Kapla

Filing 12

OPINION and ORDER AFFIRMING BANKRUPTCY COURT re 1 Bankruptcy Appeal Signed by District Judge Patrick J. Duggan. (MOre)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
In re: DAVID C. KAPLA,

Civil Case No. 13-13095
Honorable Patrick J. Duggan

Debtor.
__________________________________
DAVID C. KAPLA,
Plaintiff-Appellant,
v.
FEDERAL NATIONAL MORTGAGE
ASSOCIATION,

Chapter 7 Bankruptcy Case
No. 11-68878/Adversary No.
12-4000

Defendant-Appellee,
and
FEDERAL HOUSING FINANCE AGENCY,
Intervenor.
_____________________________________/
OPINION AND ORDER
This matter is before the Court as an appeal from the United States
Bankruptcy Court for the Eastern District of Michigan. Plaintiff-Appellant David
C. Kapla (“Kapla”) appeals the Honorable Phillip J. Shefferly’s December 14,
2012 opinion and order granting a motion to dismiss filed by Defendant-Appellee
Federal National Mortgage Association (“Fannie Mae”) and Intervenor Federal

Housing Finance Agency (“FHFA”), and Judge Shefferly’s January 2, 2013
opinion and order denying Kapla’s motion for reconsideration. After extensions of
the briefing schedule, Kapla filed his appellant brief on September 13, 2013;
Fannie Mae and FHFA filed their appellee brief on October 8, 2013. Kapla had
until October 29, 2013 to file a reply brief, no brief was filed. On January 29,
2014, this Court issued a notice informing the parties that it is dispensing with oral
argument with respect to the matter pursuant to Eastern District of Michigan Local
Rule 7.1(f).
Standard of Review
Under 28 U.S.C. § 158(a)(1), federal district courts have “jurisdiction to hear
appeals . . . from final judgments, orders, and decrees” of the bankruptcy court.
The bankruptcy court’s findings of fact are reviewed under the clearly erroneous
standard. Fed. R. Bankr. P. 8013. The bankruptcy court’s conclusions of law are
reviewed de novo. Nuvell Credit Corp. v. Westfall (In re Westfall), 599 F.3d 498,
501 (6th Cir. 2010). The bankruptcy court’s ruling on a motion to dismiss is a
legal determination to which de novo review is applied. In re Grenier, 430 B.R.
446, 449 (E.D. Mich. 2010).
Factual and Procedural Background
On June 24, 1994, Kapla obtained a $90,000.00 loan from D&N Bank, FSB,
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for the purchase of real property located at 36419 Avondale Street, Westland,
Michigan (“Property”). As security for the loan, Kapla granted a mortgage on the
Property to the bank. D&N Bank assigned the mortgage to Bank of America, N.A.
(“BANA”) on July 17, 2000. At some point in time, Fannie Mae acquired the loan
and BANA serviced the loan on its behalf.
Kapla subsequently defaulted on the loan. In his complaint filed in the
adversary proceeding, Kapla alleged that he sought refinancing through BANA and
Fannie Mae, but neither entity would engage in good faith discussions with him.
BANA then initiated proceedings to foreclose on the Property pursuant to
Michigan’s foreclosure-by-advertisement statute. A sheriff’s sale was held on
September 15, 2010, where BANA purchased the Property for $44,439.65 and a
sheriff’s deed on mortgage sale was executed.
On May 2, 2011, BANA conveyed its interest in the Property to Fannie Mae
via a quit claim deed. On September 15, 2011, the redemption period expired with
respect to the Property. Fannie Mae then initiated summary proceedings to evict
Plaintiff from the Property in the 18th Judicial District Court of Michigan. A
default judgment of possession was entered on October 14, 2011.
On November 7, 2011, Kapla filed a Chapter 13 bankruptcy petition in the
United States Bankruptcy Court for the Eastern District of Michigan (“bankruptcy
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court”). The matter was assigned to the Honorable Phillip J. Shefferly. On
November 14, 2011, Fannie Mae filed a motion in the bankruptcy case seeking
relief from the automatic stay to enforce its rights in the Property. Judge Shefferly
granted Fannie Mae’s request on the record, and entered an order reflecting his
decision on December 15, 2011. Kapla subsequently converted his bankruptcy
case from Chapter 13 to Chapter 7.
On January 1, 2012, Kapla filed an adversary proceeding against Fannie
Mae. In his complaint, Kapla asserted that Fannie Mae is a government actor and
that its actions with respect to the Property deprived Kapla of his rights to equal
protection and due process under the United States Constitution. Kapla therefore
sought to set aside the foreclosure sale of the Property and requested a money
judgment under 42 U.S.C. § 1983 for violations of his constitutional rights.
Kapla and Fannie Mae thereafter stipulated to the intervention of FHFA as a
defendant in the adversary proceedings. The parties’ stipulation explained that
FHFA was appointed as Fannie Mae’s conservator on September 6, 2008, pursuant
to the Housing and Economic Recovery Act of 2008, 12 U.S.C. § 4617, and the
Federal Housing Enterprises Financial Safety and Soundness Act of 1992, 12
U.S.C. §§ 4501-4642. As its conservator, FHFA succeeded to all of the rights,
titles, powers and privileges of Fannie Mae, including the right to sue and be sued
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in federal court. Judge Shefferly entered an order permitting FHFA to intervene on
April 27, 2012.
FHFA and Fannie Mae (hereafter “Appellees”) then filed a motion to
dismiss the adversary proceeding pursuant to Federal Rule of Bankruptcy
Procedure 7012(b) and Federal Rule of Civil Procedure 12(b)(6). Appellees
argued first that Kapla’s complaint depended on Fannie Mae being a “government
actor,” that Fannie Mae is not a government actor, and that FHFA’s appointment as
conservator of Fannie Mae did not transform Fannie Mae into a government actor.
Second, Appellees argued that even if Fannie Mae is a government actor, its
compliance with Michigan’s foreclosure-by-advertisement procedures satisfied the
requirements of the due process clause. Appellees further argued that the RookerFeldman doctrine1 and principles of res judicata barred Kapla from relitigating
issues decided by the State’s district court. Lastly, Appellees contended that Kapla
lacked standing to challenge the foreclosure sale of the Property once the
redemption period expired.
On December 14, 2012, Judge Shefferly issued a decision granting
Appellees’ motion. Judge Shefferly concluded that the Rooker-Feldman doctrine

1

Based on the Supreme Court’s decisions in District of Columbia Court of
Appeals v. Feldman, 460 U.S. 462, 482, 103 S. Ct. 1303, 1315 (1983), and Rooker
v. Fidelity Trust Co., 263 U.S. 413, 416, 44 S. Ct. 149, 150 (1923).
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bars Kapla’s claims attacking the foreclosure of the Property and his eviction from
the Property (Counts I and II of the complaint). Judge Shefferly concluded that
some of Kapla’s allegations of misconduct by Fannie Mae were not related to the
state court proceedings and therefore were not barred by this doctrine.
Nevertheless, he held that Fannie Mae is not a government actor and thus cannot
be found liable for violating Kapla’s alleged constitutional rights.
Kapla filed a motion for reconsideration with respect to this decision, which
Judge Shefferly denied on January 2, 2013. Kapla thereafter filed a notice of
appeal on January 15, 2013. The notice of appeal and bankruptcy court record
were received by this Court on July 18, 2013. This Court thereafter entered a
scheduling order which, after being extended several times upon the parties’
stipulated requests, established the following briefing deadlines: Appellant Brief
due by 9/11/2013; Appellee Brief due by 10/8/2013; and Appellant Reply Brief
due by 10/29/2013. As set forth earlier, Kapla filed his brief on September 13,
2013, and Appellees filed their brief on October 8, 2013. This Court issued a
notice disposing of oral argument with respect to this bankruptcy appeal on
January 29, 2014.
Parties’ Arguments on Appeal
In his brief, Kapla argues that the Rooker-Feldman doctrine did not bar his
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claims challenging the foreclosure and eviction proceedings because such
proceedings were conducted in violation of his due process rights. Kapla argues
that his constitutional due process rights were violated because Fannie Mae in fact
is a government actor as a result of FHFA’s conservatorship. To support his
argument that Fannie Mae is a government actor when foreclosing on property,
Kapla relies on two unpublished Michigan court decisions: Fannie Mae v.
Everingham, No. 12-1286 (Ingham Cnty. Dist. Ct. Apr. 9, 2013), and Fannie Mae
v. Kelley, No. 12-000885 (Ingham Cnty. Cir. Ct. Feb. 12, 2013).
In response, Appellees point out that Kapla’s appeal is dependent on the
Court concluding that Fannie Mae is a government actor. Appellees contend that
Fannie Mae is not, even as a result of FHFA’s conservatorship. Even if Fannie
Mae is deemed a government actor, Appellees further contend that the bankruptcy
court properly granted their motion to dismiss because Michigan’s foreclosure-byadvertisement statute satisfies the Due Process Clause’s requirements and Fannie
Mae complied with the statute.
Applicable Law and Analysis
It is well-established that constitutional claims cannot be maintained absent
state action. Pub. Utils. Comm’n v. Pollak, 343 U.S. 451, 461, 72 S. Ct. 813, 820
(1952) (“the First and Fifth Amendments to the Constitution of the United States ...
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concededly apply to and restrict only the Federal Government and not private
persons); Northrip v. Fed. Nat’l Mortg. Ass’n, 527 F.2d 23, 25 (6th Cir. 1975)
(“[A] predicate to finding a due process violation is a finding of state action.”). It
also is wellestablished that prior to FHFA’s conservatorship, Fannie Mae was not
considered a government actor. See Herron v. Fannie Mae, 857 F. Supp. 2d 87,
92, 93 n.7 (D.D.C. 2012) (citing cases). The federal courts that have addressed the
issue have concluded that Fannie Mae’s status has not changed as a result of
FHFA’s conservatorship. See, e.g., id. at 94-96; Fannie Mae v. Mandry, No. 1213236, 2013 WL 687056, at *4-5 (E.D. Mich. Feb. 26, 2013) (Edmunds, J.) (citing
cases); Bernard v. Fannie Mae, No. 12-14680, 2013 WL 1282016, at *4-5 (E.D.
Mich. Mar. 27, 2013) (Cohn, J.); In re Hermiz, No. 13-11199, 2013 WL 3353928,
at *2 (E.D. Mich. July 3, 2013) (Steeh, J.); Parra v. Fannie Mae, No. 13-4031,
2013 WL 5638824, at *3 (C.D. Cal. Oct. 16, 2013); Matveychuk v. One West Bank,
FSB, No. 1:13-cv-3464, 2013 WL 6871981, at *5 (N.D. Ga. Dec. 19, 2013).
As the District Court for the District of Columbia reasoned in Herron, when
FHFA serves as conservator, it simply “ ‘steps into the shoes’ of the private
corporation, Fannie Mae.” 857 F. Supp. 2d at 94 (quoting O’Melveny & Meyers v.
FDIC, 512 U.S. 79, 86-87, 114 S. Ct 2048, 2054 (1994)). Further, “a
conservatorship is by nature temporary,” and therefore the third prong required to
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find that an entity is a federal actor for the purpose of a constitutional claim is not
satisfied. Herron, 857 F. Supp. 2d at 95-96 (referring to the three elements
required to find that a corporation is part of the federal government, as set forth by
the Supreme Court in Lebron v. Nat’l R.R. Passenger Corp., 413 U.S. 374, 400,
115 S. Ct. 961, 974-75 (1995)).2 This Court agrees, and for this reason rejects the
Ingham County District and Circuit Courts’ decisions in Kelley and Everingham on
which Kapla relies.
For the above stated reasons, and the reasons set forth by the federal courts
that already decided the issue, this Court concludes that Judge Shefferly correctly
concluded that Fannie Mae is not a federal actor.
Conclusion
Having found that Fannie Mae is not a federal actor, the Court holds that the
bankruptcy court committed no error in dismissing Kapla’s due process claims.
Further, because Fannie Mae did not violate Kapla’s due process rights, he has
stated no basis for finding error in the bankruptcy court’s conclusion that the

2

The Supreme Court concluded in Lebron that a “[a] corporation is part of
the federal government when [1] Congress created the entity ‘by special law, [2]
for the furtherance of governmental objectives, and [3] retained for itself
permanent authority to appoint a majority of the directors of that corporation.’”
Herron, 857 F. Supp. 2d at 92 (quoting Lebron, 513 U.S. at 400, 115 S. Ct. at 97475) (emphasis added here).
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Rooker-Feldman doctrine bars his claims relating to the foreclosure and eviction
proceedings.
Accordingly,
IT IS ORDERED, that the bankruptcy court’s December 14, 2012 opinion
and order granting the motion to dismiss filed by Fannie Mae and FHFA, and
January 2, 2013 order denying Kapla’s motion for reconsideration are
AFFIRMED.
Dated: January 30, 2014

s/PATRICK J. DUGGAN
UNITED STATES DISTRICT JUDGE

Copies to:
Stuart Sandweiss, Esq.
Asim Varma, Esq.
Brian C. Summerfield, Esq.
Jill M. Wheaton, Esq.
Laura C. Baucus, Esq.
Jong-Ju Chang, Esq.
Honorable Phillip J. Shefferly

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