P. 8(a)(2). Though a complaint need not contain "detailed factual allegations, . . . a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Rather, plaintiffs must provide "enough facts to state a claim to relief that is plausible on its face." Id. at 570. A complaint fails to state a plausible claim "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009). Additionally, to the extent that plaintiffs allege fraud or mistake by defendants, plaintiffs "must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b).

1. Federal criminal law claims

In count one, plaintiffs seek damages and injunctive relief for defendants' alleged violation of 18 U.S.C. §§ 1341, 1343 (wire fraud), 18 U.S.C. § 1344 (bank fraud), 18 U.S.C. § 1951 (interference with commerce and extortion), 18 U.S.C. § 1952 (racketeering), 18 U.S.C. 1956 (money laundering), 18 U.S.C. § 2314 (transportation of stolen goods), and 18 U.S.C. § 2315 (receipt of stolen goods). Am. Compl. ¶¶ 95-102. Defendants argue that count one must be dismissed because no private right of action exists under any of these statutes. See, e.g., Def. HSBC Bank (USA) N.A.'s Mem. of Law in Supp. of its Mot. to Dismiss at 7-8.

Plaintiffs do not appear to argue that these statutes explicitly or implicitly provide for a private right of action. In fact, it is clear that they do not. See Wisdom v. First Midwest Bank, 167 F.3d 402, 409 (8th Cir. 1999) (18 U.S.C. §§ 1341, 1343, and 1951); Park Nat'l Bank of Chicago v. Michael Oil Co., 702 F. Supp. 703, 704 (N.D. Ill. 1989)

(18 U.S.C. § 1344); Kissi v. Panzer, 664 F. Supp. 2d 120, 127 (D.D.C. 2009) (18 U.S.C. § 1952); Schwartz v. F.S. & O. Assocs., Inc., No. 90 CIV 1606 (VLB), 1991 WL 208056, at *2-3 (S.D.N.Y. Sept. 27, 1991) (18 U.S.C. § 1956); Cooper v. North Jersey Trust Co. of Ridgewood, New Jersey, 226 F. Supp. 972, 980 (S.D.N.Y. 1964) (18 U.S.C. § 2314); Boyd v. Wilmington Trust Co., 630 F. Supp. 2d 379, 385 (D. Del. 2009) (18 U.S.C. § 2315). In opposing defendants' motions to dismiss, plaintiffs suggested that they did not intend to plead a separate claim in count one. See Answer to Codilis Mem. at 13-14; see also id. at 14 ("The laundry list of R.I.C.O.-related crimes is set forth in Count I of the Complaint, and the private cause of action is asserted in Count VI of the Complaint"). For these reasons, defendants are entitled to dismissal of count one.

2. Section 1983 claim

In count four, plaintiffs allege that defendants' scheme to foreclose on and seize their property deprived them of due process and equal protection of the law. They seek damages, injunctive relief, and restitution pursuant to 42 U.S.C. § 1983. Defendants respond that plaintiffs' complaint fails to allege that defendants acted under color of state law or deprived plaintiffs of a federal right.

Plaintiffs do not allege that defendants are government officials or entities. "[A]lthough private persons may be sued under [section] 1983 when they act under color of state law, they may not be sued for 'merely private conduct, no matter how discriminatory or wrongful.'" London v. RBS Citizens, N.A., 600 F.3d 742, 746 (7th Cir. 2010) (quoting Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 50 (1999)). "Two conditions must be satisfied in order for a private party's actions to be deemed taken under color of state law. First, the alleged deprivation of federal rights must have been caused by the exercise of a right or privilege created by the state, a rule of conduct imposed by the state, or someone for whom the state is responsible." Id. "Second, the private party must be a person who may fairly be said to be a state actor." Id.

Plaintiffs have not adequately alleged that defendants acted under color of state law. They argue that defendants obtained fraudulent foreclosure judgments against plaintiffs which resulted in their eviction from their homes by a sheriff, but "the misuse of state law by a private party is not action under color of state law." Id. at 746-47; see also Spencer v. Lee, 864 F.2d 1376, 1392 (7th Cir. 1989) ("[T]he mere invocation of statutory remedies does not of itself transform private activity into state action."). Plaintiffs have alleged no other facts supporting an inference that defendants are state actors. They argue that dismissal is inappropriate because "[p]aragraph 122 of the Complaint tracks the statutory language [of section 1983] and thereby alleges that Defendants acted 'under color of . . . statute, ordinance, regulation, custom, or usage of [a] State.'" Answer to Codilis Mem. at 15. But as noted earlier, "a formulaic recitation of the elements of a cause of action" is insufficient to state a claim. Twombly, 550 U.S. at 555. For these reasons, the Court dismisses count four.

3. Class certification claim

In count five, plaintiffs seek an order certifying the lawsuit as a class action. Defendants counter that the rules governing class certification are procedural and do not give rise to a substantive cause of action. The Court agrees. "Class actions in federal courts are authorized by Rule 23 of the Federal Rules of Civil Procedure, and those rules 'shall not abridge, enlarge or modify any substantive right.'" Marshall v. H & R Block Tax Servs., Inc., 564 F.3d 826, 828 (7th Cir. 2009) (quoting 28 U.S.C. § 2072(b)).Put simply, Rule 23 does not give rise to a separate claim that a plaintiff can assert in a civil complaint. See Diaz-Ramos v. Hyundai Motor Co., 501 F.3d 12, 16 (1st Cir. 2007) ("[T]he courts that have considered the issue have held that procedural class action provisions neither create substantive rights nor give rise to an independent cause of action"). To the extent that plaintiffs wish to seek certification of this lawsuit as a class action, a separate count in their complaint is not the appropriate vehicle for doing so. Howard v. Renal Life Link, Inc., No. 10 C 3225, 2010 WL 4483323, at *2 (N.D. Ill. Nov. 1, 2010) ("Whether a plaintiff has fulfilled Rule 23 class action requirements . . . is not an appropriate inquiry at the motion to dismiss stage"). Accordingly, the Court dismisses count five.

4. Remaining claims

In count two, plaintiffs assert claims for unjust enrichment, intentional infliction of emotional distress, and civil conspiracy. In counts three, six, and seven, plaintiffs seek relief under the FDCPA and RICO. Defendants argue that the claims of plaintiffs with final, adverse state court foreclosure judgments (Martinez, Cruz and Torres, the Amis, the Dhanjis, Love and Revis, and Camacho, collectively the "judgment plaintiffs") are barred by the Rooker-Feldman doctrine. They also contend that the claims of the other plaintiffs (Stone, Brown, and the Muhammads, collectively the "remaining plaintiffs") are subject to dismissal on various grounds.

a. The judgment plaintiffs

As noted above, the foreclosure actions resulted in final adverse judgments against all plaintiffs except for Stone, Brown, and the Muhammads. See Codilis Mem., Ex. A (final judgments against Camacho, Cruz and Torres, the Amis, the Dhanjis, Love and Revis, and Martinez). These judgments allegedly resulted in plaintiffs' eviction from their properties and/or sales of those properties. See Am. Compl. ¶¶ 9, 13, 22, 29, 33, 37. Defendants argue that the Court lacks jurisdiction over these plaintiffs' claims because their alleged injuries resulted from the state court foreclosure judgments. Plaintiffs counter that their injuries "occurred independently of (and prior to) the judgments of the defrauded State foreclosure court that Defendants used to convert the Plaintiffs' properties and were caused solely by the acts of the defendants." Am. Compl. ¶ 57.

The Rooker-Feldman doctrine bars federal district courts from hearing "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). In other words, "[i]f the injury the plaintiff complains of resulted from, or is inextricably intertwined with, a state-court judgment, then lower federal courts cannot hear the claim." Johnson v. Orr, 551 F.3d 564, 568 (7th Cir. 2008). The doctrine does not apply, however, if "the alleged injury is distinct from the judgment." Id. "In short, the doctrine prevents a party from effectively trying to appeal a state-court decision in a federal district or circuit court." Hukic v. Aurora Loan Servs., 588 F.3d 420, 431 (7th Cir. 2009).

The Court concludes that the judgment plaintiffs' remaining claims are barred by the Rooker-Feldman doctrine. The injuries alleged by these plaintiffs stem from the foreclosure judgments obtained by the defendant banks. As noted above, each of the plaintiffs with an adverse judgment alleges eviction from and/or the sale of their foreclosed property. See Am. Compl. ¶¶ 9, 13, 22, 29, 33, 37. Plaintiffs also allege that "[t]here are eight ways in which Plaintiffs have been injured by Defendants' scheme," all of which arise from the foreclosure judgments against plaintiffs. Id. ¶ 56 (alleging that the foreclosures do not satisfy plaintiffs' mortgage debts, result in large deficiency judgments in favor of defendants, require plaintiffs to pay defense costs, ruin plaintiffs' credit, decrease adjacent properties' value, preclude plaintiffs from selling their homes, and result in evictions leading to emotional distress). Finally, though counts two, six, and seven allege injury in a mostly conclusory way, count three alleges that defendants have injured plaintiffs "by taking the[ir] homes in the name of purported clients that have no interest in the collateral, for their own profit and to the detriment of Plaintiffs." Id. ¶ 116.

The Court finds this case analogous to Kelley v. Med-1 Solutions, LLC, 548 F.3d 600 (7th Cir. 2008). In Kelley, a group of consumers sued a debt collection agency and its attorneys, contending that defendants' efforts to obtain attorneys' fees in a state court collection action violated the FDCPA. Id. at 601. On appeal, plaintiffs argued that their injuries were independent from the state court judgments awarding attorneys' fees to defendants "because their lawsuit seeks only to remedy defendants' deceptive representations and requests related to attorney fees and not the fact that the state courts awarded attorney fees." Id. at 603 (emphasis in original). The court rejected this argument, reasoning that "[b]ecause defendants needed to prevail in state court in order to capitalize on the alleged fraud, the FDCPA claims that plaintiffs bring ultimately require us to evaluate the state court judgment." Id. at 605. The same is true here: plaintiffs allege that defendants engaged in a scheme to defraud state courts "for the purpose of illegally seizing and converting" their homes. Am. Compl. ¶ 1. In other words, the success of the alleged scheme depended upon defendants prevailing in the foreclosure actions. For this reason, ten of the fourteen plaintiffs are plainly seeking relief based on injuries they suffered as a result of adverse foreclosure judgments. As in Kelley, the Court cannot determine that defendants' conduct during the state court foreclosure lawsuit was unlawful "without determining that the state court erred by issuing judgments" in favor of the defendant banks. Kelley, 548 F.3d at 605.

Plaintiffs also argue that the Rooker-Feldman doctrine is inapplicable "if the State court obtained jurisdiction only through extrinsic fraud committed by the opposing party." Answer to Codilis Mem. at 12. In support, they cite Long v. Shorebank Dev. Corp., 182 F.3d 548 (7th Cir. 1999). That case, however, provides no support for such an exception. In Long, a former tenant sued her landlord for damages arising out of an allegedly unlawful eviction. Id. at 551. Long alleged that Shorebank used fraud to mislead the court into believing that she did not dispute the eviction. Id. The district court dismissed Long's claims, reasoning that the Rooker-Feldman doctrine precluded the court from exercising jurisdiction. Id. The Seventh Circuit reversed, noting that Rooker-Feldman is inapplicable "if the plaintiff did not have a reasonable opportunity to raise the issue in state court proceedings." Id. at 558. Recognizing that Illinois law effectively precluded Long from raising her federal and state law claims as counterclaims during the eviction proceeding, the court held that Long did not have a reasonable opportunity to raise her claims in state court. Id. at 559-60. Importantly, the court expressly rejected the notion that Long could avoid Rooker-Feldman based on the fraud committed by Shorebank. Id. at 559 ("[W]e do not believe [Long] may rely on the deception of her opponents to demonstrate that she was not afforded a reasonable opportunity to raise her federal claims"); see also id. at 558 (noting that in cases where Rooker-Feldman has been held inapplicable based on lack of a reasonable opportunity to raise the issue in state court, "the federal litigants have pointed to some factor independent of the actions of the opposing party that precluded the litigant from raising the federal claims during the state court proceedings") (emphasis added).

Aside from defendants' alleged fraud, plaintiffs have not identified anything that prevented them from raising their claims during the foreclosure proceedings. No procedural barrier appears to have existed. Indeed, Stone filed counterclaims in her foreclosure suit in which she alleged violations of federal and state law. See PNC Bank Mem., Ex. 7. Thus, Long does not provide a basis for an exception to the Rooker-Feldman doctrine in this case.

Finally, even if the judgment plaintiffs' claims were not barred by the Rooker-Feldman doctrine, the claims would be subject to dismissal under the doctrine of issue preclusion, or collateral estoppel. Several of the defendants contend that issue preclusion bars the judgment plaintiffs' claims, and plaintiffs have offered no response to this argument in their voluminous briefing. Under Illinois law,*fn1 "[t]he collateral estoppel doctrine bars relitigation of an issue already decided in a prior case" and "has three requirements: (1) the court rendered a final judgment in the prior case; (2) the party against whom estoppel is asserted was a party or in privity with a party in the prior case; and (3) the issue decided in the prior case is identical with the one presented in the instant case." People v. Tenner, 206 Ill. 2d 381, 396, 794 N.E.2d 238, 247 (2002).

The first two elements of the test from Tenner are plainly satisfied, because the judgment plaintiffs lost on the merits in their state court foreclosure actions. See Codilis Mem., Ex. A. Moreover, as discussed above, all of the judgment plaintiffs' claims are premised on their allegation that the defendant banks lacked an interest in plaintiffs' properties. See, e.g., Am. Comp. ΒΆΒΆ 1, 63-66, 94, 115-16, 118-19, 129, 144. The state courts, however, expressly found otherwise in each foreclosure judgment by finding that the foreclosing bank had "standing, capacity and authority to maintain this cause [of action]." See generally Codilis Mem., Ex. A (state court ...


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