Sheenan v. MERS, No. 10-6837 (RBK/KMW), 2011 WL 3501883 (D.N.J. Aug. 10, 2011).

Peanut butter and Jelly.  Ham and Cheese.  Vodka and Tonic.  These great combinations go together.  Add the Rooker-Feldman doctrine and CAFA to the combo list…at least under the circumstances described in this case. 

The Rooker-Feldman doctrine, which bars the district court’s subject matter jurisdiction if the relief requested effectively would reverse a state court decision or void its ruling, does not apply if the defendants’ actions and not the state court judgment causes the plaintiffs’ injury. 

The plaintiffs, who were allegedly overcharged during post-judgment payoffs following entry of a mortgage foreclosure, brought this action against the defendants, Mortgage Electronic Systems, Inc., GMAC Mortgage, LLC, and GMAC Bank.

In January 2006, a New Jersey state court entered a judgment of foreclosure against the plaintiffs on a principal sum of $184,271.85 plus $2,799.72 in costs including $1,992.42 in attorneys’ fees. Pursuant to that judgment, the defendants prepared a payoff statement, which included a mortgage balance of $193,917.85 and $3,597.28 in attorneys’ fees and costs.  The plaintiffs paid the sums the defendants demanded in March 2006, and the defendants then discharged the mortgage.

The, the plaintiffs filed this putative class action in New Jersey state court, alleging six causes of action against the defendants: (1) breach of contract; (2) negligence; (3) breach of the duty of good faith and fair dealing; (4) unjust enrichment; (5) violation of the New Jersey Consumer Fraud Act; and (6) violation of the Truth-In-Consumer Contract Warranty and Notice Act. The plaintiffs alleged that the payoff statements they received from the defendants improperly included, among other charges, attorneys’ fees and costs in excess of those actually awarded by the state foreclosure judgment.  

In April 2010, the defendants removed the matter to the District Court asserting jurisdiction under CAFA, 28 U.S.C. § 1332(d). 

In June 2010, the District Court remanded the matter to the state court finding that because all of the plaintiffs’ claims arose from the alleged $4,084.68 overcharge that was a subject of the state court foreclosure judgment, remand was proper.  The Court found that the Rooker-Feldman doctrine precluded a federal court from exercising jurisdiction over the class action because the class action was “inextricably intertwined” with the state foreclosure action.

After remand, the plaintiffs filed an Amended Complaint in December 2010 in the state court.  The Amended Complaint alleged that Jeffrey Stephan, who is employed by GMAC Mortgage as the leader of its document execution team, signed as many as 10,000 foreclosures in one month without checking the accuracy of those documents or determining whether foreclosure was appropriate. The Amended Complaint further alleged that John Kerr, Mr. Stephan’s employee, executed the affidavits in the plaintiffs’ foreclosure action using “the same process and procedure as Mr. Stephan.”  As a result of that conduct, the Amended Complaint added the causes of action for: (7) breach of contract; (8) negligence; (9) breach of the duty of good faith and fair dealing; (10) violation of New Jersey Consumer Fraud Act; and (11) violation of Truth-In-Consumer Contract, Warranty and Notice Act. 

The defendants again removed this matter to the District Court alleging jurisdiction under CAFA.  The plaintiffs conceded that the elements of CAFA were satisfied; however, they moved to remand arguing that the Rooker-Feldman doctrine precluded the District Court from exercising jurisdiction. 

This time the District Court denied the motion to remand.

The Court noted that under the Rooker-Feldman doctrine, a district court lacks subject matter jurisdiction if the relief requested effectively would reverse a state court decision or void its ruling. The doctrine, however, applies only to cases brought by (1) state-court losers (2) complaining of injuries caused by state court judgments (3) rendered before the district court proceedings commenced and (4) inviting district court review and rejection of those judgments.

Regarding the second element, the defendants argued that the state action did not cause the plaintiffs’ injuries because the inflated post-judgment payoff occurred after the foreclosure judgment.  The plaintiffs asserted that their alleged injuries resulted from a state foreclosure judgment based upon faulty affidavits.  In support of that argument, the plaintiffs claimed that a possible remedy to their cause of action would be vacating the judgment of foreclosure by the state court. 

The Court observed that the plaintiffs’ injuries resulted from the defendants’ post-judgment conduct, not the state foreclosure judgment.  The Court pointed that when the defendant’s conduct is the source of the plaintiffs’ alleged injury, Rooker-Feldman does not bar federal jurisdiction even if the action asks the federal court to deny a legal conclusion reached by the state court.  Even though the injuries of which the plaintiff complained helped to cause the adverse state judgments, these claims were ‘independent’ because they stemmed from some other source of injury, such as a third party’s actions.

The Court observed that the Amended Complaint showed that the defendants calculated the payoff amounts at issue after the foreclosure judgment was entered, and, that their calculations exceeded the court’s judgment.  Thus, the Court found that the defendants’ actions, and not the state court judgment, caused the plaintiffs’ injury. Moreover, even if the state court relied on fraudulent documents in the foreclosure action, the plaintiffs could not prove that the foreclosure judgment caused their injuries.  The Court pointed out that a claim that a judgment was procured by fraud is independent of the judgment and, therefore, does not fall within the Rooker-Feldman doctrine, while a claim that the judgment itself is illegal does.  Accordingly, the Court concluded that the second element of the Rooker-Feldman test was not satisfied, and declined to remand.