Court: Court of Appeals for the Seventh Circuit; March 29, 2017; Federal Appellate Court
Eric Mains sought relief from the foreclosure of his home through federal court after previously litigating similar issues in state court. He alleged fraud related to his mortgage, originally with Washington Mutual (WAMU), which failed in 2008, leading to Chase Bank acquiring Mains's loan. Despite making timely payments initially, Mains fell behind after WAMU's collapse and requested loan modifications from Chase. In April 2010, Citibank, having obtained the mortgage, initiated foreclosure proceedings. Mains's appeals in state court concerning Citibank's standing and claims of fraud were unsuccessful, with the Indiana Supreme Court denying his transfer motion in January 2015.
Afterward, Mains filed a 90-page federal complaint in March 2015, asserting he discovered new evidence of fraud and citing violations of several federal laws, including RESPA, TILA, FDCPA, and RICO, as well as state law claims. The district court dismissed the case, invoking the Rooker-Feldman doctrine, which prevents lower federal courts from reviewing state court judgments, as Mains’s claims would effectively nullify the state court ruling. This dismissal was affirmed, emphasizing the lack of jurisdiction to overturn state court decisions.
The district court's dismissal of Mains's claims was initially with prejudice, but it was modified to be without prejudice due to jurisdictional limitations. Mains contends that the court erred in dismissing his claims under the Rooker-Feldman doctrine, asserting that newly discovered evidence of fraud, unknown to the state court, warrants a reconsideration of the state court's judgment. The Rooker-Feldman doctrine prohibits federal courts from reviewing state court judgments made before the federal proceedings began, ensuring that federal courts do not act as appellate courts over state decisions. Claims that seek to invalidate a state court judgment are considered de facto appeals and are barred under this doctrine. However, claims that allege injuries independent of the state-court judgment may proceed, provided they do not seek to vacate the state judgment itself. Even if Rooker-Feldman does not apply, the doctrine of res judicata could bar claims if they arise from the same transaction or issues as a prior state court judgment. Under the Full Faith and Credit Statute, federal courts must give state court judgments the same preclusive effect as they would have in state courts. Indiana law recognizes both claim and issue preclusion, with issue preclusion barring subsequent litigation on facts or issues that were previously adjudicated, contingent on the party having a fair opportunity to litigate and the application of collateral estoppel being fair. For issue preclusion to apply, the prior judgment must be final.
Indiana courts utilize the American Law Institute’s Restatement (Second) of Judgments, section 13, to analyze the finality of judgments, focusing on whether a judgment is firm and non-tentative. A foreclosure judgment in Indiana is considered an immediately appealable final judgment, allowing for preclusion. Mains’s current lawsuit is based on his claim that a state court foreclosure judgment was erroneous due to alleged fraud by the defendants. However, the Rooker-Feldman doctrine prohibits federal courts from reviewing state court judgments, meaning that any relief would effectively require vacating the state court’s decision, which is not permitted. Mains can seek relief through Indiana courts for newly discovered evidence or fraud.
Regarding Mains's RESPA claim, he seeks an accounting for potentially improper late fees charged by Chase. However, this claim is also barred by Rooker-Feldman as it attempts to challenge the state court’s foreclosure judgment. Though Mains might argue the late fee charges occurred before the state court's action, the Indiana court has already ruled on the amounts due, rendering this claim precluded.
Mains’s claims under TILA involve allegations of misrepresentation regarding payments and obligations, as well as a failure to respond to a rescission notice. These claims necessitate disregarding the state court’s foreclosure judgment, which is beyond the federal court’s jurisdiction. Mains’s assertion of a right to rescind from 2015 is similarly problematic, as it depends on vacating the earlier judgment. If he claims injury from the defendants’ failure to respond to his rescission, it is undermined by the fact that his mortgage was executed in 2006, well past the three-year limit for rescission under TILA.
Mains has exhausted all state appeals regarding his foreclosure judgment, which replaced his mortgage obligations with the court's judgment. While certain aspects of his Truth in Lending Act (TILA) claim might initially seem outside the Rooker-Feldman doctrine's scope, they ultimately fail on the merits. Mains claims he incurred injuries from attorney’s fees and clouded title due to a RICO conspiracy by the defendants, which also falls under Rooker-Feldman as it is intertwined with the state court's proceedings. This situation parallels the case of Harold v. Steel, where claims under the Fair Debt Collection Practices Act (FDCPA) were barred because no injury occurred until the state court's ruling. Mains argues defendants violated the FDCPA by making misleading representations while attempting to collect a debt that he contends was nullified by his rescission. However, the court ruled that he could no longer rescind, and the debt was valid under the state court judgment. Thus, his FDCPA claims against Chase and Wyatt are not independent of the foreclosure judgment and are properly dismissed. Mains also alleges violations by other defendants prior to the foreclosure judgment, asserting they attempted to collect an invalid debt based on falsified documents. Although these claims may not be jurisdictionally barred by Rooker-Feldman, they still rely on the assertion that Chase lacked authority to collect the debt, a matter already resolved by the state court in favor of Chase. Consequently, any potential fraud claims should be addressed in state court. Ultimately, all of Mains’s claims are dismissed, primarily due to Rooker-Feldman and some due to issue preclusion, with the recommended dismissal being under Fed. R. Civ. P. 12(b)(1) for lack of subject-matter jurisdiction.
A dismissal under Rooker-Feldman cannot be with prejudice, as it pertains to jurisdiction rather than a merits decision, which only a court with proper jurisdiction can render. Claims that fail to state a claim may be dismissed with or without prejudice. Mains is precluded from demonstrating legal entitlement to relief as his claims rely on issues already resolved by the state court. Although issue preclusion is typically an affirmative defense, a litigant may plead themselves out of court by admitting elements of a defense. The defendants moved to dismiss based on res judicata and Rule 12(b)(6) for failure to state a claim. Mains, having detailed the state-court proceedings, has effectively pleaded himself out of court regarding his FDCPA, TILA, and RESPA claims.
Additionally, Mains's claim against Cynthia Riley is barred by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) which requires exhaustion of administrative remedies for claims involving acts of a depository institution in receivership. Mains alleges Riley fraudulently endorsed a note, but if her actions were taken as an employee of WAMU prior to receivership, the claims are attributed to WAMU, which FIRREA protects from litigation without administrative exhaustion. If alleging forgery, Mains cannot sue Riley, as she would not forge her own signature; liability would rest with WAMU.
The district court cannot exercise supplemental jurisdiction over state claims if it lacks subject-matter jurisdiction over federal claims. Since Rooker-Feldman deprived the district court of jurisdiction over Mains's federal claims, the state claims must also be dismissed without prejudice for lack of jurisdiction. Claims falling outside Rooker-Feldman may allow for supplemental jurisdiction, but the federal claims were dismissed on the merits early on, justifying relinquishment of jurisdiction over the state claims. The judgment is modified to reflect that most of Mains's claims are dismissed without prejudice, with some dismissed with prejudice, and is affirmed as modified.
