Denise Otto v. Wells Fargo Bank NA ( 2017 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 16-3385
___________
DENISE OTTO,
Appellant
v.
WELLS FARGO BANK, N.A.; MORTGAGE ELECTRONIC REGISTRATION
SYSTEMS, INC.; U.S. BANK N.A., as Trustee for BNC Mortgage Loan Trust 2006-2;
PHELAN HALLINAN, LLP, a/k/a Phelan Hallinan Diamond & Jones PC, a/k/a
Phelan Hallinan & Diamond PC, a/k/a Phelan Hallinan & Schmieg, P.C.
____________________________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 2-15-cv-08240)
District Judge: Honorable Kevin McNulty
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Submitted Pursuant to Third Circuit LAR 34.1(a)
May 16, 2017
Before: RESTREPO, SCIRICA and FISHER, Circuit Judges
(Opinion filed: May 31, 2017)
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OPINION*
___________
PER CURIAM
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
Denise Otto filed suit against the defendants, alleging that on August 30, 2006, to
purchase a property in Irvington, New Jersey, she executed to BNC Mortgage, Inc.,
(“BNC”) an adjustable rate note to secure the sum of $160,000. At that time, BNC
identified itself as a Delaware corporation. Complaint, Ex. A. Also on August 30, 2006,
to secure the note, she executed a mortgage on the property to Mortgage Electronic
Registration Systems, Inc. (MERS), acting as a nominee for the lender, BNC. Id. at Ex.
B. In her complaint, Otto described Wells Fargo Bank, N.A. (“Wells Fargo”) as the
servicer of her loan documents, and U.S. Bank, N.A. (“U.S. Bank”) as a bank claiming an
interest in the property. She alleged that the final defendant, Phelan Hallinan, LLP, 1 on
behalf of Wells Fargo, filed a frivolous foreclosure complaint against her.
According to her complaint, Otto sent notices of rescission to BNC’s registered
agent, MERS, Wells Fargo, and U.S. Bank on August 15, 2015. MERS, Wells Fargo,
and U.S. Bank did not contest the notice of rescission; BNC’s agent could not accept
service. Otto learned from BNC’s agent and otherwise that BNC was a California
corporation that had surrendered its authority to do business as a Delaware corporation in
1998. Complaint, Ex. E & Ex. F.
Otto claimed that she had a right to rescind the transaction because BNC violated
the Truth in Lending Act (“TILA”), 15 U.S.C. § 1635, by describing itself as a Delaware
constitute binding precedent.
1
For convenience, we use the first of the alternative names provided for the law firm
defendant.
2
corporation at closing, pretending to be the lender when it no longer existed as a
Delaware corporation, and failing to disclose the identity of the true lender. In the first
three counts of her complaint, citing 15 U.S.C. § 1635, 15 U.S.C. § 1638(a)(1), and 12
C.F.R. § 226.23, she seeks to enforce the rescission she claims to have effectuated by
mailing the notices of rescission. In the fourth, she maintains that the transaction was
never consummated because she did not know the identity of the lender (and because it
was never consummated, the three-year deadline on the right to rescind has not passed).
In count five, Otto contends that Wells Fargo and Phelan Hallinan, LLP violated a
criminal statute, 15 U.S.C. § 1611, by pursuing the foreclosure and seeking a sheriff’s
sale on a loan that they knew had been validly rescinded. Lastly, she seeks restitution
under 12 C.F.R. § 1026.23 on the basis that the defendants ignored the rescission. As
relief, in addition to various statutory and other damages, she requested the return of the
original note marked cancelled, the return of the mortgage, and the filing of a satisfaction
of the mortgage.
MERS, Wells Fargo, and U.S. Bank file a motion to dismiss Otto’s complaint
against them for lack of subject matter jurisdiction or, alternatively, for failure to state a
claim. The defendants cited, inter alia, the Rooker-Feldman doctrine, 2 and argued that
the action was an impermissible collateral attack on a final judgment entered in a state
2
The doctrine derived from Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and
District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983).
3
court foreclosure action on August 14, 2014. Phelan Hallinan, LLP also filed a motion to
dismiss the complaint, making similar arguments.
The District Court granted the defendants’ motion and dismissed the complaint.
After taking judicial notice of the documents in the state foreclosure proceeding, the
District Court concluded that Otto’s action was barred by the Rooker-Feldman doctrine.
To the extent that Otto’s complaint included any claims that did not implicate the validity
of the foreclosure judgment, the District Court dismissed them on other bases argued by
the defendants. Specifically, the District Court cited res judicata, the New Jersey entire
controversy doctrine, the time limits for getting redress for TILA violations, a litigation
privilege, and the lack of a civil action relating to the named criminal statute.
Otto appeals. 3 We have jurisdiction under 28 U.S.C. § 1291. We exercise plenary
review. See Gould Elecs., Inc. v. United States, 220 F.3d 169, 176 (3d Cir. 2000);
McGovern v. City of Phila., 554 F.3d 114, 115 (3d Cir. 2009); see also Turner v.
Crawford Square Apts. III, L.P., 449 F.3d 542, 547 (3d Cir. 2006) (“Our review of the
district court’s application of the Rooker-Feldman doctrine is plenary.”). We may affirm
the judgment of the District Court on any basis supported by the record. See Erie
Telecomms., Inc. v. City of Erie, 853 F.2d 1084, 1089 n.10 (3d Cir. 1988).
3
Phelan Hallinan, LLP previously sought to dismiss this appeal because Otto did not
initially submit an appendix. We rejected the motion and granted Otto leave to file an
appendix out-of-time. See Order of Feb. 3, 2017.
4
Rooker-Feldman is a narrow doctrine, limited to cases brought by state-court
losers complaining of injuries caused by previously rendered state-court judgments and
inviting district court review and rejection of those judgments. Lance v. Dennis, 546
U.S. 459, 464 (2006) (quotation marks and citation omitted). To the extent that Otto’s
complaint can be read to include a request for the District Court to overturn or negate the
state court judgment of foreclosure, we agree that the Rooker-Feldman doctrine bars the
suit. See In re Madera, 586 F.3d 228, 232 (3d Cir. 2009); In re Knapper, 407 F.3d 573,
581 (3d Cir. 2005).
To the extent Otto complained not of injuries caused by the state court judgment,
but injuries caused by violations of federal law that occurred before or after the judgment,
see Turner, 449 F.3d at 547, her TILA claims fail for other reasons. Otto no longer had a
right to rescind her loan transaction under § 1635 when she sent her notices of rescission;
the right of rescission expires three years after the date of consummation of a transaction
notwithstanding a failure to provide relevant TILA disclosures. 4 See 15 U.S.C.
§ 1635(f); Beach v. Ocwen Fed. Bank, 523 U.S. 410, 419 (1998). Otto entered into the
loan transaction on August 30, 2006; she did not send the notices of rescission until
August 15, 2015. Furthermore, a one-year statute of limitations bars her claims for
money damages for any TILA violation. See 15 U.S.C. § 1640(e).
4
We do not decide if a TILA violation occurred when BNC’s state of incorporation was
misidentified. But even if it can be said, as Otto asserts, that the misidentification could
be equated to a failure to provide the relevant required disclosures, that failure would not
5
Lastly, Otto cannot bring a private civil cause of action under the criminal statute
that she cited. See Vallies v. Sky Bank, 591 F.3d 152, 156 (3d Cir. 2009) (distinguishing
between the private cause of action under 15 U.S.C. § 1640 and the criminal liability
imposed by 15 U.S.C. § 1611 in describing the range of remedies under TILA); see also,
e.g., United States v. City of Phila., 644 F.2d 187, 198-99 (3d Cir. 1980).
For these reasons, and upon concluding that none of the other arguments that Otto
raises in her brief undermines the District Court’s ruling, we will affirm the District
Court’s judgment.
mean that the loan was not consummated.
6