587 B.R. 589
S.D.N.Y.2018Background
- Plaintiff Darren P. Zapotocky obtained a reverse mortgage in 2006; the mortgage later was assigned to CIT Bank, N.A. in 2015.
- After execution of the mortgage, plaintiff was required to obtain flood insurance, which he says made mortgage payments unaffordable.
- CIT commenced foreclosure in Connecticut state court; a Foreclosure Judgment was entered and the property was sold to CIT in December 2017.
- Zapotocky filed a Chapter 7 bankruptcy petition in 2015 (discharged Feb. 24, 2016) and did not disclose these claims in that filing; he later filed (and had dismissed) a Chapter 13 petition in 2017.
- Zapotocky sued CIT in federal court seeking to rescind or obtain a new mortgage agreement and monetary damages based on the flood-insurance requirement; CIT moved to dismiss for lack of subject-matter jurisdiction and for failure to state a claim.
- The district court granted CIT’s Rule 12(b)(1) motion and dismissed the action without prejudice, holding the plaintiff lacked standing because the claims belonged to the bankruptcy estate and that the Rooker–Feldman doctrine barred federal review of the state foreclosure judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue after Chapter 7 discharge | Zapotocky contends he may pursue claims arising from the mortgage | CIT argues plaintiff failed to disclose claims in Chapter 7, so the claims vested in the bankruptcy estate | Dismissed for lack of standing; undisclosed prepetition claims belonged to the estate |
| Federal court jurisdiction over attack on state foreclosure | Zapotocky asks federal court to reverse/relieve effects of state Foreclosure Judgment | CIT invokes Rooker–Feldman: district court cannot review or reject state-court judgment | Dismissed for lack of jurisdiction under Rooker–Feldman |
| Preclusion (res judicata) | Plaintiff says state process was unfair but seeks merits relief in federal court | CIT says state foreclosure judgment is final and bars relitigation of same issues | Court found state judgment would preclude relitigation (alternative basis) |
| Failure to state substantive claims (contract, tort, TILA) | Zapotocky alleges he was not informed he'd be required to buy flood insurance | CIT points to the mortgage documents that expressly required flood insurance and proper disclosures | If merits reached, claims would fail: contract/TORT/fraud not pleaded; TILA disclosure satisfied |
Key Cases Cited
- Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (Rooker–Feldman bars lower federal review of state-court judgments)
- District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (federal courts cannot act as appellate tribunals over state court decisions)
- Rooker v. Fidelity Trust Co., 263 U.S. 413 (only the Supreme Court may review state court judgments)
- Hoblock v. Albany Cnty. Bd. of Elections, 422 F.3d 77 (Second Circuit enumerates elements for Rooker–Feldman application)
- Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394 (res judicata bars relitigation of matters decided in a prior final judgment)
- Makarova v. United States, 201 F.3d 110 (plaintiff bears burden to establish subject-matter jurisdiction)
- Seward v. Devine, 888 F.2d 957 (debtor must disclose all causes of action in bankruptcy schedules)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard on motions to dismiss)
- Ashcroft v. Iqbal, 556 U.S. 662 (often-cited pleading standard guidance)
- McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184 (Rule 12(b)(6) pleading and inference rules)