Jones et al v. Federal National Mortgage Ass'n et al

This opinion is not intended for commercial publication, either in print or1
electronically.
Docket 34, 43. While FNMA is a named defendant, the name of the second movant2
does not correlate exactly to any named defendant.
Docket 42.3
NOT INTENDED FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re: ) Case No. 09-13530
)
JAMES C. JONES and ) Chapter 13
KEYONA A. JONES, )
) Judge Pat E. Morgenstern-Clarren
Debtors. )
___________________________________ )
)
JAMES C. JONES, et al., ) Adversary Proceeding No. 10-1042
)
Plaintiffs, )
)
v. ) MEMORANDUM OF OPINION
) AND ORDER1
FEDERAL NATIONAL MORTGAGE )
ASSOCIATION, et al., )
)
Defendants. )
Two entities, Federal National Mortgage Association (FNMA) and “First Franklin
Financial Corporation a/k/a FFFC, a former subsidiary of National City Bank of Indiana,” move
to dismiss the amended complaint. The plaintiff-debtors oppose the motion. For the reasons2 3
stated below, the motion to dismiss is denied.
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This entity is named twice as a defendant, with different addresses being the only4
apparent difference.
The notes and mortgages are not attached to the amended complaint. Rule 12 provides5
that a 12(b)(6) motion must be treated as one for summary judgment if “matters outside the
pleadings are presented to and not excluded by the court.” That is not necessary in this case,
however, because the notes and mortgages are referred to in the complaint and may be
considered part of the pleadings. Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 514 (6th Cir.
1999).
2
THE AMENDED COMPLAINT
This action centers on the debtors’ residence at 5532 Dalewood Avenue, Maple Heights,
Ohio (the property). The debtors ask in their amended complaint that: (1) the named defendants
be required to prove their claim to an interest in the property or be barred from doing so in the
future; (2) the defendants’ claims in the chapter 13 case be disallowed; and (3) liens (other than
those held by the State of Ohio, Department of Taxation and the Cuyahoga County treasurer) be
removed from the property. These ten entities are named as defendants: (1) FNMA; (2) National
City Bank; (3) First Franklin Financial Corporation; (4) First Franklin Financial Corporation,
subsidiary of National City Bank of Indiana; (5) First Franklin Financial, a division of National
City Bank of Indiana; (6) Palisades Acquisition XVI, LLC; (7) Asset Acceptance LLC; (8)4
James Rokakis, treasurer; (9) State of Ohio, Department of Taxation; and (10) FFFC f/k/a First
Franklin Corp. wholly owned operating subsidiary of National City Bank of Indiana.
The amended complaint includes extensive factual allegations regarding the property and
the liens on it, including these: The debtors signed two notes secured by mortgages on the
property. The first note in the principal amount of $77,200.00 is payable to “First Franklin5
Financial Corp., subsidiary of National City Bank of Indiana,” and that entity is the mortgagee on
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Exhibits A and B, motion to dismiss, docket 34.6
Exhibits E and F, motion to dismiss, docket 34.7
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the related mortgage. The second note in the principal amount of $19,300.00 is payable to “First6
Franklin Financial, a division of National City Bank of Indiana,” and that entity is the mortgagee
on the related mortgage.7
The debtors essentially allege that the notes were not endorsed according to law and that
the mortgages were not assigned according to law, leading to the conclusion that the notes and
mortgages cannot be enforced by any of the defendants. Specifically, the debtors maintain that
the first note which was payable to First Franklin Financial Corp., subsidiary of National City
Bank of Indiana was endorsed not by that entity but by First Franklin Financial Corporation.
They also allege that the mortgage assignments were executed without proper authority,
rendering those assignments ineffective.
With respect to the second note, the debtors allege that the note is payable to First
Franklin Financial, a division of National City Bank of Indiana, but the endorsement was
executed by First Franklin Financial Corp. They also allege facts to suggest that the assignment
of that mortgage to National City Bank is fraudulent.
In addition to the allegations regarding the endorsements of the two notes and the
mortgage assignments, the debtors allege facts regarding the two proof of claims filed in the case
related to the two notes, their objections to the two claims, and their bankruptcy filing and
chapter 13 plan. The debtors ask that the claims be disallowed.
THE STATE COURT FORECLOSURE ACTION
On February 20, 2009, FNMA filed a foreclosure action against the debtors in the
Common Pleas Court for Cuyahoga County, Ohio (Federal National Mortgage Association vs.
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Exh. I to Motion to dismiss, docket 34.8
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Keyona Jones, et al., case no. CV-09-685418) seeking to enforce the first note and mortgage.
FNMA also named as defendants Asset Acceptance LLC, First Franklin Financial, a division of
National City Bank of Indiana, and Palisades Acquisition XVI, LLC. The (now-debtor)
defendants moved to dismiss the complaint. The state court denied the debtors’ motion through
a journal entry that stated in its entirety: “Defendants’ motion to dismiss complaint is denied.
Plaintiff is the holder of the note and mortgage.” The state court judge did not designate this8
decision as a final judgment and the decision did not resolve the foreclosure action; it is,
therefore, an interlocutory order. See OHIO R. CIV. P. 54(B); see also Sudan, Inc. v. Village of
Chagrin Falls, 577 N.E.2d 1160, 1164 (Ohio Ct. App. 1989) (deeming denial of motion to
dismiss interlocutory). The debtors filed their chapter 13 case on April 24, 2009. That filing
stayed further proceedings in the state court.
DISCUSSION
1. Rule 12(b)(6): Dismissal Based on Failure to State a Claim
Movants argue that the amended complaint should be dismissed as against “First Franklin
Financial Corp. a/k/a FFFC, a former subsidiary of National City Bank of Indiana” under Rule
12(b)(6) on the grounds that the complaint does not state a legal theory of liability against that
entity and the debtors admit that they signed the original notes and mortgages. See FED. R. CIV.
P. 12(b) (made applicable by FED. R. BANKR. P. 7012(b)). They argue further that First Franklin
Financial Corp. was named as an adversary proceeding defendant under these additional names:
First Franklin Financial Corporation; First Franklin Financial Corp., subsidiary of National City
Bank of Indiana; First Franklin Financial, a division of National City Bank of Indiana; and FFFC
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The analysis is complicated by the fact that the moving entity is not a named defendant.9
Additionally, a motion to dismiss the original complaint was filed by FNMA, National City
Bank, First Franklin Financial a division of National City Bank, and First Franklin Financial
Corporation. (Docket 12). For purposes of this motion, the court does not need to sort out these
discrepancies.
5
f/k/a First Franklin Corp., wholly owned operating subsidiary of National City Bank of Indiana,
and that these defendants have not attempted to enforce the mortgages, to collect on the notes,
and have not taken a position adverse to the debtors’ interest in the property. The debtors’ brief9
in opposition does not address the Rule 12(b)(6) issue.
Federal Rule of Civil Procedure 12(b)(6) provides that a defendant may move to dismiss
a complaint for failure to state a claim upon which relief may be granted. FED. R. CIV. P.
12(b)(6). The Sixth Circuit recently discussed the standard for addressing a Rule 12(b)(6)
motion:
Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must
contain “a short and plain statement of the claim showing that the pleader is
entitled to relief.” Although this standard does not require “detailed factual
allegations,” it does require more than “labels and conclusions” or “a formulaic
recitation of the elements of a cause of action.” Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Rather, to survive a
motion to dismiss, the plaintiff must allege facts that, if accepted as true, are
sufficient “to raise a right to relief above the speculative level,” id., and to “state a
claim to relief that is plausible on its face,” id. at 570, 127 S.Ct. 1955; see also
Ashcroft v. Iqbal, – U.S. – , – - – , 129 S.Ct. 1937, 1949-50, 173 L.Ed.2d 868
(2009). “A claim has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Iqbal, 129 S.Ct. at 1949. And although we must
accept all well-pleaded factual allegations in the complaint as true, we need not
“‘accept as true a legal conclusion couched as a factual allegation.’” Twombly,
550 U.S. at 555, 127 S.Ct. 1955 (quoting Papasan v. Allain, 478 U.S. 265, 286,
106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)); see also Iqbal, 129 S.Ct. at 1949.
Hensley Mfg. v. Propride Inc., 579 F.3d 603, 609 (6th Cir. 2009) (footnote omitted).
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Although the amended complaint does not directly state that declaratory relief is being
requested, the pleading certainly requests such relief and asks for a determination that the named
parties do not have an interest in the property under the facts alleged and do not have claims in
the chapter 13 case. See 28 U.S.C. § 2201(a) (providing that “any court of the United States,
upon the filing of an appropriate pleading, may declare the rights and other legal relations of any
interested party seeking such declaration, whether or not further relief is or could be sought”).
The amended complaint alleges facts regarding the note endorsements and mortgage assignments
which, if accepted as true, are sufficient to state a plausible claim that this movant does not have
a lien of the property and is not entitled to enforce the note. The motion to dismiss depends in
large part on the movants’ re-characterization of the facts, including assertions in their motion
that First Franklin Financial Corp. was named as a defendant under different names and is no
longer a subsidiary of National City Bank of Indiana. At this point in the proceedings, however,
the debtors’ allegations must be accepted as true. The motion to dismiss under Rule 12(b)(6) is
denied.
2. Rule 12(b)(1): Dismissal Based on Lack of Subject Matter Jurisdiction
Federal Civil Rule 12(b)(1) provides that a complaint may be dismissed when the court
lacks subject matter jurisdiction. When a defendant moves to dismiss for lack of such
jurisdiction, the plaintiff bears the burden of proving that jurisdiction exists. Davis v. United
States, 499 F.3d 590, 594 (6th Cir. 2007) (citing Moir v. Greater Cleveland Reg’l Transit Auth.,
895 F.2d 266, 269 (6th Cir. 1990)). Movants argue that the Rooker-Feldman doctrine deprives
this court of jurisdiction to hear the debtors’ claims as to FNMA. The debtors argue that the
doctrine does not apply to the facts of this case.
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The Rooker-Feldman doctrine is based on two Supreme Court decisions interpreting 28
U.S.C. § 1257(a): Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); and District of Columbia
Court of Appeals v. Feldman, 460 U.S. 462 (1983). Section 1257(a) states that a final judgment
of the highest court of a state may be reviewed by the United States Supreme Court by writ of
certiorari. Lower federal courts interpreted the Rooker and Feldman cases together over the
years in what came to be called the Rooker-Feldman doctrine. Stated very generally, the courts
started with the premise that if the Supreme Court has jurisdiction to review a final state
judgment, the lower federal courts conversely do not have that jurisdiction. From there, the
doctrine grew to support the conclusion that federal courts lacked subject matter jurisdiction
under many different fact patterns where one of the parties had initiated a state court proceeding
on the same or related subject matter and/or had obtained a state court judgment on the same or
related subject matter.
Recently, however, the Supreme Court discussed, interpreted, and limited the Rooker-
Feldman doctrine in Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005).
Going back to the doctrine’s roots, the Supreme Court stated that the doctrine “is based on the
negative inference that, if appellate court review of such state judgments is vested in the Supreme
Court, then it follows that such review may not be had in the lower federal courts.” Lawrence v.
Welch, 531 F.3d 364, 368 (6th Cir. 2009) (citing Exxon Mobil Corp., 544 U.S. at 283-84). Stated
differently, “[a]ppellate review—the type of judicial action barred by Rooker-Feldman—consists
of a review of the proceedings already conducted by the ‘lower’ tribunal to determine whether it
reached its result in accordance with law.” Coles v. Granville, 448 F.3d 853, 858 (6th Cir. 2006).
The Sixth Circuit determined pre-Exxon Mobil that the doctrine applies to interlocutory orders
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The Sixth Circuit has not addressed the issue of whether the doctrine applies to10
interlocutory orders after Exxon Mobil. Other circuit courts to do so have focused on the
statement in Exxon Mobil that the doctrine applies after “the state court proceedings ended,”
finding that language to be a stumbling block to applying the doctrine to interlocutory orders.
See Hoblock v. Albany County Bd. of Elections, 422 F.3d 77, 89 (2d Cir. 2005) (noting that
federal suits challenging interlocutory state judgments may present difficult questions regarding
whether the state proceedings have ended within the meaning of Rooker-Feldman); Truserv
Corp. v. Flegles, Inc., 419 F.3d 584, 591 (7th Cir. 2005) (stating that “an interlocutory ruling
does not evoke the doctrine or preclude federal jurisdiction”).
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and judgments of lower state courts. Pieper v. Am. Arbitration Assoc., Inc., 336 F.3d 458, 46210
(6th Cir. 2003).
The movants argue here that the state court order denying the debtors’ motion to dismiss
the foreclosure action bars this court from considering the debtors’ allegations against FNMA in
the adversary proceeding under Rooker-Feldman. This position overstates the bounds of the
Rooker-Feldman doctrine as interpreted by the Supreme Court. After Exxon Mobil, the critical
inquiry is the source of the injury which the plaintiff alleges in the federal complaint. Kovacic v.
Cuyahoga County Dep’t of Children and Family Servs., No. 08-4656, slip op. at 12 (6th Cir.
May 26, 2010) (recommended for publication) (citing McCormick v. Braverman, 451 F.3d 382,
394-95 (6th Cir. 2006)). If the state court decision is the source of the injury, the doctrine bars
jurisdiction in this court. Id. at 13. If, on the other hand, “the plaintiff ‘present[s] some
independent claim, albeit one that denies a legal conclusion that a state court has reached . . . then
there is jurisdiction and state law determines whether the defendant prevails under principles of
preclusion.’” Exxon Mobil Corp., 544 U.S. at 293 (quoting GASH Assocs. v. Rosemont, 995 F.2d
726, 728 (7th Cir. 1993)).
The state court defendants, here the debtor-plaintiffs, filed a motion to dismiss the
foreclosure action. The state court issued a limited decision, denying the motion. Under Ohio
law, the state court was required to deny the motion unless it “appear[ed] beyond doubt from the
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complaint that the [debtors’ purported lender] [could] prove no set of facts entitling [it] to
recovery.” O’Brien v. Univ. Cmty. Tenants Union, Inc., 327 N.E.2d 753, syllabus (Ohio 1975).
For purposes of deciding the motion, the state “court ‘[was required to] presume that all factual
allegations of the complaint are true and make all reasonable inferences in favor of the non-
moving party.’” Estate of Ridley v. Hamilton County Bd. of Mental Retardation and
Developmental Disabilities, 809 N.E.2d 2, 6 (Ohio 2004) (quoting Mitchell v. Lawson Milk Co.,
532 N.E.2d 753 (Ohio 1988)). See also State Auto. Mut. Ins. Co. v. Titanium Metals Corp., 844
N.E.2d 1199, 1200-01 (Ohio 2006) (stating generally, an order denying a motion to dismiss just
tests the sufficiency of the allegations in the complaint). Presumably applying the requisite
standard, the state court denied the motion to dismiss the foreclosure complaint.
The doctrine does not bar the debtors from going forward in this court under the facts
presented. As discussed above, Rooker-Feldman is intended to bar a federal court from
reviewing and reassessing a state court decision. The only state court decision here was that the
state court complaint in foreclosure stated enough of a claim to survive the debtors’ motion to
dismiss and that the foreclosure action could proceed. The state court’s decision is not the source
of the injury complained of in this proceeding and this court is not being asked to decide whether
the state court correctly decided the motion to dismiss. In fact, whether the state court complaint
states a claim is irrelevant to the issues raised in this proceeding. The Rooker-Feldman doctrine
does not, therefore, apply to deprive this court of subject matter jurisdiction.
As Rooker-Feldman does not bar jurisdiction and because this adversary proceeding is
within this court’s jurisdiction under 28 U.S.C. § 1334, the motion to dismiss for lack of subject
matter jurisdiction is denied.
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CONCLUSION
For the reasons stated, the motion to dismiss is denied.
IT IS SO ORDERED.
_________________________________
Pat E. Morgenstern-Clarren
United States Bankruptcy Judge
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