Makhnevich v. MTGLQ Investors, L.P.

Background

Stacy Makhnevich alleged that MTGLQ Investors, L.P. (MTGLQ), Selene Finance, L.P. (Selene), and Maria Sideris submitted false or fraudulent documents in a New York state-court foreclosure action involving her mortgage. She alleged that mortgage documents contained a signature that was not hers, that a mortgage page was falsely notarized, that an affidavit falsely stated she had been personally served, and that Selene falsely represented compliance with New York foreclosure-notice requirements.

Makhnevich asserted claims under the Fair Debt Collection Practices Act (FDCPA), New York General Business Law § 349, and 42 U.S.C. § 1983. MTGLQ and Selene filed one motion to dismiss, and Sideris filed a separate motion to dismiss. Makhnevich also moved for payment of expenses associated with serving MTGLQ and Selene after they did not return requested waivers of service.

Procedural Issues

The court denied the defendants’ argument that the Rooker-Feldman doctrine barred the case. That doctrine generally prevents a federal district court from acting as an appeals court over a state-court judgment. The court held that Makhnevich’s claims challenged the defendants’ alleged conduct in pursuing the foreclosure, rather than seeking review and rejection of the state court’s rulings.

The court also denied MTGLQ and Selene’s request that it abstain from hearing the case under the Colorado River or Younger doctrines. The court concluded that the federal and state cases were not sufficiently parallel for Colorado River abstention and that Younger abstention did not apply to the ordinary civil lawsuit between private parties.

The court rejected the issue-preclusion argument. Issue preclusion prevents relitigation of an issue that was fully and fairly decided in an earlier proceeding. The court held that the state court’s denial of Makhnevich’s motion to dismiss was not a final judgment with preclusive effect under New York law.

FDCPA Claim

The court denied the motions to dismiss the FDCPA claim. The FDCPA prohibits certain abusive, deceptive, misleading, unfair, or unconscionable conduct in debt collection. The court explained that mortgage foreclosure can constitute debt collection and that debt collectors may face FDCPA liability for conduct in legal proceedings.

Accepting Makhnevich’s allegations as true at the motion-to-dismiss stage, the court concluded that filing a false affidavit of service in an effort to obtain a default judgment and foreclose on a mortgage could violate the FDCPA. The court also found that the alleged false mortgage documents and false statements about foreclosure notices could support an FDCPA claim, provided the statements were material—meaning they could affect a consumer’s ability to make an informed response. The court stated that the defendants had not adequately explained why the alleged statements were immaterial.

New York General Business Law § 349 Claim

The court granted the motions to dismiss the General Business Law § 349 claim. That statute prohibits deceptive acts or practices in business, trade, commerce, or the furnishing of services. One requirement is that the challenged conduct be consumer-oriented, meaning it affects consumers or the public beyond a private dispute.

The court held that Makhnevich had alleged misconduct directed at her in a single foreclosure case, without alleging a broader pattern affecting New York consumers. Because she was proceeding without a lawyer and might be able to allege consumer-oriented conduct, the court dismissed the claim without prejudice to filing an amended complaint.

Section 1983 Claim

The court granted the motions to dismiss the claim under 42 U.S.C. § 1983. Such a claim requires action under color of state law and a resulting deprivation of a federal constitutional or statutory right.

The court rejected the defendants’ argument that a private process server could never be a state actor, explaining that precedent recognizes process serving as a public function in circumstances relevant to § 1983. But the court held that Makhnevich had not alleged a constitutional deprivation resulting from the allegedly false service affidavit. She had successfully removed the state-court default and restored her defenses, and the burden and emotional distress of defending the lawsuit did not, by themselves, constitute a deprivation protected by due process.

The court dismissed the § 1983 claim without prejudice. A footnote explained that the dismissal was without prejudice because the specific ground for dismissal had not been raised by the defendants in their motion papers.

Service Expenses

The court granted Makhnevich’s motion under Federal Rule of Civil Procedure 4(d)(2). That rule requires a defendant who, without good cause, fails to return a requested waiver of service to pay later service expenses and certain reasonable expenses of a motion to collect them.

The court accepted Makhnevich’s uncontested account that she requested waivers, that MTGLQ and Selene did not return them, and that she later served them through the New York Secretary of State. The court did not yet determine the amount recoverable. It ordered Makhnevich to submit by March 16, 2020, a detailed schedule of her service expenses and reasonable expenses for making the motion. The court stated that a self-represented party could not recover attorney’s fees or their equivalent.

Disposition

The defendants’ motions to dismiss the FDCPA claim were denied. The motions to dismiss the General Business Law § 349 and § 1983 claims were granted, and those claims were dismissed without prejudice. Makhnevich could proceed on the FDCPA claim or file an amended complaint by March 16, 2020. Her motion for service costs was granted, subject to submission of the required expense schedule.