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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

____________________________________________

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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) STANDARDS2 A. The PAC Asserts Claims Relating to Non-Bankrupt Homeowners and Legal Issues Having Nothing to Do With Bankruptcy Law......5 B. The PACs 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

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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
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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

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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

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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 courts 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.) (A248A308).1 The lower court accepted Phelans 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). Citations are to the Appendix filed on December 6, 2010, supplemented by the Addendum to Appendix filed on December 9, 2010.
1

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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 Phelans 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 courts 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
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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, thedefendant-unlawfully-harmed-me accusation." Iqbal, 129 S. Ct. at 1949.
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Therefore, after Iqbal, when presented with a motion to dismiss for failure to state a claim, district courts should conduct a twopart 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.

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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 moot2 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 firms behalf, WGS argues that the PAC is a diatribe intended to criminalize the entire residential mortgage foreclosure industry, and that PACs 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 sheriffs refunds. None of the other defendants are alleged to have taken any action directly or indirectly that 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.
2

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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

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 Americas facilities in Plano, Texas. See Bank of Americas 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%20BOABAC%20Home%20Response.pdf
3

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).
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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. Wolferds Chapter 13 proceeding was dismissed5;and (5) the PAC alleges that Phelans servicer clients benefitted financially and in other ways from Phelans misconduct (see, e.g., PAC 3-4, 56-73, 148-159, 175-193). Phelans 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 Phelans 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 Phelans 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 Phelans farfetched version of the homeowners allegations.
5

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


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Phelans repackaging of the PACs 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, 121134; 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

Phelans inattentiveness to the facts and its careless representations to courts should not be taken lightly. The worst example of Phelans 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.
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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 PACs 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

Phelans 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 Wachovias bankruptcy claim.
7

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 courts 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
8

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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 Phelans crude accusations of bad faith by the homeowners counsel and (3) tried to conflate the PAC out of existence.
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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 courts 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 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.
9

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 courts 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 cant be accepted at face value (Ignored Brief, A310 A337) the court below entered the Order on appeal.
10

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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 Justices direction, New Jerseys 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.
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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 Phelans 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.

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. Hallinans employee as the face of New Jersey's robo-signing scandal).
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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 RookerFeldman 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 Courts 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 RookerFeldman 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).


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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 anyones 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 debtors FDCPA claims were precluded by res judicata. This Court reversed the lower courts order, stating that the debtors 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) (RookerFeldman [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]).
15

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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 Circuits 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 Fargos 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 Phelans authority to file proofs of claim on behalf of Wachovia, a party having no legal interest in Benders mortgage. See SA-166; Ignored Brief at 9 (A320) and Exhibit B thereto (A328335). Benders bankruptcy objection was temporarily withdrawn without prejudice (SA117) based on Phelans promise that it would produce documents evidencing the chain of title to Benders 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 Benders mortgage cannot be established.
16

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D.

The PAC States a Claim For Relief Under RICO

Phelans 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 Phelans 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 Boyles 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
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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) WGSs representation of Thomas Strain was financed by the principals of Phelan, including Hallinan.18 Despite WGSs exaggerated protests, WGS was not named as defendant in the PAC, even if a colorable claim might have been asserted. Nor did the

These are similar to circumstances that required counsels 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).
18

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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 Phelans 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

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 couldnt tell you on any given assignment which was or which wasnt [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).
19

See Amicus Brief filed March 14, 2008, In re Insurance Brokerage Antitrust Litig., No. 07-4046 (3d Cir.), available at [continued next page]
20

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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/.

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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 FDCPAs 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
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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 courts 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.
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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

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Date Filed: 01/27/2011

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

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Date Filed: 01/27/2011

CERTIFICATE OF COMPLIANCE The undersigned attorney certifies that his brief complies with the typevolume limitation of Fed. R. App. P. 32(a)(7)(B) because this brief contains 6905 words.

/s/John G. Narkin John G. Narkin

Dated: January 27, 2011

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Date Filed: 01/27/2011

CERTIFICATE IDENTICALNESS The undersigned attorney certifies that the PDF file and the hard copies of the APPELLANTS REPLY BRIEF are identical.

/s/John G. Narkin John G. Narkin

Dated: January 27, 2011

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Date Filed: 01/27/2011

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

Dated: January 27, 2011

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Date Filed: 01/27/2011

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, electronic_briefs@ca3.uscourts.gov) 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

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