Semadeni v. Aurora Loan Services, LLC (In re Semadeni)

Citations: 489 B.R. 576; 2013 WL 1332605; 2013 Bankr. LEXIS 1233Docket: Bankruptcy No. 12-17567 ABC; Adversary No. 12-1678 ABC

Court: United States Bankruptcy Court, D. Colorado; March 29, 2013; Us Bankruptcy; United States Bankruptcy Court

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The Court granted the Motion to Dismiss filed by Defendants Aurora Loan Services, Aurora Bank, FSB, and Wells Fargo Bank, N.A. in response to the claims made by Plaintiff/Debtor Anthony Semadeni. The Debtor's complaint centers on alleged discrepancies in the evidence of debt related to a public trustee’s foreclosure sale of his residence. 

Key events include: 

1. **Initial Foreclosure**: In October 2009, Aurora Loan Services initiated a foreclosure, claiming ownership of a note secured by a deed of trust on the property. However, the note presented had no endorsement transferring ownership to Aurora Loan Services.

2. **Second Foreclosure**: A second foreclosure began in February 2011, with Aurora again claiming to be the "holder" of the note, but lacking endorsements. A Rule 120 motion was filed in state court for authorization of the sale, resulting in a court order.

3. **Bankruptcy Filing**: On June 6, 2011, the Debtor filed for Chapter 7 bankruptcy and listed Aurora Loan Services as a secured creditor. Aurora sought relief from the automatic stay to continue foreclosure, which was granted as there were endorsements on the note attached to their motion, indicating a chain of ownership.

4. **Post-Sale Actions**: Following the public trustee’s sale on August 24, 2011, Aurora commenced eviction proceedings against the Debtor. In response, the Debtor filed a quiet title action on October 6, 2011, asserting that Aurora lacked standing to foreclose and had misled the public trustee and court.

The Court's order reflects the findings on the motion to dismiss, emphasizing the procedural history and the Debtor's claims regarding the validity of the note and foreclosure actions.

Debtor seeks a ruling that the State Court’s order allowing the Public Trustee to conduct a foreclosure sale of the Property is void and that Aurora Loan Services has no interest in it. His first Chapter 7 bankruptcy case was closed on December 2, 2011, without discharge due to failure to complete a personal financial management course. On December 14, 2011, Aurora Loan Services filed a motion to dismiss Debtor's quiet title action, presenting a copy of the Note with a blank endorsement from First Magnus. The State Court granted the motion on February 1, 2012, citing Debtor's failure to disclose claims against Aurora Loan Services in his bankruptcy schedules and his listing of them as a secured creditor with a lien on the Property. The Court ruled that Debtor was judicially estopped from claiming otherwise and lacked standing as the claims were part of his bankruptcy estate.

On April 17, 2012, Debtor filed a second Chapter 7 case (Case No. 12-17567 ABC) and sought an extension of the automatic stay to prevent Aurora Loan Services from recovering the Property. Aurora opposed, asserting its status as the Note holder. Debtor's request to extend the stay was granted, and Aurora has not sought relief from it.

In his adversary proceeding, Debtor's claims are complex but include six distinct requests for relief. He seeks declaratory relief to invalidate the July 29, 2011 Lift Stay Order, alleging "evident fraud" by the Defendants, claiming ownership of the Property, and contending that the foreclosure sale violated the automatic stay. Debtor's second claim is for breach of contract against Aurora Loan Services and Wells, asserting that First Magnus did not lend him money and that they are liable as successors for its breach, seeking unspecified damages. The third claim alleges breach of the implied duty of good faith and fair dealing against Aurora Loan Services and Wells, asserting they failed to honor obligations extinguished by First Magnus's failure. Finally, the fourth claim accuses the Defendants of abuse of legal and regulatory processes in unlawfully obtaining property, again seeking unspecified damages.

Debtor's Fifth Claim for Relief seeks damages, injunctive, and declaratory relief based on Defendants' alleged violations of Civil RICO statutes, asserting they unlawfully "stole" equity from Debtor’s property through false representations, perjury, conversion, sham pleadings, and fabricated evidence. Additionally, Debtor claims Defendants intentionally inflicted emotional distress. The Sixth Claim for Relief requests an accounting of all funds paid by Debtor to Defendants. In the wherefore clause, Debtor seeks declarations that the Lift Stay Order and the Public Trustee’s confirmation deed are void, a quiet title order favoring Debtor, a finding that the original loan lacks consideration, injunctive relief against ongoing RICO violations, actual, treble, and punitive damages, and other relief.

In response, Defendants' Motion to Dismiss presents three primary arguments: first, that Debtor's claims are barred by res judicata and collateral estoppel, as they were previously litigated in a quiet title action; second, that the claims effectively challenge a prior state court judgment and are thus barred by the Rooker-Feldman doctrine; and third, that Debtor's claims lack essential factual or legal elements, failing to state any claims for which relief can be granted.

The standards for evaluating a motion to dismiss under Fed. R. Civ. P. 12(b)(6) involve assessing the legal sufficiency of the complaint while assuming all factual allegations are true. The court must determine if the complaint presents sufficient facts to establish a plausible claim for relief, allowing for reasonable inferences of liability against the defendants.

In evaluating a dismissal for lack of standing or a facial challenge to subject matter jurisdiction under Rule 12(b)(1), the court assumes the truth of the material facts in the complaint and construes it favorably toward the plaintiff. Debtor's complaint references a prior quiet title action filed on October 5, 2011, in State Court, where Aurora Loan Services and Wells moved to dismiss, resulting in the court granting the motion. Debtor sought reconsideration, which was denied. The quiet title complaint claimed that Aurora Loan Services lacked ownership of the Note, misled the Public Trustee and the State Court regarding its standing to foreclose, and asserted that the Note was not in default.

The State Court's dismissal of the quiet title action constitutes a final judgment with preclusive effect under Colorado law. Under this law, claim preclusion prevents relitigation of matters already decided or that could have been raised in the earlier proceeding. The requirements for claim preclusion include the finality of the first judgment, identity of subject matter, identity of claims for relief, and identity or privity between the parties. The dismissal is deemed final, and all parties were involved in the quiet title action, precluding Debtor from relitigating any claims against Aurora Loan Services and Wells related to the original transaction.

The court must assess the identity of claims for relief based on the injury for which relief is sought. Claim preclusion bars Debtor from asserting any claims regarding the foreclosure's validity due to alleged fraud or lack of standing, as these issues were resolved in the prior quiet title action. Consequently, Debtor cannot reassert claims that were or could have been addressed in that earlier case.

Debtor's claims against Aurora Loan Services and Wells for breach of the implied duty of good faith and fair dealing, abuse of process, civil RICO, and accounting are barred by claim preclusion concerning Aurora Loan Services’ actions related to the public trustee’s sale of the Property. Issue preclusion, or collateral estoppel, prevents parties from relitigating issues that were actually litigated and determined by a final judgment. Under Colorado law, to apply issue preclusion, four elements must be established: (1) the issue must be identical to one that was actually litigated, (2) the party against whom estoppel is sought must have been a party or in privity with a party in the prior proceeding, (3) there must be a final judgment on the merits, and (4) the party had a full and fair opportunity to litigate the issue. The term "actually litigated" means the issue was raised, submitted for determination, and decided by the adjudicatory body, while "necessarily adjudicated" indicates that the issue's determination was essential to the judgment. The Colorado Supreme Court has acknowledged criticisms of the Second Restatement of Judgments regarding issue preclusion but has not definitively ruled on it. In light of this, the court predicts that it would not deny preclusive effect to the finding that Debtor was judicially estopped from denying Aurora Loan Services' standing to foreclose, despite an alternative finding that Debtor lacked standing for his claims. Consequently, Debtor cannot relitigate whether Aurora Loan Services had standing to foreclose or committed fraud in the foreclosure, as these issues were determined against him in a prior quiet title suit. Additionally, Debtor is barred from pursuing claims for declaratory relief, abuse of process, and civil RICO based on allegations of fraud or lack of standing related to the foreclosure. Furthermore, Debtor lacks standing to pursue claims that arose before June 6, 2011, as these claims are considered assets of his estate from his First Chapter 7 Case. Since these claims were not listed in his schedules, they were not abandoned when the case closed on December 2, 2011, and thus remain property of the estate.

Claims arising between June 6, 2011, and April 17, 2012, are considered assets of the Debtor's Second Chapter 7 bankruptcy case, which remains open since these claims were not listed or abandoned. The Debtor lacks standing to assert these claims, and only the Chapter 7 trustee may pursue them. Claims arising after April 17, 2012, are not assets of either bankruptcy estate and do not connect to the cases, resulting in a lack of subject matter jurisdiction for both the United States District Court and the referenced court under 28 U.S.C. 1334.

Additionally, the Debtor's allegations of fraud concerning the court's Lift Stay Order are either untimely or legally insufficient. The Debtor's request for relief is based on the claim that the order was entered due to fraud, seeking to declare it void and assert that the automatic stay was never lifted. However, under Fed. R. Bankr. P. 9024 and Fed. R. Civ. P. 60(b)(3), a motion for relief based on fraud must be filed within one year of the order's entry, which the Debtor failed to do, as his complaint was filed over a year later. 

While Rule 60(d) allows for relief through an independent action or the inherent power of the court to set aside judgments obtained by fraud, such relief is limited to extreme cases of misconduct, such as bribery or evidence fabrication. The Debtor's claim that attorneys misrepresented a document as the original Note does not meet this threshold unless there is evidence of intent to deceive the court regarding standing. Consequently, the fraud on the court theory is deemed insufficient.

Aurora Loan Services' standing to foreclose was previously adjudicated in state court, preventing the Debtor from contesting this standing in the current adversary proceeding. The Debtor is barred from asserting that Aurora Loan Services intended to deceive the court, which is critical for seeking relief from the Lift Stay Order. The claims in the Debtor's complaint are subject to dismissal under Rule 12(b) for several reasons: 

1. The First Claim for Relief fails to adequately state a fraud claim necessary to overturn the Lift Stay Order and is precluded by claim and issue preclusion regarding the state court's sale authorization.
2. The Second Claim for Relief for breach of contract lacks standing as it pertains to property of the estate in the Debtor's Chapter 7 cases.
3. The Third through Sixth Claims for Relief (breach of good faith and fair dealing, abuse of process, civil RICO violations, and accounting) are dismissed due to lack of standing for claims arising before the Second Chapter 7 case, and the court lacks jurisdiction over claims post-filing.
4. Claims asserting that Aurora Loan Services lacked standing or engaged in fraud are barred by issue preclusion, while claims against Aurora Loan Services and Wells are also barred by claim preclusion.

The court grants the Defendants’ Motion to Dismiss, concluding that the Debtor’s complaint is dismissed. In considering the motion, the court can review documents central to the claims if authenticity is not disputed and may use judicially noticed facts, including its own records. The Debtor alleges that prior submissions of the Note by Aurora Loan Services were not original documents, but it remains unclear if he claims that Aurora Loan Services did not possess the original Note before a specified date. The Note in question lacks markings indicating cancellation or reduction of the debt by the foreclosure sale bid. The Debtor acknowledges that the damage claims are assets of the estate that must be resolved before discharge by the Trustee.