SILJEE et al v. ATLANTIC STEWARDSHIP BANK et al
OPINION. Signed by Judge Kevin McNulty on 5/12/16. (cm )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
PAUL SILJEE and SUSAN SILJEE,
Civ. No. 15-cv-1762 (KM)
ATLANTIC STEWARDSHIP BANK,
KEVIN MCNULTY, U.S.D.J.:
This federal court action, filed on March 10, 2015, arises from a state
court mortgage foreclosure action which went to final judgment on November
19, 2014. Paul and Susan Siljee, as borrowers and property owners, here sue
their mortgagee, Atlantic Stewardship Bank (“Atlantic”). Their various causes of
action allege various forms of misconduct in connection with the mortgage. In
essence, however, they seek to undo the state court judgment of foreclosure.
Now before the court is Atlantic’s motion to dismiss the complaint. (ECF no. 6)
Because this action is barred by the Rooker-Feidman doctrine and principles of
resjudicata, and because Count 2 otherwise fails to state a claim, the motion is
granted, and the complaint will be dismissed with prejudice.
1. State foreclosure action
On February 7, 2014, Atlantic filed an amended complaint in foreclosure
in the Superior Court of New Jersey, Chancery Division, Passaic County.
Atlantic Stewardship Bank u. SiUee, No. F-105244-13. (ECF no. 10-2) The
foreclosure complaint alleged that Atlantic extended Siljee a $450,000 business
loan secured by a mortgage on Siljee’s investment property at 21 Bird Avenue,
Clifton, New Jersey (the “Bird Avenue Loan”). In addition, it alleges that
Atlantic held a $250,000 residential mortgage on Siljee’s home at 40 Grover
Drive, Wayne, New Jersey (the “Grover Drive Loan”). Both were alleged to be in
On November 19, 2014, the State court entered a Final Judgment in
Foreclosure in the sum of $492,672.13 on the Bird Avenue Loan and
$216,959.56 on the Grover Drive Loan. (ECF no. 10-3) This was a default
judgment, which recited that Siljee had filed no Answer. A Sheriff’s sale was
On July 13, 2015 (four months after filing this federal action), Siljee filed
a motion in state court to set aside the default judgment of foreclosure. (ECF
no. 10-4) The motion asserted that Siljee had not received proper notice and
cited the New Jersey Fair Foreclosure Act. It also asserted that the foreclosure
was defective because Atlantic was not the true holder of the mortgage, and
therefore “lacked standing to file the foreclosure complaint.” The sheriff’s sale
of the properties was adjourned while the motion was pending.
On August 31, 2015, the state court entered an order and opinion
denying the motion to set aside the default judgment. (ECF no. 10-6) The court
found, based on the proofs submitted, that defendant had provided the
requisite notice. The court accepted the affidavit of Atlantic’s vice president to
the effect that Atlantic originated the mortgages, remained in continuous
possession of the note and mortgage, and possessed standing to foreclose. In
response, the court found, Siljee offered no adequate explanation, “from a
On September 8, 2015, the Bird Avenue property was sold at auction. On
December 1, 2015, after a trip to bankruptcy court and an order vacating the
automatic stay (ECF no. 10-8 at 76), the Grover Drive property was sold at
auction. (ECF no. 10-8 at 84)
On December 30, 2015, Siljee moved in the foreclosure action to set
aside the sheriff’s sale of the Grover Drive property. (ECF no. 10-7) On
February 3, 2016, the state court denied the motion. (ECF no. 10-9) Siljee
appealed, but apparently there has been no disposition as yet. (ECF no. 10-10)
This federal court action
Siljee filed the complaint in this federal court action (ECF no. 1) on
March 10, 2015, some fourth months after the entry of final judgment in the
state foreclosure action. It focuses on the Grover Drive Property (the “Subject
Property,” see Cplt.
¶J 1, 2).
Count 1 asserts a claim of breach of contract. It alleges that the loan was
transferred to a securitized trust, that the mortgage is separated from the note,
and that no assignment of the mortgage is recorded with the county clerk.
Count 1 claims damages because “Plaintiffs had to expend money to determine
the proper parties in interest by purchasing a securitization audit,” and it
asserts that these lapses by defendant constitute failures of “conditions
precedent to the enforcement of the MORTGAGE.” (ECF no. 1 at 8—9)
Count 2 asserts a violation of the Real Estate Settlement Procedures Act
(“RESPA”), 12 U.S.C.
§ 2601 et seq. Without giving dates or particulars, it
alleges that plaintiffs sent Atlantic a Qualified Written Request (“QWR”) to
which Atlantic failed to respond. This count asserts that plaintiff is owed
$2,000 in statutory damages for an untimely response, plus actual damages.
The only actual damages alleged are the “expend[iture of] money to determine
the correct identity of the actual parties in interest that would have been
unnecessary had ATLANTIC timely complied with the RESPA statute.” It further
alleges that Atlantic’s noncompliance has been widespread. (ECF no. 1 at 9—10)
Count 3 seeks to “quiet title” to the Grover Drive property. It alleges that
assignments of the Mortgage are unrecorded, and that “slanders of title have
due to the use of securitization.” The “chain of title” is allegedly
“broken, making full title insurance impossible and a difficult sale of the home
without this Quiet Title Action.” Count 3 reasserts the breach of contract
allegations of Count 1. It then asserts that Atlantic’s interests are inferior, and
that plaintiffs “are credibly informed and believe that Defendants are making a
claim against Plaintiffs’ interest in the Subject Property.” Count 3 seeks a
judgment barring and estopping Atlantic from having or claiming any right or
title to the premises. (ECF no. 1 at 11—12)
Count 4 seeks a declaratory judgment that the mortgage is void, that it
does not secure the note, and that Atlantic has abandoned its interest in the
Standard on a motion to dismiss
Defendants have moved to dismiss the Complaint for lack of jurisdiction,
citing the Rooker-Feidman doctrine (see infra). Rule 12(b)(1) governs
jurisdictional challenges to a complaint. These may be either facial or factual
attacks. See 2 Moore’s Federal Practice
§ 12.30[4j (3d ed. 2007); Mortensen v.
First Fed. Say. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977). A facial
challenge asserts that the complaint does not allege sufficient grounds to
establish subject matter jurisdiction. Iwanowa v. Ford Motor Co., 67 F. Supp.
2d 424, 438 (D.N.J. 1999). A court considering such a facial challenge assumes
that the allegations in the complaint are true, and may dismiss the complaint
only if it nevertheless appears that the plaintiff will not be able to assert a
colorable claim of subject matter jurisdiction. Cardio—Med. Assoc., Ltd. v.
Crozer—Chester Med. Ctr., 721 F.2d 68, 75 (3d Cir. 1983); Iwanowa, 67 F.
Supp. 2d at 438.
Defendants have also moved to dismiss the Complaint for failure to state
a claim, pursuant to Fed. R. Civ. P. 12(b)(6). Rule 12(b)(6) provides for the
dismissal of a complaint, in whole or in part, if it fails to state a claim upon
which relief can be granted. The defendant, as the moving party, bears the
burden of showing that no claim has been stated. Hedges v. United States, 404
F.3d 744, 750 (3d Cir. 2005). In deciding a Rule 12(b)(6) motion, a court must
take the allegations of the complaint as true and draw reasonable inferences in
the light most favorable to the plaintiff. Phillzs v. County of Allegheny, 515
F.3d 224, 231 (3d Cir. 2008) (traditional “reasonable inferences” principle not
undermined by Twombly, see infra).
Federal Rule of Civil Procedure 8(a) does not require that a complaint
contain detailed factual allegations. Nevertheless, “a plaintiff’s obligation to
provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Bell Ati. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, the
complaint’s factual allegations must be sufficient to raise a plaintiff’s right to
relief above a speculative level, so that a claim is “plausible on its face.” Id. at
570; see also Umland v. PLANCO Fin. Serv., Inc., 542 F.3d 59, 64 (3d Cir. 2008).
That facial-plausibility standard is met “when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (citing Twombly, 550 U.S. at 556). While “[t}he plausibility standard
is not akin to a ‘probability requirement’.
it asks for more than a sheer
possibility.” Iqbal, 556 U.S. at 678.
In connection with the motions, defendants have attached records of the
state court foreclosure proceeding. These are cited, not for the facts contained
therein, but only in order to establish the nature and scope of prior
proceedings between the parties, and the rulings of the state court. Such
records are subject to judicial notice:
[O]n a motion to dismiss, we may take judicial notice of another
court’s opinion—not for the truth of the facts recited therein, but
for the existence of the opinion, which is not subject to reasonable
dispute over its authenticity. See Kramer v. Time Warner Inc., 937
F.2d 767, 774 (2d Cir. 1991); United States v. Wood, 925 F.2d
1580, 1582 (7th Cir. 1991); see also Funk v. Commissioner, 163
F.2d 796, 800—0 1 (3d Cir. 1947) (whether a court may judicially
notice other proceedings depends on what the court is asked to
notice and on the circumstances of the instant case).
S. Cross Overseas Agencies, Inc. v. Wah Kwong Shipping Grp. Ltd., 181 F.3d
410, 426-27 (3d Cir. 1999). See generally Fed. R. Evid. 201.
Where the plaintiff is proceeding pro
the complaint is “to be liberally
construed,” and, “however inartfully pleaded, must be held to less stringent
standards than formal pleadings drafted by lawyers.” Erickson v. Pardus, 551
U.s. 89, 93-94 (2007). Nevertheless, “pro se litigants still must allege sufficient
facts in their complaints to support a claim.” Mala v. Crown Bay Marina, Inc.,
704 F.3d 239, 245 (3d Cir. 2013). “While a litigant’s pro se status requires a
court to construe the allegations in the complaint liberally, a litigant is not
absolved from complying with Two mbly and the federal pleading requirements
merely because s/he proceeds pro se.” Thakar v. Tan, 372 F. App’x 325, 328
(3d Cir. 2010) (citation omitted).
Defendants first move, pursuant to Fed. R. Civ. P. 12(b)(1), to dismiss the
complaint for lack of jurisdiction under the Rooker-Feidman doctrine. See
District of Columbia Court of Appeals u. Feldman, 460 U.S. 462, 482 (1983);
Rooker v. Fidelity Trust Co., 263 U.S. 413, 416 (1923).
A federal district court does not sit to hear appeals from state court
judgments. Rooker-Feidman operates to prevent a disgruntled party in state
court litigation from collaterally attacking the results of that litigation in federal
court, claiming constitutional or other error. See also B. S. v. Somerset Cnty.,
704 F.3d 250 (3d Cir. 2013). To put it another way, Rooker-Feidman bars
“cases brought by state-court losers complaining of injuries caused by statecourt judgments rendered before the district court proceedings commenced
and inviting district court review and rejection of those judgments.” Exxon
Mobil Corp. v. Saudi Basic Indus., Inc., 544 U.S. 280, 284, 125 S.Ct. 1517
The Rooker-Feidman doctrine applies when, “in order to grant the federal
plaintiff the relief sought, the federal court must determine that the state court
judgment was erroneously entered or must take action that would render that
judgment ineffectual.” FOCUS v. Allegheny Cnty. Court of Common Pleas, 75
F.3d 834, 840 (3d Cir. 1996). Thus Rooker-Feldman holds that lower federal
courts cannot entertain federal claims that (1) were previously adjudicated in
state court or (2) are inextricably intertwined with a prior state court decision.
Feldman, supra; Rooker, supra; Guarino v. Larsen, 11 F.3d 1151, 1156—57 (3d
Cir. 1993); Port Auth. Police Benev. Ass’n v. Port Auth., 973 F.2d 169, 178 (3d
This case involves a “state-court judgment[ rendered before the district
court proceedings commenced.” Exxon Mobil, 544 U.S. at 284. A final judgment
of foreclosure was entered in New Jersey Superior Court on November 19,
2014. That state court judgment well preceded the filing of this action on
March 10, 2015.’
The question remaining is whether the claims in this federal court action
were previously adjudicated in, or are inextricably intertwined with, that state
foreclosure proceeding. The state foreclosure judgment necessarily decided in
Atlantic’s favor the following essential elements: the validity of the note and
mortgage; the alleged default; and Atlantic’s right to foreclose (which would
That the sheriffs sale had not yet taken place does not detract from the
judgment’s finality for purposes of Rooker-Feidman:
That the foreclosure judgment had been entered is sufficient to invoke
Rooker—Feldman. Under New Jersey law, a mortgage foreclosure suit
determines the right to foreclose and the amount due on the mortgage.
Sheerer v. Lippman & Lowy, 125 N.J.Eq. 93, 4 A.2d 273 (E. & A. 1939);
Central Penn Nat’l Bank v. Stonebridge, Ltd., 185 N.J. Super. 289, 302,
448 A.2d 498 (Ch. Div. 1982). See generally 30A N.J. Prac. Law of
Mortgages § 31.25. The foreclosure judgment also entitles the mortgagee
to recover, by way of Sheriffs sale, the amount due from the land subject
to the mortgage. See N.J.S.A. 2A:50—36; First Union Nat’l Bank v. Penn
Salem Marina, Inc., 383 N.J. Super. 562, 570, 893 A.2d 1 (App. Div.
2006) rev’d on other grounds by 190 N.J. 342, 921 A.2d 417 (2007).
Indeed, the terms of a mortgage foreclosure judgment will include “an
order to sell so much of the mortgaged premises as will be sufficient to
satis1r the mortgage and subordinate liens
and that an execution
commanding the [sheriff] to make sale....” 30A N.J. Prac. Law of
Mortgages § 31.25.
Patetta v. Wells Fargo Bank, NA, Civ. No. 09-2848, 2010 WL 1931256, at *7 (D.N.J.
May 13, 2010).
include its standing by assignment or otherwise). See Great Falls Bank v.
Pardo, 622 A.2d 1353, 1356 (N.J. Super. Ct. Ch. Div. 1993). “If the relief
requested in the federal action requires determining that the state court’s
decision is wrong or would void the state court’s ruling, then the issues are
inextricably intertwined and the district court has no subject matter
jurisdiction to hear the suit.” FOCUS, 75 F.3d at 840. As to federal actions
following mortgage foreclosures, the case law gives some guidance as to what
issues are actually adjudicated or inextricably intertwined.
In re Madera, 586 F.3d 228, 232 (3d Cir. 2009), for example, considered
a post-foreclosure federal claim for rescission of the mortgage. A finding that no
valid mortgage existed, the Court held, would eliminate the basis for the prior
foreclosure judgment. Such a claim is an easy case for application of Rooker
Feldman. A federal claim that the state foreclosure court entered its judgment
in the absence of personal jurisdiction is likewise barred by Rooker-Feidman.
Because such a plaintiff “can only prevail if a federal court concludes that the
state courts’ default judgments were improperly obtained,” his claim is
inextricably intertwined with the state proceedings. In re Knapper, 407 F.3d
573, 581 (3d Cir. 2005). See also Ayres-Fountain v. E. Say. Bank, 153 F. App’x
91, 92 (3d Cir. 2005) (barring post-foreclosure federal claim for rescission of
mortgage and damages); Moncrief v. Chase Manhattan Mortg. Corp., 275 F.
App’x 149, 153 (3d Cir. 2008) (barring a claim for “redress” of state court
judgment in a foreclosure action).
Under these precedents, Count 3 (quiet title) and Count 4 (declaratory
judgment) are clearly barred, as the issues essential to them were actually
adjudicated in the state foreclosure action. To hold—as Siljee asks this Court
to do—that the mortgage was not valid, that Atlantic is not the mortgage
holder, that Atlantic’s position is junior to that of Siljee, or that Siljee owns the
property free and clear of any lien, would in effect declare the foreclosure
judgment to be invalid. It would be tantamount to a declaration “that the state
courts default judgments were improperly obtained.” Knapper, 407 F.3d at
The Count 1 breach of contract claim, if not actually adjudicated in, is
certainly closely intertwined with, the state foreclosure. It asserts that flaws in
the securitization, recordation, or chain of title forced Siljee to expend money
on a “securitization audit.” Its essence, however, is that the mortgage is invalid
or that Atlantic has no standing to assert it. The alleged “breaches” of the
conditions of the mortgage, according to Count 1, are failures of “conditions
precedent to the enforcement of the MORTGAGE.” (ECF no. 1 at 9) Any such
contention is closed off by the final judgment of foreclosure.
Count 2 (RESPA violation) stands on a separate footing. It appears to be
a modest claim for damages based upon failure to respond to a QWR. Such
noncompliance with RESPA does not implicate the validity of the mortgage or
Atlantic’s standing. It is not inconsistent with the existence of a final judgment
of foreclosure. Where the federal plaintiff presents “some independent claim,”
i.e., one that does not implicate the validity of the state court judgment, the
Rooker-Feidman doctrine does not apply. Exxon Mobil, 544 U.S. at 292 (quoted
in Turner v. Crawford Square Apartments Ifj, L.P., 449 F.3d 542, 547-48 (3d
Counts 1, 3, and 4, then, are claims “brought by state-court losers
complaining of injuries caused by state-court judgments rendered before the
district court proceedings commenced and inviting district court review and
rejection of those judgments.” Exxon Mobil, 544 U.S. at 284. They are barred by
Because Count 2, at least, may survive Rooker-Feidman, I move from the
Count 2 does, however, attempt to bring in through the back door Siljee’s
theory that Atlantic is not the true holder of the mortgage. The damages claimed arise
from the trouble and expense of determining “the correct identity of the actual parties
in interest.” That can only refer to Siljee’s theory, contrary to the final judgment of
foreclosure, that Atlantic lacks standing to foreclose.
Rule 12(b)(1) component of the motion to the Rule 12(b)(6) component and
consider the application of res judicata doctrines. Resjudicata furnishes
alternative grounds for dismissal of Counts 1, 3, and 4, as well.
Claims that survive scrutiny under Rooker-Feldman may nevertheless be
barred by docfsines of resjudicata. See Ayres-Fountain, 153 F. App’x at 93
(“[E]ven if review of the complaint were not barred by Rooker—Feldman, we
agree with the District Court that Ayres—Fountain’s claims were barred by res
judicata.”). I find that to be the case here. Although res judicata is an
affirmative defense, it may be considered on a motion to dismiss if its
applicability can be determined from the face of the complaint and documents
properly considered on a Rule 12(b)(6) motion. The New Jersey doctrines of
claim preclusion and the entire controversy rule furnish additional and
alternative grounds for dismissal.
New Jersey doctrine of claim preclusion and the entire
Whether a state court judgment should have a preclusive effect in a
subsequent federal action depends on the law of the state that adjudicated the
original action. See Greenleaf v. Garlock, Inc., 174 F.3d 352, 357 (3d Cir. 1999)
When a claim is found to be “independent” rather than intertwined for Rooker
Feldman purposes, it may nevertheless be barred by res judicata. Upon completing the
Rooker-Feldman analysis and confirming that it possesses jurisdiction, the court
should then consider “whether the defendant prevails under principles of preclusion.”
Exxon Mobil, 544 U.S. at 292.
This Circuit has adopted that two-step approach. Madera, for example, after
applying Rooker-Feldman to bar a claim for rescission, then considered a cause of
action for damages based on the title insurer’s alleged failure to disclose the correct
title insurance charge, in violation of the Truth in Lending Act (“TILA”). As to that
claim, Madera did not apply Rooker-Feidman, but proceeded to the merits of the
bankruptcy court’s grant of summary judgment. 586 F.3d at 232. In Easley v. New
Century Mortgage Corp., 394 F. Appx 946 (3d Cir. 2010), the Court upheld the
application of Rooker-Feldman to claims that, if granted, would imply that the
foreclosure judgment was invalid. Other claims, however, were not decided by the
state court and were based on “allegations of fraud, deception and other wrongs which
pre-dated the foreclosure action,” as to which piaintiff sought consequential damages.
Id. at 948. These were not so clearly intertwined with the foreclosure judgment as to
be barred by Rooker-Feldman. Easley held, however, that the claims not barred by
Rooker-Feldman were barred by res judicata.
(“To determine the preclusive effect of [the plaintiffs] prior state action we must
look to the law of the adjudicating state.”). See also Allen v. McCumj, 449 U.s.
90, 96, 101 S. Ct. 411, 415 (1980) (“Congress has specifically required all
federal courts to give preclusive effect to state-court judgments whenever the
courts of the State from which the judgments emerged would do so.”). Here,
that state is New Jersey.
New Jersey claim preclusion law, like federal law, has three essential
elements: (1) a final judgment on the merits; (2) the prior suit involved the
same parties or their privies; and (3) the subsequent suit is based on the same
transaction or occurrence. Watkins v. Resorts Int’l Hotel and Casino, Inc., 591
A.2d 592, 599 (N.J. 1991) (state law); United States v. Athione Indus., Inc., 746
F.2d 977, 983 (3d Cir. 1984) (federal law). If those three requirements are met,
then the doctrine bars “the parties or their privies from relitigating issues that
were or could have been raised in that action.” Allen, 449 U.S. at 94, 101 S. Ct.
at 414; Watkins, 591 A.2d at 599 (“Claim preclusion applies not only to matters
actually determined in an earlier action, but to all relevant matters that could
have been so determined.”).
Claim preclusion in the traditional sense tends to be subsumed by New
Jersey’s “entire controversy” rule. The entire controversy rule emphasizes, not
just claims within the scope of the prior judgment, but all claims and parties
that a party could have joined in a prior case based on the same transaction or
occurrence. The entire controversy doctrine thus “requires a party to bring in
one action ‘all affirmative claims that [it] might have against another party,
including counterclaims and cross-claims,’ and to join in that action ‘all parties
with a material interest in the controversy,’ or be forever barred from bringing a
subsequent action involving the same underlying facts.” Rycoline Prods., Inc. v.
C & W Unlimited, 109 F.3d 883, 885 (3d Cir. 1997) (quoting Circle Chevrolet Co.
v. Giordano, Halleran & Ciesla, 662 A.2d 509, 513 (N.J. 1995)).
We have described the entire controversy doctrine as “New Jersey’s
specific, and idiosyncratic, application of traditional res judicata
principles.” Rycoline Prods., Inc. v. C & W Unlimited, 109 F.3d 883,
886 (3d Cir. 1997). A mainstay of New Jersey civil procedure, the
doctrine encapsulates the state’s longstanding policy judgment
that “the adjudication of a legal controversy should occur in one
litigation in only one court[.1” Cogdell v. Hosp. Ctr. at Orange, 560
A.2d 1169, 1172 (N.J. 1989); see also N.J. Const. art. VI, § 3, ¶ 4
(“[L]egal and equitable relief shall be granted in any cause so that
all matters in controversy between the parties may be completely
determined.”); Smith v. Red Top Taxicab Corp., 168 A. 796, 797
(N.J. 1933) (“No principle of law is more firmly established than
that a single or entire cause of action cannot be subdivided into
several claims, and separate actions maintained thereon.”)....
Ricketti v. Barry, 775 F.3d 611, 613 (3d Cir. 2014).
Like traditional res judicata, the state entire controversy doctrine applies
in federal court “when there was a previous state-court action involving the
same transaction.” Bennun v. Rutgers State Univ., 941 F.2d 154, 163 (3d Cir.
1991). It extinguishes any subsequent federal-court claim that could have been
joined, but was not raised in the prior state action:
Under the entire controversy doctrine, a party cannot withhold
part of a controversy for separate later litigation even when the
withheld component is a separate and independently cognizable
cause of action. The doctrine has three purposes: (1) complete and
final disposition of cases through avoidance of piecemeal decisions;
(2) fairness to parties to an action and to others with a material
interest in it; and (3) efficiency and avoidance of waste and delay.
See DiTrolio v. Antiles, 142 N.J. 253, 662 A.2d 494, 502 (N.J.
1995). As an equitable doctrine, its application is flexible, with a
case-by-case appreciation for fairness to the parties.
Paramount Aviation Corp. v. Agusta, 178 F.3d 132, 137 (3d Cir. 1999).
The preclusive effect of the rule is explicit: “Non-joinder of claims or
parties required to be joined by the entire controversy doctrine shall result in
the preclusion of the omitted claims to the extent required by the entire
controversy doctrine....” N.J. Ct. R. 4:30A. But the rule applies only to claims
that could have been permissibly joined in the prior proceeding. And the entire
controversy rule itself notes the limitations on claims in a foreclosure
except as otherwise provided by R. 4:64-5 (foreclosure actions)
The cited rule, N.J. Ct. R. 4:64-5, limits permissible claims in mortgage
foreclosure actions to those which are “germane” to the foreclosure. It follows,
therefore, that only claims germane to the prior mortgage foreclosure will be
precluded in a later action. If claims were not “germane” to the foreclosure,
then they could not have been brought in that action. And if the litigant had no
opportunity to present them in the prior action, then they cannot be precluded
by the prior judgment.
As to what claims are “germane,” the seminal case is Leisure Technology—
Northeast v. Klingbeil Holding Co., 349 A.2d 96 (N.J. Super. Ct. App. Div. 1975).
“The use of the word ‘germane’ in the language of the rule,” said the Appellate
Division, “undoubtedly was intended to limit counterclaims in foreclosure
actions to claims arising out of the mortgage transaction which is the subject
matter of the foreclosure action.” 349 A.2d at 98—99 (emphasis added). There,
the foreclosure defendant/borrower had pled an affirmative defense and
counterclaim. The Appellate Division held that “the thrust of the counterclaim
is the assertion that plaintiff had breached the underlying agreement in
relation to which the mortgage was executed and interfered with defendants
4:64-5. Joinder of Claims in Foreclosure
Unless the court otherwise orders on notice and for good cause shown,
claims for foreclosure of mortgages shall not be joined with non-germane
claims against the mortgagor or other persons liable on the debt. Only
germane counterclaims and cross-claims may be pleaded in foreclosure
actions without leave of court. Non-germane claims shall include, but not
be limited to, claims on the instrument of obligation evidencing the
mortgage debt, assumption agreements and guarantees. A defendant
who chooses to contest the validity, priority or amount of any alleged
prior encumbrance shall do so by filing a cross-claim against that
encumbrancer, if a co-defendant, and the issues raised by the crossclaim shall be determined upon application for surplus money pursuant
to R. 4:64-3, unless the court otherwise directs.
Claims that could not have been brought in the first proceeding also include
those that were “unknown, unarisen, or unaccrued” at the time. Mystic Isle Dev. Corp.
u. Perskie & Nehmad, 662 A.2d 523, 530 (N.J. 1995) (citations omitted). Those
exceptions are not implicated here.
The entire controversy rule applies to parties, as well as claims, that were not
joined in the prior action. That aspect of the rule, too, is not relevant here. See Ricketti,
supra (requiring particular safeguards as to absent parties).
rights under that agreement. In the usually understood sense of the word,
these claims were germane to the foreclosure action.” 349 A.2d at 99.
Post-Leisure Technology, the germaneness rule has solidified thus:
Indeed, the Appellate Division has been “clear that any conduct of
a mortgagee known to the mortgagor prior to the institution of a
foreclosure that could be the basis of an independent action for
damages by reason of the mortgagee having brought the
foreclosure could be raised as an equitable defense in the
foreclosure.” Sun NLFLtd. Partnershz v. Sasso, 313 N.J. Super.
546, 713 A.2d 538, 540 (N.J. Super. Ct. App. Div.1998).
Zebrowski v. Wells Fargo Bank, N.A., No. CIV.1:07CV05236JHR, 2010 WL
2595237, at *6 (D.N.J. June 21, 2010) (Rodriguez, J.); see also Joan Ryno, Inc.
v. First Nat. Bank of S. Jersey, 506 A.2d 762, 766 (N.J. Super. Ct. App. Div.
A Third Circuit case persuasively penned by Judge Fuentes (himself a
product of the New Jersey bench and bar) illustrates the “germaneness” issue
as it bears on the entire controversy doctrine. In Coleman v. Chase Home Fin.,
LLC ex rel. Chase Manhattan Mortgage Corp., 446 F. App’x 469 (3d Cir. 2011), a
foreclosure action went to final judgment. After bankruptcy-related delays that
staved off a sheriff’s sale, the borrower/owner paid a reinstatement fee and
obtained a dismissal of the foreclosure. The borrower then brought a putative
class action in federal court, claiming that the lender had charged excessive
fees in connection with reinstatement. The district court, applying the entire
controversy doctrine, dismissed the case on a Rule 12(b)(6) motion. The Third
Judge Fuentes found that the borrower’s claims could have been brought
in the foreclosure under New Jersey practice:
The federal court causes of action asserted in Coleman included (1) breach of
contract; (2) intentional misrepresentation; (3) negligence; (4) breach of duty of good
faith and fair dealing; (5) unjust enrichment; (6) unfair and deceptive assessment and
collection of fees; (7) violation of the Fair Foreclosure Act (“FFA”); (8) excessive fees in
violation of New Jersey Court Rule R 4:42—9(a)(4); (9) excessive taxed costs in violation
of various state statutes; (10) violation of New Jersey’s Consumer Fraud Act (“CFA”);
(11) forfeiture of interest; and (12) violation of the Truth—In Consumer Contract,
Warranty and Notice Act.
Claims are considered to be germane to a foreclosure action if they
arise out of the mortgage that is the basis of the foreclosure action.
Leisure Technology—Northeast, Inc. v. Klingbeil Holding Co., 137 N.J.
Super. 353, 349 A.2d 96, 98 (1975). Here, Coleman’s claims arose
directly out of a reinstatement quote that was provided to her as
an alternative to a foreclosure sale, and the excessive fees allegedly
charged by Chase would not have been charged but for the
foreclosure action. Accordingly, Coleman’s causes of action arose
out of and were germane to the original foreclosure action.
446 F. App’x at 472. Because the claims would have been “germane” in the
sense that they arose from the relevant mortgage transaction, they were now
barred by the entire controversy doctrine. See also Dennis v. MERS/Merscorp
Mortg. Elec. Registration Sys., Inc., No. CIV.A. 11-4821 JLL, 2011 WL 4905711,
at *1 (D.N.J. Oct. 13, 2011) (barring claims by plaintiff who had defaulted in
state foreclosure action that “as a result of defective assignments of her
mortgage, all claims to the property are void”).
b. Application to this case
The entire controversy rule applies here. The state court mortgage
foreclosure was “a previous state-court action involving the same transaction,”
i.e., the mortgage, the default, and the foreclosure itself. Bennuri, 941 F.2d at
163 (3d Cir. 1991). The subject matter of that prior action necessarily
embraced that of this federal action, and the parties are the same.
In the alternative, the three prerequisites to claim preclusion apply here.
(1) There was a final judgment on the merits.
(2) The prior suit involved the same parties or their privies.
(3) The subsequent suit (i.e., this one) is based on the same transaction
or occurrence. It grows out, and is based on, the mortgage and Atlantic’s status
as the party with standing to foreclose. Watkins, 591 A.2d at 599.
It follows, then, that claim preclusion and the entire controversy doctrine
A case reaching the opposite result is In re Mullarkey, 536 F.3d 215, 229-30 (3d
Cir. 2008). There, however, the court determined that the plaintiffs federal cause of
action truly arose, not from the foreclosure, but from alleged misrepresentations in
related bankruptcy proceedings.
extinguish any subsequent federal-court claim that either was decided, or else
could have been joined but was not raised in the prior foreclosure action.
Counts 1, 3, and 4, for the reasons expressed above, are identical or closely
related to the foreclosure claims. See Guaba v. World Say. Bank, No. CIV.A. 142408 MAS, 2014 WL 6870995, at *1 (D.N.J. Dec. 3, 2014).
Count 2, the RESPA claim, could likewise have been raised. Its subject
matter is a QWR in which (it is implied) Siljee sought answers to his questions
about Atlantic’s standing to foreclose and the chain of title of the mortgage. It is
therefore germane to the prior action.
As to any claims that survive Rooker-Feidman, the motion to dismiss on
grounds of res judicata and the entire controversy rule is granted.
Failure to state a claim
I briefly consider, in relation to Count 2, the sufficiency of pleading under
Iqbal and Twombly. Count 2 alleges that Siljee sent a QWR to Atlantic. The
contents of the QWR, the information it asked for, and the date of service are
Count 2 alleges that a timely response to the QWR would have saved
Siljee the trouble and expense of determining “the correct identity of the actual
parties in interest.” The meaning of this is not stated, and the “actual parties”
are not identified. This may refer to allegations, elsewhere in the complaint,
relating to the mortgage’s securitization. Those allegations, however, are
conditional, not factual. E.g., Cplt.
50 (“Plaintiffs allege that if the LOAN was
sold, turned into a security, and pooled, the certificate holder(s) may no longer
claim that they are a real party in interest.”); Cplt.
51 (“Plaintiffs allege that if
a securitization did occur, the NOTE cannot be re-attached to the MORTGAGE
through adhesion.”). No such securitization is alleged factually. And any
contention that Atlantic is not the “actual party in interest” is contrary to the
final judgment of foreclosure.
In the alternative, then, to the extent Count 2 survived the Rooker
Feldman and res judicata analyses, I would dismiss it for failure to state a
Defendant’s motions to dismiss the complaint pursuant to Fed. R. Civ.
P. 12(b)(1), for lack of jurisdiction under the Rooker-Feldman doctrine are
GRANTED. To the extent that any claims, or parts of claims, seek relief that
does not require negation of the foreclosure judgment, they are nevertheless
dismissed pursuant to Fed. R. Civ. P. 12(b)(6) on grounds of res judicata, the
entire controversy rule, and, as to Count 2, failure to state a claim.
Dated: May 12, 2016
United States District Judge
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