PHS Third Circuit Reply Brief 1.27.11 as FILED

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

________________

__________

No. 10-3431

DENNIS A. RHODES et al, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

- v.- ROSEMARY DIAMOND et al, Defendants-Appellees.

__________________

APPEAL FROM AN ORDER OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA,

09-cv-1302

______________________________________________

APPELLANTS’ REPLY BRIEF

JOHN G. NARKIN BHN LAW FIRM

951 Rohrerstown Road, Suite 102 Lancaster, Pennsylvania 17601 (717) 756-0835 Attorneys for Plaintiffs-Appellants

____________________________________________

Case: 10-3431 Document: 003110420531 Page: 1 Date Filed: 01/27/2011

i

TABLE OF CONTENTS

TABLE OF CITATIONS………….……………………………………………… ii

ARGUMENT……………………………………………………………………… 1

I. THE COURT BELOW ABUSED ITS DISCRETION

BY DENYING APPELLANT-HOMEOWNERS LEAVE

TO FILE THE PROPOSED AMENDED COMPLAINT……………………...1

II. THE LOWER COURT ERRONEOUSLY FOUND THAT

THE PROPOSED AMENDED COMPLAINT IS “FUTILE”

WITHOUT ANALYSIS UNDER RULE 12(b)(6) STANDARDS……………2 A. The PAC Asserts Claims Relating to Non-Bankrupt Homeowners

and Legal Issues Having Nothing to Do With Bankruptcy Law……......5

B. The PAC‟s Allegations Are Plausible…………………………………...9

C. Rooker-Feldman and Res Judicata Do Not Apply…………………….. 14

D. The PAC States a Claim For Relief Under RICO……………………...17

III. THE COURT BELOW ERRONEOUSLY DISMISSED

THE HOMEOWNERS‟ ORIGINAL COMPLAINT…………………….20

CONCLUSION………………………………………………………………….. 22


ii

TABLE OF CITATIONS

CASES

Allen v. LaSalle Bank, 2011 U.S. App. LEXIS 587

(3d Cir. Jan 11, 2011)..............................................................................................21

Ashcroft v. Iqbal, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2008) ................................... 3

Bank of N.Y. v. Raftogianis, 2010 N.J. Super. LEXIS 221

(Super. Ct., Ch. Div, June 29, 2010) ........................................................................16

Bell Atlantic Corp. v. Twombly, 550 U. S. 544,

127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) ................................................................ 3

Birschall v. Countrywide Home Loans, Inc.,

2009 U.S. Dist. LEXIS 106813 (E.D. Pa. Nov. 12, 2009) .....................................15

Boyle v. United States, 129 S.Ct. 2237, 2243-45 (2009) .........................................17

Brown v. Card Serv. Ctr., 464 F.3d 450, 553 (3d Cir. 2006) ..................................21

Exxon Mobil Corp. v. Saudi Basic Industries Corp.,

544 U.S. 280 (2007) ................................................................................................14

Foman v. Davis, 371 U.S. 178 (1962) ....................................................................... 2

Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) .......................... 4

Franks v. Food Ingredients International, Inc.,

2010 WL 3046416 (E.D.Pa., July 30, 2010 .............................................................. 2

Graziano v. Harrison, 950 F.2d 107, 113 (3d Cir. 1991) ........................................22

Hannon v. Countrywide, 2010 Bankr. LEXIS 3690

(Bankr. M.D. October 18, 2010) .................................................................. 6, 20, 21

Hannon v. Countrywide, 421 B.R. 728 (Bankr. M.D. Pa. 2009) .................. 6, 20, 21


iii

In re Insurance Brokerage Antitrust Litig., 618 F.3d 300 (3d. Cir. 2010) ..............17

In re Randall, 358 B.R. 145, 161 (Bankr. E.D.Pa. 2006 .........................................15

International Brotherhood of Boilermakers v. Kelly,

815 F.2d 912 (3d Cir. 1987) ...................................................................................... 5

Oppong v. First Union Mortg. Corp.,

215 Fed. Appx. 114 (3d. Cir. 2007) ........................................................................15

Phillips v. County of Allegheny, 515 F.3d 224 (3d Cir. 2008) .................................. 3

Randolph v. IMBS, Inc., 368 F.3d 726 (7th Cir. 2004) ............................................21

Rivera v. Ragan & Ragan, P.C.

2010 U.S. Dist. 63821 (E.D.Pa. June 25, 2010) ......................................................15

Romero v. Allstate Insurance Co.,

2010 WL 2996963 (E.D. Pa. July 28, 2010)............................................................. 2

Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008) ................................21

United States Bank Nat'l Ass'n v. Ibanez,

2011 Mass. LEXIS 5 (S.Ct. Mass., Jan. 7, 2011); ..................................................16

Venner v. Bank of America,

387 Fed. Appx. 232 (3d. Cir. 2010) ........................................................................14

Wainright v. Bank of America,

2010 U.S. Dist. LEXIS 99100 (M.D. Pa. Sept. 21, 2010) ......................................15

Weiss v. Regal Collections, 385 F.3d 337 (3d Cir. 2004) ........................................22

Whiteford v. Reed, 155 F.3d 671 (3d Cir. 1998)......................................................14

Zen Investments, LLC v. Unbreakable Lock Co.,

276 Fed.Appx. 200 (3d Cir. 2008) ............................................................................ 2


iv

STATUTES

18 U.S.C. § 1962(c) .................................................................................................18

15 U.S.C. § 1692(e) .................................................................................................20

15 U.S.C. § 1692k ....................................................................................................22

15 U.S.C. § 1692k(a)(2)(B) .....................................................................................22

RULES

3d Cir. L.A.R. 28.1 ...................................................................................................11

Fed. R. Civ. P. 12(b)(6) ................................................................................... 2, 3, 11

Fed. R. Civ. P. 15(a).............................................................................................9, 10

OTHER AUTHORITIES

In re Residential Mortgage Foreclosure

Pleading and Document Irregularities,

Administrative Order 01-2010

(N.J. Super. Ct., Ch. Div. Mercer Co., Dec. 20, 2010) ...........................................13


1

ARGUMENT

I. THE COURT BELOW ABUSED ITS DISCRETION BY DENYING APPELLANT-HOMEOWNERS LEAVE TO FILE THE PROPOSED AMENDED COMPLAINT

In their opening brief (“Homeowner Br.”), Appellants demonstrated that the

court below abused its discretion and abdicated its judicial responsibilities by

denying the homeowners‟ motion for leave to amend without addressing

allegations in their proposed amended complaint (“PAC”). See Homeowner Br. at

15-16; 17-21.

In their opposition brief (“Phelan Br.”), Appellee foreclosure law firm and

its attorneys (“Phelan”) do not defend the lower court‟s abuse of discretion. They

repeat, almost verbatim, the same arguments made to the court below. Compare

Phelan Br. at 32-54 with Defendants' Memorandum in Opposition To Plaintiffs'

Motion for Leave to Amend, dated February 1, 2010 (“Phelan R.15 Br.”) (A248-

A308).1 The lower court accepted Phelan‟s arguments without articulated analysis

and without giving Appellants a chance to respond to them. See Homeowner Br. at

18-19 and n. 10, citing, Plaintiffs' Motion for Leave to File Reply Brief (A309 –

A310) (“Ignored Motion”) and (Proposed) Plaintiffs' Reply Memorandum of Law

In Further Support of their Motion for Leave To File Amended Complaint and

exhibits (“Ignored Brief”) (A310 – A337). 1 Citations are to the Appendix filed on December 6, 2010, supplemented by the

Addendum to Appendix filed on December 9, 2010.


2

The law governing motions under Fed. R. Civ. P. 15(a) is well established

and easily applied. See, e.g. Foman v. Davis, 371 U.S. 178, 182 (1962); Zen

Investments, LLC v. Unbreakable Lock Co., 276 Fed.Appx. 200, 202 (3d Cir.

2008); In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir.

1997) (Alito, J.); Romero v. Allstate Insurance Co., 2010 WL 2996963, at *3 (E.D.

Pa. July 28, 2010). The law is so fundamental that the court below recognized and

applied it in another case. Franks v. Food Ingredients International, Inc. 2010 WL

3046416, at *7, *8 (E.D.Pa., July 30, 2010) (Jones, J.).

Here, the lower court ignored the law. Phelan ignores it again in its brief. To

maintain the integrity of precedent, the Court should apply it correctly here.

II. THE LOWER COURT ERRONEOUSLY FOUND THAT THE PROPOSED AMENDED COMPLAINT IS “FUTILE” WITHOUT ANALYSIS UNDER RULE 12(b)(6) STANDARDS

The claims in the PAC are sufficient to survive Phelan‟s challenge under

Fed. R. Civ. P. 12(b)(6). The lower court had an obligation to address this issue

itself rather than leave it for decision by this Court. In re Burlington Coat Factory

Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997) (Alito, J.).

This Court could vacate the lower court‟s Order and remand the action to

the court below. But because this litigation has been pending since March 25,

2009, the PAC has been shunted aside since January 10, 2010, important public

interests are at stake, and the court below has been disinclined to examine the


3

pleading sufficiency of the PAC with the speed and analytical vigor it deserves, the

homeowners request the Court to decide the issue.

The Court developed the Rule 12(b)(6) standards that apply in this Circuit,

and it can apply them here with no great difficulty. Explaining the meaning of

Ashcroft v. Iqbal, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2008); Bell Atlantic Corp. v.

Twombly, 550 U. S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) and Phillips v.

County of Allegheny, 515 F.3d 224 (3d Cir. 2008), the Court summarized the

pleading requirements mandated by Rule 12(b)(6):

To prevent dismissal, all civil complaints must now set out

"sufficient factual matter" to show that the claim is facially

plausible. This then "allows the court to draw the reasonable

inference that the defendant is liable for the misconduct

alleged." [Iqbal, 129 S. Ct.] at 1948. The Supreme Court's

ruling in Iqbal emphasizes that a plaintiff must show that the

allegations of his or her complaints are plausible. See Id. at

1949-50; see also Twombly, 550 U.S. at 555 & n.3….

[I]n Twombly, [the Supreme Court held] that a pleading

offering only "labels and conclusions" or "a formulaic recitation

of the elements of a cause of action will not do." Twombly, 550

U.S. at 555; Phillips, 515 F.3d at 232. In Phillips, we discussed

the appropriate standard for evaluating Rule 12(b)(6) or

12(b)(1) motions … : "courts accept all factual allegations as

true, construe the complaint in the light most favorable to the

plaintiff, and determine whether, under any reasonable reading

of the complaint, the plaintiff may be entitled to relief."

Phillips, 515 F.3d at 233…. The Supreme Court's opinion in

Iqbal extends the reach of Twombly, instructing that all civil

complaints must contain "more than an unadorned, the-

defendant-unlawfully-harmed-me accusation." Iqbal, 129 S. Ct.

at 1949.


4

Therefore, after Iqbal, when presented with a motion to dismiss

for failure to state a claim, district courts should conduct a two-

part analysis. First, the factual and legal elements of a claim

should be separated. The District Court must accept all of the

complaint's well-pleaded facts as true, but may disregard any

legal conclusions. Id. Second, a District Court must then

determine whether the facts alleged in the complaint are

sufficient to show that the plaintiff has a "plausible claim for

relief." 129 S.Ct. at 1950. In other words, a complaint must do

more than allege the plaintiff's entitlement to relief. A

complaint has to "show" such an entitlement with its facts. See

Phillips, 515 F.3d at 234-35.

Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (footnotes

omitted).

The facts alleged in the PAC demonstrate that the homeowners have a

plausible claim for relief against the Phelan firm and its mortgage servicer clients.

These facts not only suggest -- they specifically show -- when, where, how and

why lawyers at the Phelan firm systematically imposed manufactured or overstated

foreclosure fees upon homeowners, in many instances through fraudulent legal

documents fabricated to file foreclosure cases on behalf of parties without legal

standing. With no serious explanation, the court below denied the homeowners an

opportunity to prove their claims through discovery. See Homeowner Br. at 25 and

A9.


5

A. The PAC Asserts Claims Relating to Non-Bankrupt Homeowners and Legal Issues Having Nothing to Do With Bankruptcy Law

The lower court declared that the PAC was “moot”2 and “futile” because of

the “reasons” it gave for dismissal of the homeowners‟ initial Complaint.

Homeowner. Br at 4, citing District Court Order dated July 14, 2010 (A4 n.1). The

only reasons given by the court relate exclusively to allegations implicating the

U.S. Bankruptcy laws. District Court Memorandum dated July 14, 2010 (“Dist.Ct.

Mem. at 3-13 (A8 – A13). The claims in the PAC involve demonstrably more than

just two discrete bankruptcy issues.

Now as before the lower court and in numerous other trial courts, outside

litigation counsel for the Phelan firm is Wilentz Goldman & Spitzer, P.A.

(“WSG”). On the Phelan firm‟s behalf, WGS argues that the PAC is a “diatribe”

intended to “criminalize” the “entire” residential mortgage foreclosure industry,

and that PAC‟s claims: (a) “added only new one substantive allegation” [sic] and

(b) “the only acts alleged to have been taken of which Plaintiffs complained are

those of the Phelan firm alone in (1) instituting foreclosure cases against the

Plaintiffs; (2) filing proofs of claim and (3) handling sheriff‟s refunds. None of the

other defendants are alleged to have taken any action directly or indirectly that

2 The doctrine of mootness does not apply. As Judge Higginbotham explained in

International Brotherhood of Boilermakers v. Kelly, 815 F.2d 912, 915 (3d Cir.

1987), mootness relates to the Article III requirement that there be a live case or

controversy, or to the prudential consideration of whether parties have sufficient

functional adversity to sharpen issues presented for judicial resolution.


6

affect the Plaintiffs.” See, e.g., Phelan Br. at 7, 32 and 45 (emphasis in original).

See also Phelan R.15 Br. (A248-A308).

This assertion is made despite knowledge that (1) "an attorney is an agent

acting in the name of its principal" (Phelan Br. at 18), (2) foreclosure activities of

mortgage servicers and outside counsel are interdependent,3 (3) in U.S. Bankruptcy

Court, proposed defendant Countrywide is now defending charges that it

systematically failed to account for sheriffs‟ deposit refunds by amending proofs of

claim, including in cases where Phelan acted as foreclosure counsel for

Countrywide,4 (4) in addition to claims in the original complaint, the homeowners

3 As shown by foreclosure firms‟ compulsory use of default servicing software

programs dictated by servicers (PAC ¶¶ 148-158), foreclosure lawyers can do little

without knowledge or approval of its clients. Servicers‟ involvement in the

activities of their outside law firms is demonstrated in other ways. Attempting to

change the culture of unlawful mortgage servicing practices inherited from

proposed defendant Countrywide Home Loans, Inc., proposed defendant Bank of

America (1) required its foreclosure law firms to subscribe to a new internal code

of professional conduct; (2) is conducting onsite inspections at the offices of its

outside foreclosure firms; and (3) summoned foreclosure lawyers in New Jersey,

including Phelan, to attend a mandatory training program at Bank of America‟s

facilities in Plano, Texas. See Bank of America‟s Response to Show Cause filed

January 5, 2010 at 6-7, 10-12, In re Residential Mortgage Foreclosure Pleadings

and Document Irregularities, Docket F-59551-10 (N.J. Super. Ct., Ch. Div.,

Mercer Co.), available at

http://www.judiciary.state.nj.us/superior/January%205,%202011%20%20BOA-

BAC%20Home%20Response.pdf 4 See Homeowners‟ Br. at 21-22, citing, Hannon v. Countrywide, 421 B.R. 728

(Bankr. M.D. Pa. 2009) and 2010 Bankr. LEXIS 3690, at * 5-6 (Bankr. M.D. Pa.

Oct. 18, 2010).


www.judiciary.state.nj.us/superior/January%205,%202011%20%20BOA-BAC%20Home%20Response.pdf

www.judiciary.state.nj.us/superior/January%205,%202011%20%20BOA-BAC%20Home%20Response.pdf

7

allege that proposed defendant Wells Fargo obtained overstated post-bankruptcy

foreclosure fees from Appellant Edward Wolfred resulting, not from a bankruptcy

proof of claim, but from a loan modification accepted after Mr. Wolferd’s Chapter

13 proceeding was dismissed5;and (5) the PAC alleges that Phelan‟s servicer

clients benefitted financially and in other ways from Phelan‟s misconduct (see,

e.g., PAC ¶¶ 3-4, 56-73, 148-159, 175-193).

Phelan‟s wholesale reconstruction of the homeowners‟ allegations bears no

resemblance to what the PAC asserts. See Homeowner. Br. at 2-11; Ignored Brief

at 2-13 (A313 – A324). The homeowners informed the lower court that Phelan‟s

opposition to the filing of the PAC was predicated upon “a litigation record that

has been distorted beyond recognition.” (Ignored Motion at 2; A310). Instead of

evaluating and addressing the homeowners‟ point-by-point response to Phelan‟s

mischaracterizations, the court below acquiesced to them. On that basis, it disposed

of the homeowners‟ Rule 15(a), taking no responsibility for its decision by

providing the homeowners and this Court nothing more than an uninformative

footnote to understand its reasoning.

The allegations in the PAC should have been accepted as true under Rule

12(b)(6). See above at 3-4. For unclear reasons, the lower court assumed the truth

of Phelan’s farfetched version of the homeowners‟ allegations.

5 See PAC ¶¶ 98-101, 109(d) and Ignored Brief at 2.


8

Phelan‟s repackaging of the PAC‟s allegations is particularly puzzling in the

instance of Charles Giles, a named plaintiff in the PAC and an exemplary class

representative if this Court allows the case to proceed. See PAC ¶¶14, 109, 121-

134; Ignored Brief at 2, 9-10 (A-313, A-319, A320).

Mr. Giles was an emergency medical technician who became medically

disabled while trying to help others escape the smoke and fire of the World Trade

Center on September 11, 2001 and during subsequent search efforts at Ground

Zero. Dust and debris invaded Charlie Giles‟ lungs, causing hospitalizations,

endless medical procedures and treatments, and a loss of his ability to earn a living,

all of which continue to this day.

Charles Giles encounters with Phelan and Wells Fargo are recounted in

detail in the PAC. The Court and anyone who wants to understand the human

tragedy of the foreclosure crisis would do well to know his story. To Phelan,

Charlie Giles is worth only a few fleeting, hard-to-find mentions in their briefs.

Phelan tried to Photoshop® Charlie Giles out of the picture and pretend that he

does not exist.6

6 Phelan‟s inattentiveness to the facts and its careless representations to courts

should not be taken lightly. The worst example of Phelan‟s assault on the

homeowners here is its formal statement to a bankruptcy court that Charlie Giles is

a deceased woman. See In re Bender, memorandum at 3, No. 08-21193 (Bankr.

E.D.Pa. March 11, 2010), Doc. 84 (identifying Mr. Giles as a “9/11 widow”),

https://ecf.paeb.uscourts.gov/doc1/152114259948.


https://ecf.paeb.uscourts.gov/doc1/152114259948

9

Charlie Giles was effectively concealed by Phelan. The lower court did not

recognize him although he was hidden in plain sight. But Charlie Giles is there,

prominently in the caption of the PAC and in the minute detail of its pages.

Phelan represented to the court below, as it does again to this Court, that all

of the homeowners‟ claims are precluded by the U.S. Bankruptcy Code. There is

one problem with the Alice in Wonderland-like fable spun by Phelan: Charlie

Giles’ never sought or obtained protection from the Bankruptcy Court.7

B. The PAC’s Allegations Are Plausible

While not as unsettling as its mistreatment of Charles Giles, Phelan asks this

Court to resolve complex merits-based factual issues in its favor as a matter of law.

Included among these questions are the purpose and effect of a “limited” power of

attorney that Phelan claims to have authorized it to bring foreclosure actions on

behalf of Wachovia Bank, N.A., a former collateralized debt obligation trustee8 –

7 Phelan‟s abusive debt collection practices could have forced Mr. Giles to seek

bankruptcy relief on top of the other miseries he has endured since September 11,

2001. Had he made that decision, Phelan would have taken the thousands of dollars

in overstated or manufactured foreclosure fees that it had already drummed up (see

PAC ¶ ¶109, 133) and piled them straight into “Wachovia’s” bankruptcy claim. 8 This document was not presented to the court below in connection with

homeowners‟ Rule 15(a) motion. It was included in a toxic memorandum filed in

response to the lower court‟s June 2, 2010 Order directing Phelan to submit a brief

“limited to the issue of what effect, if any, the [a settlement between the FTC and

proposed defendant Counrywide] should have on their pending Motion to

Dismiss.” (A235) (emphasis supplied). Phelan ignored that directive by wrapping

its customary boilerplate insults inside “arguments” directed more to the PAC and


10

the same institution whose senior vice president notified Phelan that Wachovia had

no standing to sue. Compare Phelan Br. at 8-9; 42 (purporting to describe

documents referenced at S.A. 110, 191) with PAC ¶ 131 (A77-A78), Ignored Brief

at 9 (A320), and letter dated October 24, 2007 from Mark A. Farmer (Senior Vice

President and Assistant General Counsel of Wachovia Corporation) to Vladimir

Palma (Phelan firm attorney) (A335) (“As you are aware since Wachovia Bank,

N.A. is not the Trustee and not the holder of the subject of the subject mortgage we

are unable to address Mr. Charles Giles‟ situation. Thank you for your prompt

attention to this matter and for your efforts to correct the public record. I look

forward to receipt of an Order deleting the name Wachovia Bank, N.A. from the

foreclosure action and recorded evidence correcting the public record”).

At most, this issue involves a disputed question of material fact

inappropriate for disposition at the pleading stage of litigation. Resolution of the

issue requires further development through depositions of Mr. Farmer, Mr. Palma

and other individuals who can testify about the “limited” power of attorney cited

the homeowners‟ counsel than to their motion to dismiss, thereby conflating

distinct issues and distinct motions. The court below then entered the Order under

appeal, which (1) shunned mandatory discussion of Rule 15(a) issues, (2)

implicitly adopted Phelan‟s crude accusations of bad faith by the homeowners‟

counsel and (3) tried to “conflate” the PAC out of existence.


11

by Phelan.9 Full production of corporate and law firm documents is also needed

before this issue will be ripe for determination as a matter of law by the District

Court or, more appropriately, by a jury after presentation of evidence at trial.

It is not a proper function of a Court of Appeals to address issues of this

nature, much less a court like this one that has been placed in the position of (1)

rectifying a lower court‟s disregard of Rule 15(a) precedent; (2) evaluating the

legal sufficiency of a proposed amended complaint that a trial court rejected

without addressing Rule 12(b)(6) standards; and (3) deciphering a brief filed by

Phelan that contains tangential or irrelevant legal citations, unreliable and

circuitous comment, and personal attacks that violate 3d Cir. L.A.R. 28.1.10

9 If the “limited” power of attorney had the effect ascribed to it by Phelan, the

public record would have been accurate, there would have been no need to correct

it and Mr. Farmer would not have sent a letter to Phelan reminding it of its legal

responsibilities. The document emphasized by Phelan is precisely what it says it is

– a limited power of attorney. Wachovia and U.S. Bank executed this document

“solely for the purposes of the indemnification provisions” of a “Servicing

Agreement dated as of December 20, 2005,” which has not been produced and is

not part of the record.

10

Personal attacks achieved the result sought by Phelan in the court below. See

Letter dated February 2, 2010 from WGS partner Daniel S. Bernheim 3d to the

court below, which (1) disregarded the lower court‟s policy prohibiting arguments

in correspondence to the court; (2) mischaracterized the PAC as a “109 page

diatribe” that was “reckless[ly]” filed by the homeowners‟ counsel as part of a

“sanctionable event” and (3) asserted that dismissal of the homeowners‟ original

complaint would “render the motion for leave to amend moot.” (A337). Taking

WGS at its word -- without considering the homeowners‟ point-by-point

explanation of why that word can‟t be accepted at face value (Ignored Brief, A310

– A337) – the court below entered the Order on appeal.


12

Notwithstanding rhetoric and posturing,11

the “plausibility” of the claims in

the PAC cannot be doubted seriously. To assess plausibility, the Court can look to

measures undertaken by the Chief Justice of the State of New Jersey.

In December 2010, the Chief Justice Stuart Rabner announced that he had

taken “steps to protect the integrity of filings of foreclosures in New Jersey,”

including issuance of “an Order directing six lenders and service providers [among

them proposed defendants Wells Fargo and Bank of America] who have been

implicated in irregularities in connection with their foreclosure practices to show

cause why the processing of uncontested residential mortgage foreclosure actions

they have filed should not be suspended.” See New Jersey Courts Press Release

dated December 20, 2010.12

Chief Justice Rabner stated that “evidence of flaws in the foreclosure

process” required immediate action because “for judges to sign an order

foreclosing on a person's home, they must first be able to rely on the accuracy of

documents submitted by lenders. That step is critical to the integrity of the judicial

process.” Id.

At the Chief Justice‟s direction, New Jersey‟s court administrator entered an

Order that turns the harsh glare of judicial disapproval directly on Phelan.

12

See http://www.judiciary.state.nj.us/superior/press_release.htm.


http://www.judiciary.state.nj.us/superior/press_release.htm

13

Compare, e.g., In re Residential Mortgage Foreclosure Pleading and Document

Irregularities, Administrative Order 01-2010 at 4-5 (N.J. Super. Ct., Ch. Div.

Mercer Co., Dec. 20, 2010)13

with PAC ¶¶ 137-145 (identifying false affidavit

notarizations signed by Thomas Strain, an employee of a Phelan-controlled entity,

at the behest of his employer, Appellee Francis S. Hallinan).

Despite Phelan‟s effort to distance itself from its servicer clients and other

wrongdoers in its industry (and to falsely accuse the homeowners‟ counsel of a

variety of ethical transgressions), the allegations in the PAC foreshadowed the

foreclosure scandal that had not yet broken when the homeowners submitted the

PAC to the lower court in January 2010. Since then, the “shameful” foreclosure

practices that have impelled the New Jersey courts to intervene forcefully have

also prompted 50 state attorneys general and countless federal officials to form

“the broadest coalition of law enforcement, investigatory and regulatory agencies

ever assembled to combat fraud.” Homeowner Br. at 14-15 (A239). The claims

asserted in the PAC are certainly plausible.

Acting Administrative Director of th The PAC Is Not Otherwise FutiThe PAC is Not Precluded By Rooker-Feldman or Res Judicata

13

See http://www.judiciary.state.nj.us/notices/2010/n101220b.pdf. See also Kaja

Whitehouse, Report Rips NJ Foreclosure Robo-signing Notary, N.Y. POST, Dec.

29, 2010,

http://www.nypost.com/p/news/business/sign_of_the_times_wOvGHrYMdbzZqE

VgonGR4K (describing Mr. Hallinan‟s employee as “the face of New Jersey's

robo-signing scandal”).


www.judiciary.state.nj.us/notices/2010/n101220b.pdf

http://www.nypost.com/p/news/business/sign_of_the_times_wOvGHrYMdbzZqEVgonGR4K

http://www.nypost.com/p/news/business/sign_of_the_times_wOvGHrYMdbzZqEVgonGR4K

14

C. Rooker-Feldman and Res Judicata Do Not Apply

Phelan argues that the PAC is nothing more than a claim that other “state

and bankruptcy courts „got it wrong‟” and that such claim is barred by the Rooker-

Feldman doctrine and the doctrine of res judicata.” See, e.g., Phelan Br. at 33.

The only way that Rooker-Feldman could apply is if the issue for decision

involves "claims that have been previously adjudicated in state court or that are

inextricably intertwined with a state adjudication." Whiteford v. Reed, 155 F.3d

671, 674 (3d Cir. 1998) (citation omitted). Quoting the Supreme Court‟s opinion

in Exxon Mobil Corp. v. Saudi Basic Industries Corp., 544 U.S. 280, 283-84

(2007), this Court observed that only “narrow ground [is] occupied by Rooker-

Feldman” and that if “a federal plaintiff presents some independent claim, albeit

one that denies a legal conclusion that a state court has reached in a case to which

he was a party, then there is jurisdiction….” Venner v. Bank of America, 387 Fed.

Appx. 232, 236 (3d. Cir. 2010) (references omitted).

Although the homeowners tried to bring this distinction to the attention of

the court below,14

none of the claims in the PAC impair state foreclosure

judgments. Foreclosure actions are in rem proceedings in which claims for

14

See Ignored Brief at 9-10 and cases cited therein (A320-A321).


15

monetary damages from consumer protection law violations are not permitted.15

Although the propriety of some class members‟ foreclosure judgments is a legal

conclusion denied, their claims do not implicate any determination of in rem

liability. Resolution of in personam damage claims in federal court will not

invalidate or diminish any act of a state judge, nor will it affect anyone‟s property

rights.16

See In re Randall, 358 B.R. 145, 161 (Bankr. E.D.Pa. 2006) (“The amount

due the mortgagee can be adjusted by this court without affecting the validity of

the mortgage itself, nor the right of the mortgagee to foreclose upon its judgment”).

Application of res judicata is similar. In Oppong v. First Union Mortg.

Corp., 215 Fed. Appx. 114, 116 (3d. Cir. 2007), lawyers representing Wells Fargo

persuaded a district court to grant a motion to dismiss on the ground that a debtor‟s

FDCPA claims were precluded by res judicata. This Court reversed the lower

court‟s order, stating that the debtor‟s “FDCPA claims are not barred by res

15

In Pennsylvania foreclosure actions, Phelan seeks dismissal of counterclaims

because of the in rem nature of foreclosure judgments. See., i.e., Plaintiffs‟ Brief in

Support of its Preliminary Objections, Wells Fargo v. Nevling, No. 09-12785 (C.P.

Lancaster, Dec. 22, 2009),

http://lcapp1.co.lancaster.pa.us/bannerwebimg/

16

Accord: Wainright v. Bank of America, 2010 U.S. Dist. LEXIS 99100, at *6-10

(M.D. Pa. Sept. 21, 2010); Rivera v. Ragan & Ragan, P.C.2010 U.S. Dist. 63821,

at *5-13 (E.D.Pa. June 25, 2010); Birschall v. Countrywide Home Loans, Inc.,

2009 U.S. Dist. LEXIS 106813, at *11-22 (E.D. Pa. Nov. 12, 2009) (“Rooker-

Feldman [does] not bar claims under the FDCPA where the plaintiff disputed the

collection practices utilized by the debt collector, rather than the validity of the

state court judgment” [at *11]).


http://lcapp1.co.lancaster.pa.us/bannerwebimg/

16

judicata because they were never adjudicated on the merits” insomuch as: (1)

under Pennsylvania law, parties cannot assert counterclaims in mortgage

foreclosure actions when they are not “part of or incident to the creation of the

mortgage itself" and (2) FDCPA damage claims are not part of or incidental to

creation of a mortgage. Id. at 118.

The Third Circuit‟s opinion in Oppong was unambiguous. Although the

opinion was non-precedential, the legal conclusions expressed in it are entitled to

deference and respect. Oppong should have made an impression on Wells Fargo‟s

counsel, but, if an impression was made, it was insufficiently deep. The lawyers

representing Wells Fargo in Oppong were Daniel S. Bernheim 3d and Jonathan J.

Bart of WGS,17

who now try to resurrect arguments rejected by this Court four

years ago.

17

WGS also misinformed the lower court that the homeowners‟ claims were

“precluded” by proceedings in In re Bender, No. 08-21193 (Bankr. E.D.Pa.)

because Bender “lost” a bankruptcy court challenge to Phelan‟s authority to file

proofs of claim on behalf of Wachovia, a party having no legal interest in Bender‟s

mortgage. See SA-166; Ignored Brief at 9 (A320) and Exhibit B thereto (A328-

335). Bender‟s bankruptcy objection was temporarily withdrawn without prejudice

(SA117) based on Phelan‟s promise that it would produce documents evidencing

the chain of title to Bender‟s mortgage from Wachovia to its current legal owner,

as is necessary to establish proper legal standing. See United States Bank Nat'l

Ass'n v. Ibanez, 2011 Mass. LEXIS 5, at 23-27 (S.Ct. Mass., Jan. 7, 2011); Bank of

N.Y. v. Raftogianis, 2010 N.J. Super. LEXIS 221 (Super. Ct., Ch. Div, June 29,

2010). No such information has been provided, perhaps because title to Bender‟s

mortgage cannot be established.


17

D. The PAC States a Claim For Relief Under RICO

Phelan‟s scattershot arguments attacking the homeowners‟ RICO claims

were addressed before the lower court, which declined to elucidate any view

concerning the issues. See Ignored Brief at 10-12 (A321-A323). No further

discussion is necessary here, except for Phelan‟s professed indignation about the

homeowners‟ “ludicrous,” “outrageous,” “reprehensible,” and “tactically

frivolous” RICO enterprise allegations, which were supposedly made by

homeowners‟ counsel in “bad faith” (Phelan Br. 45-46, 49-54).

The charges strewn about by Phelan are so serious that a casual observer

might think, as the court below evidently did, that Phelan must have a legitimate

reason for putting on such a vehement display of outrage. However, the

homeowners‟ enterprise allegations comply fully with the law enunciated by the

Supreme Court in Boyle v. United States, 129 S.Ct. 2237, 2243-45 (2009). See

Ignored Brief at 11.

In In re Insurance Brokerage Antitrust Litig., 618 F.3d 300 (3d. Cir. 2010),

the Third Circuit interpreted Boyle‟s “obviously broad” definition of “enterprise”

under RICO, which must be “construed liberally to effectuate its remedial

purposes.” Id. at 366. The Court held: (1) all that is needed to establish a RICO

enterprise is a common "purpose, relationships among those associated with the

enterprise, and longevity sufficient to permit these associates to pursue the


18

enterprise's purpose” (Id. and at 368); (2) a RICO enterprise includes “both

legitimate and illegitimate enterprises within its scope” (Id. at 364, citation

omitted); and (3) “membership in an enterprise is not the touchstone of [18 U.S.C.]

§ 1962(c) liability. Rather, it is the operation of that enterprise's affairs through a

pattern of racketeering that constitutes a violation.” Id at 376 n.76.

The PAC alleges a proper RICO enterprise, and WGS is properly included in

it. See Ignored Brief at 11. This is true because WSG (acting as co-counsel with

and not independent litigation counsel to Phelan) assisted Phelan in asserting

claims on behalf of a party without legal standing. See Ignored Brief at 11-12. It is

also true because (1) WSG rendered legal services to another member of the

alleged enterprise, Thomas Strain, whose false notarizations of affidavits “signed”

by Appellee Francis Hallinan earned Mr. Strain designation as “the face of New

Jersey's robo-signing scandal” (see above at 13 and n.13); and (2) WGS‟s

representation of Thomas Strain was financed by the principals of Phelan,

including Hallinan.18

Despite WGS‟s exaggerated protests, WGS was not named as defendant in

the PAC, even if a colorable claim might have been asserted. Nor did the

18

These are similar to circumstances that required counsel‟s disqualification in

United States v. Gotti, 771 F.Supp. 552, 560 (E.D.N.Y. 1991). The analogy is to a

comparable situation. It is hardly “slanderous.” (A258).


19

homeowners move to disqualify WGS from representing Phelan in this litigation,

although there remain ample grounds to do so.19

While Boyle and International Brokerage provide a definitive answer to the

question of what constitutes a proper RICO enterprise, WGS makes no mention of

these cases in any of its briefs. This omission is difficult to understand because

Phelan‟s defense lawyers have unlimited opportunities to educate themselves about

RICO from a nationally respected expert in their own firm.

In Boyle and International Brokerage, WGS shareholder Kevin P. Roddy

and Professor Robert G. Blakely wrote amicus curie briefs that advocated positions

diametrically opposed to the arguments made by WGS here.20

The briefs were filed

19

WGS has acted as co-counsel with Phelan on multiple occasions. On May 29,

2009, Daniel S. Bernheim 3d of WGS appeared with Appellee Francis Hallinan on

behalf of a foreclosing trustee at a hearing in which a New Jersey chancery court

judge expressed concern about mortgage assignments signed by Mr. Hallinan and

notarized by Thomas Strain. See Transcript of Hearing at page 10, line 33 – page

13, line 11, U.S. Bank v. Sinchegarcia, No. F-18446-08 (Super. Ct., Ch. Div.,

Hudson Co.), http://www.lsnj.org/keyRecentDevelopments/Foreclosure/materials/EXHIBITNHearing.PDF.

The Court was told “I represent [the] trustee in this matter. I also for a number of

years had what I state sincerely as the privilege of serving as counsel to the law

firm of Phelan Hallinan & Schmieg, and represented them in a number of different

varieties [sic] and have found that the folks there take to heart what it is they are

doing….” Transcript of Hearing at page 13, lines 17-24. Of assignments notarized

by Thomas Strain, the Court was also told, “we couldn‟t tell you on any given

assignment which was or which wasn‟t [improper]. It was almost like asking the

short order cook do you recall flipping which hamburger on which particular

day.” Id. at page 14, lines 16-19 (emphasis supplied). 20

See Amicus Brief filed March 14, 2008, In re Insurance Brokerage Antitrust

Litig., No. 07-4046 (3d Cir.), available at [continued next page]


http://www.lsnj.org/keyRecentDevelopments/Foreclosure/materials/EXHIBITNHearing.PDF

20

by WGS on behalf of National Association of Shareholder and Consumer

Attorneys (“NASCAT”), a group of class action law firms “committed to the

vigorous prosecution of corporate fraud” and advocating “a strong system of

federal and state legal protections for investors and consumers.”21

In this litigation, WGS has used every means at its disposal to eviscerate

legal protections available to homeowners whose rights have been trampled by

Phelan, Wells Fargo and Countrywide.

III. THE COURT BELOW ERRONEOUSLY DISMISSED THE HOMEOWNERS’ ORIGINAL COMPLAINT

The homeowners opening brief demonstrates that bankruptcy creditors are

obligated to amend inaccurate proofs of claim. Homeowners‟ Br. at 21-22, citing,

inter alia, Hannon v. Countrywide, 421 B.R. 728, 733-34 (Bankr. M.D. Pa. 2009)

and 2010 Bankr. LEXIS 3690, at * 5-6 (Bankr. M.D. Pa. Oct. 18, 2010). The

opening brief also explains why the Bankruptcy Code does not preclude claims

under the Fair Debt Collection Practices Act in the context of institutionalized debt

http://www.wilentz.com/Files/ArticlesandPublicationsFileFiles/132/ArticlePublicat

ionFile/Nascat%20Brief%20Amicus%20Curiae.pdf. See also Amicus Brief filed

Dec. 29, 2008, Boyle v. United States, No. 07-1309 (S.Ct.),

http://www.wilentz.com/Files/ArticlesandPublicationsFileFiles/134/ArticlePublicat

ionFile/Edmund%20Boyle%20v.pdf 21

See http://www.nascat.org/.


www.wilentz.com/Files/ArticlesandPublicationsFileFiles/132/ArticlePublicationFile/Nascat%20Brief%20Amicus%20Curiae.pdf

www.wilentz.com/Files/ArticlesandPublicationsFileFiles/132/ArticlePublicationFile/Nascat%20Brief%20Amicus%20Curiae.pdf

www.wilentz.com/Files/ArticlesandPublicationsFileFiles/134/ArticlePublicationFile/Edmund%20Boyle%20v.pdf

www.wilentz.com/Files/ArticlesandPublicationsFileFiles/134/ArticlePublicationFile/Edmund%20Boyle%20v.pdf

http://www.nascat.org/

21

collection abuses that cannot be redressed effectively through ordinary bankruptcy

claim adjustment procedures. Homeowners‟ Br. at 23-30.

Phelan does not address the substance of these issues, preferring instead to

rely without analysis upon previously cited cases on one side of a split of authority

among circuits.

In Allen v. LaSalle Bank, 2011 U.S. App. LEXIS 587, at *6-10 (3d Cir. Jan

11, 2011), this Court recognized the important remedial purpose served by the

FDCPA‟s prohibition against debt collection abuses, and it rejected a narrow

interpretation that would have allowed a law firm to “escape FDCPA liability” and

“undermine the deterrent effect of strict liability.” See also Rosenau v. Unifund

Corp., 539 F.3d 218, 221 (3d Cir. 2008); Brown v. Card Serv. Ctr., 464 F.3d 450,

553 (3d Cir. 2006). For reasons expressed in its previous opinions, this Court

should adopt the position taken by the Seventh Circuit in Randolph v. IMBS, Inc.,

368 F.3d 726, 730-33 (7th Cir. 2004) (“operational differences” between the

bankruptcy code and FDCPA do not “add up to irreconcilable conflict”; they are

overlapping statutes that can be simultaneously enforced).

While WGS and Phelan maintain that consumer protection attorneys like

homeowners‟ counsel and members of NASCAT are part of a disreputable

“cottage industry” of plaintiffs attorneys interested only in their ability to “obtain

class action legal fees” (SA6), consumers who prevail on FDCPA claims are


22

statutorily “entitled to an award of damages, costs of suit and reasonable attorneys'

fees” under 15 U.S.C. § 1692k. Brown v. Card Serv. Ctr., 464 F.3d at 453. Such

awards serve an important public purpose.

As this Court held in Weiss v. Regal Collections, 385 F.3d 337, 345 (3d Cir.

2004):

Congress explicitly provided for class damages in the FDCPA.

See 15 U.S.C. § 1692k(a)(2)(B)…. Congress also intended the

FDCPA to be self-enforcing by private attorney generals….

Graziano v. Harrison, 950 F.2d 107, 113 (3d Cir. 1991)

("[FDCPA] mandates an award of attorney's fees as a means of

fulfilling Congress's intent that the Act should be enforced by

debtors acting as private attorneys general."). Representative

actions, therefore, appear to be fundamental to the statutory

structure of the FDCPA. Lacking this procedural mechanism,

meritorious FDCPA claims might go unredressed because the

awards in an individual case might be too small to prosecute an

individual action.

The homeowners‟ lawyers are doing precisely what Congress intended.

CONCLUSION

For the above reasons and for the reasons expressed in their opening brief,

Appellant homeowners respectfully request this Court to reverse the lower court‟s

Order dated July 14, 2010 in its entirety. Because this appeal involves issues that

could offend the sensibilities of the court below, Appellants also respectfully

suggest that it may be appropriate for this Court to direct the Chief Judge of the

United States for the Eastern District of Pennsylvania to reassign this litigation to

another trial court judge presiding in the Third Circuit.


23

Dated: January 27, 2011 Respectfully submitted,

BHN LAW FIRM

By: /s/John G. Narkin

John G. Narkin

PA Bar No. 36301

951 Rohrerstown Road, Suite 102

Lancaster, Pennsylvania 19601

Telephone: (717) 756-0835

www.bhn-law.com


24

CERTIFICATE REGARDING BAR MEMBERSHIP

The undersigned attorney is a member of the bar of the Third Circuit of

Appeals.

/s/John G. Narkin

John G. Narkin

Dated: January 27, 2011


25

CERTIFICATE OF COMPLIANCE

The undersigned attorney certifies that his brief complies with the type-

volume limitation of Fed. R. App. P. 32(a)(7)(B) because this brief contains 6905

words.

/s/John G. Narkin

John G. Narkin



26

CERTIFICATE IDENTICALNESS

The undersigned attorney certifies that the PDF file and the hard copies of

the APPELLANT‟S REPLY BRIEF are identical.

/s/John G. Narkin

John G. Narkin



27

CERTIFICATE OF VIRUS CHECK

The undersigned attorney certifies that a virus check was performed upon

this document on January 27, 2011, with TREND MICRO Office Scan software.

/s/John G. Narkin

John G. Narkin



28

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

________________

__________

No. 10-3134

DENNIS A. RHODES et al, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

- v.- ROSEMARY DIAMOND et al, Defendants-Appellees.

__________________

CERTIFICATE OF SERVICE

I, John G. Narkin, hereby certify under penalty of perjury that on January 27, 2011,

I caused to be filed (electronically, [email protected]) and,

because of a snow emergency, will promptly thereafter hand deliver 10 copies and

serve the foregoing

APPELLANTS‟ REPLY BRIEF

By causing two (2) copies of said document to be mailed, via U.S. Mail, first class,

postage prepaid to:

Daniel S. Bernheim, 3d

Jonathan J. Bart

WILENTZ, GOLDMAN & SPITZER, P.A.

Two Penn Center, Suite 910

Philadelphia, PA 19102

/s/John G. Narkin

John G. Narkin


PHS Third Circuit Reply Brief 1.27.11 as FILED

Documents

Transcript of PHS Third Circuit Reply Brief 1.27.11 as FILED