RUFFOLO et al v. HSBC BANK USA, N.A. et al

Filing 23

MEMORANDUM OPINION filed. Signed by Judge Michael A. Shipp on 10/3/2014. (eaj)

Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

RECEIVED
ALFREDO FRANCESCO RUFFOLO,
CHRISTINE RUFFOLO, et al.,

OCT -3 2014
AT 8:30

M

WILLIAM T. WALSH CLERK

Plaintiffs,

Civil Action No. 14-638 (MAS) (DEA)
v.

HSBC BANK USA, N.A., as trustee for
Wells Fargo Asset Securities Corporation,
Mortgage Asset-Backed Pass-Through
Certificates Series 2007-0017, et al.,

MEMORANDUM OPINION

Defendants.

SHIPP, District Judge

This matter comes before the Court upon the separate motions to dismiss filed by
Defendant HSBC Bank USA, National Association as Trustee for Wells Fargo Asset Securities
Corporation, Mortgage Asset-Backed Pass-Through Certificates Series 2007-001 7 ("HSBC")
(ECF No. 6) and Defendants Zucker, Goldberg & Ackerman, LLC and Michael S. Ackerman,
Esq. ("Zucker Goldberg") (ECF No. 21) (collectively "Defendants"). Through its Motion to
Dismiss, HSBC seeks only to dismiss Count One of Plaintiffs Alfredo Francesco Ruffolo and
Christine Ruffolo's ("Plaintiffs") Verified Complaint ("Complaint"). Plaintiffs filed opposition
to HSBC's Motion (ECF No. 8), and HSBC replied (ECF No. 9).

Zucker Goldberg, through

their Motion to Dismiss, seek dismissal of Plaintiffs' Complaint on all counts, and Plaintiffs have
informed the Court; by correspondence dated July 17, 2014, they are not opposing Zucker
Goldberg's Motion to Dismiss. (ECF No. 22.) The Court has decided this matter without oral
argument pursuant to Local Civil Rule 78.1. For the reasons set forth below, the Court must

abstain from hearing Plaintiffs' case pursuant to Colorado River Water Conservation District v.

United States, 424 U.S. 800 (1976), and thus, Plaintiffs' Complaint is dismissed without
prejudice.
I.

BACKGROUND

The instant matter arose out of the foreclosure action on the real property owned by
Plaintiffs located at 400 Warren Street, Stewartsville, New Jersey (the "Property").

Plaintiffs

purchased the Property in 2002, and in 2007, Plaintiffs refinanced the loan secured by the note
and mortgage on the Property. (Compl., ECF No.3.) Plaintiffs allege that at some later date the
note and mortgage were sold to another entity, presumably HSBC. (!d.) Plaintiffs allege that in
or around July 2009, HSBC "made false and fraudulent representations of fact to [P]laintiffs in
an effort to persuade them to 'stop paying their Note' for 90 consecutive days," and once
Plaintiffs stopped paying for 90 days, Plaintiffs "would be guaranteed to qualify and receive a
novation or loan modification." (!d. at 9.)

Plaintiffs relied on HSBC's representations. (!d.)

Plaintiffs allege that their reliance on HSBC' s representations resulted in HSBC declaring default
on Plaintiffs' mortgage and HSBC commencing foreclosure proceedings. (!d.)
In December 2010, Zucker Goldberg filed a Complaint for Foreclosure on behalf of their
client, HSBC, against Plaintiffs in the Superior Court of New Jersey, entitled HSBC Bank USA,

National Association as Trustee for Wells Fargo Asset Securities Corporation, Mortgage AssetBacked Pass-Through Certificates Series 2007-017 v. Ruffolo, eta/., Docket No. F-058732-10
(the "Foreclosure Action"). On or about January 24, 2011, Plaintiffs, through counsel, filed an
Answer in the Foreclosure Action, which asserted affirmative defenses as to standing and fraud,
and specifically that HSBC is "neither a possessor of the note, a holder in due course, or a nonholder with a right to enforce." (Zucker Goldberg's Br. Ex. C, ECF No. 21-3.)

2

On December 31, 2013, three years into litigation in the Foreclosure Action, Plaintiffs,
acting prose, removed the Foreclosure Action to this Court, styled HSBC Bank USA v. Ruffolo,
et al., Docket No. 13-07926. In their Notice of Removal, Plaintiffs asserted federal jurisdiction

on the basis of "a federal question, the threatened actual taking of title and rights to deeded real
property without due process." Notice of Removal, HSBC Bank USA v. Ruffolo, et al., No. 1307926 (D .N.J. Dec. 31, 2013 ). HSBC moved to remand the Foreclosure Action, and by Order
dated September 8, 2014, this Court remanded the Foreclosure Action to the Superior Court of
New Jersey pursuant to 28 U.S.C. § 1447. HSBC Bank USA v. Ruffolo, eta!., No. 13-07926
(D.N.J. Sept. 8, 2014).
On January 29, 2014, Plaintiffs, again proceeding pro se, initiated this action by filing a
Complaint claiming that Defendants violated Plaintiffs' due process rights by instituting a
foreclosure proceeding against the Property and included individual counts for negligence,
declaratory relief, specific performance, accounting, breach of contract, violations of the Fair
Debt Collections Practices Act ("FDCPA"), and fraud. (Compl., ECF No. 3.) Prose Plaintiffs'
Complaint alleges that HSBC has no ownership rights of the note or mortgage in question in the
Foreclosure Action and that Defendants made fraudulent promises to Plaintiffs to induce
Plaintiffs' default and the ensuing Foreclosure Action. (!d.) Plaintiffs contend that one or more
of the issues raised in their Complaint would be sufficient to enjoin the Foreclosure Action. (!d.)
HSBC filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure arguing that Count One, negligence, is barred by the Economic Loss Doctrine.
(HSBC's Br., ECF No. 6.) Additionally, Zucker Goldberg filed a motion to dismiss pursuant to
Rule 12(b)(l) of the Federal Rules of Civil Procedure arguing this action is not yet ripe for
adjudication, as well as pursuant to Rule 12(b)( 6), arguing that Counts One, Five, and Six should

3

be dismissed because each fails to state a claim upon which relief can be granted. (Zucker
Goldberg's Br., ECF No. 21-1.) The Court need not reach the merits of those arguments.
Instead, under the Colorado River doctrine, the Court dismisses Plaintiffs' Complaint in its
entirety without prejudice.

II.

DISCUSSION
A.

Jurisdiction

This Court has jurisdiction over Plaintiffs' federal claims under 28 U.S.C. § 1331, and
supplemental jurisdiction to hear Plaintiffs' state law claims under 28 U.S.C. § 1367.
B.

.Analysis

A comparison of Plaintiffs' claims in the Complaint with Plaintiffs' claims in the earlier
filed ongoing state court Foreclosure Action shows that Plaintiffs are attempting to have this
Court interfere with the state foreclosure process and otherwise relitigate claims that are already
being addressed in the state court. Plaintiffs bring this action to challenge HSBC' s right to
institute and perfect the pending Foreclosure Action, asserting that HSBC does not have standing
to foreclose on the Plaintiffs' mortgage and fraud on the part of HSBC. (Compl., ECF No. 3.)
Plaintiffs' claims in this action mimic Plaintiffs' affirmative defenses and counterclaims in the
pending Foreclosure Action. (Zucker Goldberg's Br. Ex. C, ECF No. 21-3.) Because this Court
will not interject itself into ongoing state court proceedings and possibly force an impermissible
direct contradiction of any final judgment in the Foreclosure Action, the Court must abstain from
deciding Plaintiffs' claims pursuant to Colorado River Water Conservation District v. United
States, 424 U.S. 800 (1976), andthe Court must dismiss Plaintiffs' case in its entirety.
The Supreme Court, in Colorado River, explained that federal district courts may abstain
from hearing cases and controversies under "exceptional circumstances where the order to the

4

parties to repair to the State court would clearly serve an important countervailing interest."
Colorado River, 424 U.S. at 813 (internal quotation marks omitted).

It is axiomatic that federal

courts have a "virtually unflagging obligation ... to exercise the jurisdiction given them" by
Congress.

!d. at 817 (citing England v. Louisiana State Bd. of Medical Examiners, 375 U.S.

411, 415 (1964); McClellan v. Carland, 217 U.S., 268, 281 (1910); Cohens v. Virginia, 6 Wheat.
264, 404 (1821) (dictum)). The rule is well recognized that the "pendency of an action in the
state court is no bar to proceedings concerning the same matter in the Federal court having
jurisdiction." !d. (internal quotation marks omitted).

Nevertheless, in Colorado River, the

Supreme Court recognized that there are certain limited Circumstances in which a federal court
may defer to pending state court proceedings based on considerations of "[w]ise judicial
administration, giving regard to conservation of judicial resources and comprehensive
disposition of litigation." !d.
The threshold issue that must be decided in a Colorado River abstention case is whether
the two actions are "parallel," meaning the "parallel" state proceeding involves the same parties
and "substantially identical claims [raising] nearly identical allegations and issues." Nationwide
Mut. Fire Ins. Co. v. George V Hamilton, Inc., 571 F.3d 299, 307 (3d Cir. 2009) (internal

quotation marks omitted). Once a court determines a parallel state proceeding is pending, the
court must then consider six factors in weighing whether abstention is appropriate: "(1) which
court first assumed jurisdiction over the property; (2) the inconvenience of the federal forum; (3)
the desirability of avoiding piecemeal litigation; (4) the order in which jurisdiction was obtained;
(5) whether federal or state law controls; and (6) whether the state court will adequately protect
the interests of the parties." !d. at 308 (internal quotation marks omitted).

5

In DiPietro v. Landis Title Co., a bank brought a foreclosure action against a plaintiff in
state court seeking foreclosure and possession. No. 11-5110, 2012 WL 2116404 (D.N.J. June
11, 20 12) .. The plaintiff filed an answer to the foreclosure complaint and asserted defenses and
counterclaims seeking, among other things, damages for fraud. While the state court action was
still being litigated, the plaintiff brought claims in the district court against the bank, the law firm
representing the bank in the foreclosure action, the title company, and the judge and law clerk
whom the foreclosure proceedings were in front of in the state court. In the federal action, the
plaintiff asserted that defendants violated numerous constitutional, statutory, and common law
rights during their involvement in a state court foreclosure action. Pursuant to the Colorado
River doctrine, the district court dismissed the federal action in its entirety holding that the two

actions were parallel and substantially identical, and "they implicate important state interestsforeclosure of a property in New Jersey, the conduct of attorneys and judges in the state court,
and the actions of a local bank and title company." !d. at *4.
Similarly, in St. Clair v. Wertzberger, a bank brought a foreclosure action against a
plaintiff in state court, and the plaintiff failed to answer the foreclosure complaint. 63 7 F. Supp.
2d 251 (D.N.J. 2009). A Notice of Entry of Final Judgment was sent to the plaintiff, and the
plaintiff filed a motion to set aside the judgment of foreclosure, which was denied. The plaintiff
then filed a motion for reconsideration which was also denied, however, no final judgment was
entered.

The plaintiff subsequently brought an action in federal court against the attorneys

whom represented the bank in the foreclosure proceeding asserting violations of the Fair Debt
Collections Practices Act in their prosecution of the foreclosure of the plaintiffs home. The
district court, like in DiPietro, held that pursuant to the Colorado River doctrine the district court
must abstain from the federal action because the two actions were parallel and "a ruling in [the

6

district] court on plaintiffs claims would unnecessarily cause havoc with the rulings of the state
court." !d. at 255.
By the same token, this action and the Foreclosure Action are parallel proceedings. Both
cases involve essentially the same parties: Plaintiffs; Defendant HSBC Bank; and Zucker
Goldberg, HSBC's attorneys in the Foreclosure Action.

Additionally, these cases contain

substantially identical claims raising nearly identical allegations and issues.

Specifically,

Plaintiffs claim in both actions that HSBC does not have standing in the Foreclosure Action and
that Defendants made fraudulent promises to Plaintiffs to induce their default.

In their

opposition brief to HSBC's Motion to Dismiss, Plaintiffs even assert that the two cases "are
inextricably intertwined in terms of cause of action [counts] and party identity." (Pls.' Opp. Br.
at 2, ECF No. 8.) Both actions principally concern whether Defendants are entitled to foreclose
on Plaintiffs' Property and, thus, are parallel for purposes of the Colorado River doctrine.
Furthermore, the six factors weigh in favor of abstention. First, the state court initially
obtained jurisdiction and has been overseeing the litigation of the Foreclosure Action for more
than three years, and the state also has jurisdiction over the res, Plaintiffs' home, which is
located in New Jersey. Second, Plaintiffs' Complaint requests a declaration or injunction that
would nullify or possibly contradict any ruling of the state court as to whether the transfer of title
was proper. Any relief that could be granted by this Court would directly impact New Jersey's
interest in protecting the authority of its judicial system.

Like in DiPietro, these actions

"implicate important state interests-foreclosure of a property in New Jersey, the conduct of
attorneys ... in the state court, and the actions of a local bank." DiPietro, 2012 WL 2116404, at
*4.

Moreover, a federal court ruling that the Foreclosure Action is impermissible and a

contemporaneous state court judgment allowing the foreclosure "would throw into turmoil the

7

parties' rights and obligations over plaintiffs' home and mortgage, as well as the comity between
courts." St. Clair, 637 F. Supp. 2d at 255. Third, Plaintiffs' claims and defenses are primarily
based on state law, except for Plaintiffs FDCPA claim, which is based on federal law. While
"the presence of federal-law issues must always be a major consideration weighing against
surrender," Moses H Cone Mem 'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 (1983), the
state court is an adequate forum to review Plaintiffs' federal claims. Fourth, the state court is
capable of protecting the interests of Plaintiffs in this litigation, and Plaintiffs' rights and claims
may still be vindicated in the Foreclosure Action or through the state appellate process. Lastly,
this Foreclosure Action has been ongoing for over three years in the county where the Property
and Plaintiffs are located. Although not as inconvenient as the federal forum in Colorado River,
this Court is located a significant distance away from the Property and the Foreclosure Action
and would cause all parties several hours in travel time to litigate a "parallel" action in this
forum.
Based on these factors and that a ruling in this Court on Plaintiffs' claim could
unnecessarily cause havoc with the rulings of the state court, this Court must abstain from
hearing Plaintiffs' case and must dismiss Plaintiffs' Complaint without prejudice. Plaintiffs may
refile their claims in this Court once their state court action has reached a final resolution, if
appropriate. 1
III.

CONCLUSION
For the reasons set forth above, and for other good cause shown, the Court must abstain

from hearing Plaintiffs' case pursuant to the Colorado River doctrine; thus, Plaintiffs' Complaint

1

The Court notes that res judicata principles may then be implicated. See Exxon Mqbil Corp. v.
Saudi Basic Indus. Corp., 544 U.S. 280, 292 (2005) ("Disposition of the federal action, once the
state-court adjudication is complete, would be governed by preclusion law.")
8

is dismissed without prejudice. In light of the Court's decision, the Court need not address
Defendants' arguments in support of dismissal. An Order consistent with this Opinion will be
entered.

UNITED STATES DISTRICT JUDGE

Dated: October3, 2014

9