Wendy Nora v. HSBC Bank USA, N.A. , 778 F.3d 672 ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 13-3865 & 14-1887
IN RE:
DESA L. RINALDI
and ROGER P. RINALDI,
Debtors-Appellants,
and
WENDY A. NORA,
Appellant,
v.
HSBC BANK USA, N.A., et al.,
Appellees.
____________________
Appeal from the United States District Court for the
Eastern District of Wisconsin.
No. 2:13-cv-00336-JPS — J.P. Stadtmueller, Judge.
____________________
ARGUED OCTOBER 28, 2014 — DECIDED FEBRUARY 11, 2015,
____________________
Before BAUER, POSNER, and TINDER, Circuit Judges.
2 Nos. 13-3865 & 14-1887
TINDER, Circuit Judge. This appeal arises from the bank-
ruptcy of Desa and Roger Rinaldi, whose attorney, Wendy
Nora, complicated the underlying proceedings by filing nu-
merous vexatious motions, similar to her conduct in PNC
Bank, N.A., v. Spencer, 763 F.3d 650 (7th Cir. 2014). Nora also
challenges a sanction against her for submitting frivolous
filings. We uphold the decisions against both the Rinaldis
and Nora.
I. Background
In 2005, Roger Rinaldi signed a note promising to repay a
mortgage loan from Wells Fargo and, along with his wife
Desa, agreed to secure the loan with the couple’s property in
Bristol, Wisconsin. Within four years, he defaulted on the
loan, and HSBC Bank initiated a Wisconsin foreclosure ac-
tion as assignee of the mortgage. The Rinaldis counter-
claimed against HSBC, Wells Fargo, and the lawyers in-
volved in the foreclosure, alleging that the mortgage paper-
work produced by HSBC had been fraudulently altered and
that HSBC lacked standing to enforce the mortgage. The
Rinaldis lost at summary judgment and did not appeal. A
year later, however, the state court vacated its foreclosure
judgment after HSBC agreed to modify the loan rather than
foreclose. The Rinaldis then filed a new state lawsuit reas-
serting their counterclaims against the same parties. The de-
fendants moved to dismiss, but before the state court ruled
on the motion, the Rinaldis filed for bankruptcy, automati-
cally staying the state case.
In the bankruptcy proceeding, HSBC filed a proof of
claim based on the mortgage. The Rinaldis objected and filed
adversary claims against the parties that they had counter-
claimed against in the state action, alleging fraud, abuse of
Nos. 13-3865 & 14-1887 3
process, tortious interference, breach of contract, and viola-
tions of RICO and the Fair Debt Collection Practices Act. The
bankruptcy court found in favor of HSBC’s proof of claim
and recommended denial of the adversarial claims.
In October 2013, the district court affirmed the bankrupt-
cy court’s decisions on the proof of claim and adopted its
recommendations on the adversary claims. The court con-
cluded that it did not even need to reach the merits of the
proof-of-claim decision because the Rinaldis failed to desig-
nate the record or issues for appeal as required by the Feder-
al Rules of Bankruptcy Procedure. The court also rejected the
Rinaldis’ appeal on the merits, explaining that HSBC had
produced documents showing that it was entitled to enforce
the mortgage. The court further dismissed each of the
Rinaldis’ adversary claims as meritless, noting that their
submission on those claims was “an unfocused, stream-of-
consciousness-style recitation of general grievances the
debtors have asserted in various forms since the origination
of this litigation in state court.” The court warned the
Rinaldis that they would likely face sanctions if they filed
additional frivolous filings because their litigation tactics
had “quite obviously been vexatious and time- and resource-
consuming” and their filings were “nigh-unintelligible.”
Within two weeks, the Rinaldis moved to alter or amend
the judgment under Federal Rule of Civil Procedure 59(e),
rehashing their arguments about the mortgage. Not only
were these arguments meritless, the district court decided,
but “the Rinaldis, through their attorney Wendy Nora, have
at every turn filed briefs that have done little to clarify the
matters under consideration while further confusing mat-
ters” (emphasis in original). The court added that Nora’s
4 Nos. 13-3865 & 14-1887
briefs were rambling, failed to comply with court rules, con-
tained many spelling and grammatical errors, cited legal au-
thority sparingly if at all, repeated rejected arguments, and
used “irrelevant and argumentative language that has no
place in a legal brief.” The court warned that “any further
frivolous submissions will result in an award of appropriate
sanctions against the Rinaldis’ attorney” (emphasis in origi-
nal).
In December 2013, the Rinaldis appealed to this court,
but then in March 2014, they moved to dismiss their case in
the bankruptcy court. They asserted that the bankruptcy
court had shown a “willingness to override state law” in re-
gard to the validity of their mortgage, so they had “decided
not to engage in litigation of their new issues in this Court
and wish to be set free from the underlying bankruptcy.”
They added that they “wish to proceed to state court” with
“newly discovered evidence” that the mortgage is void. The
bankruptcy court granted the Rinaldis’ motion, though it
warned them that the dismissal might moot their pending
appeal.
Meanwhile, Nora moved in the district court to with-
draw as the Rinaldis’ attorney, and then, before the court
ruled on that motion, moved to intervene in the case and for
relief under Federal Rule of Civil Procedure 60(b). In April
2014, the district court allowed Nora to withdraw but denied
the other two motions, explaining that Nora had no standing
to intervene and that the court had no intention of altering
its decision about the Rinaldis’ claims. Further, the court ex-
plained that, because of its earlier warning and the fact that
these motions were frivolous, the court had “no choice but to
impose sanctions against Ms. Nora.” The court ordered Nora
Nos. 13-3865 & 14-1887 5
to pay $1,000 and warned that further frivolous filings
would result in higher sanctions. Nora appealed this order
on behalf of herself and the Rinaldis.
II. Discussion
On appeal, the Rinaldis again rehash their arguments
about alleged problems with their mortgage. The appellees
raise a host of reasons to reject the Rinaldis’ arguments, in-
cluding urging us to dismiss their appeal as moot because of
the dismissal of the bankruptcy case. The Rinaldis argue that
their appeal is not moot because of the possible “res judicata
effect” of the underlying rulings. But the potential for a
judgment to have preclusive effect in future cases is not
enough to avoid mootness; if it were, “no case would ever be
moot.” Parvati Corp. v. City of Oak Forest, Ill., 630 F.3d 512,
518 (7th Cir. 2010); see CFTC v. Bd. of Trade of Chi., 701 F.2d
653, 657 (7th Cir. 1983) (“Since the future is unknown, one
can never be certain that findings made in a decision con-
cluding one lawsuit will not some day (if allowed to do so)
control the outcome of another suit. But if that were enough
to avoid mootness, no case would ever be moot.”). There is
some authority suggesting that adversary claims might sur-
vive dismissal of a related bankruptcy proceeding. See In re
Statistical Tabulating Corp., 60 F.3d 1286, 1289–90 (7th Cir.
1995). But this idea is not meaningfully addressed in the
Rinaldis’ appellate brief, and moreover, even if the adver-
sary claims are not moot, the Rinaldis offer no persuasive
challenge to the district court’s thorough analysis of those
claims. Thus, to the extent the adversary claims are not
moot, we affirm the dismissal of those claims for substantial-
ly the reasons discussed by the district court.
6 Nos. 13-3865 & 14-1887
The appellees note that, when an appeal becomes moot,
we ordinarily vacate the underlying rulings in the case.
See United States v. Munsingwear, Inc., 340 U.S. 36, 39 (1950).
This rule is meant “to ensure that a decision carries no prec-
edential force after mootness prevents further review.” Van
Straaten v. Shell Oil Prods. Co., 678 F.3d 486, 491 (7th Cir.
2012); see In re Smith, 964 F.2d 636, 637 (7th Cir. 1992). Here,
however, applying this rule would lead to the odd result
that, by rejecting the Rinaldis’ argument against mootness,
we would give them exactly the relief that they seek.
There is a solution to this strange result. We have long
recognized an exception to the rule in Munsingwear for situa-
tions where a losing party causes an appeal to become moot
in order to avoid the preclusive effect of an unfavorable rul-
ing. See Gould v. Bowyer, 11 F.3d 82, 84 (7th Cir. 1993); In re
Smith, 964 F.2d at 637; Harris v. Bd. of Governors of the Fed. Re-
serve Sys., 938 F.2d 720, 724 (7th Cir. 1991); CFTC, 701 F.2d at
657; cf. Karcher v. May, 484 U.S. 72, 82–83 (1987) (refusing to
vacate judgment when losing party’s actions caused moot-
ness of appeal). This appeal is a good candidate for that ex-
ception. As the district court explained, by the time the
Rinaldis reached that court, they had already presented their
arguments “before two separate courts in three separate
proceedings.” Then, once the district court rejected the
Rinaldis’ arguments and refused to reconsider, the Rinaldis
indicated in dismissing their bankruptcy case that they
wanted to proceed to challenge their mortgage again in state
court. We refuse to indulge this type of gamesmanship by
depriving the sound decisions of the bankruptcy court and
district court of preclusive effect.
Nos. 13-3865 & 14-1887 7
Finally, we affirm the sanction order, which we review
for an abuse of discretion. See Tucker v. Williams, 682 F.3d
654, 661 (7th Cir. 2012). Nora offers only a cursory defense
for her actions, maintaining that she did “nothing more than
what she [was] required by law to do in the course of repre-
senting her clients.” But Nora’s obligations to her clients did
not excuse her disregard of the district court’s clear and re-
peated warnings against continued submission of confusing,
frivolous, and needlessly argumentative filings. Thus, the
court did not abuse its discretion by sanctioning Nora.
The orders of the district court are AFFIRMED.