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Kyles v. Federal Home Loan Mortgage Corp.

United States District Court, N.D. Illinois, Eastern Division

April 13, 2018

VASHAN KYLES, Appellant,


          John J. Tharp, Jr., United States District Judge

         This is an appeal from a bankruptcy court order dismissing an adversary proceeding as barred by the Rooker-Feldman doctrine. The appeal turns on the question of whether a state court judgment of foreclosure and sale constitutes a final judgment for purposes of applying that jurisdictional doctrine. The Court concludes that Rooker-Feldman applies notwithstanding the interlocutory character of the judgment of foreclosure under state law governing the finality of appeals and so affirms the bankruptcy court's dismissal of the adversary proceeding.

         I. BACKGROUND

         Appellant VaShan Kyles bought a home in Calumet City, Illinois, in 2007. She purchased the property with a loan from the Federal Home Loan Mortgage Company (“Freddie Mac”), secured by a mortgage on the property. In 2011, appellee Ocwen Loan Servicing, LLC, as the loan servicer for Freddie Mac, filed a complaint against Kyles in state court seeking to foreclose on the mortgage. Over the course of the next several years, the suit was litigated in state court. Kyles filed affirmative defenses and counterclaims which, among other things, challenged the validity of the assignment of the mortgage and Ocwen's standing as servicer to enforce the note and mortgage, and asserted that the note and mortgage were void based on the fraudulent conduct of the originator Taylor, Bean & Whitaker (“TBW”) and in any event were satisfied based on the doctrine of “accord and satisfaction.” In November 2015, the state court granted summary judgment for the servicer (which by then was Residential Credit Solutions), denied Kyles' motion for summary judgment, and entered a judgment of foreclosure and sale against Kyles on November 13, 2015.

         The following month, Kyles filed for Chapter 7 relief under the Bankruptcy Code. She listed the property as an asset of the estate in her bankruptcy schedule of assets; at that time, the property had not yet been sold pursuant to the state court's sale order. In August 2016, Kyles filed an adversary proceeding in the bankruptcy case against Freddie Mac, Ocwen, and TBW. The adversary complaint alleged that the defendants never held a valid lien on the property. She sought relief including: a declaration that the mortgage is void; clear title to the property; and damages. Kyles does not dispute that the relief she seeks in the adversary proceeding, and the arguments she advanced to justify that relief, are the same that she asserted in the state court foreclosure action.

         The defendants moved to dismiss the adversary complaint for lack of subject matter jurisdiction, asserting that the complaint was barred by res judicata and the Rooker-Feldman doctrine.[1] The bankruptcy court agreed that dismissal was appropriate under the res judicata and Rooker-Feldman doctrines and granted the defendants' motions to dismiss.[2] Order Dismissing Complaint, Adv. Dkt. No. 53 (“Order”). Kyles then filed a timely appeal. This Court has jurisdiction over the appeal pursuant to 28 U.S.C. § 158(a)(1).

         II. ANALYSIS

         Although the bankruptcy court addressed both res judicata and the Rooker-Feldman doctrines, and began with res judicata, the Court finds it more appropriate to start with the applicability of the Rooker-Feldman doctrine, which is jurisdictional.[3] Lennon v. City of Carmel, 865 F.3d 503, 506 (7th Cir. 2017). And because that doctrine teaches that the bankruptcy court has no jurisdiction to provide the relief that Kyles seeks, that is as far as the analysis should go. This Court's review is de novo. Crawford v. Countrywide Home Loans, Inc., 647 F.3d 642, 646 (7th Cir. 2011).

         It is axiomatic that, other than the Supreme Court, [4] federal courts have no authority to hear appeals from state court judgments in civil litigation. This jurisdictional limitation on federal judicial power gives rise to what is commonly referred to as the Rooker-Feldman doctrine, a rule eponymously named for the two Supreme Court cases that originally shaped it, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). The rule can be simply stated: federal courts, other than the Supreme Court, lack the power to modify state court judgments in civil litigation. Its application, however, can be complicated by any number of issues, and one presents itself in this case: what constitutes a state court “judgment” subject to the rule?

         “The paradigmatic Rooker-Feldman litigant is one who … loses in state court and asks a federal district court to modify the state decision.” United States v. Alkaramla, 872 F.3d 532, 534 (7th Cir. 2017). That describes Kyles and her claim in the adversary proceeding precisely; after losing the foreclosure battle in state court, she seeks to negate the state court's foreclosure judgment by obtaining a declaration from a federal court that the mortgage is void. As the bankruptcy court recognized, it could not grant the relief Kyles sought-to declare the mortgage void, award Kyles clear title to the property, and award damages-“without explicitly overruling the state court's judgment.” Order at 6.

         If the state court judgment of foreclosure and sale constitutes a “judgment” for purposes of the Rooker-Feldman doctrine, then resolution of this case is straightforward: it is barred. See, e.g., Crawford v. Countrywide Home Loans, Inc., 647 F.3d 642 (7th Cir. 2011) (federal court challenges to validity of Indiana foreclosure judgment barred by Rooker-Feldman doctrine); Taylor v. Federal Nat'l Mortg. Ass'n, 374 F.3d 529, 533 (7th Cir. 2004) (“district court correctly determined that requesting the recovery of her home is tantamount to a request to vacate the state court's judgment of foreclosure … and [] the Rooker-Feldman doctrine barred granting that relief.”); Riddle v. Deutsche Bank Nat'l Trust Co., 599 Fed. App'x 598, 600 (7th Cir. 2015) (claim that defendants deprived plaintiff of due process and violated state law by foreclosing on his house barred by Rooker-Feldman because “it was the state-court judgment that authorized the foreclosure and subsequent sale”) (emphasis in original); Calhoun v. CitiMortgage, Inc., 580 Fed. App'x 484, 486 (7th Cir. 2014) (“To the extent that [plaintiff] wants his loan to be modified or the foreclosure overturned, Rooker-Feldman bars his claims because he is attacking the state foreclosure judgment.”); Ross-W. v. Bank of New York Mellon Corp., 523 Fed.Appx. 395, 396 (7th Cir. 2013) (“No matter how the [plaintiffs] frame their complaint, the district court could not grant the requested relief-a judgment declaring them to be the rightful owners of the home- without disturbing the state court's foreclosure judgment. Their suit thus challenges the adverse state judgment and is barred in federal court by Rooker-Feldman.”).

         But in this appeal, Kyles' maintains that the state court foreclosure judgment is not a final judgment. Opening Brief, ECF. No. 18, at 8-9. Under Illinois law, a foreclosure judgment cannot be appealed until the sale order has been implemented and the sale of the foreclosed property has been completed. See, e.g., HSBC Bank USA, N.A. v. Townsend, 793 F.3d 771, 775-77 (7th Cir.2015); Wells Fargo Bank, N.A. v. McCluskey, 2013 IL 115469, ¶ 12, 999 N.E.2d 321, 325 (Ill. 2013). Kyles reasons that because the foreclosure judgment was not final for purposes of appeal, Rooker-Feldman does not bar federal jurisdiction over an action targeting the foreclosure judgment.

         As an initial matter, Kyles did not raise this argument in the bankruptcy court. See Plaintiff's Response to Defendant Ocwen Loan Servicing, LLC Motion to Dismiss Plaintiff's Adversary Complaint [sic], ECF No. 8-26.[5] And, of course, “[a]rguments not raised in the bankruptcy court are forfeited on appeal.” In re Cohen, 507 F.3d 610, 614 (7th Cir. 2007). The appellees do not assert the forfeiture in their responses, however, so they have “forfeited the forfeiture.” See, e.g., United States v. Jones, 152 F.3d 680, 684 n.2 (7th Cir. 1998); cf., e.g., Morgan v. City of Chicago, 822 F.3d 317, 336 n.50 (7th Cir. 2016) (defendants “waived their waiver argument”). Accordingly, the Court addresses the merits of Kyles' argument against dismissal based on Rooker-Feldman.

         That the judgment and foreclosure order was not yet appealable as a matter of state procedure does not mean that the judgment of foreclosure was not a judgment insulated from review by federal courts. The Seventh Circuit has confirmed “that interlocutory orders entered prior to the final disposition of state court lawsuits are not immune from the jurisdiction-stripping powers of Rooker-Feldman.” Sykes v. Cook Cty. Circuit Court Prob. Div., 837 F.3d 736, 742 (7th Cir. 2016) (citing Harold v. Steel,773 F.3d 884, 886 (7th Cir. 2014)).[6] And in Carpenter v. PNC Bank Nat'l Ass'n, 633 Fed. App'x 346 (7th Cir. 2016), the Seventh Circuit applied Rooker-Feldman in precisely the same factual context presented by this case: a federal suit filed after an Illinois court entered a judgment of foreclosure but before sale of the property. The Carpenter court affirmed dismissal of the case despite acknowledging that under Illinois law the judgment of foreclosure was not yet appealable, noting that the argument against applying Rooker-Feldman to a “non-final” order like a foreclosure judgment is not compelling, because if, as was argued ...

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