156 F. Supp. 3d 491
S.D.N.Y.2016Background
- Graham executed a 2005 mortgage on his Mount Vernon home; the mortgage was later assigned and U.S. Bank, as trustee for a mortgage-backed trust, pursued foreclosure in Westchester County.
- Graham alleges SPS (the loan servicer) offered and entered a loan modification, he made five payments totaling $12,685, but the modification was not effective/credited and U.S. Bank nonetheless foreclosed.
- The state court granted U.S. Bank relief (order of reference, judgment of foreclosure and sale) and the property was sold at a public auction in January 2015.
- Graham sued in federal court asserting 12 claims: fraud, breach of contract, breach of implied covenant, unjust enrichment, conversion, deceptive practices (against SPS and U.S. Bank) and claims attacking U.S. Bank’s standing, securities/FCA/aiding-and-abetting/statutory/debt-collection/civil-rights theories plus an injunction seeking to enjoin sale.
- Defendants moved to dismiss under Fed. R. Civ. P. 12(b)(1) and 12(b)(6). Court considered Rooker–Feldman, collateral estoppel, and New York res judicata principles, and also evaluated Rule 9(b), statute of limitations, and merits of certain claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal court has jurisdiction over claims that challenge state foreclosure judgment (Counts 7–12) | Graham contends U.S. Bank lacked standing due to invalid assignments and fraud; federal court can hear related federal statutes and rights claims | Defendants invoke Rooker–Feldman and collateral estoppel: these claims impermissibly seek to review/reject the state-court foreclosure judgment already rendered | Dismissed for lack of subject-matter jurisdiction under Rooker–Feldman; collateral estoppel also bars the standing-based claims |
| Whether loan-modification claims (Counts 1–6) are barred by Rooker–Feldman | Graham says fraud, breach, conversion, unjust enrichment, deceptive practice claims arise from SPS’s loan-modification conduct and are independent of the foreclosure judgment | Defendants argue these claims either attack foreclosure (Rooker–Feldman), are precluded by collateral estoppel, or are barred by res judicata/claim preclusion because they arise from same transaction | Rooker–Feldman does not bar them, but res judicata bars Counts 1–6 because those claims could have been raised in the state foreclosure action; dismissed with prejudice |
| Whether specific claims fail on the merits or procedural grounds (fraud, implied covenant, conversion, GBL §349, breach, unjust enrichment) | Graham maintains he alleged facts supporting each cause of action (e.g., payments made, deception) | Defendants raise Rule 9(b) deficiencies, duplication with contract claims, statute of limitations, consumer-orientation for §349, and that some claims are duplicative or unavailable if contract exists | Fraud (Count 1) dismissed for failure to plead with particularity and as duplicative; implied covenant (Count 3) dismissed as duplicative; conversion (Count 5) dismissed as duplicative and time-barred; §349 (Count 6) dismissed (limitations and public-impact failures); breach (Count 2) and unjust enrichment (Count 4) would survive on the merits but are precluded by res judicata |
| Whether leave to amend should be granted | Graham sought leave to amend | Defendants argued amendments would be futile and belated | Leave denied; dismissal with prejudice because res judicata and Rooker–Feldman defects are incurable on amendment |
Key Cases Cited
- Rooker v. Fidelity Trust Co., 263 U.S. 413 (establishing principle that federal district courts lack jurisdiction to review state-court judgments)
- Dist. of Columbia Court of App. v. Feldman, 460 U.S. 462 (same; together with Rooker forms the Rooker–Feldman doctrine)
- Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (clarifies Rooker–Feldman scope)
- Hoblock v. Albany Cty. Bd. of Elections, 422 F.3d 77 (2d Cir. test for Rooker–Feldman application)
- Vossbrinck v. Accredited Home Lenders, Inc., 773 F.3d 423 (2d Cir. on Rooker–Feldman barring federal challenges to foreclosure standing)
- Kropelnicki v. Siegel, 290 F.3d 118 (no blanket fraud exception to Rooker–Feldman)
- Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75 (full faith and credit: federal courts must give state judgments same preclusive effect as the rendering state)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading standard: plausibility)
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions not entitled to assumed truth)
- Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (limits private Section 10(b) suits to purchasers/sellers of securities)
- Lerner v. Fleet Bank, N.A., 459 F.3d 273 (aiding-and-abetting fraud elements)
- Foman v. Davis, 371 U.S. 178 (standards for leave to amend pleadings)