Kyles v. Federal Home Loan Mortgage et al

Filing 28

MEMORANDUM Opinion and Order Signed by the Honorable John J. Tharp, Jr on 4/13/2018. Mailed notice(air, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
VASHAN KYLES,
Appellant,
v.
FEDERAL HOME LOAN
MORTGAGE CORP et al.,
Appellees.

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No. 17 CV 1511
Judge John J. Tharp, Jr.

MEMORANDUM OPINION AND ORDER
This is an appeal from a bankruptcy court order dismissing an adversary proceeding as
barred by the Rooker-Feldman doctrine. The appeal turns on the question of whether a state court
judgment of foreclosure and sale constitutes a final judgment for purposes of applying that
jurisdictional doctrine. The Court concludes that Rooker-Feldman applies notwithstanding the
interlocutory character of the judgment of foreclosure under state law governing the finality of
appeals and so affirms the bankruptcy court’s dismissal of the adversary proceeding.
I. BACKGROUND
Appellant VaShan Kyles bought a home in Calumet City, Illinois, in 2007. She purchased
the property with a loan from the Federal Home Loan Mortgage Company (“Freddie Mac”),
secured by a mortgage on the property. In 2011, appellee Ocwen Loan Servicing, LLC, as the
loan servicer for Freddie Mac, filed a complaint against Kyles in state court seeking to foreclose
on the mortgage. Over the course of the next several years, the suit was litigated in state court.
Kyles filed affirmative defenses and counterclaims which, among other things, challenged the
validity of the assignment of the mortgage and Ocwen’s standing as servicer to enforce the note
and mortgage, and asserted that the note and mortgage were void based on the fraudulent

conduct of the originator Taylor, Bean & Whitaker (“TBW”) and in any event were satisfied
based on the doctrine of “accord and satisfaction.” In November 2015, the state court granted
summary judgment for the servicer (which by then was Residential Credit Solutions), denied
Kyles’ motion for summary judgment, and entered a judgment of foreclosure and sale against
Kyles on November 13, 2015.
The following month, Kyles filed for Chapter 7 relief under the Bankruptcy Code. She
listed the property as an asset of the estate in her bankruptcy schedule of assets; at that time, the
property had not yet been sold pursuant to the state court’s sale order. In August 2016, Kyles
filed an adversary proceeding in the bankruptcy case against Freddie Mac, Ocwen, and TBW.
The adversary complaint alleged that the defendants never held a valid lien on the property. She
sought relief including: a declaration that the mortgage is void; clear title to the property; and
damages. Kyles does not dispute that the relief she seeks in the adversary proceeding, and the
arguments she advanced to justify that relief, are the same that she asserted in the state court
foreclosure action.
The defendants moved to dismiss the adversary complaint for lack of subject matter
jurisdiction, asserting that the complaint was barred by res judicata and the Rooker-Feldman
doctrine. 1 The bankruptcy court agreed that dismissal was appropriate under the res judicata and
Rooker-Feldman doctrines and granted the defendants’ motions to dismiss. 2 Order Dismissing

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The defendants also asserted that the adversary complaint failed to state a claim and that
the Court should abstain based on Colorado River abstention principles. The bankruptcy court
did not address these arguments in its order granting the motions to dismiss.
2

It appears that the bankruptcy court did not enter a judgment order as required by Fed.
R. Civ. P. 58 (which applies in adversary proceedings per Bankruptcy Rule 7058). An opinion
explaining the reasons for denying a motion cannot double as the “separate order” required by
Rule 58. See, e.g., Otis v. City of Chicago, 29 F.3d 1159, 1163 (7th Cir. 1994) (en banc) (“Rule
58 is designed to produce a distinct indication that the case is at an end, coupled with a precise
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Complaint, Adv. Dkt. No. 53 (“Order”). Kyles then filed a timely appeal. This Court has
jurisdiction over the appeal pursuant to 28 U.S.C. § 158(a)(1).
II. ANALYSIS
Although the bankruptcy court addressed both res judicata and the Rooker-Feldman
doctrines, and began with res judicata, the Court finds it more appropriate to start with the
applicability of the Rooker-Feldman doctrine, which is jurisdictional. 3 Lennon v. City of Carmel,
865 F.3d 503, 506 (7th Cir. 2017). And because that doctrine teaches that the bankruptcy court
has no jurisdiction to provide the relief that Kyles seeks, that is as far as the analysis should go.

statement of the terms on which it has ended. It should be a self-contained document, saying who
has won and what relief has been awarded, but omitting the reasons for this disposition, which
should appear in the court's opinion.”). Although the failure to enter a judgment order can have
jurisdictional ramifications (the time to appeal begins running when the judgment is entered on
the docket; see Fed. R. App. P. 4(a)(1)(A); Fed. R. Bankr. P. 8001(a)), the failure to enter the
required judgment does not deprive this Court of jurisdiction where it is plain that the adversary
proceeding was at an end, as it was here when the bankruptcy court determined that it did not
have subject matter jurisdiction, the dismissal is recorded on the docket, and no party has
contended that the bankruptcy court’s order did not reflect a final disposition of the adversary
proceeding. Remijas v. Neiman Marcus Group, LLC, 794 F.3d 688, 691 (7th Cir. 2015).
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The bankruptcy court addressed res judicata before Rooker-Feldman; the propriety of
doing so is not completely clear. The Supreme Court has held that while “jurisdictional questions
ordinarily must precede merits determinations in dispositional order, … a federal court has
leeway to choose among threshold grounds for denying audience to a case on the merits.”
Sinochem Int'l Co. v. Malaysia Int'l Shipping Corp., 549 U.S. 422, 430–31 (2007) (internal
citations and punctuation omitted). The Supreme Court has not addressed whether res judicata
constitutes a non-merits ground that may be addressed before confirming subject matter
jurisdiction, but the Seventh Circuit has held that “[w]here Rooker–Feldman applies, lower
federal courts have no power to address other affirmative defenses, including res judicata....
[W]here Rooker–Feldman applies, the res judicata claim must not be reached.” Taylor v. Fed.
Nat. Mortg. Ass'n, 374 F.3d 529, 535 (7th Cir. 2004) (quoting Garry v. Geils, 82 F.3d 1362,
1365 (7th Cir.1996). That view strongly suggests that this Circuit does not favor resolution of res
judicata defenses prior, or in addition, to resolving jurisdictional issues such as the applicability
of Rooker-Feldman. Other courts adverting to the issue have taken divergent views. See, e.g.,
Yokeno v. Sekiguchi, 754 F.3d 649, 651 n.2 (9th Cir. 2014) (leaving question open); Graboff v.
American Ass’n of Orthopaedic Surgeons, 559 App’x 191, 193 n.2 (3d Cir. 2014) (holding that
res judicata defense may be granted without confirming jurisdiction); and Environmental
Conservation Org. v. City of Dallas, 529 F.3d 519, 525 (5th Cir. 2008) (declining to apply res
judicata defense before assessing jurisdiction).
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This Court’s review is de novo. Crawford v. Countrywide Home Loans, Inc., 647 F.3d 642, 646
(7th Cir. 2011).
It is axiomatic that, other than the Supreme Court, 4 federal courts have no authority to
hear appeals from state court judgments in civil litigation. This jurisdictional limitation on
federal judicial power gives rise to what is commonly referred to as the Rooker-Feldman
doctrine, a rule eponymously named for the two Supreme Court cases that originally shaped it,
Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia Court of Appeals v.
Feldman, 460 U.S. 462 (1983). The rule can be simply stated: federal courts, other than the
Supreme Court, lack the power to modify state court judgments in civil litigation. Its application,
however, can be complicated by any number of issues, and one presents itself in this case: what
constitutes a state court “judgment” subject to the rule?
“The paradigmatic Rooker–Feldman litigant is one who … loses in state court and asks a
federal district court to modify the state decision.” United States v. Alkaramla, 872 F.3d 532, 534
(7th Cir. 2017). That describes Kyles and her claim in the adversary proceeding precisely; after
losing the foreclosure battle in state court, she seeks to negate the state court’s foreclosure
judgment by obtaining a declaration from a federal court that the mortgage is void. As the
bankruptcy court recognized, it could not grant the relief Kyles sought—to declare the mortgage
void, award Kyles clear title to the property, and award damages—“without explicitly overruling
the state court’s judgment.” Order at 6.

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28 U.S.C. § 1257 provides statutory authority to the Supreme Court to review final
judgments of state courts in cases “where the validity of a treaty or statute of the United States is
drawn in question or where the validity of a statute of any State is drawn in question on the
ground of its being repugnant to the Constitution, treaties, or laws of the United States, or where
any title, right, privilege, or immunity is specially set up or claimed under the Constitution or the
treaties or statutes of, or any commission held or authority exercised under, the United States.”
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If the state court judgment of foreclosure and sale constitutes a “judgment” for purposes
of the Rooker-Feldman doctrine, then resolution of this case is straightforward: it is barred. See,
e.g., Crawford v. Countrywide Home Loans, Inc., 647 F.3d 642 (7th Cir. 2011) (federal court
challenges to validity of Indiana foreclosure judgment barred by Rooker-Feldman doctrine);
Taylor v. Federal Nat’l Mortg. Ass’n, 374 F.3d 529, 533 (7th Cir. 2004) (“district court correctly
determined that requesting the recovery of her home is tantamount to a request to vacate the state
court’s judgment of foreclosure … and [] the Rooker-Feldman doctrine barred granting that
relief.”); Riddle v. Deutsche Bank Nat’l Trust Co., 599 Fed. App’x 598, 600 (7th Cir. 2015)
(claim that defendants deprived plaintiff of due process and violated state law by foreclosing on
his house barred by Rooker-Feldman because “it was the state-court judgment that authorized
the foreclosure and subsequent sale”) (emphasis in original); Calhoun v. CitiMortgage, Inc., 580
Fed. App’x 484, 486 (7th Cir. 2014) (“To the extent that [plaintiff] wants his loan to be modified
or the foreclosure overturned, Rooker-Feldman bars his claims because he is attacking the state
foreclosure judgment.”); Ross-W. v. Bank of New York Mellon Corp., 523 F. App'x 395, 396 (7th
Cir. 2013) (“No matter how the [plaintiffs] frame their complaint, the district court could not
grant the requested relief—a judgment declaring them to be the rightful owners of the home—
without disturbing the state court's foreclosure judgment. Their suit thus challenges the adverse
state judgment and is barred in federal court by Rooker–Feldman.”).
But in this appeal, Kyles’ maintains that the state court foreclosure judgment is not a final
judgment. Opening Brief, ECF. No. 18, at 8-9. Under Illinois law, a foreclosure judgment cannot
be appealed until the sale order has been implemented and the sale of the foreclosed property has
been completed. See, e.g., HSBC Bank USA, N.A. v. Townsend, 793 F.3d 771, 775–77 (7th
Cir.2015); Wells Fargo Bank, N.A. v. McCluskey, 2013 IL 115469, ¶ 12, 999 N.E.2d 321, 325

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(Ill. 2013). Kyles reasons that because the foreclosure judgment was not final for purposes of
appeal, Rooker-Feldman does not bar federal jurisdiction over an action targeting the foreclosure
judgment.
As an initial matter, Kyles did not raise this argument in the bankruptcy court. See
Plaintiff’s Response to Defendant Ocwen Loan Servicing, LLC Motion to Dismiss Plaintiff’s
Adversary Complaint [sic], ECF No. 8-26. 5 And, of course, “[a]rguments not raised in the
bankruptcy court are forfeited on appeal.” In re Cohen, 507 F.3d 610, 614 (7th Cir. 2007). The
appellees do not assert the forfeiture in their responses, however, so they have “forfeited the
forfeiture.” See, e.g., United States v. Jones, 152 F.3d 680, 684 n.2 (7th Cir. 1998); cf., e.g.,
Morgan v. City of Chicago, 822 F.3d 317, 336 n.50 (7th Cir. 2016) (defendants “waived their
waiver argument”). Accordingly, the Court addresses the merits of Kyles’ argument against
dismissal based on Rooker-Feldman.
That the judgment and foreclosure order was not yet appealable as a matter of state
procedure does not mean that the judgment of foreclosure was not a judgment insulated from
review by federal courts. The Seventh Circuit has confirmed “that interlocutory orders entered
prior to the final disposition of state court lawsuits are not immune from the jurisdictionstripping powers of Rooker–Feldman.” Sykes v. Cook Cty. Circuit Court Prob. Div., 837 F.3d
736, 742 (7th Cir. 2016) (citing Harold v. Steel, 773 F.3d 884, 886 (7th Cir. 2014)). 6 And in
Carpenter v. PNC Bank Nat’l Ass’n, 633 Fed. App’x 346 (7th Cir. 2016), the Seventh Circuit

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Although this document is denominated as a response to Ocwen’s motion to dismiss, it
actually constitutes Kyles’ response to the motions of both Ocwen and Freddie Mac.
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In Harold, the Seventh Circuit’s discussion of Rooker-Feldman’s applicability to
interlocutory orders was dicta, but no so in Sykes, where the court of appeals endorsed Harold’s
view and applied Rooker-Feldman in affirming the district court’s ruling that it lacked subject
matter jurisdiction to an interlocutory procedural ruling.
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applied Rooker-Feldman in precisely the same factual context presented by this case: a federal
suit filed after an Illinois court entered a judgment of foreclosure but before sale of the property.
The Carpenter court affirmed dismissal of the case despite acknowledging that under Illinois law
the judgment of foreclosure was not yet appealable, noting that the argument against applying
Rooker-Feldman to a “non-final” order like a foreclosure judgment is not compelling, because if,
as was argued there and as Kyle maintains here, the foreclosure judgment is interlocutory rather
than final, it still cannot be reviewed by a federal court because “a truly interlocutory decision
should not be subject to review in any court.” 633 Fed. App’x at 348 (quoting Harold, 773 F.3d
at 886).
Moreover, the Seventh Circuit has held that in the context of a foreclosure action “[s]tate
law determines the finality of a state judicial decision.” Mehta v. Attorney Registration and
Disciplinary Commission, 681 F.3d 885, 887 (7th Cir. 2012). And notwithstanding its
acknowledgement that a foreclosure judgment is not final for purposes of appeal until a sale of
the foreclosed property has been confirmed, the Illinois Supreme Court has held that a
foreclosure judgment “is final as to the matters it adjudicates.” EMC Mortg. Corp. v. Kemp,
2012 IL 113419, ¶ 11, 982 N.E.2d 152, 154 (emphasis supplied). And the matters adjudicated by
the foreclosure order here plainly encompass the matters that Kyle raises in her adversary
complaint, specifically the legitimacy of the defendants’ lien on the property subject to the state
court foreclosure action.
This recognition by the state courts as to the finality of the foreclosure ruling dovetails
with the rationale of Rooker-Feldman’s stricture against de facto appeals of state court
judgments to federal district courts. As Judge Chang observed in another case concluding that

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Rooker-Feldman bars challenges seeking to overturn foreclosure judgments even before the
foreclosure sale has been confirmed:
[J]udgments of foreclosure are inherently different from ordinary
interlocutory orders. A judgment of foreclosure does definitively
decide certain claims asserted by the lender and does grant certain
requests for relief sought by the lender. In that sense, the judgment
is final on those definitively decided claims and requests for relief.
Indeed, nothing in the ensuing state-court litigation would change
the outcome of the judgment of foreclosure. So a foreclosure
judgment is actually akin to a partial judgment under Federal Rule
of Civil Procedure 54(b). See Fed. R. Civ. P. 54(b). In other words,
the foreclosure judgment enters final decisions on certain claims
and requests for relief, so much so that the parties then move
forward with other claims and requests for relief on the premise
that the foreclosure judgment is in place. If, after the entry of a
foreclosure judgment, a borrower sought a federal-court
declaratory judgment that the lender had no interest in the
property, then the district court would be undoing the foreclosure
judgment to hold otherwise. That claim would be barred under
Rooker-Feldman.
Balogh v. Deutsche Bank Nat'l Tr. Co., No. 17 CV 862, 2017 WL 5890878, at *5 (N.D. Ill. Nov.
28, 2017). Nothing in the sale process implicates the propriety of the foreclosure judgment and
so there is no reason to exempt that judgment from Rooker-Feldman’s strictures. Kyles’
adversary proceeding is no less a de facto appeal now than it would be after confirmation of the
sale of her property. 7

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This highlights the distinction between finality for purposes of appeal and purposes of
assessing the jurisdiction of the federal courts. The two questions implicate different issues. The
principle purpose of rules restricting interlocutory appeals is to avoid piecemeal appeals; it is, in
other words, grounded in considerations of judicial efficiency. See, e.g., Cobbledick v. United
States, 309 U.S. 323, 325 (1940) (“Congress from the very beginning has, by forbidding
piecemeal disposition on appeal of what for practical purposes is a single controversy, set itself
against enfeebling judicial administration. … To be effective, judicial administration must not be
leaden-footed. Its momentum would be arrested by permitting separate reviews of the component
elements in a unified cause.”). Rooker-Feldman, to be sure, may promote efficiency to the extent
that it prevents duplicative appeals in state and federal court, but its rationale is grounded not in
concerns about efficiency but recognition of the nature and scope of judicial power vested in
federal courts. See Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 291 (2005)
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Finally, Kyles also argues that there is a fraud exception to the Rooker-Feldman doctrine,
permitting federal court review of state court judgments allegedly procured by fraud. And so the
Sixth Circuit has said. See In re Sun Valley Foods Co., 801 F.2d 186, 189 (6th Cir. 1986).
Unfortunately for Kyles, however, this Court lies within the Seventh Circuit, and our Court of
Appeals has expressly and repeatedly rejected the notion that there is a fraud exception to the
Rooker-Feldman doctrine. See, e.g., Iqbal v. Patel, 780 F.3d 728, 729 (7th Cir. 2015) (“The
Rooker-Feldman doctrine is concerned not with why a state court’s judgment might be mistaken
(fraud is one such reason; there are many others) but with which federal court is authorized to
intervene”) (emphasis in original); Kamilewicz v. Bank of Boston Corp., 92 F.3d 506, 511 (7th
Cir. 1996) (affirming dismissal for lack of jurisdiction under Rooker-Feldman; “the proper court
for an assertion of fraud in the procurement of a judgment is the one which rendered the
judgment”). That Kyles claims that the defendants procured their state court judgment by fraud
does not endow this Court with jurisdiction to invalidate that judgment. Iqbal, 780 F.3d at 729.

* * * * *

For the foregoing reasons, the bankruptcy court’s order of February 10, 2017, is affirmed.

(Rooker-Feldman addresses “the limited circumstances in which this Court's appellate
jurisdiction over state-court judgments, 28 U.S.C. § 1257, precludes a United States district court
from exercising subject-matter jurisdiction in an action it would otherwise be empowered to
adjudicate”). In the context of foreclosure judgments, the distinction between interlocutory and
final does not suggest that a different result should follow application of Rooker-Feldman. “The
principle that only the Supreme Court can review the decisions by the state judiciary in civil
litigation is as applicable to interlocutory as to final state-court decisions.” Harold, 773 F.3d at
886.
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_______________________
John J. Tharp, Jr.
United States District Judge

Dated: April 13, 2018

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