23-421-cv Powell v. Ocwen Loan Servicing, LLC

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 26th day of February, two thousand twenty-four.

PRESENT: DEBRA ANN LIVINGSTON, Chief Judge, GERARD E. LYNCH, BETH ROBINSON, Circuit Judges. _____________________________________

Gary Powell, Gail Powell,

Plaintiffs-Appellants,

v. 23-421

Ocwen Loan Servicing, LLC, as Servicer for Deutsche Bank National Trust Company, PHH Mortgage, DBA

1 Newrez, Hinshaw & Culbertson, LLP, Does, 1-50, 1

Defendants-Appellees. _____________________________________

FOR PLAINTIFFS-APPELLANTS: Gary Powell, Gail Powell, pro se, Wallingford, CT.

FOR DEFENDANTS-APPELLEES: Marissa I. Delinks, Aaron A. Fredericks, Hinshaw & Culbertson LLP, Boston, MA.

Appeal from a judgment of the United States District Court for the District

of Connecticut (Kari A. Dooley, Judge).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED, AND DECREED that the judgment of the district court is

AFFIRMED IN PART and VACATED and REMANDED IN PART.

Because we write primarily for the parties, who are familiar with the history

of this case, we recite only what is necessary to explain our decision. In 2018, a

Connecticut state court entered a judgment of foreclosure on the Wallingford

home of plaintiffs Gary and Gail Powell. In the years since, the Powells have

brought a variety of state and federal challenges seeking to stave off the sale of

1 The Clerk of Court is respectfully directed to amend the official caption as set forth above.

2 their home—at least in part successfully, as the sale does not appear to have taken

place yet.

In 2020, during the pendency of a prior federal lawsuit filed after the initial

state judgment of foreclosure, the Powells claim they entered into a settlement

agreement with their loan servicer, which was intended to end the state and

federal litigation. Although the copy of the agreement provided by the Powells is

heavily redacted, the agreement appears to be aimed at giving the Powells an

opportunity to pay off their outstanding debt on more favorable terms.

The Powells filed this lawsuit in December 2021, alleging that the

defendants—primarily, servicer PHH Mortgage, DBA Newrez (“PHH

Mortgage”) 2 and its law firm, Hinshaw & Culbertson LLP (“Hinshaw”)—failed to

perform under the settlement agreement. The Powells bring various state law

claims, with their main count raising a breach-of-contract claim, and they seek

enforcement of the agreement, declaratory relief, and awards of attorney’s fees and

damages.

The defendants moved to dismiss the complaint, primarily on the ground

that the action was barred by the Rooker-Feldman doctrine. The district court

2We do not address the claims against defendant Ocwen Loan Servicing (“Ocwen”) because PHH Mortgage is Ocwen’s successor by merger.

3 agreed, first dismissing the claims against Hinshaw because it is not a party to the

settlement agreement (and concluding that it was otherwise protected by litigation

privilege) and then the remainder of the complaint for lack of jurisdiction under

the Rooker-Feldman doctrine. See Powell v. Ocwen Loan Servicing, LLC, No. 3:21-cv-

01605 (KAD),

(D. Conn. Mar. 16, 2023).

This appeal followed. We conduct de novo review of an order dismissing a

complaint under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction and

12(b)(6) for failure to state a claim. Jaghory v. N.Y. Sate Dep’t of Educ.,

,

329 (2d Cir. 1997). Because the Powells have been pro se throughout this federal

litigation, we construe their submissions liberally and interpret them to raise the

strongest arguments they suggest. Hunter v. McMahon,

(2d Cir.

2023).

Given that the Powells do not challenge the district court’s dismissal of

Hinshaw from this case, we affirm that portion of the district court’s judgment and

deem the Powells’ claims against Hinshaw abandoned. See Debique v. Garland,

(2d Cir. 2023) (“We consider abandoned any claims not adequately

presented in an appellant’s brief, and an appellant’s failure to make legal or factual

4 arguments constitutes abandonment.” (internal quotation marks and citation

omitted)).

Because the Powells focus their appeal only on the district court’s dismissal

based on the Rooker-Feldman doctrine, we proceed to consider that issue as to the

remaining defendants. “[U]nder what has come to be known as the Rooker-

Feldman doctrine, lower federal courts are precluded from exercising appellate

jurisdiction over final state-court judgments” because

(a) vests

federal appellate jurisdiction over state judgments exclusively in the United States

Supreme Court. Lance v. Dennis,

(2006) (per curiam). In this

Circuit, an action is barred under Rooker-Feldman only if “(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 review and rejection of that judgment; and

(4) the state judgment was rendered before the district court proceedings

commenced.” Hunter,

(internal quotation marks and citation

omitted).

We conclude that Rooker-Feldman does not prevent the exercise of federal

jurisdiction in this case. The Powells do not seek direct review and rejection of the

foreclosure judgment. See Vossbrinck v. Accredited Home Lenders, Inc.,

,

5 427 (2d Cir. 2014). Instead, they allege nonperformance under a settlement

agreement in which the defendants, having obtained a judgment, did not seek to

immediately collect on it, and instead offered the Powells terms for retaining

ownership of their home.

In effect, the Powells challenged the way in which the defendants chose to

enforce (or not enforce) the foreclosure judgment they obtained in state court. Cf.

Bell v. New Jersey,

(1983) (explaining that a judgment is generally

not self-executing, and a party who secures a money judgment “may have to

undertake further proceedings to collect the damages awarded”). The harm here

flows from allegedly wrongful conduct in breaching a settlement agreement, not

the foreclosure judgment itself. See Sung Cho v. City of New York,

(2d Cir. 2018) (“[T]he complaint attacks the conduct itself, and the claim does not

function as a de facto appeal.”) As we have explained, state-court losers may

challenge a party’s conduct in litigation that resulted in a foreclosure judgment if

it does not require the federal court to “consider[] independently . . . the merits of

that foreclosure judgment.” Hansen v. Miller,

(2d Cir. 2022). The

same is true of conduct in litigation that follows from a state court foreclosure

judgement.

6 Our decision is narrow. We do not decide whether the Powells have a valid

or plausible breach claim, or even whether the defendants are bound by the

alleged settlement agreement. We express no opinion as to whether the Powells’

breach of contract claims or claims for relief are subject to issue preclusion on the

basis of state court rulings. We conclude only that jurisdiction to enforce this

alleged settlement agreement, whether by awarding damages or compelling

performance by PHH, is not barred by Rooker-Feldman simply because the

settlement agreement was ancillary to a state court judgment.

Although Rooker-Feldman is not a bar to jurisdiction in this case, the federal

courts may lack jurisdiction due to incomplete diversity. This Court has the

“independent obligation to consider the presence or absence of subject matter

jurisdiction sua sponte.” Joseph v. Leavitt,

(2d Cir. 2006). “[T]he party

seeking to invoke jurisdiction under

bears the burden of

demonstrating that the grounds for diversity exist and that diversity is complete.”

Herrick Co. v. SCS Commc’ns, Inc.,

, 322–23 (2d Cir. 2001) (internal

quotation marks and citation omitted).

The Powells did not satisfy this obligation. First, their complaint failed to

plead that the amount in controversy “exceeds the sum or value of $75,000.” 28

(a). And, more crucially, the Powells did not set out a complete and

accurate accounting of the defendants’ citizenship. They identified Hinshaw as a

Massachusetts citizen, but a law partnership like Hinshaw’s “has the citizenship

of each of its partners” for the purposes of establishing diversity. Herrick, 251 F.3d

at 322. Although we affirm Hinshaw’s dismissal, the Powells have also not

properly alleged the citizenship of PHH Mortgage, a corporation. For the

purposes of diversity jurisdiction, a corporation is a citizen of both its state of

incorporation and its principal place of business. Carter v. HealthPort Techs., LLC,

(2d Cir. 2016). Here, the Powells have only alleged PHH Mortgage’s

principal place of business. Accordingly, if the defendant is a citizen of

Connecticut, the required complete diversity would be lacking because the

Powells allege that they are citizens of Connecticut. Because the factual record

does not definitively establish or defeat diversity jurisdiction, we leave this

question for the district court to decide.

We do not reach the remaining arguments in light of our disposition above.

Accordingly, we AFFIRM IN PART and VACATE and REMAND IN PART for

further proceedings consistent with this order.

FOR THE COURT: Catherine O’Hagan Wolfe, Clerk of Court

8