Saturday, March 5, 2011

FYI: Maine Fed Ct Dismisses Common Law "Robosigner/Fraudulent Foreclosure" Allegations

The United States District Court for the District of Maine recently dismissed a group of borrowers' state law claims against a mortgage servicer for abuse of process and fraud on the court, and denied the borrowers' motion to remand all of the state law claims.  A copy of the opinion is attached.

A group of Maine borrowers ("Borrowers") threatened with foreclosure or eviction brought suit against GMAC Mortgage, LLC ("GMAC") seeking damages and injunctive relief, alleging abuse of process, fraud on the court and violations of the Maine UTPA.  GMAC removed the case to federal court on the basis of diversity of citizenship and the Class Action Fairness Act, and the Borrowers moved to remand the case back to state court.

At the outset, the Court denied the Borrowers' motion to remand, reasoning that "there is indisputably subject matter jurisdiction based upon diversity of citizenship" as to the three state common law damages claims.  In addition, only once has the Court "resolved all claims over which there is federal subject matter jurisdiction" may the Court "remand the claims over which there is no federal subject matter jurisdiction."  See 28 U.S.C. § 1447(c).   

The Court next dismissed the Borrowers' abuse of process claim.  The alleged basis of the abuse of process was the supposed "filing of false certifications and affidavits in support of GMAC's motions for summary judgment in various Maine foreclosure proceedings." 

However, a claim for abuse of process under Maine law requires, among other things, "the use of process in a manner improper in the regular conduct of the proceeding."  The Court reasoned that the use of the challenged affidavits and certifications "does not satisfy the 'improper' use requirement."  See Advanced Construction Corp. v. Pilecki, 901 A.2d 189 (Me. 2006). 

Rather, the certifications and affidavits "were used to win the foreclosure lawsuits, and that is a proper use of such documents."  The Court further noted that if the documents were false, "then the remedy is to seek to vacate the judgment that was obtained, not to start a new lawsuit alleging abuse of process."

The Court also dismissed the Borrowers' claim for fraud on the court, reasoning that "no Maine case law recognizes such a basis for a private damage recovery."  In addition, fraud on the court may be a ground for, among other things, vacating a judgment or for sanctions under state civil procedure rules, "but it is not a ground for the recovery of damages by a party in a later lawsuit."

Finally, the Court denied the Borrowers' motion to remand the remaining claim under the Maine UTPA based upon both the Rooker-Feldman doctrine and Younger abstention doctrine.

As you may recall, the Rooker-Feldman doctrine essentially holds that "a federal court below the United States Supreme Court does not have jurisdiction over a claim that seeks in essence to overturn a state court judgment," and "[i]nstead, the proper avenue for such a challenge is to the state's highest court and from there to the United States Supreme Court."

The district court held that "Rooker-Feldman does not destroy subject matter jurisdiction over" the UTPA claim "because the borrowers' claim is that GMAC's conduct produced the state court judgments they attack, not that the Maine courts committed legal error."

As you may also recall, the Younger abstention doctrine "counsels federal courts not to interfere by injunction with ongoing state judicial proceedings."  However, when damages are requested, that doctrine commonly "calls upon the federal court merely to stay the damages claim until the state lawsuit is resolved, not dismiss or remand the claim for damages altogether." 

In this case, the district court noted that "the foreclosure actions, including those pending at the time GMAC removed this action to federal court, have since been resolved," and the Court determined therefore to "proceed on the merits of the damages claim."   As explained above, the Court "cannot remand part of the case (the claim for equitable relief) while the rest (the claim for damages) proceeds actively in federal court." 

Accordingly, the borrowers' Maine UTPA allegations remain for resolution before the federal district court.

Having denied the Borrower's motion for partial remand, the Court concluded by denying the Borrower's Motion for Order of Notice to Putative Class as moot. 

Ralph T. Wutscher
Kahrl Wutscher LLP
The Loop Center Building
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Chicago, Illinois  60602
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