Insights

In February, the U.S. District Court for the District of Maine dismantled part of the lawsuit that spurred the robo-signing controversy that rocked the country last fall and brought the foreclosure process to a halt in more than 20 states.

Represented by pro bono lawyer Thomas A. Cox with Maine Attorneys Saving Homes, Nicole Bradbury, seeking to represent a class of borrowers facing foreclosure by GMAC Mortgage, LLC (GMAC), sued GMAC in Maine state court for breach of the implied covenant of good faith and fair dealing, abuse of process, fraud on the court, and violations of the Maine Unfair Trade Practices Act. GMAC removed the case to federal court on the basis of diversity of citizenship and the Class Action Fairness Act. The Bradbury plaintiffs subsequently moved to remand the case back to state court, while GMAC moved to dismiss Bradbury’s three state common law claims.

The federal trial court denied Bradbury’s motion to remand. The court found indisputable federal subject matter jurisdiction based on diversity of citizenship regarding the lawsuit’s three state common law claims. Because of diversity, the court concluded that it should retain the case in federal court.

The court then considered GMAC’s motion to dismiss the good faith and fair dealing claim, the abuse of process claim and the fraud on the court claim. With regard to the good faith and fair dealing claim, the Bradbury plaintiffs agreed to dismissal of this claim. On the abuse of process claim, the plaintiffs claimed that GMAC abused process by filing false certifications and affidavits in support of GMAC’s motions for summary judgment in Maine foreclosure proceedings. To sustain an abuse of process claim in Maine, the party alleging abuse of process must prove that the alleged abuser used process in a manner improper in the regular conduct of the proceeding and an “ulterior motive” existed for the abuse of process. The court reasoned that even if the affidavits and certifications used in the foreclosure cases constituted “process,” their use in the Maine foreclosures did not satisfy the “improper” use requirement to support an abuse of process claim, because the affidavits and certifications were used to win the foreclosure cases – a proper use of those documents. If the documents were false, the court found that the plaintiffs should seek to vacate the foreclosure judgments obtained, not to start a new lawsuit alleging abuse of process.

In a footnote, the court remarked that it doubted that the foreclosure affidavits and certifications constituted “process,” as process generally refers to invoking state power, such as a subpoena, attachment or a mechanic’s lien. The court did not rest its decision on this point; however, this thread of discussion could lead to a challenge in other litigation that raises an abuse of process claim.

The Court next dismissed the fraud on the court claim, holding that no Maine case law recognizes such a basis for a private damage recovery, and no Maine treatise on tort law even mentions a tort of “fraud on the court.” Fraud on the court may form a basis for vacating a judgment, for lawyer discipline, or for sanctions under state civil procedure rules, but it does not form a basis for the recovery of damages by a party in a later lawsuit.

Finally, the Court reconsidered the plaintiffs’ motion to remand the remaining claim under the Maine Unfair Trade Practices Act based upon both the Rooker-Feldman doctrine, which prohibits federal courts from hearing cases brought by state-court losers complaining of injuries caused by state-court judgments and inviting federal court review and rejection of those judgments, and the Younger abstention doctrine.

The district court held that Rooker-Feldman did not destroy the federal court’s subject matter jurisdiction over the Unfair Trade Practices Act claim because the plaintiffs claimed that GMAC’s conduct produced the state court judgments they attacked, not that the Maine courts committed legal error.

The court then considered the Younger abstention doctrine, which is generally appropriate if there is an ongoing state proceeding that involve important state interests, and provide adequate opportunity for federal action plaintiffs to present federal claims. Younger “counsels federal courts not to interfere by injunction with ongoing state judicial proceedings.”
However, when a plaintiff seeks damages, that doctrine commonly “calls upon the federal court merely to stay the damages claim until the state lawsuit is resolved, not dismiss or remand the claim for damages altogether.” The federal court noted that the foreclosure actions, including those pending at the time GMAC removed this lawsuit to federal court, have since been resolved. The court therefore concluded that it must proceed on the merits of the damages claim. Because the court concluded that it could not remand part of the case (the claim for equitable relief) while the rest (the claim for damages) proceeded actively in federal court, it denied the plaintiffs’ motion to remand the case to state court.

Catherine M. Brennan is a partner in the Maryland office of Hudson Cook, LLP. Cathy can be reached at (410) 865-5405 or by email at cbrennan@hudco.com.