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Newsom v. Branch Banking and Trust Co.

United States District Court, E.D. North Carolina, Eastern Division

January 9, 2019

NELLIE NEWSOM, Plaintiff,
v.
BRANCH BANKING AND TRUST COMPANY, et al., Defendants.

          ORDER AND MEMORANDUM AND RECOMMENDATION

          James E. Gates United States Magistrate Judge

         This pro se case is before the court on the motion to proceed in forma pauperis under 28 U.S.C. § 1915(a)(1) (D.E. 1) by plaintiff Nellie Newsom ("plaintiff) and for a frivolity review pursuant to 28 U.S.C. § 1915(e)(2)(B). Plaintiff has also filed a motion for a temporary restraining order and other injunctive relief. D.E. 1-6 ("TRO Motion"). The motion to proceed in forma pauperis was referred to the undersigned Magistrate Judge for determination pursuant to 28 U.S.C. § 636(b)(1)(A) and the other matters for issuance of a memorandum and recommendation pursuant to 28 U.S.C. § 636(b)(1)(B). See Public D.E. dated 23 Oct. 2018. As set out below, the motion to proceed in forma pauperis will be allowed; and it will be recommended that the TRO motion be denied and all but one of plaintiffs claims-the fifth cause of action-be dismissed for lack of subject matter jurisdiction pursuant to the Rooker-Feldman and Younger doctrines and/or failure to state a claim upon which relief can be granted.

         ORDER ON IN FORMA PAUPERIS MOTION

         The court finds that plaintiff has adequately demonstrated her inability to prepay the required court costs. Her motion to proceed in forma pauperis is therefore GRANTED.

         MEMORANDUM AND RECOMMENDATION ON FRIVOLITY REVIEW AND TRO MOTION

         I. PLAINTIFF'S ALLEGATIONS, CLAIMS, AND TRO MOTION

         In this action, commenced on 25 June 2018, plaintiff alleges improprieties in lending practices and foreclosure proceedings relating to her real property located at 544 Pine Ridge Road, Roanoke Rapids, Halifax County, North Carolina ("the property"). See Compl. (D.E. 1-1) ¶¶ 2, 19. She contends that defendants, who are originators, servicers, or holders of the mortgage loan on the property, have violated state and federal regulations. See Id. ¶¶ 2-18. The alleged violations are grounded, in part, on the purported fact that defendants have no ownership interest in the property in question and should not be permitted to sell, auction off, foreclose on, or otherwise transfer ownership of it. Id. ¶ 22.

         Specifically, in her complaint, plaintiff alleges as follows: On 7 July 2005, plaintiff executed a negotiable promissory note and security interest in the form of a deed of trust for $249, 000 with defendant Branch Banking and Trust Company ("BBT") as the original lender. Id. ¶¶ 3; 36-38. Plaintiff alleges that on or around 31 October 2005 the promissory note was sold, transferred, assigned, and securitized to Morgan Stanley Mortgage Loan Trust 2005-7 ("Morgan Stanley Trust"). Id. ¶ 42. Defendant Mortgage Electronic Registration Services, Inc. ("MERS") acted as the electronic agent and as a purported beneficiary for BBT under the deed and in a capacity as bailor/bailee for each successor defendant of the Morgan Stanley Trust. Id. ¶¶ 9, 28.

         Defendant Deutsche Bank National Trust Company ("Deutsche Bank") is the Trustee of the Morgan Stanley Trust and defendant Morgan Stanley Mortgage Capital, Inc. ("Morgan Stanley Mortgage Capital") is the sponsor of the Morgan Stanley Trust. Id. ¶¶ 4, 7. Defendant Morgan Stanley Capital I, Inc. ("Morgan Stanley Capital") is the depositor. Id. ¶ 8. Defendant Wells Fargo Bank, National Association ("Well Fargo") is the master servicer of plaintiffs loan. Id. ¶ 5.

         Defendant Specialized Loan Servicing, LLC ("Specialized Loan Servicing") and defendant SN Servicing Corporation ("SN") are servicers of the loan. Id. ¶¶ 6, 10. Defendants FV-I, Inc. ("FV-I"), Morgan Stanley Mortgage Capital Holdings, LLC ("Morgan Stanley Mortgage Capital Holdings"), U.S. Bank Trust National Association ("U.S. Bank Trust"), and Igloo Series II Trust ("Igloo Trust") are holders of the loan. Id. ¶¶ 11, 12, 13, 15. Defendant Hutchens Law Firm ("Hutchens") is the firm representing SN and a substitute trustee of the loan. Id. ¶¶ 15, 16. John Does 1-100 are unnamed defendants who claim any right, title, or interest in plaintiffs property. Id. ¶ 17.

         On 24 February 2014, an assignment deed of trust to FV-I, Inc. in trust for Morgan Stanley Mortgage Capital Holdings was recorded in Halifax County. Id. ¶ 43. The 24 February 2014 assignment of deed of trust was fraudulently signed and was an unlawful and void transfer. Id. ¶¶ 44-47.

         On 8 November 2016, an assignment of deed of trust to Morgan Stanley Capital Holdings recorded in Halifax County was fraudulently signed and was an unlawful and void transfer. Id. ¶¶ 48-52. Also on 8 November 2016, another assignment of deed of trust to U.S. Bank Trust as Trustee of the Igloo Trust was recorded in Halifax County. Id. ¶ 53. This additional assignment of deed of trust on 8 November 2016 was also fraudulently signed and was an unlawful unilateral transfer that is void on its face. Id. ¶¶ 54-57. Only the depositor, Morgan Stanley Capital, has the right to convey the asset into the trust. Id. ¶ 58.

         On 20 June 2018, defendants fraudulently foreclosed on the property. Id. ¶ 121.

         Plaintiff asserts the following claims or, as she refers to them, causes of action, each sequentially numbered in the complaint as indicated: (1) lack of standing to foreclose and wrongful foreclosure, id. ¶¶ 60-73; (2) unconscionable contract, id. ¶¶ 74-80; (3) breach of contract, id. ¶¶ 81-85; (4) breach of fiduciary duty, id. ¶¶ 86-90; (5) violations of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601, et seq., id. ¶¶ 91-97; (6) violations of the Real Estate Settlement Procedures Act ("RESPA"), 1 U.S.C. § 2601, et seq., id. ¶¶ 98-103; (7) fraud in the concealment, id. ¶¶ 104-112; (8) fraud in the inducement, id. ¶¶ 113-119; (9) intentional infliction of emotional distress, id. ¶¶ 120-130; (10) slander of title, id. ¶¶ 131-141; (11) quiet title, id. ¶¶ 142-149; (12) rescission, id. ¶¶ 150-154; (13) declaratory relief, id. ¶¶ 155-158; and (14) a temporary restraining order and other injunctive relief enjoining sale of the property pending trial, id. ¶¶ 159-164. In addition to the injunctive relief noted, plaintiff seeks declaratory relief, monetary relief between $100, 000 and $2 million (including compensatory and punitive damages), pre- and post-judgment interest, the refund of wrongfully paid sums, costs, and such other relief to which she is entitled. See, e.g., Id. at 36-37 ¶¶ A-D, F, G.

         In her complaint, plaintiff references the following exhibits she purports to attach to her complaint: the deed of trust, id. ¶ 21; an internet article, id. ¶ 23; an asset securitization manual, id. ¶ 24; a MERS procedural manual, id. ¶ 28; a MERS patent, id. ¶ 28; a Morgan Stanley prospectus supplement, id. ¶ 30; and an affidavit of a forensic expert, id. ¶ 34. But none of these documents are included anywhere in her filings. The documents that are attached to the complaint are: an affidavit by plaintiff (D.E. 1-2), a lis pendens (D.E. 1-3), and the TRO motion (D.E. 1-6) and a proposed order (D.E. 1-7) allowing it.

         The TRO motion seeks essentially the same relief sought by plaintiff in her fourteenth cause of action-that is, enjoining defendants from selling the property pending trial on her claims.

         II. APPLICABLE LEGAL STANDARDS FOR FRIVOLITY REVIEW

         After allowing a party to proceed in forma pauperis, as here, the court must conduct a frivolity review of the case pursuant to 28 U.S.C. § 1915(e)(2)(B). The court must dismiss the if it determines that the action is frivolous or malicious, 28 U.S.C. § l9l5(e)(2)(B)(i); fails to state a claim upon which relief can be granted, id. § l9l5(e)(2)(B)(ii); or seeks monetary relief from an immune defendant, id § l9l5(e)(2)(B)(ii). 28 U.S.C. § 1915(e)(2)(B); see Denton v. Hernandez, 504 U.S. 25, 27 (1992) (standard for frivolousness).

         Under Rule 8 of the Federal Rules of Civil Procedure, a pleading that states a claim for relief must contain "a short and plain statement of the grounds for the court's jurisdiction... [and] a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(1), (2). Case law explains that the complaint must '"state[ ] a plausible claim for relief that 'permit[s] the court to infer more than the mere possibility of misconduct' based upon 'its judicial experience and common sense.'" Coleman v. Md. Court of Appeals, 626 F.3d 187, 190 (4th Cir. 2010) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). Likewise, a complaint is insufficient if it offers merely "labels and conclusions," "a formulaic recitation of the elements of a cause of action," or "naked assertion[s]" devoid of "further factual enhancement." Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation marks omitted)).

         In evaluating frivolity specifically, a pro se plaintiffs pleadings are held to "less stringent standards" than those drafted by attorneys. White v. White, 886 F.2d 721, 722-23 (4th Cir. 1989). Nonetheless, the court is not required to accept a pro se plaintiffs contentions as true. Denton, 504 U.S. at 32. Instead, the court is permitted to "pierce the veil of the complaint's factual allegations and dismiss those claims whose factual contentions are clearly baseless." Neitzke v. Williams, 490 U.S. 319, 327 (1989). Provided that a plaintiffs claims are not clearly baseless, the court must weigh the factual allegations in plaintiffs favor in its frivolity analysis. Denton, 504 U.S. at 32. The court must read the complaint carefully to determine if a plaintiff has alleged specific facts sufficient to support the claims asserted. White, 886 F.2d at 724.

         A court may consider subject matter jurisdiction as part of the frivolity review. See Lovern v. Edwards, 190 F.3d 648, 654 (4th Cir. 1999) (holding that "[determining the question of subject matter jurisdiction at the outset of the litigation is often the most efficient procedure"); Cornelius v. Howell, No. 3:06-3387-MBS-BM, 2007 WL 397449, at *2-4 (D.S.C. 8 Jan. 2007) (discussing the lack of diversity jurisdiction during frivolity review as a basis for dismissal). "Federal courts are courts of limited jurisdiction and are empowered to act only in those specific situations authorized by Congress." Bowman v. White, 388 F.2d 756, 760 (4th Cir. 1968). The presumption is that a federal court lacks jurisdiction in a particular case unless it is demonstrated that jurisdiction exists. Lehigh Min. & Mfg. Co. v. Kelly, 160 U.S. 327, 336 (1895). The burden of establishing subject matter jurisdiction rests on the party invoking jurisdiction, here plaintiff. Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982) ("The burden of proving subject matter jurisdiction ... is on the plaintiff, the party asserting jurisdiction."). The complaint must affirmatively allege the grounds for jurisdiction. Bowman, 388 F.2d at 760. If in a frivolity review the court determines that it lacks subject matter jurisdiction, it must dismiss the action pursuant to 28 U.S.C. § 1915(e)(2)(B)(i). More generally, "[i]f the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action." Fed.R.Civ.P. 12(h)(3).

         One basis for subject matter jurisdiction, so-called federal question jurisdiction, is that a claim arises under the Constitution, laws, or treaties of the United States. 28 U.S.C. § 1331. Another basis is diversity of citizenship or so-called diversity jurisdiction, which requires that the citizenship of each plaintiff be different from that of each defendant. Id. § 1332; see Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 372-74 (1978). There are also statutes conferring jurisdiction for particular types of cases.

         III. DISCUSSION

         A. Injunctive Relief Enjoining Foreclosure Proceedings (Fourteenth Cause of Action) (Compl. ¶¶ 159-64) and TRO Motion

         Plaintiffs fourteenth cause of action and TRO motion-both seeking, as indicated, to enjoin state court proceedings regarding the property pending resolution of plaintiff s claims in this court-should be dismissed and denied, respectively, for lack of subject matter jurisdiction because they implicate the Rooker-Feldman doctrine and the Younger doctrine.[1] Each doctrine is discussed in turn below.

         1. Rooker-Feldman Doctrine

         The Rooker-Feldman doctrine bars federal courts from sitting "in direct review of state court decisions." District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482-84 (1983). "[T]he Rooker-Feldman doctrine applies only when the loser in state court files suit in federal district court seeking redress for an injury allegedly caused by the state court's decision itself." Davani v. Virginia Dep't of Transp., 434 F.3d 712, 713 (4th Cir. 2006) (citing Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005)). This doctrine also prohibits a district court from reviewing constitutional claims that are "inextricably intertwined" with a state court decision. Shooting Point, LLC v. Cumming, 368 F.3d 379, 383 (4th Cir. 2004). A constitutional claim is "inextricably intertwined" with a state court decision if'"success on the federal claim depends upon a determination that the state court wrongly decided the issues before it.'" Id. (quoting Plyler v. Moore, 129 F.3d 728, 731 (4th Cir. 1997)); see also Curley v. Adams Creek Assocs., 409 Fed.Appx. 678, 680 (4th Cir. 2011) (holding that Rooker-Feldman precluded subject matter jurisdiction over plaintiffs claim that the state court violated her due process rights by failing to give her notice before disposing of real property owned by her); Jordahl v. Democratic Party of Va., 122 F.3d 192, 202 (4th Cir. 1997) (holding that a federal claim is '"inextricably intertwined" where "in order to grant the federal relief sought, the federal court must determine that the [state] court judgment was erroneously entered or must take action that would render the judgment ineffectual'" (quoting Ernst v. Child and Youth Servs., 108 F.3d 486, 491 (3d Cir. 1997))).

         In other words, Rooker-Feldman applies "when the federal action 'essentially amounts to nothing more than an attempt to seek review of [the state court's] decision by a lower federal court.'" Davis v. Durham Mental Health Devel. Disabilities Substance Abuse Area Auth, 320 F.Supp.2d 378, 388 (M.D. N.C. 2004) (quoting Plyer v. Moore, 129 F.3d 728, 733 (4th Cir. 1997)). "The key inquiry is not whether the state court ruled on the precise issue raised in federal court, but whether the 'state-court loser who files suit in federal court seeks redress for an injury caused by the state-court decision itself" Willner v. Frey, 243 Fed.Appx. 744, 747 (4th Cir. 2007) (quoting Davani, 434 F.3d at 718). '" [A] party losing in state court is barred from seeking what in substance would be appellate review of the state judgment in a United States district court, based on the losing party's claim that the state judgment itself violates the loser's federal rights.'" Brown & Root, Inc. v. Breckenridge, 211 F.3d 194, 198 (4th Cir. 2000) (quoting Johnson v. De Grandy, 512 U.S. 997, 1005-06(1994)).

         In Smalley v. Shapiro & Burson, LLP, 526 Fed.Appx. 231 (4th Cir. 2013), the Fourth Circuit ruled that the claims of borrowers challenging practices engaged in by defendants during foreclosure proceedings were barred by Rooker-Feldman. Specifically, in that case, the borrowers instituted a federal suit charging the substitute trustees with claims under the Racketeer Influenced and Corrupt Organizations Act, the Fair Debt Collection Practices Act, Fair Housing Act, and Civil Rights Act, arising from their practices of supporting foreclosures with false affidavits. 526 Fed.Appx. at 235. The Fourth Circuit held that even though the plaintiffs were not seeking to "undo" the state court judgments foreclosing on their homes, their success would necessitate a determination that the judgments, which awarded legal fees and commissions in reliance on allegedly false affidavits, were erroneous. Id. at 236. In short, because it was the state court judgments that were the cause of plaintiffs' harm, the court held that the federal court action was barred by Rooker-Feldman. Id. at 237.

         Here, the basis for plaintiffs fourteenth cause of action and the TRO motion is the state court foreclosure proceedings. Determination of the fourteenth cause of action and the TRO motion in her favor could well require this court to find that completed state court foreclosure proceedings were conducted in an improper manner, produced an improper result, or both. The Rooker-Feldman doctrine prohibits this court from making such a determination. Plaintiff, of course, retains access to the state courts for pursuit of the relief she seeks.

         The court concludes that the Rooker-Feldman doctrine is implicated by plaintiffs fourteenth cause of action and TRO motion and, consequently, that this court lacks subject matter jurisdiction over them to the extent that the Rooker-Feldman doctrine does apply. To the extent that the Rooker-Feldman doctrine does apply to them, the fourteenth cause of action is subject to dismissal and the TRO motion subject to denial on this ground. See, e.g., Jones v. Wells FargoBank, N.A., No. CV 6:17-2486-BHH, 2018 WL 4203672, at *2 (D.S.C. 4 Sept. 2018) ("It is abundantly clear both that Plaintiffs instant claims are "inextricably intertwined" with the state court foreclosure matters, and that the vast majority of specific issues he raises have already been 'actually decided' in the state court cases."); Carmichael v. Irwin Mort. Corp., No. 5:14-CV-122-D, 2014 WL 7205099, at *3 (E.D. N.C. 17 Dec. 2014) ("This court, however, lacks subject-matter jurisdiction to sit in direct review of a North Carolina state foreclosure action."); Everette v. Peele, No. 5:14-CV-213-BO, 2014 WL 4961099, at *3 (E.D. N.C. 28 July 2014) ("Although Plaintiff is not explicitly requesting that the court vacate or 'undo' the state court's judgment of foreclosure, to grant relief on this claim would require a finding that the state court's judgment was in error. As such, this claim should be dismissed as barred by the Rooker-Feldman doctrine."), mem. & recomm. adopted, 2014 WL 4961102, at *1 (3 Oct. 2014); Ruiz v. Nationstar Mortg. LLC, No. 1:12CV272, 2013 WL 4519180, at *3 (M.D. N.C. 26 Aug. 2013) ("Plaintiffs remedy for these and the other alleged defects in the state foreclosure proceeding was to appeal through the state judicial system ...


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