IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
November 19, 2009
JOHN W. OLIVER, III, PLAINTIFF,
AMERICAN HOME MORTGAGE SERVICING, INC., DEFENDANT.
The opinion of the court was delivered by: Hillman, District Judge
This putative class action case--one of about a dozen similar actions filed in this District--concerns plaintiff's claims that defendant charged excessive attorney's fees and costs in plaintiff's state court foreclosure action. Defendant has moved to dismiss plaintiff's claims for failure to state a claim. For the reasons expressed below, defendant's motion will be granted.
On July 30, 2003, plaintiff John Oliver III signed a note and mortgage with Option One Mortgage Corp., on which he subsequently defaulted. On January 3, 2008, Option One Mortgage instituted a foreclosure action against plaintiff in New Jersey Superior Court, Chancery Division. On July 1, 2008, the loan was transferred to defendant American Home Mortgage Servicing, Inc. During the foreclosure proceedings, plaintiff requested a reinstatement quote from defendant, which defendant provided on September 11, 2008. The reinstatement quote requested a total of $31,1550.30, inclusive of attorney's fees of $1,935.00 and costs of $1,518.00. On September 19, 2008, plaintiff paid defendant the full reinstatement amount. According to plaintiff's complaint, however, attorneys for defendant in the foreclosure action prepared another reinstatement quote dated September 26, 2008 which demanded a total of $29,403.48, inclusive of fees and costs of $1,701.18.*fn1 Thereafter, defendant dismissed the foreclosure with prejudice and discharged the mortgage and lis pendens.*fn2
Plaintiff now claims that defendant demanded, and was paid, fees in violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., New Jersey statutes and court rules. Specifically, he contends that he paid $3,453.00 in attorney's fees and costs when only $1,701.18 were due. He purports to bring these claims on his behalf and on behalf of similarly situated individuals who have also paid these allegedly excessive fees.*fn3
Defendant has moved to dismiss plaintiff's claims on several bases. Plaintiff has opposed defendant's motion.
Plaintiff has brought his claims pursuant to the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., as well as under New Jersey state law. This Court has jurisdiction over plaintiff's federal claim under 28 U.S.C. § 1331, and supplemental jurisdiction over plaintiff's state law claims under 28 U.S.C. § 1367.
Defendant has moved to dismiss all claims in plaintiff's complaint on several bases, but primarily on the basis that his claims are barred by New Jersey's entire controversy doctrine. This Court recently dismissed essentially identical claims in Coleman v. Chase, Civ. A. No. 08-2215 (NLH/JS) pursuant to the doctrine, and the Court will do the same in this case.
As described in the Coleman Opinion, the fundamental principle of New Jersey's entire controversy doctrine, codified in Rule 4:30A of the New Jersey Rules of Civil Procedure*fn4 and applicable in federal court, Bennun v. Rutgers State University, 941 F.2d 154, 163 (3d Cir. 1991), is that "the adjudication of a legal controversy should occur in one litigation in only one court," and "is a reflection of the constitutional unification of the state courts and the comprehensive jurisdiction vested in the Superior Court established under our Constitution, which recognized the value in resolving related claims in one adjudication so that 'all matters in controversy between parties may be completely determined.'" Mystic Isle Development Corp. v. Perskie & Nehmad, 662 A.2d 523, 529 (N.J. 1995) (quoting N.J. Const., art. VI, § 3, ¶ 4).
The entire controversy doctrine serves three fundamental purposes: "(1) the need for complete and final disposition through the avoidance of piecemeal decisions; (2) fairness to parties to the action and those with a material interest in the action; and (3) efficiency and the avoidance of waste and the reduction of delay." DiTrolio v. Antiles, 662 A.2d 494, 502 (N.J. 1995). It is meant to constrain a plaintiff from "withhold[ing] part of a controversy for separate litigation even when the withheld component is a separate and independently cognizable cause of action." Paramount Aviation Corp. v. Agusta, 178 F.3d 132, 137 (3d Cir. 1999).
In determining whether successive claims constitute one controversy for purposes of the doctrine, the central consideration is whether the claims "ar[o]se from related facts or the same transaction or series of transactions" as the state court claims. Fields v. Thompson Printing Co., 363 F.3d 259, 265 (3d Cir. 2004). (quoting DiTrolio, 662 A.2d at 502 (1995)). The Supreme Court of New Jersey has explained that it is a "commonality of facts, rather than commonality of issues, parties or remedies that defines the scope of the controversy." DiTrolio, 662 A.2d at 503. It is the knowledge of the existence of a cause of action during the first proceeding that invokes the entire controversy doctrine. Maertin v. Armstrong World Industries, Inc., 241 F. Supp. 2d 434, 456 (D.N.J. 2002) (citing New Jersey state court cases). The party has such knowledge if she "knows, or should have known, of facts which establish that an injury has occurred and that fault for that injury can be attributed to another." Id. (citation omitted); Brown v. Brown, 506 A.2d 29, 30 (N.J. Super. Ct. App. Div. 1986) (concluding that "the entire controversy doctrine ordinarily requires joinder or attempted joinder of constituent causes arising pendente lite").
The "boundaries of the doctrine are not limitless," however. Mystic Isle, 662 A.2d at 529. It is well recognized that the entire controversy doctrine does not bar related claims which have not arisen or accrued during the pendency of the original action. McNally v. Providence Washington Ins. Co., 698 A.2d 543 (N.J. Super. Ct. App. Div. 1997). Further, it is an equitable doctrine, and its application is flexible, with a case-by-case appreciation for fairness to the parties. Paramount Aviation Corp. v. Agusta, 178 F.3d 132, 137 (3d Cir. 1999).
The entire controversy doctrine is applicable in the foreclosure context. See In re Mullarkey, 536 F.3d 215, 228 (3d Cir. 2008) (citing to Leisure Technology-Northeast v. Klingbeil Holding Co., 349 A.2d 96 (N.J. 1975) and stating that the case "reiterates the importance of the entire controversy doctrine and confirms that it is applicable to foreclosure proceedings"). New Jersey Court Rule 4:64-5, which governs the joinder of claims in foreclosure, somewhat narrows the scope of the doctrine, however. Id. That rule provides,
Unless the court otherwise orders on notice and for good cause shown, claims for foreclosure of mortgages shall not be joined with non-germane claims against the mortgagor or other persons liable on the debt. Only germane counterclaims and cross-claims may be pleaded in foreclosure actions without leave of court. Non-germane claims shall include, but not be limited to, claims on the instrument of obligation evidencing the mortgage debt, assumption agreements and guarantees. . . . .
N.J. Ct. R. 4:64-5. Thus, the entire controversy doctrine applies to foreclosure proceedings, but extends only to "germane" counterclaims. In re Mullarkey, 536 F.3d at 228 (citing Leisure Tech., 349 A.2d at 98-99).
Here, just like in Coleman, plaintiff's claims are barred by the entire controversy doctrine. Plaintiff claims he received two different reinstatement amounts--one demanding $3,453.00 in attorney's fees and costs, and the other demanding $1,701.18 in fees and costs. He claims he paid the first demand amount, which constituted an overpayment of $1,751.82 as demonstrated by the lesser, second reinstatement quote, and which violated the FDCPA, New Jersey state law and court rules. Instead of bringing defendant's alleged violations before the chancery judge, however, plaintiff waited to bring a separate cause of action here. This is improper and violative of the entire controversy doctrine.
First, the doctrine bars plaintiff's claims because they arose out of and during the foreclosure action, and plaintiff was aware of his claims while the foreclosure was still pending. During the pendency of the foreclosure action, plaintiff requested a reinstatement quote. One was provided to him by defendant on September 11, 2008. About a week later, plaintiff paid that quote amount. About another week later, and while the foreclosure action was still open, attorneys for defendant provided another reinstatement quote, this one charging approximately $1,700 less for fees and costs. At this point, plaintiff was aware that he may have overpaid. Defendant did not file its notice of voluntary dismissal until October 8, 2008, and thus, plaintiff had from September 26, 2008 until October 7, 2008 to inform the chancery court judge presiding over the foreclosure action of defendant's apparently contradictory reinstatement quotes. Even if plaintiff did not know specifically that the fees were arguably in violation of federal and state law and court rules,*fn5 at a minimum, he was aware of the discrepancy. Plaintiff had immediate recourse with the chancery judge in the foreclosure action for issues concerning the reinstatement of his mortgage, yet he failed to take that route as he was required to.*fn6
Second, the entire controversy doctrine is also applicable because plaintiff's claims are germane to his foreclosure action, and, accordingly, could have been brought in the foreclosure action. The New Jersey Appellate Division has addressed on several occasions whether a claim is germane to the foreclosure, and whether it should have been brought in the foreclosure action in lieu of the institution of a subsequent action in contravention of the entire controversy doctrine. For example, in Leisure Technology-Northeast v. Klingbeil Holding Co., 349 A.2d 96 (N.J. 1975), the defendant to a foreclosure action filed an answer and counterclaim alleging that the mortgage lender's fraudulent actions caused him to default on the loan. The Chancery Court judge granted the lender's motion to strike the affirmative defense, and transferred the counterclaim to the Law Division. The appeals court reversed, finding that the entire controversy doctrine required the counterclaim to be heard in the foreclosure action, and concomitantly, found that the counterclaim was germane. The court explained,
The use of the word 'germane' in the language of the rule undoubtedly was intended to limit counterclaims in foreclosure actions to claims arising out of the mortgage transaction which is the subject matter of the foreclosure action. We see no intention to prohibit or restrict counterclaims in a more narrow sense. . . . Here the thrust of the counterclaim is the assertion that plaintiff had breached the underlying agreement in relation to which the mortgage was executed and interfered with defendants' rights under that agreement. In the usually understood sense of the word, these claims were germane to the foreclosure action. We are persuaded that the single controversy doctrine to which we have referred above requires a liberal rather than a narrow approach to the question of what issues are 'germane.'
Leisure Technology, 349 A.2d at 98-99 (internal citations omitted).
Similarly, in Joan Ryno, Inc. v. First Nat. Bank of South Jersey, 506 A.2d 762, 767 (N.J. Super. Ct. App. Div. 1986), the plaintiff instituted a separate action regarding a lender's breach of the mortgage contract rather than raising that claim as a defense to the foreclosure. In the second action, the trial judge precluded the establishment of damages relating to the foreclosure, but permitted the establishment of damages relating to the breach of the mortgage contract. The appeals court reversed, finding that the entire controversy doctrine required that both issues were required to be raised in the foreclosure action. The court explained,
We are satisfied that if the single controversy doctrine applied then any claim that plaintiff could have otherwise asserted against defendant by reason of the breach of the commitment should have been barred. . . . In not precluding the second action which involved a component of what plaintiff itself claimed was a particular controversy, it allowed a result hardly consistent with the purpose of the doctrine to eliminate delay, avoid harassment and wasted time of the parties, avoid clogging of the courts and promote fundamental fairness. Our point is that once the doctrine was held applicable, the breach of the commitment and all damages from it were part of a single controversy which included the foreclosure so that plaintiff could not make any claim for breach of the commitment in this later action.
Renyo, 506 A.2d at 766-67 (internal citations omitted).
These cases support that plaintiff's claims are germane to the foreclosure action and should have been brought there. It is clear that plaintiff's dispute over the foreclosure fees arose out of the mortgage transaction which is the subject matter of the foreclosure action, and are therefore "germane," in the "usually understood sense of the word," to the foreclosure action. Because they are germane, pursuant to Rules 4:30A, 4:64-5, and 4:7-1*fn7 , plaintiff was required to assert his claims in the foreclosure action.
Like the Coleman case, this is another example of why the entire controversy doctrine exists. By withholding his claims, of which he was clearly aware during the pendency of his foreclosure action, and then instituting an action here, plaintiff prevented the resolution of the fees and costs issue in the appropriate forum. Plaintiff's attempt to transform a state court foreclosure issue between the two parties into an independent, federal court, putative class action is thwarted by the entire controversy doctrine and its purpose to "eliminate delay, avoid harassment and wasted time of the parties, avoid clogging of the courts and promote fundamental fairness." Renyo, 506 A.2d at 766-67 (citation omitted).*fn8 Consequently, plaintiff's claims must be dismissed.*fn9
For the reasons expressed above, defendant's motion to dismiss will be granted. An appropriate order will be entered.
NOEL L. HILLMAN, U.S.D.J.