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Scarr v. JPMorgan Chase Bank N.A.

United States District Court, S.D. Indiana, Indianapolis Division

January 25, 2018

KIMBALL RUSTIN ROY SCARR, Plaintiff,
v.
JPMORGAN CHASE BANK, N.A.,, Defendants.

          ORDER REPORT AND RECOMMENDATION ON MOTIONS TO DISMISS (DKT. NOS. 77, 79, 89 & 91) AND ORDER ON RELATED MOTIONS (DKT. NOS. 109, 127, 132, 137 & 138)

          Debra McVicker Lynch United States Magistrate Judge

         Before the court for a report and recommendation on their appropriate disposition are four motions to dismiss filed by the defendants. As addressed below, the Magistrate Judge recommends that the District Judge GRANT the motions to dismiss. In addition, several non-dispositive motions come before the Magistrate Judge for ruling. For the reasons that follow, these motions are DENIED.

         Background

         Kimball Rustin Roy Scarr executed a mortgage on his home in Connersville, Fayette County, Indiana, with SurePoint Lending (“SurePoint”) in 2008. The mortgage was dated August 26, 2008, and next to his signature, Scarr wrote “26 Aug 2008”. Scarr also executed a promissory note dated August 26, 2008, and next to his signature, he wrote “26 Nov. 2008.” Scarr maintains that he signed the mortgage in August 2008 but did not sign the promissory note until November 2008. Nonetheless, loan funds were disbursed beginning in August or September 2008, and the mortgage was recorded on September 4, 2008. The mortgage was assigned to JPMorgan Chase Bank, N.A. (“Chase”). In June 2013, after making mortgage payments for almost five years, Scarr stopped making mortgage payments.

         Chase commenced a mortgage foreclosure action in Fayette County Superior Court against Scarr, which was assigned Cause No. 21D01-1312-MF-00873.[1] Scarr challenged the validity of the promissory note and mortgage. Chase filed a motion for summary judgment. The trial court held a hearing on the motion and, on August 1, 2014, granted Chase summary judgment in the amount of $200, 649.11 and ordered foreclosure of the mortgage. (See Docket No. 92-2). The trial court determined that Scarr had executed the promissory note and mortgage and, even if he had not signed the promissory note in August 2008, his actions after the closing ratified the mortgage loan. More specifically, the court found that despite believing he had the right to rescind the mortgage loan, Scarr executed the promissory note (he claimed in November 2008), and he made monthly payments through June 2013. The trial court concluded that by tendering monthly payments, Scarr ratified the promissory note and mortgage and thus mooted any alleged problems with the closing of the mortgage loan. Chase, the trial court also concluded, was entitled to enforce the promissory note. See Scarr, 40 N.E.3d 531, at *2.

         Scarr filed a motion to correct error, which was denied. He subsequently filed a motion for relief from judgment, arguing that Chase lacked standing to foreclose the mortgage, that SurePoint engaged in fraud and misrepresentation in securing the note without making proper disclosures to him, that he had rescinded the mortgage loan in late August 2008, and that the Truth in Lending Act was violated by a lack of disclosure regarding the promissory note and mortgage. Before the trial court ruled on the motion, Scarr filed a notice of appeal, so the trial court found it lacked jurisdiction to decide the motion for relief from judgment.

         On appeal, Scarr challenged the grant of summary judgment and asserted Chase lacked standing to foreclose on the mortgage. The Indiana Court of Appeals affirmed the grant of summary judgment and denial of the motion to correct error. See Scarr, 40 N.E.3d 531 (Ind.Ct.App. 2015) (unpublished), trans. denied, 49 N.E.3d 107 (Ind. 2016). The court of appeals first determined that, even assuming the promissory note and mortgage were executed by Scarr on different dates, the difference in dates did not render those agreements unenforceable. Scarr, 40 N.E.3d 531, at *4. Second, the court agreed that even if there were irregularities with the execution of the promissory note, Scarr had ratified the note and mortgage and could not assert such irregularities as a defense. Id. The appellate court declined to address Scarr's argument that Chase lacked standing because the trial court had not had the opportunity to rule on the motion for relief from judgment in which Scarr had made similar arguments. Scarr, 40 N.E.3d 531, at *5. The Indiana Supreme Court denied Scarr's motion for transfer in April 2016. See 49 N.E.2d at 107.

         On September 30, 2016, Kimball Rustin Roy Scarr, pro se, filed his complaint in this action. On March 9, 2017, he filed an amended complaint (hereinafter the “complaint”), which is the operative complaint in this case. Count 1 of the complaint alleges that Defendants SurePoint and Chase engaged in fraud in originating a mortgage loan without a note and making inaccurate and incomplete disclosures, and engaged in a conspiracy to prevent Scarr's rescission of that loan. Count 2 alleges that in connection with the mortgage loan, Chase and LSF9 Mortgage Holdings, LLC violated the Truth in Lending Act (“TILA”), 15 U.S.C. §§ 1631-1651; Regulation X, 12 C.F.R. § 1024; and the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601-2617, by withholding information about the assignment of mortgage loan and withholding RESPA notifications from Scarr. Count 3 attempts to claim that SurePoint, Chase, LSF9 Mortgage Holdings and LSF9 Master Participation Trust, [2] and Caliber Home Loans, Inc. engaged in fraud and conspiracy to commit fraud to prevent rescission and obtain a judgment of foreclosure against Scarr. That count also alleges obstruction of justice and money laundering. Count 4 claims inadequate management and oversight by the United States Department of Housing and Urban Development (“HUD”) of its Federal Housing Administration (“FHA”) insurance programs. The complaint contains a fifth count alleging injuries to Scarr and his family, namely, the mortgage loan, the state court foreclosure action, the loss of FHA insurance protections, the personal judgment against Scarr in the foreclosure action, the order of a sheriff's sale of his home, and emotional distress. (See Docket No. 64 at 10). Scarr seeks damages, rescission of the mortgage, an order submitting the matter to the “proper enforcement authority” for investigation, and a mandamus to the HUD Secretary to operate HUD's program in accordance with the law. (Id. at 14-15).

         The remaining defendants, [3] have filed motions to dismiss for lack of subject matter jurisdiction and/or for failure to state a claim. Defendants Mortgage Electronic Registration Systems, Inc. (“MERS”) and Chase move to dismiss under Rules 8(a), 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Among other grounds for dismissal, they assert that the court lacks subject matter jurisdiction over the complaint under the Rooker-Feldman doctrine. They also argue the complaint should be dismissed under the doctrines of res judicata (claim preclusion) and collateral estoppel (issue preclusion).

         Similarly, HUD moves under Federal Rule of Civil Procedure 12(b)(1) to dismiss, arguing that the court lacks subject matter jurisdiction and Scarr lacks standing to challenge the Secretary's actions under the National Housing Act (“NHA”) or to seek imposition of criminal penalties. HUD also argues that Scarr has not demonstrated a waiver of sovereign immunity that would allow for a claim for money damages. HUD further contends that Scarr cannot show he is entitled to the extraordinary remedy of mandamus.

         Defendants LSF9 Master Participation Trust, LSF9 Mortgage Holdings, LLC, and Caliber Home Loans, Inc. (collectively the “LSF9/Caliber Defendants”) move for dismissal of the complaint under Federal Rules of Civil Procedure 8, 9, 12(b)(1) and 12(b)(6), raising some of the same grounds for dismissal as the other defendants, including lack of subject matter jurisdiction.

         Finally, Feiwell Hannoy, P.C., Leanne S. Titus, and Bryan K. Redmond (the “Feiwell Defendants”), are the lawyers who represented Chase, the plaintiff in the state court foreclosure action against Scarr. They move to dismiss the complaint under Rules 8, 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Among other grounds, they assert that the court lacks subject matter jurisdiction under the Rooker-Feldman doctrine.

         The court will first set forth the legal standards governing motions to dismiss and then address each dismissal motion in turn.

         Analysis of Motions to Dismiss

         Dismissal Standards

         When considering a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), the court accepts as true all well-pleaded allegations in the complaint and draws all reasonable inferences in favor of the plaintiff. See Citadel Secs., LLC v. Chicago Bd. Options Exchange, Inc., 808 F.3d 694, 698 (7th Cir. 2015). The court may “‘look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.'” Capitol Leasing Co. v. F.D.I.C., 999 F.2d 188, 191 (7th Cir. 1993) (quoting Grafon Corp. v. Hausermann, 602 F.2d 781, 783 (7th Cir. 1979)). The party invoking the court's jurisdiction has “the burden of supporting its jurisdictional allegations by ‘competent proof.'” NLFC, Inc. v. Devcom Mid-Am., Inc., 45 F.3d 231, 237 (7th Cir. 1995) (quoting McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 189 (1936)).

         Under Federal Rule of Civil Procedure 12(b)(6), the court may dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). To state a claim, the “‘complaint must contain allegations that plausibly suggest that the plaintiff has a right to relief, raising that possibility above a speculative level.'” Jakupovic v. Curran, 850 F.3d 898, 901 (7th Cir. 2017) (quoting Kubiak v. City of Chicago, 810 F.3d 476, 480 (7th Cir. 2016)). As with a Rule 12(b)(1) motion to dismiss, the court accepts as true the well-pleaded factual allegations in the complaint and draws all reasonable inferences in favor of the plaintiff. Id. at 901-02. Because Scarr's complaint is pro se, the court construes it liberally and holds it to less stringent standards than if it had been drafted by counsel. See Erickson v. Pardus, 551 U.S. 89, 94 (2007).

         MERS and Chase's Motion to Dismiss

         As noted, MERS and Chase move to dismiss under Rules 8(a), 12(b)(1) and 12(b)(6) on several grounds, including the Rooker-Feldman doctrine, res judicata, and preclusion principles. The court must first consider whether it has subject matter jurisdiction. Jakupovic v. Curran, 850 F.3d 898, 902 (7th Cir. 2017). If the court determines that subject matter jurisdiction is lacking, it must dismiss the case. Id.

         The Rooker-Feldman doctrine divests lower federal courts of “jurisdiction over cases brought by state-court losers challenging state-court judgments rendered before the district court proceedings commenced.” Mains v. Citibank, N.A., 852 F.3d 669, 675 (7th Cir. 2017), cert. denied, 138 S.Ct. 227 (Oct. 2, 2017); see D.C. Court of Appeals v. Feldman, 460 U.S. 462, 482 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413, 415-6 (1923). When the doctrine applies, “there is only one proper disposition: dismissal for lack of federal jurisdiction.” Frederiksen v. City of Lockport, 384 F.3d 437, 438 (7th Cir. 2004).

         “Claims that directly seek to set aside a state-court judgment are de facto appeals that trigger the [Rooker-Feldman] doctrine.” Mains, 852 F.3d at 675. And claims that “were not raised in state court, or that do not on their face require review of a state court's decision, may be subject to Rooker-Feldman if those claims are closely enough related to a state-court judgment.” Id.; see also Jakupovic, 850 F.3d at 902 (explaining Rooker-Feldman applies to claims that are “inextricably intertwined” with a state court judgment). To put it differently, “‘there must be no way for the injury complained of by a plaintiff to be separated from a state court judgment.'” Mains, 852 F.3d at 675 (quoting Sykes v. Cook County Circuit Court Prob. Div., 837 F.3d 736, 743 (7th Cir. 2016), reh'g and suggestion for reh'g en banc denied (7th Cir. Oct. 27, 2016)).

         The complaint alleges Scarr was damaged by Chase “by being encumbered with a loan he rescinded[.]” (Docket No. 64 at 6, ¶ 38; see also Id. ¶ 39-42 (alleging injuries from the loan origination and prevention of rescission)). The complaint also asserts Chase violated RESPA's and TILA's notification requirements in connection with the mortgage loan. (Id. at 6-8). In addition, Scarr alleges Chase engaged in fraud and conspiracy in obtaining the judgment against him. (Id. at 8-10). He argues that Chase's fraudulent acts “were hidden” from him and “prevent[ed] him from” defending against foreclosure (Docket No. 121, ¶ 124), and prevented his rescission (Docket No. 133 at 12 (emphasis omitted)). And in describing his claims, Scarr argues that the alleged RESPA and TILA violations were committed “to overcome the rescission” of his mortgage loan, that Chase's withholding of information was “so as to obtain judgment” against him, and that the defendants conspired to prevent his rescission of the mortgage loan, foreclose on his home, and “defraud him and the court.” (Docket No. 121 ¶ 83). Therefore, Scarr's alleged injuries are the foreclosure judgment against him and the loss of his home, which followed from the foreclosure judgment. And all of his claims are inextricably intertwined with the rescission issue and the foreclosure judgment.

         Because the foreclosure judgment is the source of Scarr's alleged injuries, the Rooker-Feldman bars his claims to the extent the complaint seeks to challenge the state court foreclosure judgment or seek rescission of his mortgage loan. See, e.g., Harold v. Steel, 773 F.3d 884, 885 (7th Cir. 2014) (“The Rooker-Feldman doctrine applies when the state court's judgment is the source of the injury of which plaintiffs complain in federal court.”); Taylor v. Federal. Nat'l Mortg. Ass'n, 374 F.3d 529, 533-34 (7th Cir. 2004) (holding Rooker-Feldman barred mortgagor's federal claim seeking to have home returned based on creditors' alleged fraud effectively sought to vacate state court foreclosure judgment and claim for damages in amount of home's fair market value).

         Scarr raises several arguments in an effort to avoid Rooker-Feldman, but none of them is persuasive. He maintains that he could not defend against the foreclosure action because of Chase's fraud. A similar argument was made and rejected in Mains:

[T]he foundation of the present suit is [the plaintiff's] allegation that the state court's foreclosure judgment was in error because it rested on a fraud perpetrated by the defendants. [The plaintiff] wants the federal courts to redress that wrong. That is precisely what Rooker-Feldman prohibits, however. If [the court] were to delve into the question whether fraud tainted the ...

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