Case No. 09-46315-wsd, Adv. Pro. No. 09-4903-wsd.United States Bankruptcy Court, E.D. Michigan, Southern Division — Detroit.
November 5, 2009
ORDER DENYING COUNTER-DEFENDANT’S MOTION TO DISMISS COUNT I OF COUNTERCLAIM
WALTER SHAPERO, Bankruptcy Judge
This matter came before the Court upon Counter-Defendant, Borrowers Network, LLC’s Motion to Dismiss Defendant’s Counterclaim (Docket No. 9); Count I of said Counterclaim asserts that a January 2, 2008 Sheriff’s Deed is void and Count II alleges violations of the automatic stay; the Debtor and Counter-Plaintiff, Ruth Crouch, filed a Response to the Motion and the matter was set for hearing;
At said hearing, the Court denied the Motion to Dismiss as to Count II of the Counterclaim as there were substantial factual issues outstanding; the Court determined that an evidentiary hearing would be necessary to decide the applicability of res judicata/collateral estoppel to Count I of the Counterclaim as it would require a review of all of the prior state court proceedings involving the parties and the properties; per the Court’s request, the parties filed papers evidencing the prior state court proceedings, the evidentiary hearing was held, and the parties submitted post-hearing briefs;
The following facts are shown by the evidence submitted:
Page 2
1. Borrowers Network is servicing agent for Wolf, the holder of a note and mortgage secured by four parcels of real property (Parcels “A”, “B”, “C”, and “D”) owned by Debtor.
2. Borrowers Network foreclosed by advertisement upon and obtained a sheriff’s deed dated October 26, 2005 on Parcel D. Its redemption period expired on October 26, 2006.
3. Borrowers Network also foreclosed, by way of a separate advertisement, upon Parcel A and obtained a sheriff’s deed dated December 7, 2005. That redemption period expired on June 7, 2006.
4. There having been no redemption, on June 21, 2006, Borrowers Network filed a Complaint for Termination of Tenancy in Jackson County 12th District Court seeking possession of Parcel A. Crouch filed an answer and counterclaim. On February 26, 2007, that court issued an order, finding among other things, that “[a]lthough Wolf did not properly conduct the sheriff sales, the court finds that Wolf properly foreclosed the mortgage.” The court then ordered dismissal of the action for possession because of the improperly conducted sale.
5. Thereafter, Borrowers Network reinitiated statutory foreclosure by advertisement proceedings with respect to Parcel A. In response thereto, on May 23, 2007, Crouch filed a “Complaint to Enjoin Foreclosure By Advertisement and to Declare Right to Have Defenses and Foreclosure of Equity of Redemption Determined by Action Pursuant to Equitable Accounting; the Defense of Usury” in the Jackson County Circuit Court. On June 14, 2007, that court issued an oral opinion dismissing that action. Crouch moved for reconsideration, which was denied by written order dated August 16, 2007, which stated that the earlier oral ruling was based primarily on res judicata, because many of Crouch’s claims had previously been raised in District Court. Regarding Crouch’s claim of defective foreclosure notice in connection with the reinitiated foreclosure proceedings, the court found that it was “an insufficient basis to proceed with a cause of action . . .” The order also found that there had not been improper parceling and that the sale complied with MCL 600.5244. This last finding was apparently in reference to the allegation in paragraph 20 of Crouch’s Complaint that “Defendant isPage 3
attempting improperly to parcel the foreclosure sale in order to reduce the amount of time Plaintiffs may have under MCL 600.3240 to redeem from such a sale.”
6. Following the Circuit Court’s oral opinion, on June 22, 2007, Crouch filed a “Motion to Clarify, Modify and/or Amend Opinion and Orders as by Delayed Reconsideration on Oral Argument” in the Jackson County 12th District Court regarding its February 26, 2007 order. On August 20, 2007, the District Court entered an order denying the Motion.
7. Borrowers Network then reinitiated foreclosure by advertisement proceedings (a) as to Parcel A, pursuant to which it obtained a sheriff’s deed dated November 14, 2007 with a six month redemption period; and (b) as to Parcel D, pursuant to which it obtained a sheriff’s deed dated January 2, 2008 with a twelve month redemption period.
8. Crouch did not effect a redemption as to either Parcel A or D within the indicated periods, the last of which ended in January 2009. Soon after that last date, Borrowers Network initiated state court proceedings for possession presumably both parcels and obtained an order for possession.
9. On March 3, 2009, the Michigan Court of Appeals issued an opinion affirming the Circuit Court’s 2007 decisions.
10. On March 4, 2009, Crouch filed her Chapter 12 petition.
11. On May 26, 2009, Borrowers Network commenced this adversary proceeding and on June 17, 2009, Crouch filed her Answer and Counterclaim.
The Complaint specifically seeks (1) a declaration that Debtor (or the bankruptcy estate) no longer has any interest in Parcel D; and (2) a declaration as to whether Debtor (or the bankruptcy estate) is entitled to possession of certain personal or other property located on the realty in question at the time that plaintiff took possession of such immediately prior to the filing of this case pursuant to the referred state court possessory proceedings. Debtor filed a counter-claim, and particularly Count I, asserts that the January 2, 2008 sheriff’s deed regarding Parcel D, was void and no effect. Essentially Debtor’s argument is that the mortgage with respect to Parcel D had been extinguished by reason of the November 14, 2007 foreclosure sale of Parcel A, and therefore the
Page 4
subsequent foreclosure proceedings with regard to Parcel D leading to that January 2, 2008 sheriff’s deed were void and ineffective.
The matter before the Court is plaintiffs motion to dismiss that count of the counterclaim on res judicata, collateral estoppel, and/or Rooker-Feldman doctrine grounds i.e., that the prior state court proceedings decided the indicated issue against Debtor who is therefore now precluded from relitigating it in this Court.
A review of the pleadings and papers from the state court actions does not reveal the specific argument made in Count I having ever been previously made, therefore collateral estoppel (or issue preclusion) does not apply; nor is there any record or evidence before the Court of litigation involving the January 2, 2008 sheriff’s deed for Parcel D (as compared to earlier sheriff’s deeds), so res judicata (or claim preclusion) does not apply. It is possible that what happened in the pre-January 2008 litigation might be or become relevant to the Counterclaim Count I theory. That does not mean, however, that such precludes as a matter of law any further litigation or inquiry into that claim as Movant argues. Debtor’s Counterclaim may ultimately prove unmeritorious for any number of reasons, but in the posture here presented that will result from a trial on its merits before this Court. Accordingly, the Court must deny the Motion to Dismiss as it pertains to Count I to the extent it relies upon res judicata/collateral estoppel.
With regards to the applicability of the Rooker-Feldman doctrine, the Court does not have before it any records of the one state court proceeding to which it may apply — the eviction or possessory action occurring immediately prior to the bankruptcy filing. Without such information, the Court is unable to determine the doctrine’s applicability. Accordingly, the Court cannot at this point grant the Motion to Dismiss as it pertains to Count I to the extent it relies upon the Rooker-Feldman doctrine.
Now therefore, IT IS HEREBY ORDERED that the Motion to Dismiss as it relates to Count I of the Counterclaim is DENIED.
West Page 232