Homeowner Trips Over Procedural Rules, Sinking Proposed Class Action Alleging Servicer Overcharges Without Lawsuit's Merits Ever Being Addressed

The following facts come from a recent ruling from a U.S. Circuit Court of Appeals (3rd Circuit), applying the law of the State of New Jersey in a controversy centered on a foreclosure action (the take-away here, folks, is that regardless of the merits of a case, if a lawsuit is filed in the wrong court, the plaintiff could find itself dead in the water without the litigation ever really getting out of the starting gate. And, by the way, filing in the wrong court is no unusual occurrence; it happens quite frequently in the context of foreclosure actions when homeowners bring certain actions having some connection to the foreclosure in a Federal court long after a state court has already rendered judgment in the foreclosure action itself):

1. Homeowner goes into default on her home mortgage loan.


2. Chase filed a foreclosure action in the Chancery Division of the New Jersey Superior Court (ie. state court) and obtained a judgment of $90,401, plus fees.


3. Homeowner, however, did not pay the judgment, and a foreclosure sale was stalled for approximately three and a half years while she filed three bankruptcy proceedings.


4. After dismissal of the third bankruptcy proceeding, Chase sent Homeowner a quote for reinstating the mortgage in return for a payment of $18,658. Of that total, the letter stated that $900 was to be collected for foreclosure fees and $5,791 was to be collected for foreclosure costs.


5. Homeowner paid in full the amount quoted by Chase to reinstate her mortgage, and the Chancery Court entered a judgment of dismissal without prejudice in the foreclosure action.


6. Two years after paying the reinstatement balance, Homeowner commenced a class action suit in a U.S. (Federal) District Court against Chase alleging multiple claims, all stemming from the alleged overcharges of foreclosure costs and fees contained in the reinstatement quote.


7. Without considering the merits of the allegations, the District Court booted the lawsuit, saying Homeowner failed to state a claim upon which relief may be granted.


8. On appeal, the 3rd Circuit Court of Appeals affirmed the lower court ruling.

Agreeing with the lower court, the appeals court applied New Jersey's 'entire controversy doctrine' in finding, in a nutshell, that the homeowner brought her lawsuit in the wrong court.

It noted that her lawsuit should have been filed as a counterclaim in the original foreclosure action, which was filed in state court (ie. the Chancery Division of the New Jersey Superior Court) beacuse her suit was based on the same or similar underlying facts associated with the events related to the foreclosure action, said action being brought in the Chancery Court.(1) Accordingly, it was in the state court (as part of the original foreclosure action) where the Homeowner's lawsuit should have been brought.(2)(3)

For the ruling, see Coleman v. Chase Home Finance, LLC, No. 09-4727 (3rd Cir. July 12, 2011).

(1) The federal appeals court addresses the 'entire controversy doctrine' in the following excerpt (bold text is my emphasis):

• The entire controversy doctrine compels the parties, when possible, to bring all claims relevant to the underlying controversy in one legal action. When the court finds that a claim not joined under the original action falls within the scope of the doctrine, that claim is barred. N.J. Ct. R. 4:30A.
  
  The doctrine "seeks to further the judicial goals of fairness and efficiency by requiring, whenever possible, `that the adjudication of a legal controversy should occur in one litigation in only one court.'" Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 662 A.2d 509, 513 (N.J. 1995) (quoting Cogdell v. Hospital Ctr., 560 A.2d 1169, 1172 (N.J. 1989)). The doctrine is also applied to New Jersey claims in federal court. Bennun v. Rutgers State Univ., 941 F.2d 154, 163 (3d Cir. 1991).
  
  However, application of the entire controversy doctrine is "equitable in nature" and based substantially on "judicial fairness," meaning that the Court must balance considerations of judicial efficiency as well as fairness to the litigants. Cafferata v. Peyser, 597 A.2d 1101, 1103 (N.J. Super. Ct. App. Div. 1991)
  
  New Jersey courts have held that the primary consideration in determining if successive claims are part of the same controversy is whether the claims "arise from related facts or from the same transaction or series of transactions." DiTrolio v. Antiles, 662 A.2d 494, 502 (N.J. 1995). It is a "commonality of facts, rather than [a] commonality of issues, parties, or remedies that defines the scope of the controversy." Id. at 504.
  
  The limits of the entire controversy doctrine with regards to foreclosure actions are necessarily somewhat narrower, as N.J. Ct. R. 4:64-5 requires that only "germane" counterclaims may be joined in a foreclosure action. See N.J. Ct. R. 4:30A. Claims are considered to be germane to a foreclosure action if they arise out of the mortgage that is the basis of the foreclosure action. Leisure Technology-Northeast, Inc. v. Klingbeil Holding Co., 349 A.2d 96, 98 (N.J. Super. Ct. App. Div. 1975).
  
  Here, Coleman's claims arose directly out of a reinstatement quote that was provided to her as an alternative to a foreclosure sale, and the excessive fees allegedly charged by Chase would not have been charged but for the foreclosure action. Accordingly, Coleman's causes of action arose out of and were germane to the original foreclosure action.

(2) Homeowner's seemingly strong arguments against the application of the entire controversy doctrine in this case fell upon deaf judicial ears (bold text is my emphasis):

• However, Coleman makes three arguments why her federal claims should not fall within the doctrine despite the fact that they are otherwise "germane" to the foreclosure action.
  
  First, the doctrine is not a bar to successive claims where they have accrued after the pendency of the of the original action. McNally v. Providence Washington Ins. Co., 698 A.2d 543, 548 (N.J. Super. Ct. App. Div. 1997). Coleman argues that the foreclosure action was no longer pending once judgment was issued on August 1, 2002, and thus her claims are not barred by the entire controversy doctrine. We disagree.
  
  A court retains jurisdiction in a foreclosure action even after a final judgment, until delivery of the sheriff's deed under New Jersey Court Rule 4:65-5. Sovereign Bank, FSB v. Kuelzow, 687 A.2d 1039, 1043 (N.J. Super. Ct. App. Div. 1997). "The foreclosure action, although already the subject of a judgment, is not totally concluded until the defendants' equity of redemption is cut off by the delivery of the sheriff's deed." Id.
  
  Here, the fact that the foreclosure sale had been stalled due to the bankruptcy proceedings and the judgment had not been paid meant that the foreclosure action continued to be pending until Coleman paid the reinstatement quote and the judge vacated the judgment and dismissed the claims on January 20, 2006. Thus, the state court still had jurisdiction over the matter and Coleman could have brought her claims as a part of the original foreclosure action until January 20.
  
  Second, Coleman argues that the entire controversy doctrine does not apply to "related claims which were unknown, or had not arisen or accrued during the pendency of the original action." Riemer v. St. Clare's Riverside Med. Ctr., 691 A.2d 1384, 1388 (N.J. Super. Ct. App. Div. 1997). New Jersey's discovery rule states that a cause of action has not accrued unless the plaintiff knows or should have known that "(1) she has suffered damage and (2) that the damages were caused by the fault of another." Maertin v. Armstrong World Indus. Inc., 241 F.Supp.2d 434, 458 n.18 (D.N.J. 2002).
  
  Therefore, if Coleman was unaware of either of these facts at the time the foreclosure action became final on January 20, 2006, her successive causes of action would not yet have accrued and the doctrine would be inapplicable. Yet, when Coleman received the reinstatement quote from Chase on November 4, 2005, she should have been aware that the amount differed substantially from the fee determination in the original foreclosure action. Her counsel, who had represented her since the original foreclosure action, and whom we presume reviewed the reinstatement quote, also should have been aware of these facts. Thus, her cause of action accrued on November 4 while the original foreclosure action was still pending, and she is barred by the entire controversy doctrine.
  
  We also disagree with Coleman's argument that she did not have a "fair and reasonable opportunity to have fully litigated that claim in the original action." Cafferata, 597 A.2d at 1104. While it might not have been clear to Coleman that the fees charged by Chase in the reinstatement quote were allegedly in violation of state law, as explained above, it is undeniable that she was on notice, or should have been on notice, that the fees charged were substantially larger than those issued by the state court. This is especially true given that the same counsel represented Coleman from the time of the original foreclosure action up through the time that she paid the reinstatement quote.
  
  Ultimately, the entire controversy doctrine requires equitable considerations and is determinable on a case-by-case basis. Paramount Aviation Corp. v. Agusta, 178 F.3d 132, 137 (3d Cir. 1999). The "polestar for the application of the rule is judicial fairness." Reno Auto Sales, Inc. v. Prospect Park Sav. & Loan Ass'n, 581 A.2d 109, 113 (N.J. Sup. Ct. App. Div. 1990) (citing Cogdell, 560 A.2d at 1179) (internal quotation marks omitted).
  
  We must balance the plaintiff's right to bring a separate action against the defendant's right to avoid excessive litigation. Here, we are not persuaded that Coleman was deprived of a fair opportunity to litigate her claims.

(3) A point that begs highlighting here is that the allegedly screwed over homeowner in this case appears to be under a double onus to bring her claims not only within the applicable statute of limitations, but also within the boundaries set by the entire controversy doctrine. Said point was made in Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 142 N.J. 280, 662 A.2d 509 (N.J. 1995), in the context of a malpractice claim arising out of an attorney-client relationship where the errant attorney is continuing to represent a client on the underlying matter.

In this case, Chase sent Homeowner the quote for reinstating the mortgage on November 4, 2005. On January 17, 2006, Homeowner paid in full the amount quoted by Chase to reinstate her mortgage. Three days later, the Chancery Court entered a judgment of dismissal without prejudice in the foreclosure action. Unless the Chancery Court is requested to retain jurisdiction over the matter for possible claims arising from the foreclosure (or if, for whatever reason, the court is simply not asked to formally dismiss the case), it appears that Homeowner's window for bringing her claims for the alleged overcharges ran from November 4, 2005 (or possibly January 17, 2006, the date of actual payment of the alleged overcharges) through January 20, 2006 (the date of dismissal), notwithstanding what the applicable stautute of limitations might otherwise have been.

Because, according to the court, "the entire controversy doctrine requires equitable considerations and is determinable on a case-by-case basis," and Homeowner (who was operating under a foreclosure "Sword of Damocles" hanging over her head), only had, at best, 2 1/2 months to assess and bring her claims against Chase, it sure looks like she took a serious screwing over in this matter.