Loughran v. Wells Fargo Bank, N.A.

Case Type:
Case Status:
19-3530 (7th Circuit, Jun 22,2021) Published
The U.S. Court of Appeals for the Seventh Circuit (Panel) (1) asserted its appellate jurisdiction to review a stay of district-court proceedings under 28 U.S.C. § 1291 and (2) affirmed the district court’s invocation of Colorado River abstention to justify staying a practically indistinguishable federal action in favor of an earlier began state court action. The Panel read § 1291 to authorize appeals whenever a stay order’s object requires “all or an essential part” of the federal suit to be litigated in a state forum and applied its two-step Colorado River test similar to the district court.
Procedural context:
In January 2019, after seven years of litigation in the Circuit Court of Grundy County, Illinois (SC), over the ability of U.S. Bank (USB) to foreclose upon a 2015 mortgage (the Mortgage), Daniel and Margaret Loughran filed a complaint that copied and pasted large swathes of text from their state court filings in the U.S. District Court for Northern District of Illinois (DC). Wells Fargo Bank N.A. (WF), the servicer for Mortgage and the custodian of the New York common-law trust (Trust) into which it had been securitized pursuant to a Pooling and Servicing Agreement (PSA), moved to stay and to dismiss this thusly launched federal court action pending the outcome of the foreclosure proceedings long pending before the SC in two separate motions. The DC granted WF’s motion to stay pursuant to the two-part Colorado River abstention test used within the Seventh Circuit, first confirming the proceedings’ parallelism and then going through, and weighing, each of the ten common factors. Having decided to stay the PLs’ suit, the DC did not rule on WF’s motion to dismiss. Shortly after this order’s release, the PLs filed a chapter 13 petition; shortly before oral argument, their case was dismissed. The PLs timely appealed, challenging the DC’s (1) stay analysis, and (2) failure to deny their request for leave to amend. In the midst of the appeal, they further sought sanctions against WF for informing the Panel of their chapter 13’s case dismissal as well as the striking of WF’s filing to that effect. The Panel denied the PLs’ motion to strike and for sanctions and affirmed the DC’s analysis.
The saga had meandered through Illinois’ state court system for years. That state court litigation grew from the Mortgage, which secured a loan of $395,380 taken by the PLs from WF in 2005. Thereafter, WF securitized the Mortgage via its transfer to the Trust in accordance with, and as governed by, the PSA. USB was designated the trustee, and WF was classified as the servicer of the loan as well as the custodian of the trust, keeping physical possession of the original notes and mortgages. In 2011, the PLs defaulted, and WF initiated foreclosure proceedings in SC. In the first two years after this opening filing, the PLs sought to obtain a mortgage modification pursuant to the federal Home Affordable Modification Program. In March 2015, WF formally denied their request, citing the prohibitions within the PSA. In October, USB sought dismissal of the PLs’ affirmative defenses and one counterclaim. Unopposed, the SC granted this motion. USB followed up with a motion for summary judgment. At this point, two years of litigation over the PLs’ right to access the PSA commenced. Eventually, the PLs did obtain the PSA, from which they purported to newly discover that (1) WF was in possession of the original note, and (2) WF had hired USB’s counsel in the foreclosure proceedings. With this new information in hand, and dismissing the explanation for these facts apparent from the PSA itself, the PLs filed a third-party complaint against WF in June 2018—and a petition to recuse the presiding judge for cause. The SC denied the latter request, and the PLs thereafter voluntarily dismissed their complaint. In the first month of 2019, USB filed a second motion for summary judgment. The PLs responded with three new affirmative defenses. USB responded by moving to strike these defenses. Seemingly sensing that their “fraud claim was going nowhere,” the PLs turned elsewhere. By this time, the Pls had remained in possession of their home despite not having made a single mortgage payment in nine years.
Diane S. Wood; David F. Hamilton; and Frank H. Easterbrook

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!

About us in numbers

3355 in the system

3233 Summarized

1 Being Processed