This Pleading Was Drafted Last Year-A Few Salient Points

COMMENT:  Aside from the fact that this is a slow news week, I felt like I have been neglecting this site!  Yes, I was working.  But since I now have TWO dedicated followers, I’d like to share some of the work I have done fighting bankruptcy fraud.  I hope you enjoy it……

Within the Bankruptcy Courts, Debtors have a right to contest the fraudulent claim of a creditor:

“In passing upon and rejecting or allowing the proof of claim in this case the court of bankruptcy proceeds—not without appropriate regard for rights acquired under state law—under federal statutes which govern the proof and allowance of claims based on judgments. In determining what judgments are provable and what objections may be   made to their proof, and in determining the extent to which the inequitable conduct of a claimant in acquiring or asserting his claim in bankruptcy, requires its rejection or its subordination to other claims which, in other respects are of the same class, the bankruptcy court is defining and applying federal, not state, law.” See Prudence Realization Corporation v. Geist, supra, 316 U.S. 95, 96, 62 S.Ct. 982, 983, 86 L.Ed. 1293 and cases cited; cf. United States v. Pelzer, 312 U.S. 399, 402, 403, 61 S.Ct. 659,   660, 661, 85 L.Ed. 913.

The court denied Defendant’s rights protected by the 5th, 7th, and 14th Amendments to the Constitution of the United States as well as Article 1 § 1 of the Wisconsin Constitution, specifically: due process, impartiality, taking of property, and the unfair denial of the Defendant’s right to trial by jury as requested. “Due process is a matter of fundamental fairness which requires an individual be given a meaningful opportunity to present his or her case.” Mathews v. Eldridge, 424 U.S. 319, 349(1976)

This must be a fundamental requirement regardless of the number of similar cases adjudicated by the same judge. Each case should be considered fresh without anticipation of judgment in favor of one party over the other.

“Furthermore, pro se complaints are held to less stringent standards than pleadings drafted by lawyers and the court must construe them liberally.” Haines v. Kerner, 404 U.S. 519 (1972)

The District court abused its’ discretion by failing to take the Debtor/Plaintiff-Appellants assertions as true, constituting issues of law that would require evidentiary proceedings to ascertain the facts set forth by the Plaintiff-Appellants, at trial, and subsequent adjudication.

A bankruptcy court’s determinations regarding stay relief are reviewed for an  abuse of discretion, Kronmeyer, 405 B.R. at 919.  The abuse of discretion test involves two distinct determinations: first, whether the court applied the correct legal standard; and second, whether the factual findings supporting the legal analysis were clearly erroneous. United States v. Hinkson, 585 F 3rd 1247, 1261-1263 (9th. Cir. 2009) (en banc)

If the court failed to apply the correct legal standard, then it has “necessarily abuse[d] it’s discretion.” Cooter & Gell v. Hartmarx Corp., 490 U.S. 384, 405 (1990). This prong of the determination is considered de novo. Hinkson 585 F3d, at 1261-1262.  If the court applied the correct legal standard, then inquiry moves to whether the factual findings   made were clearly erroneous. Id. At 1262.  Under Hinkson, factual findings are clearly   erroneous if they are “illogical, implausible, or without support in inferences that may be drawn from the record.” Id. At 1263. See also rule 8013.

The Bankruptcy Courts’ error by going outside the four corners of the Adversary complaint to accept a vacated state court judgment as res judicata and applying it to the documents in Proof of Claim #6.  The actions and conduct of Defendant-Respondents attorneys and law firms, and documentary evidence that the illegal conduct occurred, not just during, but after the foreclosure judgment was obtained with fraud, and was also one of the causes of action in the adversary complaint itself. The Seventh Circuit has previously held….

“It is true that a bankruptcy court is also a court of equity”, Local Loan Co. v. Hunt, 292   U.S. 234, 240, 54 S.Ct. 695, 697, 78 L.Ed. 1230, 93 A.L.R. 195, “and may exercise equity powers in bankruptcy proceedings to set aside fraudulent claims, including a fraudulent judgment where the issue of fraud has not been previously adjudicated.”  Pepper v. Litton, supra, 308 U.S. 306, 60 S.Ct. 245, 84 L.Ed. 281. “In appropriate cases,        acting upon equitable principles, it may also subordinate the claim of one creditor to those of others in order to prevent the consummation of a course of conduct by the claimant which, as to them, would be fraudulent or otherwise inequitable.” Taylor v. Standard Gas Co., 306 U.S. 307, 618, 59 S.Ct. 543, 83 L.Ed. 669; Pepper v. Litton, supra; Prudence Realization Corporation v. Geist, supra; American Surety Co. v. Sampsell, 66 S.Ct. 571.

The District Court held that because the Plaintiff-Appellants succumbed to an invalid foreclosure that was subsequently vacated, res judicata  applied, as did the Rooker-Feldman Doctrine.

But a vacated judgment carries no force or effect with it. This incorrect assumption, and error of law, is taken from outside the four corners of the complaint, and cannot be.

in Bryan v. BELVIDERE NATIONAL BANK, 2004

          To distinguish between these two doctrines, the Seventh Circuit looks to the status of the federal plaintiff in the preceding state action. In general, though there are exceptions, where the federal plaintiff was the plaintiff in state court, res judicata is the appropriate doctrine to apply; the second complaint shows that the plaintiff wants to ignore rather than upset the state court judgment. But where the federal plaintiff was the defendant in state court, apply Rooker-Feldman; a defendant who has lost in state court does not assert       injury at the hands of his adversary, but at the hands of the court in the form of a wrongful judgment, and he seeks collateral review of that judgment. Garry, 82 F.3d at 1367. In the present case, plaintiffs were the defendants in the state court proceeding.”

Under Rooker-Feldman, “no court of the United States other than [the Supreme Court      can] entertain a proceeding to reverse or modify the judgment for errors of [a state court].   To do so would be an exercise of appellate jurisdiction. The jurisdiction possessed by the District Courts is strictly original.” Rooker v. Fidelity Trust Co., 263 U.S. 413, 416    (1923). See also 28 U.S.C. § 1257 (establishing Supreme Court jurisdiction to review  “[f]inal judgments or decrees rendered by the highest court of a State in which a decision could be had”). In its simplest form, Rooker-Feldman stands for the proposition that  lower federal courts lack jurisdiction to engage in appellate review of state court determinations. Pennzoil v. Texaco Inc., 481 U.S. 1, 21 (1987). The doctrine bars “an action in federal court that alleges an injury `inextricably intertwined’ with a state court        decision, such that success in the federal court would require overturning the state court decision,” Epps v. Creditnet, Inc., 320 F.3d 756, 759 (7th Cir. 2003), even if the claim was not directly argued in the state court, Ritter v. Ross, 992 F.2d 750, 753 (7th Cir. 1993). Lower federal courts may adjudicate claims, however, that are “separable from and collateral to” the merits of the state court judgment. Ritter, 992 F.2d at 754.

– in  Young v. Illinois State Bd. of Elections, 2000

The Seventh Circuit has recognized the distinction “between a federal claim alleging injury caused by a state court judgment (necessarily raising the Rooker-Feldman doctrine) and a federal claim alleging a prior injury that a state court failed to remedy (raising a potential res judicata problem but not Rooker-Feldman)….”

And more specifically, as in Heiser v. Woodruff 327 U.S. 726 (66 S.Ct. 853, 90 L.Ed. 970)…

Relying upon our decisions in Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84       L.Ed. 281, and Prudence Realization Corporation v. Geist, 316 U.S. 89, 62 S.Ct. 978, 86 L.Ed. 1293, it held that the court of bankruptcy could go behind the prior adjudications of the validity of the judgment and decide for itself the questions previously litigated and decided, whether the cause of action on which the judgment    was entered was meritorious, and whether the claim in bankruptcy should be rejected  because based on a judgment procured by claimant’s fraud. The Court of Appeals accordingly remanded the cause to the district court for further proceedings on the objections to allowance of the claim. We granted certiorari, 66 S.Ct. 271, upon a     petition which raises the questions whether the bankruptcy court may re-adjudicate   the merits of a cause of action on which a judgment against the bankrupt, proved as a claim in bankruptcy, was entered and may disregard a previous adjudication between the parties that the judgment was not procured by fraud.

‘Allowance and disallowance are judicial acts. * * * In passing on an allowance of   claims the court sits as a court of equity, which gives it far-reaching powers ‘to sift the circumstances surrounding any claim to see that injustice or unfairness is not done in administration of the bankrupt estate.‘ Pepper v. Litton, 308 U.S. 295, 308, 60 S.Ct. 238, 246, 84 L.Ed. 281.

The newly-discovered evidence, specifically, the Wells Fargo Foreclosure Attorney Manual, i.d., combined with the newly released, but yet unverified, Wells Fargo Affidavit Processing Instruction and Study Guide, supports the allegations of the Plaintiff-Appellants’ RICO claims in their entirety.

Section 1964(c) [1] creates a private right of action in favor of anyone who has been “injured in his business or property by reason of a violation of section 1962.”[2] Only those persons injured “by reason of a violation of section 1962” have standing to sue under civil RICO.[3]

In Townsend v. Sain, 372 US 293 – Supreme Court 1963, the United States Supreme Court stated:  “We hold that a federal court must grant an evidentiary hearing to a (habeas)  applicant under the following circumstances: If (1) the merits of the factual dispute were not resolved in the state hearing; (2) the state factual determination is not fairly supported by the record as a whole; (3) the fact-finding procedure employed by the state court was   not adequate to afford a full and fair hearing; (4)there is a substantial allegation of        newly discovered evidence; (5) the material facts were not adequately developed at the state-court hearing; or (6) for any reason it appears that the state trier of fact did not afford the habeas applicant a full and fair fact hearing.”

[1] 18 U.S.C. §18 1964(c) (1988). Section 1964(c) states: “Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including reasonable attorney’s fee”. Id

[2] §1962, containing RICO’s criminal provisions, makes it unlawful for any person:

(a)…who has received any income derived…from a pattern of racketeering activity or thorough collection of an unlawful debt I which such person has participated as a principal…to use or invest…any part of such income…in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce…

(b)…through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain…any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce..

(c) …employed by or associated with any enterprise engaged in, or the activities, or the activities of which affect, interstate or foreign commerce, to conduct or participate…in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.

(d)…to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section

[3] See, e.g., Sedina, 473 U.S. at 496 (plaintiff has standing only if injury to business or property caused by conduct violating §1962)

The second alleged “true and correct copy” of the note that was filed with Proof of Claim #6 showed an added “endorsement in blank” via a rubber stamped image containing a signature of “Joan M. Mills, Vice-President, Wells Fargo, N.A., without recourse”.  Plaintiff-Appellants submitted into evidence as Exhibit XX the Deposition of Herman John Kennerty, whose testimony in the case Geline v. Northwest Trustee Services, Inc. refutes the legitimacy of the Joan M. Mills endorsement in blank.  Plaintiff-Appellants cited the second-appearing note as a forgery, and as such, was void.

Plaintiff-Appellants, whose allegations were first deemed “serious and voluminous” by the Bankruptcy Court, were quickly dismissed as “frivolous”.  It is beyond comprehension how the court reasoned in this matter.  The Bankruptcy Court, in its’ own extrajurisdictional reasoning, determined that the Objection to Proof of Claim should have been resolved at the Circuit Court action:

“The Debtors had the opportunity and indeed raised HSBC’s standing in the foreclosure action.  If the state court had agreed with the Debtors on this issue, the result might have been different and the Debtors could have questioned the proof of claim.” (Order of Kelly, 2/22/13)

A suit for foreclosure requires at a minimum (1) standing of the claimant to sue for foreclosure; (2) a security interest in the name of the party seeking the remedy of foreclosure under Wisconsin Statutes Chapter 846; (3) a debt owed to the party seeking the remedy of foreclosure or, if it is proceeding in a representative capacity to those it represents; (4) evidence of the indebtedness and a default in the payments owed to that party. Foreclosure is an equitable remedy and the party seeking foreclosure must have “clean hands.”

In Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 244 and 245 (1933), the United States Supreme Court recited the long-established principles of equity jurisprudence:

It is one of the fundamental principles upon which equity jurisprudence is founded that,before a complainant can have a standing in court, he must first show that not only has he a good and meritorious cause of action, but he must come into court with clean hands. He must be frank and fair with the court, nothing about the case under consideration should be guarded, but everything that tends to a full and fair determination of the matters in controversy should be placed before the court.” Story’s Equity Jurisprudence, 14th ed., § 98. The governing principle is that whenever a party who, as actor, seeks to set the judicial machinery in motion and obtain some remedy has violated conscience or good faith or other equitable principle in his prior conduct, then the doors of the court will be shut against him in limine; the court will refuse to interfere on his behalf, to acknowledge his right, or to award him any remedy.”

Pomeroy, Equity Jurisprudence, 4th ed., § 397. This Court has declared:

‘It is a principle in chancery that he who asks relief must have acted in good faith.’

The equitable powers of this Court can never be exerted in behalf of one who has acted fraudulently, or who by deceit or any unfair means has gained an advantage. To aid a party in such a case would make this Court the abetter of iniquity.’ Bein v. Heath, 6 How. 228. . .

Defendant-Respondents were engaged in a “pattern and practice” to create and file documents in response to Plaintiff-Appellants allegations of a “lack of standing” of HSBC Bank, U.S.A., to foreclose.

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