Almazon v. JPMorgan Chase Bank, National Association

Background

Doina Almazon had litigated a foreclosure involving property identified in the opinion as 27 Grape Lane in Hicksville, New York. She alleged that JPMorgan Chase Bank, National Association (Chase) mishandled her requests for a federal loan modification, rejected partial mortgage payments, failed to provide information and disclosures, withheld more than $94,000 in storm-related repair funds, and caused or directed damage to a shed and its contents through Safeguard Properties, LLC.

A New York state court granted Chase summary judgment in 2017, struck Almazon’s answer, dismissed her defenses and counterclaims with prejudice, and later entered a judgment of foreclosure and sale on December 14, 2018. Almazon’s state appeals and later motions for reconsideration remained pending when she filed this federal action. Her federal complaint sought a declaration that Chase had no title, lien, or interest in the property and damages based on intentional infliction of emotional distress, breach of the implied covenant of good faith and fair dealing, conversion, violations of the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA), and deceptive business practices under New York General Business Law § 349. She withdrew four additional claims during the federal briefing.

Chase moved to dismiss under Federal Rules of Civil Procedure 12(b)(1), for lack of subject-matter jurisdiction, and 12(b)(6), for failure to state a legally sufficient claim. Almazon later submitted a proposed amended complaint that added a claimed violation of the federal procedural-rights statute, 42 U.S.C. § 1983, and recast her RESPA claim as one involving prohibited “dual tracking” during loan-modification efforts.

Jurisdiction and the foreclosure judgment

The court applied the Rooker-Feldman doctrine to the request for a declaration that Chase had no interest in the property. That doctrine prevents a federal district court from reviewing and rejecting a state-court judgment in a case brought by the state-court loser. Because Almazon lost in state court, the foreclosure judgment preceded this federal action, and the requested declaration would require the federal court to undo that judgment, the court held that it lacked subject-matter jurisdiction over the declaratory-relief claims.

The court denied Chase’s Rule 12(b)(1) motion as to the damages claims. It held that those claims alleged injuries from Chase’s earlier conduct, rather than injuries caused by the state foreclosure judgment itself. The court also declined to dismiss those claims under the Colorado River doctrine, which can permit a federal court to decline jurisdiction when parallel state litigation is ongoing. The court concluded that the state foreclosure case was not parallel because a final judgment had already been entered; whether the state case precluded the federal claims was instead a claim-preclusion question.

Claim preclusion and the damages claims

The court applied New York claim-preclusion law. Claim preclusion, also known as res judicata, generally prevents a party from bringing a later case based on the same transaction or series of transactions when the earlier case reached a final conclusion. The court held that Almazon’s damages claims arose from the same mortgage and foreclosure-related events at issue in the state case and that the claims had been, or could have been, litigated there. The court therefore held that the damages claims were barred.

The court rejected Almazon’s arguments that claim preclusion should not apply because she had lacked a lawyer during part of the state case, had new evidence, or had not received Chase’s summary-judgment papers in time. It held that claim preclusion applies to people who litigate without lawyers. It also held that the state court had considered and rejected the service argument, so issue preclusion— which prevents relitigation of a factual issue actually and necessarily decided in an earlier case after a full and fair opportunity to litigate—also applied. The court found no showing that the alleged new evidence had been fraudulently concealed or could not have been discovered earlier.

RESPA and dual tracking

The court distinguished the RESPA claim actually pleaded from the dual-tracking claim Almazon later described in her briefing. The complaint alleged RESPA disclosure violations concerning funds held for storm repairs, and those allegations concerned matters that could have been and were raised in the foreclosure case. The court therefore held that the pleaded RESPA claim was barred by claim preclusion.

The court explained that a properly pleaded dual-tracking claim under Regulation X could be different. Such a claim generally concerns a servicer moving toward a foreclosure judgment, order of sale, or foreclosure sale while a borrower has submitted a complete loss-mitigation application. The court stated that such a claim would not have been ripe during the earlier foreclosure proceeding if the foreclosure had not yet resulted in the borrower losing the property. But the court found that the original complaint did not plead that claim and that the proposed amended complaint did not state one either. The proposed allegations did not plausibly show that Regulation X was triggered, that Chase took an action prohibited by the regulation, or that Almazon suffered actual damages caused by a violation. The court also held that Regulation X did not apply retroactively to Chase’s commencement of foreclosure proceedings in 2013, before the regulation became effective in 2014.

Other proposed amended claims

The proposed amended complaint repeated claims for intentional infliction of emotional distress, breach of the implied covenant of good faith and fair dealing, conversion, TILA violations, and deceptive business practices. The court held that these claims remained barred by claim preclusion because they arose from the same transaction or series of transactions as the state foreclosure case.

The proposed § 1983 claim alleged that Chase violated Almazon’s procedural due-process rights by excluding her from the property, starting the state case, and failing to provide adequate notice and court filings. The court held that allegations concerning matters already raised or decided in state court were barred by claim preclusion or issue preclusion. It also held that Almazon had not alleged facts showing that Chase, a private entity, acted under color of state law. Merely using the state court system to pursue foreclosure was not enough to establish the required connection to state action.

Disposition

The court granted Chase’s motion to dismiss. It dismissed the claims seeking declaratory relief pursuant to Rule 12(b)(1). It dismissed the claims seeking monetary relief with prejudice pursuant to Rule 12(b)(6). It denied leave to amend as futile, directed the Clerk of Court to terminate pending motions and deadlines, and closed the case.