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Smalis v. Huntington Bank

United States District Court, W.D. Pennsylvania

March 1, 2017

ERNEST SMALIS, Appellant-Plaintiff,
v.
HUNTINGTON BANK, et al, Appellees-Defendants.

          MEMORANDUM OPINION

          Mark R. Hornak, United States District Judge.

         I. INTRODUCTION

         Imitation may be the sincerest form of flattery, but not when Plaintiff Ernest Smalis ("Smalis") relitigates issues settled by a decade-old consent order over and over again. Smalis lost a foreclosure action in state trial court involving commercial real estate at 3224 Boulevard of the Allies in Pittsburgh, Pennsylvania (the "Property"). Smalis co-owned the Property with his then-wife, son, and daughter (collectively the "Smalis family"). The Pennsylvania appellate courts affirmed the state trial court's verdict.

         Smalis's ex-wife later filed for bankruptcy in the United States Bankruptcy Court for the Western District of Pennsylvania ("Bankruptcy Court") and listed the Property as an asset. Smalis responded by filing an adversary proceeding in 2005 (the "Initial Proceeding") challenging the validity of the foreclosure action against the Property. On May 19, 2006, Smalis and the defendants in the Initial Proceeding, which included Pennsylvania Capital Bank ("PCB"), successors Three Rivers Bank ("TRB") and Sky Bank ("Sky"), as well as the assignee of the Property's mortgage, Labrisa Lofts ("Labrisa"), executed a consent order concluding the Initial Proceeding. The consent order released the parties to the Initial Proceeding and their successors from claims they had or may have had against each other regarding the Property.

         Despite signing the consent order, Smalis brought an adversary proceeding in 2015 at the Bankruptcy Court against PCB, TRB, Sky, and these banks' successor: Huntington Bank ("Huntington"). Smalis moved to vacate the consent order and again challenged the validity of the foreclosure action he lost in state court. The Bankruptcy Court denied Smalis's motion to vacate the consent order and held that the doctrine of claim preclusion prevented him from relitigating issues settled by the consent order. Unsatisfied with his outcome in the Bankruptcy Court, Smalis appealed. Because the Bankruptcy Court correctly held that the consent order is valid and precludes further litigation regarding the foreclosure action against the Property, this Court affirms the Bankruptcy Court.

         II. JURISDICTION AND STANDARD OF REVIEW

         28 U.S.C. § 158(a)(1) bestows this court with subject matter jurisdiction over Smalis's bankruptcy appeal. District courts review "the bankruptcy court's legal determinations de novo, its factual findings for clear error[, ] and its exercise of discretion for abuse thereof." In re United Healthcare Sys., Inc., 396 F.3d 247, 249 (3d Cir. 2005) (internal quotation marks omitted). A factual finding by a bankruptcy court is clearly erroneous when "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." In re Cellnet Data Sys., Inc., 327 F.3d 242, 244 (3d Cir. 2003) (citing United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)).

         III. FACTS AND PROCEDURAL HISTORY

         The factual timeline underpinning this appeal began in early October 1993. The Smalis family signed a promissory note in favor of PCB for $335, 000. (ECF No. 9-2 at 9). The Smalis family secured repayment of the promissory note by mortgaging the Property to PCB. (Id. at 1- 7). TRB, PCB's successor, assigned the mortgage to Labrisa in mid-February 2002. (ECF No, 9-11 at 1-2). Labrisa filed a foreclosure action concerning the property in May 2002, naming each member of the Smalis family as an individual defendant. (ECF No. 9-12 at 1, 6). In an October 2003 bench trial, Judge R. Stanton Wettick Jr. entered a $70, 000 verdict plus costs against Smalis. (Id. at 3). Smalis unsuccessfully appealed the trial-court verdict to the Superior Court of Pennsylvania and the Supreme Court of Pennsylvania. (Id. at 2-3; ECF No. 9-18 at 2).

         After the state courts provided Smalis no relief, he filed the Initial Proceeding in late November 2005 against Labrisa, PCB, TRB, and Sky, among others, in the Bankruptcy Court. (ECF No. 9-1 at 2); Adv. No. 05-3325 Doc. No. 1. He argued that the defendants obtained their foreclosure judgment against him by fraud, voiding the judgment. (Id. at 3). His complaint contained thirteen causes of action related to the Property:

1. Violation of Article 9 of the Uniform Commercial Code;
2. Violation of rights protected by the 14th Amendment of the United States Constitution for deprivation of property without [d]ue [p]rocess of [l]aw; 3. Violation of the protections afforded by the 14th Amendment of the United States Constitution guaranteeing to all persons [e]qual [p]rotection under the [l]aw;
4. Violation of the Truth in Lending Act due to failure to make accurate disclosures and disposition of monies paid toward the principal of the mortgage;
5. Violation of the Real Estate Settlement Procedures Act by illegally routing monies paid to satisfy the mortgage;
6. Violation of the Racketeer Influenced and Corrupt Organizations Act;
7. Common law fraud; 8. Fraudulent transactions pursuant to28U.S.C. §2410;
9. Violation of the Fair Debt Collection Practices Act and Consumer Credit Protection Act due to illegal debt ...

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