Court Opinion

ID: 3051923
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:38:09.369924+00
Date Added: 2024-06-11T11:41:16.126544
License: Public Domain

FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

KENNETH L. REUSSER; GERTRUDE          
REUSSER,
             Plaintiffs-Appellants,
               v.
                                           No. 06-35850
WACHOVIA BANK, N.A.;
WASHINGTON MUTUAL BANK, FA,                 D.C. No.
                                          CV-06-00112-HA
            Defendants-Appellees,
                                             OPINION
              and
GEORGIANNA K. NAKAMOTO; STEVEN
C. NAKAMOTO,
                       Defendants.
                                      
      Appeal from the United States District Court
               for the District of Oregon
    Ancer L. Haggerty, Chief District Judge, Presiding

                 Argued and Submitted
           December 6, 2007—Portland, Oregon

                    Filed May 8, 2008

  Before: Diarmuid F. O’Scannlain, Susan P. Graber, and
          Consuelo M. Callahan, Circuit Judges.

              Opinion by Judge O’Scannlain

                           5121
5124           REUSSER v. WACHOVIA BANK, N.A.

                         COUNSEL

Charles R. Markley, Greene & Markley, P.C., Portland, Ore-
gon, argued the cause for the plaintiffs-appellants and filed
briefs.

Thomas R. Johnson, Perkins Coie LLP, Portland, Oregon,
argued the cause for the defendants-appellees and filed a
brief; Amber A. Hollister, Perkins Coie LLP, Portland, Ore-
gon, was on the brief.

                         OPINION

O’SCANNLAIN, Circuit Judge:

   We must decide whether alleged fraud in a state court home
foreclosure proceeding during the homeowners’ bankruptcy
can be re-visited in federal court.

                              I

                              A

   In December 2001, Kenneth and Gertrude Reusser received
an $860,000 loan from Long Beach Mortgage Company, plac-
ing as collateral a home that had been in Kenneth’s family for
more than 100 years. Five months after receiving the loan, the
Reussers stopped making payments. In April 2003, Long
Beach Mortgage Company assigned its interest to Wachovia
Bank, which gave notice to the Reussers that it intended to
foreclose on the property through Washington Mutual Bank,
its loan servicing institution.
                 REUSSER v. WACHOVIA BANK, N.A.                    5125
   On August 27, 2003, the Reussers declared bankruptcy,
which automatically stayed the foreclosure sale under 11
U.S.C. § 362(a)(3). However, Washington Mutual applied for
and received a bankruptcy court order granting it relief from
stay, thereby allowing the foreclosure sale to proceed. The
bankruptcy court’s order was worded, in relevant part, as fol-
lows:

        It appears . . . that the stay should be lifted as to
      enforcement of the deed of trust that is the subject of
      Washington Mutual Bank, F.A.’s motion and further
      as to the [Reussers’] property . . .

         IT IS THEREFORE ORDERED that, pursuant to
      11 U.S.C. § 362(d), the automatic stay is terminated
      as to Washington Mutual Bank, F.A., its successors
      and assigns, so that it may pursue its state remedies
      to enforce its security interest in the Property and/or
      as to enforcement of the deed of trust that is the sub-
      ject of [its] motion.1

Wachovia was not a party to Washington Mutual’s motion
before the bankruptcy court, nor did Wachovia directly seek
relief from the automatic stay.

   Despite the bankruptcy court order, the Reussers remained
on the property, prompting Wachovia to institute a Forcible
Entry and Detainer (FED) proceeding in Oregon state court.
The accompanying Residential Eviction Complaint stated that
Wachovia was entitled to possession of the residence and that
the Reussers were required to appear in court on March 1,
2004, or a default judgment would be granted to Wachovia.
  1
   We take judicial notice of the bankruptcy court order, because it is a
matter of public record. See Kourtis v. Cameron, 419 F.3d 989, 994 n.2
(9th Cir. 2005); see also 11 U.S.C. § 107(a) (“[A] paper filed in a case
under [the Bankruptcy Code] and the dockets of a bankruptcy court are
public records.”).
5126             REUSSER v. WACHOVIA BANK, N.A.
After receiving the summons and complaint, the Reussers
wrote “Rejected for Cause Without Dishonor” across the front
page and returned it to the state court by registered mail,
along with a “First Amendment [sic] Petition for Abatement
of Action” challenging the merits of the FED proceeding.
Wachovia was served with a copy of the petition.

   A parade of errors followed, leading to the present action.
The Reussers failed to include a required $95 filing fee with
their petition, and a state court clerk therefore attempted to
return the petition by mailing it to the Reussers. However, the
clerk mailed the rejected petition to the wrong address. The
undelivered petition eventually was returned to the state court,
which took no further action. Then, under the mistaken belief
that their petition was filed and constituted an appearance, the
Reussers did not show up to the scheduled FED hearing. At
the hearing, Wachovia did not inform the state court that it
had been served with the “First Amendment Petition” by the
Reussers. Accordingly, the state court entered a default judg-
ment in favor of Wachovia.

   On May 7, 2005, the Reussers filed a motion in state court
to vacate the default judgment, which was followed by a hear-
ing. There, the Reussers argued that their failure to appear
was excused by Wachovia’s alleged failure to provide requi-
site notice that it would seek a default judgment, and by
Wachovia’s failure to inform the state court that it had been
served with the Reussers’ petition.2 The state court denied the
Reussers’ motion without specifying the grounds for its hold-
ing, and the Reussers’ appeal was dismissed as moot after the
Reussers’ property was sold in a subsequent foreclosure sale.
  2
   We take judicial notice of the record of the proceedings. See Kourtis,
419 F.3d at 994 n.2.
                  REUSSER v. WACHOVIA BANK, N.A.                     5127
                                    B

   Following their failed attempt to vacate the default judg-
ment in Oregon state court, the Reussers filed a complaint
against Wachovia and Washington Mutual in the United
States District Court for the District of Oregon, alleging two
federal claims. First, the Reussers brought a claim under 42
U.S.C. § 1983, arguing that Wachovia “acted jointly with
Washington County officers, clerks, judges and sheriffs under
color of law” wrongfully to evict the Reussers in violation of
their right to property. Second, the Reussers alleged that
Wachovia foreclosed on their property in violation of § 362,
arguing that the bankruptcy court’s order granted relief from
the stay only to Washington Mutual and therefore did not
apply to Wachovia. The Reussers also brought three state-law
claims against Wachovia, alleging that Wachovia committed
trespass, trespass to chattels, and false imprisonment.

   Wachovia and Washington Mutual moved to dismiss the
Reussers’ action under Federal Rule of Civil Procedure
12(b)(1) and (b)(6), asserting that the Rooker-Feldman doc-
trine deprived the district court of jurisdiction over the case,
and that the bankruptcy court’s order empowered Wachovia
to foreclose on the property under § 362(d). The district court
granted the motions and dismissed the Reussers’ action with
prejudice. The district court held, among other things, that it
lacked jurisdiction to consider the § 1983 claims under
Rooker-Feldman, because such claims constituted a de
facto appeal from the state courts’ refusal to vacate its default
judgment against the Reussers. Also, the district court dis-
missed the § 362 claim on the ground that the Reussers were
collaterally estopped from challenging Wachovia’s reliance
on the bankruptcy court’s order lifting the automatic stay.3
  3
   The district court rendered no factual finding as to “an affiliation
between Wachovia and Washington Mutual,” noting that Wachovia
“failed to produce evidence” concerning their relationship. Wachovia has
asked us to take judicial notice of a declaration from Carolyn Adams, First
5128              REUSSER v. WACHOVIA BANK, N.A.
The Reussers then brought the present appeal, and we con-
sider the district court’s grounds for dismissal in turn.4

                                     II

                                     A

   [1] The Reussers first argue that the Rooker-Feldman doc-
trine does not bar their § 1983 claims. The Rooker-Feldman
doctrine is a well-established jurisdictional rule prohibiting
federal courts from exercising appellate review over final
state court judgments. See Henrichs v. Valley View Dev., 474
F.3d 609, 613 (9th Cir. 2007); see also D.C. Court of Appeals
v. Feldman, 460 U.S. 462, 482-86 (1983); Rooker v. Fidelity
Trust Co., 263 U.S. 413, 415-16 (1923). We have recognized
that “[t]he clearest case for dismissal based on the Rooker-
Feldman doctrine occurs when a federal plaintiff asserts as a
legal wrong an allegedly erroneous decision by a state court,
and seeks relief from a state court judgment based on that
decision.” Henrichs, 474 F.3d at 613. (internal quotation
marks omitted).

Vice President of Washington Mutual Bank, F.A., and Corporate Secre-
tary for Long Beach Mortgage Company, which states that Wachovia
granted Washington Mutual “a Power of Attorney” to manage necessary
affairs and transactions related to” assets including the Reussers’ property.
Because the accuracy of the declaration is subject to reasonable dispute,
see Santa Monica Food Not Bombs v. City of Santa Monica, 450 F.3d
1022, 1025 n.2 (9th Cir. 2006), we decline to take judicial notice of such
declaration, and therefore proceed without accepting as true that Wachovia
and Washington Mutual bore such relationship.
   4
     The Reussers do not challenge either the district court’s dismissal of
their state-law claims, or its dismissal of their § 1983 claims concerning
excessive force allegedly used by law enforcement officers in evicting
them from their property. Accordingly, any challenge to the dismissal of
such claims is waived. See Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir.
1999) (“[O]n appeal, arguments not raised by a party in its opening brief
are deemed waived.”).
                REUSSER v. WACHOVIA BANK, N.A.                5129
   [2] However, Rooker-Feldman may also apply where the
parties do not directly contest the merits of a state court deci-
sion, as the doctrine “prohibits a federal district court from
exercising subject matter jurisdiction over a suit that is a de
facto appeal from a state court judgment.” Kougasian v.
TMSL, Inc., 359 F.3d 1136, 1139 (9th Cir. 2004) (citing
Bianchi v. Rylaarsdam, 334 F.3d 895, 898 (9th Cir. 2003)). A
federal action constitutes such a de facto appeal where
“claims raised in the federal court action are ‘inextricably
intertwined’ with the state court’s decision such that the adju-
dication of the federal claims would undercut the state ruling
or require the district court to interpret the application of state
laws or procedural rules.” Bianchi, 334 F.3d at 898. In such
circumstances, “the district court is in essence being called
upon to review the state court decision.” Feldman, 460 U.S.
at 483 n.16. Accordingly, we must determine whether the
Reussers’ § 1983 claims constitute a de facto appeal of the
Oregon court’s denial of their motion to vacate the default
judgment entered against them, in which case the district
court properly dismissed such claims for lack of subject mat-
ter jurisdiction.

                                B

   [3] The Reussers urge that their action does not collaterally
attack the merits of the state court decision; rather, they con-
tend that their complaint properly alleges that Wachovia
engaged in “extrinsic fraud” in bringing about the default
judgment against them. The Reussers rely on our holding in
Kougasian, in which we held that Rooker-Feldman does not
bar a federal plaintiff from asserting as a legal wrong that an
adverse party engaged in “conduct which prevent[ed] a [fed-
eral plaintiff] from presenting his claim in court.” 359 F.3d at
1140 (quoting Wood v. McEwen, 644 F.2d 797, 801 (9th Cir.
1981) (per curiam)). The focus of such claim is not on
whether a state court committed legal error, but rather on “a
wrongful act by the adverse party.” Id. at 1141; see also Mal-
donado v. Harris, 370 F.3d 945, 950 (9th Cir. 2004) (“The
5130            REUSSER v. WACHOVIA BANK, N.A.
legal wrong that [the plaintiff] asserts in this action is not an
erroneous decision by the state court . . . [The plaintiff] asserts
as a legal wrong ‘an allegedly illegal act . . . by an adverse
party.’ ”) (quoting Noel v. Hall, 341 F.3d 1148, 1164 (9th Cir.
2003)).

   [4] Here, the Reussers allege that Wachovia engaged in two
acts of extrinsic fraud. First, they allege that Wachovia failed
to provide sufficient notice of its intent to seek a default judg-
ment against the Reussers, in violation of Oregon Rule of
Civil Procedure (“ORCP”) 69A(1). Second, they allege that
Wachovia failed to inform the state trial court that they had
been served a copy of the Reussers’ petition contesting the
merits of the FED proceeding. The hitch in both contentions,
however, is that they already have been litigated in Oregon
state court. In their motion to vacate the state default judg-
ment, the Reussers argued that their failure to appear at the
FED proceeding was supported by “good cause” under ORCP
71, due in part to the same alleged misconduct at the heart of
the present suit. The state court denied the Reussers’ motion
and therefore left the default judgment intact.

   [5] The Reussers contend that the state court’s refusal to
vacate the default judgment cannot bar federal jurisdiction,
because the state court did not specify the precise grounds on
which its judgment rested. Accordingly, they argue, it is pos-
sible that the state court denied their motion on a procedural
ground, rather than deciding the merits of their claims. How-
ever, the record reveals that the parties did not present a pro-
cedural argument before the state court either in their written
motions or at the hearing that followed. While the state court
did not cite the specific grounds underlying its denial of the
motion, it expressly indicated that its decision was based on
its “review[ of] the motion and pleadings in support of and
opposition to the motion, and having heard argument from
counsel,” and when asked at the hearing whether it had any
questions concerning the case, the state court responded that
it did not. The only reasonable conclusions are that the state
                  REUSSER v. WACHOVIA BANK, N.A.                       5131
court refused to credit the Reussers’ factual allegations, or
that it held that the allegations of “fraud, misrepresentation, or
other misconduct of an adverse party,” ORCP 71B(c), were
insufficient to permit vacatur of the default judgment. Thus,
even drawing all “reasonable inferences from the complaint”
in the Reussers’ favor, Am. Fed’n of Gov’t Employees Local
1 v. Stone, 502 F.3d 1027, 1032 (9th Cir. 2007) (internal quo-
tation marks omitted), we must conclude that the state court
rejected the claimed extrinsic fraud on the merits.5

   [6] Accordingly, the Reussers’ § 1983 claims constitute a
de facto appeal of a state court decision and are therefore
barred by the Rooker-Feldman doctrine. That is, even assum-
ing that the misconduct that the Reussers allege rises to the
level of extrinsic fraud, such claim was itself separately liti-
gated before and rejected by an Oregon state court. See Taylor
v. Fed. Nat’l Mortg. Ass’n, 374 F.3d 529, 533-34 (7th Cir.
2004) (holding that the district court lacked jurisdiction to
review a claim of extrinsic fraud, because the alleged fraud
was separately litigated in a state action to vacate the purport-
edly erroneous judgment).6
  5
     The Reussers also argue that the Rooker-Feldman doctrine does not
apply, because Gertrude Reusser purportedly was not a party to the FED
proceeding. Even if such is true, the argument fails because Gertrude was
a party to the motion seeking to vacate the default judgment; it is that
motion which is inextricably intertwined with the present action.
   6
     While the Reussers correctly note that the Supreme Court recently rec-
ognized in Lance v. Dennis, 546 U.S. 459 (2006) (per curiam), that its
“cases since Feldman have tended to emphasize the narrowness of the
Rooker-Feldman rule,” id. at 464, none of the examples cited by the Court
bears any relation to this case. See Exxon Mobil Corp. v. Saudi Basic
Industries Corp., 544 U.S. 280, 292 (2005) (Rooker-Feldman does not
apply to parallel state and federal litigation); Verizon Md. Inc. v. Pub.
Serv. Comm’n of Md., 535 U.S. 635, 644 n.3 (2002) (Rooker-Feldman
“has no application to judicial review of executive action, including deter-
minations made by a state administrative agency”); Johnson v. De Grandy,
512 U.S. 997, 1005-06 (1994) (Rooker-Feldman does not bar actions by
a nonparty in a prior state suit). Lance, likewise, held that the Rooker-
Feldman doctrine does not bar federal actions merely because a party is
in privity with a state-court loser. 546 U.S. at 460. Nevertheless, while the
Rooker-Feldman doctrine has been pared back of late, it remains a viable
jurisdictional bar.
5132             REUSSER v. WACHOVIA BANK, N.A.
                                  III

   [7] The Reussers also contend that Wachovia violated fed-
eral bankruptcy law by foreclosing on their property. Under
11 U.S.C. § 362(a)(4), an application for bankruptcy “oper-
ates as a stay, applicable to all entities, of . . . any act to
create, perfect, or enforce any lien against property of the
estate.” Section 362(k), in turn, allows parties to seek dam-
ages for the violation of an automatic stay.7 However,
§ 362(d) empowers a bankruptcy court, “[o]n request of a
party in interest and after notice and a hearing,” to “grant
relief from the stay . . . such as by terminating, annulling,
modifying, or conditioning such stay.”

   From April 18, 2003, Wachovia was the holder of the trust
deed over the Reussers’ property. However, Washington
Mutual, rather than Wachovia, brought the motion in bank-
ruptcy court seeking relief from the automatic stay, and the
bankruptcy court did not name Wachovia in its order. Regard-
less, Wachovia argues that the order empowered it to fore-
close on the Reussers’ property. In addition to arguing that the
bankruptcy court order did not authorize Wachovia to fore-
close on the property, the Reussers now seek collaterally to
attack the bankruptcy court’s jurisdiction on the ground that
Washington Mutual lacked standing to seek relief from the
automatic stay.

   [8] The Supreme Court recently noted that “[b]ankruptcy
jurisdiction, at its core, is in rem,” such that it “is premised
on the debtor and his estate, and not on the creditors.” Cent.
Va. Cmty. Coll. v. Katz, 546 U.S. 356, 362, 369-70 (2006)
(internal quotation marks omitted). Thus, a final order lifting
an automatic stay is binding as to the property or interest in
  7
    Following the filing of the Reussers’ complaint, 11 U.S.C. § 362(h)
was re-designated as § 362(k) as part of the 2005 amendments to the
Bankruptcy Code. See Bankruptcy Abuse Prevention and Consumer Pro-
tection Act of 2005, Pub. L. No. 109-8, § 305(1)(B), 119 Stat. 23, 42.
               REUSSER v. WACHOVIA BANK, N.A.               5133
question—the res—and its scope is not limited to the particu-
lar parties before the court. See Tenn. Student Assistance
Corp. v. Hood, 541 U.S. 440, 448 (2004) (“A bankruptcy
court’s in rem jurisdiction permits it to ‘determin[e] all claims
that anyone, whether named in the action or not, has to the
property or thing in question. The proceeding is ‘one against
the world.’ ”) (quoting J. Moore, et al., 16 MOORE’S FEDERAL
PRACTICE § 108.70[1], p. 108-106 (3d ed. 2004)). The purpose
of bankruptcy courts’ “comprehensive jurisdiction” is to
enable them to “deal efficiently and expeditiously with all
matters connected with the bankruptcy estate.” Celotex Corp.
v. Edwards, 514 U.S. 300, 308 (1995) (internal quotation
marks omitted).

   [9] As such, it is immaterial that the bankruptcy court order
did not specifically name Wachovia. Rather, what matters is
that it addressed the deed of trust held by Wachovia; the
bankruptcy court order granted relief both “as to the enforce-
ment of the deed of trust” owned by Wachovia and “as to the
[Reussers’] property.” Accordingly, we are satisfied that the
order granted Wachovia the right to foreclose on the property.

   While the Reussers seek collaterally to challenge the bank-
ruptcy court’s jurisdiction, we need not address the merits of
such argument. We have held that, where a party’s standing
to participate in a bankruptcy proceeding depends on a factual
determination that could have been made by the bankruptcy
court had the parties raised the issue before it, a collateral
challenge to the bankruptcy court’s jurisdiction is waived. See
Marks v. Brucker, 434 F.2d 897, 899-900 (9th Cir. 1970)
(holding, accordingly, “that there is no jurisdictional defect in
the record and that the possible defense of absence of standing
of the bankrupt to object to the claim has been waived by fail-
ure to raise it below”). Here, whether Washington Mutual was
a stranger to the bankruptcy proceeding requires factual find-
ings concerning its relationship with Wachovia that could
have been resolved by the bankruptcy court had the Reussers
5134           REUSSER v. WACHOVIA BANK, N.A.
objected to Washington Mutual’s standing. There is no indi-
cation in the record that any such objection was raised.

   Accordingly, we must conclude that the Reussers’ collat-
eral attack on the bankruptcy court’s jurisdiction is unavail-
ing, and thus that Wachovia did not violate § 362 in
foreclosing on the Reussers’ property.

                              IV

   For the foregoing reasons, the district court’s dismissal of
the Reussers’ action is

  AFFIRMED.