Gunn v. AMBAC Assurance Corporation et al

Filing 60

ORDER ADOPTING REPORT AND RECOMMENDATION. The Court GRANTS Defendants' motions to dismiss with prejudice, and DENIES Gunn's motion to amend. The Clerk of Court is directed to terminate all pending motions and close this case. Pursuant to 28 U.S.C § 1915(a), I find that any appeal from this order would not be taken in good faith. (Signed by Judge Paul A. Crotty on 8/6/2012) (rjm) Copies Mailed by Chambers.

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: August 6, 2012

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------X
LA MAR GUNN,
:
:
Plaintiff,
:
:
11 Civ. 5497 (PAC)(JLC)
- against :
:
ORDER ADOPTING R&R
AMBAC ASSURANCE CORPORATION;
:
EQCC HOME EQUITY LOAN TRUST 1998-2
:
DATED 6.1.98 (CUSIP NO. 268917EN7); and
:
EQCC HOME EQUITY LOAN TRUST 1998-3, :
DATED 9.1.98 (CUSIP NO. 268917EV9),
:
:
Defendants.
:
---------------------------------------------------------------X
HONORABLE PAUL A. CROTTY, United States District Judge:

“Gunn) alleges that Ambac Assurance Corporation (
”
“Ambac and
”)
Pro se plaintiff La Mar Gunn (
two securitization trusts, EQCC Home Equity Loan Trust 1998-2 dated 6.1.98 (Cusip No.:
268917EN7) and EQCC Home Equity Loan Trust 1998-3 dated 9.1.98 (Cusip No.: 268917EV9) (
“the
trusts along with the trustee for the two trusts, U.S. Bank National Association (
”),
“U.S. Bank and its
”),
servicing agent, Select Portfolio Servicing, Inc. (SPS engaged in fraud and racketeering, leading to
“ ”),
the foreclosure of his Delaware home.
On November 16, 2011 and January 20, 2012, Ambac and SPS1 moved, pursuant to Fed. R.
Civ. P. 12(b)(1) and 12(b)(6), to dismiss Gunn’s complaint, arguing that: (1) the Court lacks subjectmatter jurisdiction under the Rooker-Feldman doctrine; (2) Gunn’s claims are barred by the doctrines
of collateral estoppel and res judicata;2 (3) some of Gunn’s claims are time-barred; and (4) Gunn
failed to state a claim for fraud, racketeering, civil conspiracy, or malicious prosecution. On
December 8, 2011, Gunn filed an opposition brief, and sought leave to amend his complaint.
1
2

SPS is acting in its role as servicing agent and attorney-in-fact for U.S. Bank.
SPS alone raised the res judicata defense.

On June 26, 2012, Magistrate Judge James Cott issued his thorough and scholarly Report and
Recommendation (
“R&R recommending that the Court grant Ambac and SPS’s motions to dismiss,
”),
deny Gunn’s motion to amend his complaint, and dismiss the complaint with prejudice. On July 15,
2012, Gunn file objections to the R&R.
For the following reasons, the Court adopts the R&R in its entirety, GRANTS Defendants’
motions to dismiss, and DENIES Gunn’s motion to amend.
I.

Background3
In 1997, Leisa and Robert Johnson (the “Johnsons) obtained a $235,000 mortgage (the“
”
first

mortgage on their residential property located at 210 Cornwell Drive, Bear, Delaware 19701 (the
”)
“
Property from EquiCredit Corporation of Delaware (
”),
“EquiCredit DE In 1998, the Johnsons took
”).
out a second mortgage on the Property from a different lender. Either in 1997 or 2002, the first
mortgage was assigned to U.S. Bank as trustee for an EQCC securitization trust. In 2001, the
Johnsons defaulted on their first mortgage. On July 19, 2002, U.S. Bank commenced a foreclosure
proceeding, and the Delaware Supreme Court entered a default judgment of foreclosure on August
29, 2002. On December 16, 2003, knowing that the first mortgage was in default and the Property in
foreclosure, Gunn purchased the Property and the second mortgage by quitclaim deed, which he
recorded on March 4, 2004.
The sheriff’s sale of the Property was stayed twice while the Johnsons filed for bankruptcy,
first under Chapter 13 in 2003, and then under Chapter 7 in 2004. In October 2004, after the
bankruptcy stay was lifted, U.S. Bank sought to proceed with the foreclosure and sheriff’s sale. In
November 2004, Gunn moved to stay the sale, arguing that U.S. Bank lacked standing to bring the
foreclosure proceeding because the assignment from EquiCredit DE to U.S. Bank was never
recorded. The sale was stayed and the assignment recorded on December 30, 2004.
3

All facts are taken from the R&R unless otherwise noted.

2

Beginning in October 2006, U.S. Bank again sought to proceed with the foreclosure and
sheriff’s sale, but the sale did not occur until December 9, 2008 because Gunn continued to challenge
U.S. Bank’s standing. Gunn thereafter continued to challenge the validity of the sale. On February
25, 2010, the Delaware Superior Court found that U.S. Bank was the real party in interest to the
foreclosure proceedings and the sheriff’s sale was proper. The court acknowledged that EquiCredit
DE’s assignment of its interest in the first mortgage to the trusts did not occur until after U.S. Bank
initiated the foreclosure proceedings, but concluded that the delay was “legally insignificant. On June
”
30, 2012, the Delaware Supreme Court affirmed this decision.
On November 12, 2010, the Superior Court granted a writ of possession to U.S. Bank; the
Delaware Supreme Court affirmed the writ of possession on May 26, 2011. On December 27, 2011,
Gunn moved to vacate the final judgment and void the writ of possession, and requested an
evidentiary hearing. On March 21, 2012, the Superior Court denied Gunn’s motion, again holding,
that the “sheriffs sale was authorized and, by the time of the sale, the loan was in serious default.4
”
II.

Instant Action
On July 26, 2011, Gunn instituted this action, alleging that as a part of a racketeering
—

enterprise or scheme to defraud the IRS, investors, unsuspecting homeowners, and the Delaware
courts the Defendants committed various illegal or fraudulent actions, including money laundering,
—
wire fraud, and mail fraud. Gunn argues that as a result of this scheme, the Defendants defrauded
Gunn of his home.

4

Magistrate Judge Cott set forth a detailed and comprehensive history of (1) Gunn’s subsequent collateral
actions in Delaware state courts relating to this foreclosure proceeding; and (2) U.S. Bank and SPS federal
suit against Gunn for trespass, conversion, unjust enrichment, tortious interference with prospective business
opportunities, slander of title, and abuse of process. These proceedings have no bearing on this Court’s
order, and there is no need to recount the parties’ tortured litigation history.

3

III.

Magistrate Judge Cott’s R&R
A.

Subject Matter Jurisdiction: Rooker-Feldman Doctrine

Under the Rooker-Feldman doctrine, federal district courts are divested of subject matter
jurisdiction over actions seeking appellate review of state court judgments. See Exxon Mobil Corp.
v. Saudi Basic Indus. Corp., 544 U.S. 280, 284-85 (2005). The Rooker-Feldman doctrine applies
where: (1) the federal-court plaintiff lost in state court; (2) the plaintiff complains of injuries caused
by a state-court judgment; (3) the plaintiff invites the district court’s review and rejection of that
judgment; and (4) the state-court judgment was rendered before the district court proceedings
commenced. Hoblock v. Albany Cnty. Bd. of Elections, 422 F.3d 77, 85 (2d Cir. 2005). “Courts in
this Circuit have consistently held that any attack on a judgment of foreclosure is clearly banned by
the Rooker-Feldman doctrine. Done v. Wells Fargo Bank, N.A., No, 08 Civ. 3040 (JFB) (ETB),
”
2009 WL 2959619, at *3 (E.D.N.Y. Sept. 14, 2009) (citations omitted).
Magistrate Judge Cott found that all four elements of the Rooker-Feldman doctrine were
satisfied here. (R&R 21-23.) First, Gunn lost in state court. The Delaware courts granted U.S. Bank
a writ of possession, which precluded Gunn’s assertion of ownership or possession over the Property.
(R&R 21.) Second, Gunn claimed in this action that his injuries included the loss of his home and
related costs, which were “caused by the state court order granting the foreclosure,“not by any action
”
of the defendants that the state court later ratified. Quiroz v. U.S. Bank Nat’l Assoc., No. 10 Civ.
”
2485(KAM)(JMA), 2011 WL 2471733, at *5 (E.D.N.Y. May 16, 2011). Third, Gunn explicitly
requests this Court to examine the Delaware state courts’ decisions, and remedy their purported
failings by declaring the state court judgments awarded to the Defendants’ void. (R&R 22.)5 Fourth

5

Gunn argues that the state court decisions should be declared void due to fraud. The Second Circuit has
“never recognized a blanket fraud exception to Rooker-Feldman.” Johnson v. Smithsonian Inst., 189 F.3d
180, 186-87 (2d Cir. 1999). While many courts have dismissed challenges to a state court’s decision under
the Rocker-Feldman doctrine even when plaintiff alleges that the judgment was procured by fraud, other
courts have allowed such challenges to proceed. (See R&R 23 n. 7 (collecting cases).) Magistrate Judge

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and finally, the Delaware Superior Court granted a writ of possession to U.S. Bank on November 12,
2010, and the Supreme Court affirmed this decision on May 26, 2011, which was approximately two
months before Gunn instituted this action on July 22, 2011. (R&R 23.) Having found that each of
the Rooker-Feldman elements was satisfied, Magistrate Judge Cott recommended that the Court
dismiss Gunn’s complaint in its entirety.
B. Collateral Estoppel
Alternatively, Magistrate Judge Cott recommended that the Court dismiss Gunn’s claims under
the doctrine of collateral estoppel, which precludes a party from relitigating a factual issue that had
been previously litigated and decided in a prior action, to which they were a party. See Smith v.
Guest, 16 A.3d 920, 934 (Del. 2011).6 Collateral estoppel is available when:
(1) the issue previously decided is identical with the one presented in the action in
question, (2) the prior action has been finally adjudicated on the merits, (3) the party
against whom the doctrine is invoked was a party or in privity with a party to the prior
adjudication, and (4) the party against whom the doctrine is raised has a full and fair
opportunity to litigate the issue in the prior action.
Norman v. State, 976 A.2d 843, 868 (Del. 2009) (quotation and citation omitted).7
Magistrate Judge Cott found that each element was present here. In his complaint, Gunn
challenges U.S. Bank’s standing to bring the foreclosure proceeding, and asserts its standing was
based on fraud. (R&R 25.) Gunn raised the same issue numerous times in his litigations “over the
course of a decade in Delaware state courts. (R&R 25-26.) The Delaware courts adjudicated this
”
issue on the merits, and repeatedly held that U.S. Bank was the real party in interest, the sheriff’s sale
was proper,“
there[] [was] no conversion, and“the right to foreclose ha[d] been established with
”

6

7

Cott recommends that the Court find that the Rooker-Feldman doctrine divests this Court of subject matter
jurisdiction despite Gunn’s allegations of fraud. In the alternative, he recommends that the Court dismiss
Gunn’s claims as barred by the doctrine of collateral estoppel. See infra, Section III .B.
When sitting in diversity, the preclusive effect of a state court proceeding is examined under that state’s law.
See Taylor v. Sturgell, 553 U.S. 880, 891 n.4 (2008).
As Delaware law does not require mutuality of estoppel, see Columbia Cas. Co. v. Playtex FP, Inc., 584
A.2d 1214, 1217(Del. 1991), Gunn’s argument to the contrary is without merit. (R&R 25 n.8.)

5

respect to [the] fraud claim. (R&R 26; see U.S. Bank Nat’l Assoc. v. Johnson, No. 02L-07-075 (FSS),
”
2010 WL 705723, at *2-3 (Del. Super. Ct. Feb. 25, 2010).) Finally, given that the Delaware Supreme
Court reviewed this issue on five separate occasions, Gunn clearly had a full and fair opportunity to
litigate this issue on the merits. (R&R 26.)
Accordingly, Magistrate Judge Cott found that even if the Rooker-Feldman doctrine did not
apply, “the doctrine of collateral estoppel bars Gunn from challenging the validity of the foreclosure
generally or U.S. Bank’s standing specifically. (Id.)
”
C.

Motion to Amend the Complaint

A pro se complaint should be liberally construed, and generally should not be dismissed by a
district court without granting the plaintiff leave to amend. Petway v. New York City Transit Auth.,
450 Fed. App’x 66, 67 (2d Cir. 2011). Granting leave to amend, however, “ not necessary when it
is
would be futile. Id.
”
Magistrate Judge Cott determined that granting Gunn leave to recast his claims or add other
parties“would not change the gravamen of his complaint, which is to overturn the state court
foreclosure proceeding, something over which this Court has no jurisdiction. (R&R 27.)
”
Accordingly, Magistrate Judge Cott recommended that the Court deny Gunn’s application, as any
amendment would be futile.
D.

Additional Motions

Since the Court lacks subject matter jurisdiction under the Rooker-Feldman doctrine, and that
Gunn’s claims are otherwise barred by the doctrine of collateral estoppel, Magistrate Judge Cott
recommended that the Court terminate all pending motions and applications as moot. See, e.g.,
Garvin v. Bank of New York, 227 F. App’x 7, 8-9 (2d Cir. 2007) (affirming dismissal for lack of

6

subject matter jurisdiction pursuant to Rooker-Feldman and denying pending motion to name
additional defendants.)8
IV.

Discussion
In reviewing a report and recommendation, a court may “accept, reject or modify, in whole or

in part, the findings or recommendations made by the magistrate judge. 28 U.S.C. § 636(b)(1)(C).
”
Where a party makes a timely “specific written objection, the district court is obligated to review the
”
contested issues de novo. Greene v. WCI Holdings Corp., 956 F. Supp 509, 513 (S.D.N.Y. 1997).
“ district court may adopt those portions of the report to which no timely objection has been made,
The
so long as there is no clear error on the face of the record. Feehan v. Feehan, No. 09 Civ. 7016, 2011
”
WL 497776 at *1 (S.D.N.Y. Feb. 10, 2011).
A. Objections
On July 15, 2012, Gunn file objections to the R&R, arguing that: (1) the R&R failed to
address that Delaware state courts lacked personal and subject matter jurisdiction over the prior
actions; (2) the Delaware state courts’ decisions were procured through fraud; (3) Ambac and SPS
lack standing; and (4) the R&R incorrectly stated that the Johnson’s defaulted in 2001.
Gunn’s jurisdictional attack on the state court judgments is without merit, as“no exception to
the Rooker/Feldman doctrine exists when there is a challenge to the state court’s personal jurisdiction
or subject matter jurisdiction. In re Salem, 290 B.R. 479, 483 (S.D.N.Y.2003); Callahan v. Callahan,
”
No. 1:10-cv-141-jgm, 2011 WL 2005388, at *5 (D.Vt. May 23, 2011).

8

These motions include: Gunn’s motion to disqualify SPS and the law firm of Eckert Seamans Cherin &
Melliot, LLC (“Eckert”) on the ground that they lack the authority to defend the trust; Gunn’s motion to
compel Defendants and third-party counsel to submit affidavits stating whether they have standing before
the Court, are acting within the Pooling and Servicing Agreement, and have the documentation to prove their
standing; and Gunn’s request for an evidentiary hearing under Rule 9(b).

7

Gunn argues that the Delaware state courts’ decisions were procured by fraud because a notary
involved in the mortgage assignment “
was found guilty of egregious violations of Pennsylvania
Notary Laws. (Objections 4-5.) Many courts have held that“
”
[t]he fact that [a] plaintiff alleges that
the state court judgment was procured by fraud does not remove [his] claims from the ambit of
Rooker Feldman. Smith v. Weinberger, 994 F.Supp. 418, 424 (E.D.N.Y.1998) (dismissing a
–
”
challenge to a state court foreclosure proceeding based on the Rooker-Feldman doctrine); Done v.
Wells Fargo Bank, N.A., No. 08 Civ. 3040 (JFB)(ETB), 2009 WL 2959619, at *3 n.6 (E.D.N.Y.
Sept. 14, 2009) (same); Parra v. Greenpoint Mortgage Co., No. 01 Civ.2010, 2002 WL 32442231, at
*2 (E.D.N.Y. Mar. 26, 2002) (same); Dockery v. Cullen & Dyckman, 90 F.Supp.2d 233, 236
(E.D.N.Y. 2000) (same); Drew v. Chase Manhattan Bank, N.A., No. 95 Civ. 3133, 1998 WL 430549,
at *6 (S.D.N.Y. July 30,1998) (same). Gunn’s factual allegations are similar to those presented in
Smith, Done, Parra, Dockery, and Drew, and are similarly foreclosed by the Rooker Feldman
–
doctrine.
The Court nonetheless recognizes that some courts have declined to apply the RookerFeldman doctrine where a plaintiff alleges that his injury was caused by the defendants’“perjury, fraud
and misrepresentations in procuring the judgment, rather than an incorrect court opinion. See, e.g.,
”
Marshall v. Grant, 521 F.Supp.2d 240, 244-45 (E.D.N.Y. 2007). Accordingly, in the alternative, the
Court finds that the doctrine of collateral estoppel bars Gunn’s claims, as all four elements to a
collateral estoppel defense are present here.9 First, the issues presented hereincluding U.S. Bank’s
—
standing and the possibility that it“obtained the foreclosure by fraud on the court were raised in the
—
”
prior Delaware state court actions. See U.S. Bank Nat. Ass’n v. Johnson, 2012 WL 1414085, at *1
(recounting prior actions). Second, the Delaware courts adjudicated these issues on the merits and
repeatedly held that U.S. Bank was the real party in interest, the mortgage assignment was not
9

The elements to a collateral estoppel defense are listed supra, at 5.

8

fraudulent, and “the loan was seriously in default. Id. Third, Gunn was a party to all the prior state
”
court actions. Fourth and finally, as the“dispute has already been reviewed by the [Delaware]
Supreme Court five times, id., Gunn clearly had a full and fair opportunity to litigate these issues.
”
Accordingly, Gunn’s claims are barred by the doctrine of collateral estoppel.
Having found that the Court is divested of subject matter jurisdiction under the RookerFeldman doctrine, and that Gunn’s claims are otherwise barred by the doctrine of collateral estoppel,
the Court will not consider Gunn’s objection regarding Defendants’ standing.
Finally, Gunn challenges the R&R’s factual recitation that the Johnson’s defaulted on their
mortgage in 2001. This fact was derived from the underlying action: U.S. Bank Nat. Ass'n v.
Johnson, C.A. No. 02L-07-075 FSS, 2010 WL 705723, at *1 (Del. Super. Ct. Feb. 25, 2010). Gunn
provides no argument or basis to believe that this fact is incorrect. Rather, Gunn appears to have
raised this objection to again note that the mortgage assignment occurred after the default. The
Delaware Superior Court, however, already determined that the late assignment was “legally
insignificant. Id. at * 3. Accordingly, Gunn’s final objection is without merit.
”
The Court has reviewed all other portions of the R&R for clear error and finds none.
Accordingly, the Court adopts the R&R in its entirety.
V.

Conclusion
The Court GRANTS Defendants’ motions to dismiss with prejudice, and DENIES Gunn’s

motion to amend. The Clerk of Court is directed to terminate all pending motions and close this case.

9