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District Court Rejects Rooker-Feldman Defense to Legal Malpractice Claim

Source: Sheth v. Premier Bank, Dist. Court, WD Wisconsin 2015 – Google Scholar

The plaintiff in this case, Kamlesh Sheth, lost a state court foreclosure case. Sheth then sued a law firm for legal malpractice and the bank that obtained the judgment against him for fraud and other torts.

Sheth claimed that the defendant bank had agreed not to pursue a deficiency judgment against Sheth. Sheth cited an agreement between himself and the bank and drafted by the defendant law firm under which the Bank waived the right to pursue the deficiency if Sheth obtained a buyer for the property and the sales price was $1,100,000 and the buyer agreed to pay off the mortgage note. Sheth claimed that he met his obligations under the agreement and that the Bank had no right to seek a deficiency judgment.

In the foreclosure case the Bank ultimately obtained a deficiency judgment in the amount of $210,000 against Sheth. Sheth alleged that he did not learn of the judgment until collection proceedings were brought against him.

Sheth then sued the bank that won the foreclosure case for fraud and sued the lawyers who drafted the agreement for legal malpractice.

The Defendants moved to dismiss under the Rooker-Feldman doctrine.

The Rooker-Feldman doctrine is a creature of federal procedure. It holds that only the United States Supreme Court “has the authority to review the judgments of state courts in civil litigation, so federal district courts do not have jurisdiction to hear a claim if a state court judgment is the source of the plaintiff’s injury.” The defendants argued that Sheth’s claims amounted to an attack on the state court deficiency judgment and therefore the Rooker-Feldman doctrine applied and the federal court lacked jurisdiction.

The District Court disagreed, noting that it was inappropriate to apply Rooker-Feldman to legal malpractice cases in which an adverse judgment is often an element of the injury. The court also cited a Seventh Circuit decision addressing this issue. “

Among the questions the parties do not address are:

(1) whether it is appropriate to apply the Rooker-Feldman doctrine to legal malpractice claims (which often may include an adverse judgment as an injury), Kamilewicz v. Bank of Boston Corp., 100 F.3d 1348, 1351 (7th Cir. 1996) (Easterbrook, J., dissenting from denial of rehearing en banc) (“The Rooker-Feldman doctrine . . . does not apply to malpractice suits.”); Riddle v. Deutsche Bank National Trust Co., 599 F. App’x 598, 600 (7th Cir. 2015) (malpractice claim arising out of foreclosure judgment not barred by Rooker-Feldman doctrine because “legal malpractice . . . is separate from the foreclosure process”)…”

Comment: Courts often reject res judicata and collateral estoppel defenses to legal malpractice claims on the ground that the lawyer’s alleged negligence may have caused the adverse judgment. Here the court is holding that Rooker-Feldman does not apply because the lawyer’s alleged negligence may have caused or contributed to the client’s alleged injury. In sum, the fact that the plaintiff lost the underlying case is usually not a good defense to a legal malpractice claim

Edward X. Clinton, Jr.