Sterling v. Deutsche Bank National Trust Company as Trustss for Femit Trust…

Background

Everton Sterling, proceeding without a lawyer, sued Deutsche Bank National Trust Company and others. The claims at issue in this decision were against Steven J. Baum P.C., Steven Jay Baum, Kyle Clark Didone, and Jason B. Desiderio, referred to collectively as the Baum Defendants. Sterling alleged that the defendants fraudulently misrepresented the value of property at 726 East 219 Street in the Bronx through a false and inflated appraisal and misrepresented the property’s loan-to-value ratio as part of a pattern of racketeering activity.

Sterling alleged that he learned of the appraisal misrepresentation on December 18, 2018. The property had been involved in a New York state foreclosure action. When Sterling filed this federal case, his appeal from the denial of his request to intervene in the foreclosure action and vacate the foreclosure judgment was still pending.

The Baum Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that the federal court lacked authority to hear the case because of the rule barring federal district-court review of completed state-court judgments. They also moved under Rule 12(b)(6) for failure to state a claim, arguing that the claims were barred by claim-preclusion and claim-splitting doctrines, filing deadlines, and inadequate pleading of the racketeering and fraud claims. Sterling moved under Rule 12(f) to strike the Baum Defendants’ dismissal motion.

Court’s Analysis

Judge Daniels adopted Magistrate Judge Kevin Nathaniel Fox’s report and recommendation and overruled the parties’ objections.

Federal jurisdiction. The court held that the rule known as the Rooker-Feldman doctrine did not prevent federal jurisdiction. That doctrine generally bars a federal district court from acting as an appeals court over a state-court judgment. The court found that the state proceedings had not ended when Sterling started this federal case because his appeal was still pending. The court also noted that Sterling claimed injury from the 2006 appraisal, rather than from a state-court judgment. The court therefore rejected dismissal for lack of subject-matter jurisdiction.

Earlier proceedings and filing deadlines. The court agreed that the Baum Defendants had not established claim preclusion, sometimes called res judicata, which can prevent a party from relitigating claims that were or could have been raised in an earlier case. The defendants had referred to an earlier adversary proceeding and the foreclosure action but had not properly asked the court to take notice of specific adjudicative facts from those proceedings or supplied the necessary information. The court also found no clear error in rejecting the defendants’ claim-splitting argument.

The court further held that the claims were not time-barred at the motion-to-dismiss stage. Civil racketeering claims generally have a four-year limitations period, and New York fraud claims use the longer of six years from accrual or two years from discovery of the fraud. Accepting Sterling’s allegation that he discovered the alleged misrepresentation on December 18, 2018, the court concluded that neither claim was untimely on the face of the complaint.

Racketeering and fraud allegations. The court held that Sterling’s complaint did not adequately plead either a racketeering claim or a fraud claim. It found that the complaint made broad, conclusory allegations against all defendants but contained no specific allegations explaining what any of the Baum Defendants did. The court also stated that the complaint did not sufficiently allege a racketeering enterprise or a pattern of racketeering activity. Because fraud was alleged as part of the racketeering theory, the complaint also had to identify the circumstances of the alleged fraud with particularity and explain each defendant’s participation.

The court declined to allow Sterling to amend the complaint. It found that his proposed amendments did not cure the identified deficiencies and rejected the proposed amended complaint as futile.

Disposition

The court adopted Magistrate Judge Fox’s report and recommendation. It granted the Baum Defendants’ motion to dismiss for failure to state a claim under Rules 12(b)(6) and 9(b), dismissed Sterling’s claims against the Baum Defendants, and denied Sterling’s motion to strike. The decision does not state that the dismissal was with or without prejudice.