In re: Iemelly Rodriguez Vazquez; Reo Properties Corp.; Quantum Services v. Citie Financial

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: April 13, 2012
• Docket: 10-00171
• Status: Unknown

Opinion

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO IN RE: : LEAD CASE NO. 10-07476 (ESL) IEMELLY RODRIGUEZ VAZQUEZ 4 Debtor : CHAPTER 13 lalate RIGUEZ VAZQUEZ ADVERSARY NO. 10-00171 (ESL) 3 FILED & ENTERED REO PROPERTIES CORP.; QUANTUM - : g SERVICES 3 CITIE INANCIAL ape 13 ong) g J 10 OPINION AND ORDER U.S, BANKAUE TO RICO 11 In the instant adversary proceeding, the Court has questioned sua sponte its jurisdiction to 12 treview and/or overturn a State Court decision under the Rooker-Feldman doctrine and ordered Debtor 13 Ilo brief on the subject (Docket No. 61). Debtor filed a Motion in Compliance with Order and 14 Wtemorandum of Law (Docket No. 70). For the reasons stated below, the court declares itself without 15 subject-matter jurisdiction. 16 Procedural Background 17 On September 25, 2007, the Puerto Rico Court of First Instance, Superior Court of Humacao 18 (the “State Court”), entered a foreclosure judgment against Debtor in Case No. HSCI200700504 19 (208) (the “State-Court Foreclosure Judgment”) (Docket No. 29-1, p. 2). The real property being 20 Ilforeclosed was located at Anton Ruiz Ward, Clavel Street #49, Humacao, Puerto Rico, registered at 21 |the Humacao Property Registry as Lot No. 23,674 in volume 557, page 160 (the “Real Property”). 22 |The State-Court Foreclosure J udgment ultimately resulted in a writ of execution and an order for the 23 Court Marshall to appear in a judicial sale deed after the public auction for the Real Property, 24 lWwhich was held on August 10, 2010 (the “Judicial Sale”, Docket No. 29-1, p. 1-10). 25 Debtor filed a voluntary Chapter 13 petition on August 17, 2010 (Lead Case Docket No. 1). 26 lin Schedule A, she reported the Real Property, and in Schedule D she reported codefendant Reo 27 Properties Corp. (“Reo”) as a secured creditor holding a mortgage note on that Property (Lead Case 28 |Docket No. 13, pp. 3 & 8). On November 2, 2010, Debtor filed the Complaint that initiated the instant adversary

1 l[proceeding claiming that the Real Property was illegally sold at the Judicial Sale ordered by the State 2 |Court. Essentially, Debtor alleges that the foreclosure proceeding was null and void because of 3 noncompliance with P.R. Rule 51.7(a) of Civil Procedure, 32 L.P.R.A. Ap. V R. 51.7 (2009), and 4 llother due process notification requirements, and because the mortgage note was assigned to Reo 5 |without prior notification to her. She seeks the Judicial Sale to be declared null and void (thus 6 |lrecovering the Real Property) plus costs, expenses, legal fees and damages (Docket No. 1). 7 |Codefendants Reo and Quantum Services Corp. (“Quantum”) answered the Complaint essentially 8 claiming that the judicial sale was lawfully conducted (Docket Nos. 9 & 10). Codefendant 9 Citifinancial, Inc. (“Citifinancial”) also answered the Complaint alleging that it had no personal or 10 |icorporate involvement in the execution of the Real Property’s mortgage (Docket No. 11). 11 |[Citifinancial also filed a Motion to Dismiss under Rule 12(b)(6) for failure to state a claim upon 12 |which relief may be granted (Docket No. 26), which was granted in the Partial Final Judgment 13 jldismissing the Complaint against it (Docket No. 37). The Partial Final Judgment was not appealed. 14 On March 12, 2011, codefendants Reo and Quantum moved for summary judgment (Docket 15 29 & 30), and on May 10, 2011, Plaintiff filed her Opposition thereto (Docket No. 34). On May 16 118, 2011, the court issued a Decision & Order denying the motion for summary judgment concluding 17 there were genuine issues of material facts (Docket No. 35). 18 On September 30, 2011, the court scheduled a hearing for November 15, 2011 (Docket No. 19 158). At that hearing, the court sua sponte questioned its jurisdiction to review and/or overturn a final 20 court decision based on the Rooker-Feldman doctrine and afforded Debtor 30 days to brief the 21 jfissue and 30 days for defendants and the Trustee to reply. On December 12, 2011 the court issued 22 |lan Order for Debtor to show cause why the adversary proceeding should not be dismissed for failure 23 jjto comply with the previous order (Docket Nos. 58 & 64). On January 10, 2012, Debtor filed a 24 ||\Motion Requesting an Extention [sic] of Short Term to Reply to Order Dated 12/12/11 (Docket No. 25 and on January 12, 2012 the court granted a 7 day extension (Docket No. 67). On January 17, 26 12012, Debtor filed a Motion in Compliance with Order and Memorandum of Law (Docket No. 70) 27 claiming that the Rooker-Feldman doctrine cannot be enforced in bankruptcy courts, that if 28 |lapplicable, it should be narrowly construed, and that “the judgment in the State Court is neither final

1 jlor from the [State’s| highest court” (Docket No. 70, p. 8). Debtor also insisted that this court should 2 exercise jurisdiction and discharge its supervisory powers to insure that there was ... compliance 3 |jwith the strict [state] statutory and constitutional requirements of foreclosure proceedings” and that 4 |“lacking evidence of such compliance, the [state] judicial sale [ordered by the State Court through 5 State-Court Foreclosure Judgment] should be reversed, as it is clearly null and void as a matter 6 law”. Id. No further replies were filed by any other party. 7 Applicable Law & Analysis 8 Under 28 U.S.C. § 1257, only the United States Supreme Court has jurisdiction to hear 9 jjappeals from final state court judgments. Under 28 U.S.C. § 1331, federal district courts can only 10 exercise “original jurisdiction”, not appellate jurisdiction. The Supreme Court merged the two 11 |jstatutes in two cases: Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia 12 Court of Appeals v. Feldman, 460 U.S. 462 (1983), commonly known as the Rooker-Feldman 13 }idoctrine. 14 The Rooker-Feldman doctrine is “jurisdictional in nature” and therefore “if'a case is dismissed 15 |because the Rooker-Feldman doctrine applies, it means the court has no subject-matter jurisdiction 16 |jto hear the case.” Mills v. Harmon Law Offices, P.C., 344 F.3d 42, 44 (1* Cir. 2003), citing In re 17 |IMiddlesex Power Equip, & Marine, Inc., 292 F.3d 61, 66 (1" Cir. 2002). Consequently, “it cannot 18 waived”. Inre Zambre, 306 B.R. 428, 432 (Bankr. D. Mass. 2004), citing Inre Stoddard, 248 B.R. 19 120 (Bankr. N.D. Ohio 2000). That is why a court can raise the issue sua sponte. See Mills v. 20 ||Harmon Law Offices, P.C., 344 F.3d at 44. The doctrine is rooted in various principles: it (a) 21 |jenforces constitutional separation of powers and the limited jurisdiction of federal courts; (b) 22 jladvances interests of federalism by protecting state court judgments; (c) recognizes that state courts 23 |jare fully competent to adjudicate state and federal claims; and (d) protects finality in the judicial 24 |system. See Dustin E. Buehler, Revisiting Rooker-Feldman, 36 Fla. St. U. L. Review, 373, 377 25 |{(2009), Williamson B.C. Chang, Rediscovering the Rooker Doctrine, 31 Hastings L. J. 1337, 1350 26 |(1980), and George L. Proctor et a/., Rooker-Feldman and the Jurisdictional Quandary, 2 Fla. Coastal 27 J. 113, 114 (2000). Its rationale is that only the United States Supreme Court has jurisdiction over 28 |lappeals from the state courts under 28 U.S.C. § 1257. See Federacion de Maestros de P.R. v. Junta

1 lide Relaciones del Trabajo de P.R., 401 F.3d 17, 21 (1* Cir. 2005). 2 In essence, the Rooker-Feldman doctrine prohibits lower federal courts to sit in direct review 3 jjof final state court judgments --unless Congress has specifically authorized such relief-- and that 4 therefore federal courts should not become a court of appeals for state court decisions. See Exxon 5 Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005); Miller v. Nichols, 586 F.3d 53, 6 58 (1* Cir. 2009) (“Rooker-Feldman bars jurisdiction whenever parties who lost in state court seek 7 review and rejection of that judgment in federal court”); Puerto Ricans for P.R. Party v. Dalmau, 544 8 ||F.3d 58, 68 (1* Cir. 2008); Schwartz v. Schwartz (In re Schwartz), 409 B.R. 240, 246-247 (B.A.P. 9 Cir. 2008). Also see generally 18B Wright, Miller & Cooper, Federal Practice and Procedure 2d 10 4469.1, at pp. 100-01, 127-37 (2002). The doctrine bars a losing party in state court to file a suit 11 a federal district court --after the state proceeding has ended-- to complain of an injury caused by 12 |jthe state-court decision and seek review and rejection of the state-court judgment. Exxon Mobil Corp 13 Saudi Basic Industries Corp., 544 U.S. 280, 284, 125 S. Ct. 1517 (2005). It forecloses lower 14 |federal court jurisdiction where the issues in the case are “inextricably intertwined” with 15 |lcontroversies adjudicated by a state court. See Mills v. Harmon Law Offices, P.C., 344 F.3d at 44. 16 federal claim is “inextricably intertwined” with state court claims “if the federal claim succeeds 17 to the extent that the state court wrongly decided the issues before it.”” Sheehan v. Marr, 207 18 35, 39-40 (1" Cir. 2000). In other words, the Rooker-Feldman doctrine precludes a federal 19 jlaction if the relief sought in the federal court “would effectively reverse the state court decision or 20 |ivoid its holding.” Halvorsen v. Mendez (In re Mendez), 246 B.R. 141, 146 (Bankr. D.P.R. 2000). 21 Concerned that some lower courts were construing the Rooker-Feldman doctrine too broadly, 22 jin Exxon Mobil Corp v. Saudi Basic Industries Corp., 544 U.S. at 284, the Supreme Court ruled that 23 |ithe doctrine should be “confined to cases of the kind from which the doctrine acquired its name: cases 24 |lbrought by state-court losers ... inviting district court review and rejection of [the state court’s] 25 |judgments.” Federacion de Maestros de P.R. v. Junta de Relaciones del Trabajo de P.R., 401 F.3d 26 was the first case ruled by the Court of Appeals for the First Circuit after Exon Mobil. In it, the 27 ||Court of Appeals held that the Rooker-Feldman doctrine applies in limited circumstances where the 28 |jlosing party files the action in federal court after the state proceedings have “ended”. 410 F.3d at 24.

1 state court judgment is sufficiently final for the application of the Rooker-Feldman doctrine when 2 state proceeding has ended; ifthe federal proceedings are begun before the state proceedings have 3 jlended then the doctrine does not deprive the federal court of jurisdiction. Id. at 24, citing Exxon 4 Mobil, 125 S.Ct. at 1526. The Court of Appeals described three situations, or tests, to determine 5 |lwhether state proceedings have “ended.” 410 F. 3d at 24. First, state proceedings have ended “when 6 |ithe highest state court in which review is available has affirmed the judgment below and nothing is 7 to be resolved.” Id. That is not the case in the instant adversary proceeding. Second, state 8 |lproceedings have ended “if the action has reached a point where neither party seeks further action.” 9 Lastly, state proceedings have ended, for purposes of the Rooker-Feldman doctrine, on the federal 10 |\questions, “if the state court proceedings have finally resolved all the federal questions in the 11 [litigation but state law or purely factual questions remain to be litigated.” Id. 12 In Puerto Rico, a judgment is a decision that finally resolves the controversy before the State 13 Court so that an appeal may be taken. See P.R. Rule 42.1 of Civil Procedure, 32 L.P.R.A. Ap. VR. 14 (2009), and U.S. Fire Insurance Co. v. Autoridad de Energia Electrica, 151 D.P.R. 962, 967 15 ||(2000). A judgment becomes final and firm (“final y firme”), ergo executable, when it is no longer 16 llappealable or subject to reconsideration. Suarez Morales v. Estado Libre Asociado de Puerto Rico, 17 D.P.R. 43, 62 (2004), citing Bolivar v. Aldrey, 12 D.P.R. 273 (1907). Also see Pagan del Joglar 18 |v. Cruz Rivera, 136 D.P.R. 750, 757 (1994); Cardenas Maxan v. Rodriguez, 119 D.P.R. 642, 654 19 |((1987); Figueroa v. Bayron, 75 D.P.R. 987, 989 (1954). 20 In the present case, the State-Court Foreclosure Judgment was entered on September 25, 2007 21 jland notified to the parties on September 28, 2007 (Docket No. 29-1, p. 2). No party appealed it and 22 a result, a writ of execution was issued by the State Court (Docket No. 29-1, p. 2), which under 23 ||Puerto Rico law can only occur after a judgment becomes final, firm and executable (“final, firme 24 lly ejecutable”). See P.R. Rule 51.1 of Civil Procedure, 32 L.P.R.A. Ap. V R. 51.1 (2009). Contrary 25 Debtor’s allegation that “the judgment in the [State Court] is neither final nor from the highest 26 |lcourt”’, this court finds that the State Court judgment was final under Federacion de Maestros de 27 28 ' Motion in Compliance with Order & Memorandum of Law (Docket No. 70, p. 8)

1 |P.R.’s second standard. 410 F. 3d at 24. 2 Debtor also contends “that Rooker-Feldman does not apply in bankruptcy courts”. Motion 3 lin Compliance with Order & Memorandum of Law (Docket No. 70, p. 5; original emphasis). To 4 |isupport that argument , she cited In re Weinraub, 361 B.R. 586, 593 (Bankr. S.D.Fla. 2007), and 5 |icases cited therein: Noel v. Hall, 341 F.3d 1148, 1155 (9" Cir. 2002) and Gruntz v. Los Angeles, 202 6 IF.3d 1074, 10796 (9" Cir. 2000), none from the First Circuit. In our First Circuit, however, the 7 |Rooker-Feldman doctrine is applicable in both district and bankruptcy courts alike. See Schwartz 8 iv. Schwartz (In re Schwartz), 409 B.R. at 246-247; Heghmann v. Indorf (In re Heghmann), 316 B.R. 9 1395, 403 (B.A.P. 1* Cir. 2004) (“under the Rooker-Feldman doctrine, a bankruptcy court, as a lower 10 |federal court, cannot review the final judgment of a state court”); In re Zambre, 306 B.R. 428 11 |(bankruptcy court denied a motion to avoid a judicial lien based on the Rooker-Feldman doctrine); 12 |]Gomes v. Limieux (In re Limieux), 306 B.R. 433, 441-442 (Bankr. D. Mass. 2004) (the bankruptcy 13 jlcourt’s jurisdiction to review the state court decision is precluded by the Rooker-Feldman doctrine); 14 Halvorsen v. Mendez (In re Mendez), 246 B.R. 141, 145 (Bankr. D.P.R. 2000) (extending the 15 |ldoctrine to bankruptcy courts as a lower federal court “if, by so doing, it would be granting federal 16 review ofa state court determination or of an issue that is ‘inextricably intertwined’ with a state court 17 |yjudgment’”). The Court is thus not moved by such argument. 18 Finally, the Debtor cites the recent case of Skinner v. Switzer, 131 S.Ct. 1289, 1297 (2011), 19 |Ito suggest that the Rooker-Feldman doctrine has become more narrowly construed and that “if a 20 |ifederal plaintiff presents an independent claim, it is not an impediment to the exercise of federal 21 |\jurisdiction that the same or a related question was earlier aired between the parties in state court”. 22 |\Motion in Compliance with Order & Memorandum of Law (Docket No. 70, pp. 6-7). She failed to 23 jlapply that case to the facts of the instant adversary proceeding, however, which are significantly 24 |idistinguishable. In Skinner, the plaintiff was an inmate convicted of murdering his live-in girlfriend 25 |i(bludgeoned and choked with an axe handle) and her two sons (stabbed to death). 131 S.Ct. at 1293. 26 had twice requested and failed to obtain DNA testing under Tex. Code Crim. Proc. Ann. Ch. 64, 27 |jthe only state-law procedure then available to him. After exhausting and losing all remedies the 28 |[Texas State Courts provided under that statute, he proceeded to file an federal action for injunctive

1 |relief targeting “as unconstitutional the Texas statute the Texas [courts] authoritatively construed”. 2 at 1297. The Supreme Court held that the Rooker-Feldman doctrine was inapplicable with the 3 |jdistinction that “a state-court decision is not reviewable by lower federal courts, but a statute or rule 4 governing the decision may be challenged in a federal action”. Id. at 1298. In the instant case, 5 Debtor does not challenge a state “statute or rule governing the [state-court] decision”, but rather 6 complains about the State Court Foreclosure Judgment itself and its subsequent results, which is 7 llprecisely what the Rooker-Feldman prohibits. 8 Debtor’s Complaint falls squarely within the Rooker-Feldman doctrine: it is brought by the 9 IIstate court loser (i.e. Debtor) who wants a federal court to review and ultimately reject, set aside and 10 |ldeclare null and void a pre-petition final, firm and executed State-Court Foreclosure Judgment that 11 jlordered the Judicial Sale of the Real Property. Debtor filed the Complaint before this court in an 12 |lattempt to nullify the State-Court Foreclosure Judgment (entered on September 25, 2007 and notified 13 fon September 28, 2007) and subsequent execution orders after they became final, firm and 14 unappealable (ergo executable) rather than seeking any relief whatsoever in the State Court: she did 15 |not file a motion for reconsideration, appeal, nor did she file a motion to set the judgment aside or 16 |lmoved for a mistrial as provided in P.R. Rules 47, 48, 49 and 52 of Civil Procedure, 32 L.P.R.A. Ap. 17 IV Rs. 47, 48, 49 & 52 (2009). She simply allowed the State-Court Foreclosure Judgment to become 18 |lfinal and unappealable and when the execution was imminent by virtue of the Judicial Sale about 3 19 llyears later’, without requesting the State Court to set it aside, she filed for bankruptcy requesting from 20 |ithis court to nullify the state foreclosure procedure. The court finds that the remedy Debtor seeks is 21 |/‘inextricably intertwined” with controversies adjudicated by the State Court because she could only 22 |jsucceed in this case “to the extent that the state court wrongly decided the issues before it.” Sheehan 23 Marr, 207 F.3d at 39-40. Also see Mills v. Harmon Law Offices, P.C., 344 F.3d at 44. The 24 |Rooker-Feldman doctrine bars such actions. 25 Conclusion 26 In view of the foregoing, the court declares itself without subject-matter jurisdiction to 27 28 ? The State-Court Foreclosure Judgment was notified on September 28, 2007 and the Judicial Sale was executed on August 10, 2010 (Docket No. 29-1).

1 }entertain the instant Complaint under the Rooker-Feldman doctrine, and therefore, the instant 2 lladversary proceeding is hereby dismissed. 3 Judgment will be entered accordingly. 4 SO ORDERED. 5 In San Juan, Puerto Rico, this 13" day of April, 2012. 6 7 . 8 United States Bankruptcy Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28