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10th Cir. Holds Borrower’s FDCPA, Other Claims Not Barred by Rooker-Feldman After Non-Judicial Foreclosure

The U.S. Court of Appeals for the Tenth Circuit recently held that the Rooker-Feldman doctrine did not bar the trial court from considering the plaintiff’s claims because she was not challenging or seeking to set aside an underlying non-judicial mortgage foreclosure proceeding under Colorado law.

Accordingly, the Tenth Circuit remanded to the trial court to determine what effect, if any, the non-judicial proceeding had under the doctrines of issue and claim preclusion.

A copy of the opinion in Mayotte v. U.S. Bank National Association is available at:  Link to Opinion.

The borrower signed a note secured by a deed of trust.  The borrower defaulted and in late 2014, a non-judicial foreclosure proceeding was filed under Colorado Rule 120.

Prior to the sale, the borrower filed suit in the U.S. District Court for the District of Colorado, seeking an injunction barring the sale, an accounting, damages for alleged violation of the federal Real Estate Settlement Procedures Act (RESPA) and the federal Fair Debt Collection Practices Act (FDCPA), and cancellation of the note and deed of trust.

The sale took place and thereafter the borrower filed a second amended complaint that dropped the claim for an injunction to prevent the sale.

The trial court dismissed the RESPA count for failure to state a claim, and dismissed the other claims without prejudice under the Rooker-Feldman doctrine because the borrower “effectively ask[ed] the court to unwind the results of the Rule 120 proceedings.” The borrower appealed.

On appeal, the Tenth Circuit affirmed the trial court’s dismissal of the RESPA claim, but reversed the dismissal based on the Rooker-Feldman doctrine.

The Court first explained that Colorado’s non-judicial foreclosure regime, pursuant to which “[n]onjudicial foreclosure is available only if the deed of trust, which authorizes sale of the property to pay a debt, names the county’s public trustee as trustee … [a]nd the beneficiary of the trust must obtain an order from a court under Colorado Rule 120 before selling the property.”

Under Rule 120, the court confirms that the borrower is not in the military, the existence of a default, and “the existence of other facts or circumstances authorizing, under the terms of the deed of trust described in the motion, the exercise of a power of sale contained therein. … Other issues that might affect the validity of the foreclosure, however, are not to be considered.”  Upon finding that the sale was conducted properly, the court enters an order approving the sale.

The Court cautioned, however, that “[a]lthough the applicable Colorado statute provides that after the sale the title to the property vests in the purchaser, subject to rights of redemption, … the Rule 120 decision is not definitive on other matters. The court determines only whether there is ‘a reasonable probability’ of the existence of the alleged circumstances justifying the sale. … And the decision is without prejudice to claims in an independent action seeking an injunction to prohibit the sale or other relief.”

“The gist of a Rule 120 decision is therefore simply that the sale of the property can proceed unless some other court, which need pay no attention to the findings by the Rule 120 court, decides to halt or otherwise modify the sale.”

The Court then turned to the Rooker-Feldman doctrine, which “provides that only the Supreme Court has jurisdiction to hear appeals from final state court judgments.”

After tracing the history of the doctrine, the Court reasoned that “[t]hese precedents establish that Rooker-Feldman does not deprive a federal court of jurisdiction to hear a claim just because it could result in a judgment inconsistent with a state-court judgment. … What is prohibited under Rooker-Feldman is a federal action that tries to modify or set aside a state-court judgment because the state proceedings should not have led to that judgment. … Seeking relief that is inconsistent with the state-court judgment is a different matter, which is the province of preclusion doctrine. Thus, there would be a Rooker-Feldman issue if the federal suit alleged that a defect in the state proceeding invalidated the state judgment. … But ‘attempts merely to relitigate an issue determined in a state case are property analyzed under issue or claim preclusion principles rather the Rooker-Feldman.’”

The Tenth Circuit concluded that the borrower’s claims, which sought “title to her home and compensation for damages caused by the defendants’ alleged misconduct[,]” were not barred by the Rooker-Feldman doctrine because the borrower was not claiming that her damages were caused by the Rule 120 proceeding.

The Court also noted that the borrower was not seeking to set aside either the order authorizing the non-judicial sale or the order approving the sale. Instead, her claims were “based on events predating the Rule 120 proceedings.”

The Tenth Circuit added that the borrower “could certainly obtain damages from the defendants without setting aside the foreclosure sale. To be sure, the relief she seeks includes obtaining title to her home, a result that would be inconsistent with the Rule 120 order approving sale. But inconsistent judgments are the province of preclusion doctrine, which can sort out what happens if one court says Plaintiff owns the home while another says she does not. The province of Rooker-Feldman is solely challenges to judgments. Within the federal judicial system, the authority to set aside state-court judgments is the exclusive province of the United States Supreme Court. The preclusive effect of state-court judgments, in contract, is part of the lower courts’ bread and butter.”

Because the borrower was not challenging the Rule 120 proceeding, but complained of facts that predated it, the Tenth Circuit could not find that “’an element of the claim’ is that the Rule 120 order was ‘wrongful.’”

The Court therefore concluded that the trial court’s Rooker-Feldman dismissal of all of the plaintiff’s claims except the RESPA claim (which was dismissed on the merits) was incorrect.  This left “to the district court in the first instance to determine whether the Rule 120 proceedings and sale of Plaintiff’s home have any effect (preclusive, equitable, or otherwise) on the resolution of her claims or the relief to which she is entitled.”

Accordingly, the trial court’s dismissal on the RESPA claim on the merits was affirmed. The trial court’s dismissal of the other claims on jurisdiction grounds was reversed and the case remanded to the trial court for further proceedings.

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Hector Lora has substantial experience in all phases of complex commercial litigation, including motion practice, written discovery, depositions, mediations, bench and jury trials, and appellate practice. For more than a decade, his practice has focused extensively on the defense of civil enforcement actions filed by the FTC, as well as real estate litigation, and contested mortgage and condominium lien foreclosures and foreclosure of security interests under UCC Article 9. Hector also has substantial experience in advising a variety of types of businesses regarding their compliance with applicable federal and state laws, including the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Controlling the Assault of Nonsolicited Pornography and Marketing Act of 2003, and Florida laws governing telephone solicitation and communication. Hector received his Juris Doctor from the Georgetown University Law Center, and his undergraduate degree with honors from the University of Florida.

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