DANIEL P. COLLINS, Bankruptcy Judge.
The Court is asked to rule on two Motions to Dismiss ("Motions") (DE's 57 and 60)
On August 23, 2006, Debtor borrowed $594,600 from First Magnus Financial Corporation ("FMFC") to purchase the residential property located at 136 N. Parkview Lane in Litchfield Park, Arizona 85340 ("Litchfield Property") where she currently resides. Debtor contemporaneously executed a Note ("Note") and Deed of Trust ("DOT") securing the Debt. The original DOT listed MERS as the beneficiary while BofA Home Loans Servicing, LLP ("BofA Servicing") was the servicer of the loan. In October of 2006, Debtor defaulted on the loan and subsequently filed a chapter 13 petition ("2007 Bankruptcy") in this Court before the Honorable Charles G. Case (2:07-bk-06793-CGC). The 2007 Bankruptcy was converted to a chapter 7 where Debtor received a chapter 7 discharge before the 2007 Bankruptcy was closed. There was no distribution to creditors in that case.
Years later, on September 2, 2009, the DOT was transferred from MERS to BofA Servicing, who appointed Recon Trust Co., NA ("Recon") as successor trustee under the DOT. Recon queued up a Trustee Sale of the Litchfield Property for December 8, 2009. As a result, Debtor filed a complaint in the Arizona Superior Court, Maricopa County ("State Court") before the Honorable Harriett Chavez, at case number CV 2009-070092 ("State Court Action"). After considering BofA Servicing's Motion to Dismiss, and Debtor's response, the State Court Action was dismissed with prejudice. Judge Chavez found "no basis for the claim that assignment of the Deed of Trust or subsequent notice of Trustee sale [was] not valid." (See CV 2009-070092 DE #19, DE #57 P. 33-4).
Debtor raised similar arguments in her complaint filed in the U.S. District Court, District of Arizona ("District Court"), before the Honorable James A. Teilborg at case number 2:10-cv-02696-JAT ("1
Two years later, the District Court heard a very similar case, this time presided over by the Honorable Susan R. Bolton at case number CV-13-02066 ("2
On March 10, 2016, (the "Petition Date") Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code. (Administrative case, DE #1). She subsequently initiated the instant adversary proceeding against the Defendants
1. Has the Debtor properly plead any new claims that were not otherwise addressed by the three previous rulings from the State Court and/or District Court?
2. If so, are the new claims plead with sufficient detail to survive the Defendants' Motions?
In ruling on these Motions, the Court must apply the well-known standards detailed in the Supreme Court's decisions in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
Twombly, 550 U.S. at 555.
Iqbal, 556 U.S. at 663.
The Federal Rules of Civil Procedure lay out the minimum pleading requirements in Rule 8:
Fed. R. Civ. P. 8
In In re Child, the 9th Circuit BAP reversed the Bankruptcy Court's finding that a prior state court judgment had preclusive effect. The BAP carefully examined the doctrine of issue preclusion generally, as well as specifically under Arizona law.
In re Child, 486 B.R. 168, 172 (B.A.P. 9th Cir. 2013).
The Child court set out the factors for issue preclusion, citing Chaney Building Co. v. City of Tucson, 148 Ariz. 571, 716 P.2d 28, 30 (1986), the seminal decision for issue preclusion under Arizona law.
Id. At 172-73 (emphasis in original).
In Garcia v. Gen. Motors Corp., 195 Ariz. 510, 514, 990 P.2d 1069, 1073 (Ct. App. 1999), the court explained that the factors which must be met for a finding of issue preclusion in federal court are virtually the same as the factors applied by Arizona state court. Accord, Lawlor v. Nat'l Screen Serv. Corp., 349 U.S. 322, 326, 75 S.Ct. 865, 867, 99 L. Ed. 1122 (1955) (Under the doctrine of collateral estoppel, such a judgment precludes relitigation of issues actually litigated and determined in the prior suit, regardless of whether it was based on the same cause of action as the second suit.); Robi v. Five Platters, Inc., 838 F.2d 318, 322 (9th Cir. 1988) (The doctrine of issue preclusion prevents relitigation of all "issues of fact or law that were actually litigated and necessarily decided" in a prior proceeding.); In re Evans, 161 B.R. 474, 477 (B.A.P. 9th Cir. 1993) (Collateral estoppel precludes relitigation of any issues of fact or law that were actually litigated and necessarily decided in the prior proceeding.).
In Hoff v. City of Mesa, the Supreme Court of Arizona explained the doctrine of res judicata as it applies under Arizona law:
86 Ariz. 259, 261, 344 P.2d 1013, 1014 (1959).
The U.S. Supreme Court has held that in determining whether or not a claim is barred by claim preclusion, a court should consider three factors:
Blonder-tongue Lab. V. University of Ill. Found., 402 U.S. 313, 91 S.Ct. 1434 (1971).
The 9th Circuit has expounded on what is required for meeting the first factor, identity of claims:
Myopo v. Litton Electro-Optical Sys., 430 F.3d 985, 987 (9th Cir. 2005) (citation omitted).
Title 15 of the United States Code section 1635 details a borrower's right to rescission in certain consumer credit transactions.
Paragraph (e) of section 1635 deals with transactions that are exempted from the right of rescission created under paragraph (a).
Note that § 1602(w) referenced in § 1635(e)(1) was redesignated §1602(x) by Pub. L. 111-203, title X, § 1100A(1)(A), July 21, 2010, 124 Stat. 2107. Therefore, when reading 11 U.S.C. § 1635(e)(1), "residential mortgage transactions" is defined by 11 U.S.C. § 1602(x), which reads:
The United States District Court for the Southern District of New York further explained the availability of rescission under 11 U.S.C. §1635 in Grimes v. Fremont Gen. Corp.:
785 F.Supp.2d 269, 284 (S.D.N.Y. 2011).
The right to rescission under §1635 is also time-limited according to subsection 1635(f):
The U.S. Supreme Court has had occasion to address rescission under 11 U.S.C. § 1635 in the case of Jesinoski v Countrywide Home Loans, Inc., 135 S.Ct. 790, 791 (2015). The borrowers in Jesinoski were borrowing in order to
Jesinoski v. Countrywide Home Loans, Inc., 135 S.Ct. 790, 791 (2015).
The Arizona Revised Statutes at section 33-420 details a cause of action for knowingly recording false documents. Case law further explains the factors for a successful slander of title claim:
City of Tempe v. Pilot Properties, Inc., 22 Ariz.App. 356, 363, 527 P.2d 515, 522 (1974). The malice element of a slander of title claim is further detailed in Barnett v. Hitching Post Lodge, Inc.:
Barnett v. Hitching Post Lodge, Inc., 101 Ariz. 488, 493, 421 P.2d 507, 512 (1966).
Before examining the claims raised in each count of the SAC, the Court notes that the SAC does not adhere to Rule 8 of the Federal Rule of Civil Procedure. Fed. R. Civ. P. 8. Rule 8(a)(2) requires a plaintiff to provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Id. The SAC is neither short nor plain. Rather, it rambles on for 45 pages often repeating earlier points and regularly perplexing the reader. However, the Court will not make a dispositive ruling based on these shortcomings. Instead, the Court will address the issues raised in the SAC, albeit in an order differing from the order raised by Debtor.
The Debtor alleges a rescission of the loan transaction. Supposedly, Debtor mailed a Notice of Rescission ("NOR") to Bank of America at some point. Debtor admitted at oral argument that she did not have a copy of the document she mailed, but argued that she could substantiate its existence by an acknowledgement made by Caliber in a letter dated November 10, 2015, as well as a self-serving letter from Debtor to Caliber (the Qualified Written Request "QWR"). (DE 48, Exhibits C and G). Debtor's argument is that, under 15 U.S.C. §1635(a), she has a right to rescind the loan transaction either by midnight of the third business day following the consummation of the transaction, or the date that she receives certain disclosures required under the TILA statute from the lender, whichever is later. She claims that because she never received disclosures from Bank of America, she was able to rescind the transaction by mailing BofA the NOR, and in fact did so.
Debtor's argument fails for a number of reasons. First, since neither party has produced the NOR, the exact timing of the date the NOR was sent is unknown. Debtor has not plead facts sufficient to establish that her NOR was timely mailed under 15 U.S.C. §1635(f).
Even assuming that the Debtor was to allege the date of the NOR fell within the statutory requirements of 15 U.S.C. §1635(f), her rescission cause of action would still fail because residential mortgage transactions are exempted from the right to rescission created under 15 U.S.C. §1635(a), as detailed in 15 U.S.C. §1635(e) and 15 U.S.C. §1602(x). Debtor's Note and DOT were executed as a part of the exact type of transaction defined under 15 U.S.C. §1602(x), and exempted under 15 U.S.C. §1635(f)(1). In Grimes v. Freemont Gen. Corp., the District Court for the Southern District of New York explained that "certain types of transactions are specifically exempted from this right of rescission, including `a residential mortgage transaction.'" Grimes v. Fremont Gen. Corp., 785 F.Supp.2d 269, 284 (S.D.N.Y. 2011).
The Debtor has cited Jesinoski v. Countrywide Home Loans, Inc. in support of her rescission argument. However, the facts in Jesinoski are distinguishable from the facts here because the borrowers in that case were borrowing money to refinance their home loan, not to finance the initial acquisition of their home. Jesinoski at 791.
Debtor's TILA rescission claims are also barred by collateral estoppel as they could and should have been raised in at least one of the Three Previous Lawsuits. See Section IV(2), below.
Count III alleges that Debtor's 2006 loan was rescinded and, therefore, the Note and DOT are unenforceable. For the reasons noted above, Count III is dismissed. All three remaining counts also rely in part on Debtor's rescission argument. To the extent that Counts I, II and "IV"
Debtor argues that prior to any alleged assignment, sale, or transfer of rights in the DOT by BofA, the Note and DOT were void by operation of law. (See e.g. SAC at ¶88, Ln 24-6). She further argues that BofA cannot transfer rights that it does not own so its assignments to LSF9 and Summit were nullities. (See e.g. SAC at ¶110-12). Whether or not BofA possessed rights under the Note and DOT are issues that were addressed in the State Court Action, the 1
Chaney, 148 Ariz. at 573, 716 P.2d at 30 (emphasis in original). Applied here, factor one is met as the issue of BofA's right to enforce the Note and DOT were the subject of the State Court Action, (DE 57, P. 33-4). There, Judge Chavez ruled, "[t]here is no basis for the claim that assignment of Deed of Trust or subsequent notice of Trustee sale is not valid." Further, the same issue appeared before Judge Teilborg in the 1st District Court action. In his ruling's Analysis and Conclusion section under part "A. Count 1." (DE #60 Exhibit B), Judge Teilborg found that the Debtor had failed to state a claim for "invalidity, unenforceability, or voidness . . ."
The second factor, requiring a final judgment, was met when Debtor failed to timely appeal Judge Chavez's ruling or Judge Teilborg's order or Judge Bolton's order. The third and fourth issue preclusion factors are satisfied because Debtor had the opportunity to litigate these matters and actually did litigate them, as demonstrated by her filing of responsive pleadings in those actions prior to the entry of the final judgments. Finally, the validity of the Note and DOT and their subsequent assignments were at the heart of those actions, therefore that issue was essential to each of the final judgments.
The Court concludes that the validity of BofA's rights in the Note and DOT and, therefore, its right to assign the Note and DOT is precluded from being raised again under the doctrine of issue preclusion because any such claims arise from events that occurred prior to Judge Bolton's December 20, 2013 ruling. For the same reasons, Debtor's TILA rescission claims are barred by collateral estoppel. The Court acknowledges that the SAC, at least in part, challenges the validity of transfers that occurred after Judge Bolton's December 20, 2013 ruling. (See DE #48 Exhibit A & D). The Court will address the issues as they relate to these transfers in §IV, part 3 below as they are not precluded by the rulings in the Three Previous Lawsuits.
Three factors are to be considered when determining if a claim is barred by claim preclusion, a court should consider:1) an identity of claims in the suit in which a judgment was entered and the current litigation;
Blonder-tongue Lab. V. University of Ill. Found., 402 U.S. 313, 91 S.Ct. 1434 (1971).
The 9th Circuit has expounded on what is required for meeting the first factor, identity of claims:
Myopo v. Litton Electro-Optical Sys., 430 F.3d 985, 987 (9th Cir. 2005) (citation omitted). To the extent that Debtor's claims arise from events from prior to Judge Bolton's December 20, 2013 ruling, they arise out of the same transactional nucleus of the Three Prior Lawsuits. As discussed above, the Three Previous Lawsuits dismissed claims that the DOT and Note evidencing Debtor's purchase of the Litchfield Property were somehow void or invalid. Therefore, the second and third factors for an identity of claims are met. Finally, to the extent that any claims arise from events that occurred prior to Judge Bolton's December 20, 2013 ruling, they are based on the same evidence previously presented. The Court therefore finds that an identity of claims exists and the first factor for claim preclusion is met.
As to the second factor requiring a previous judgment, the Court has already addressed that factor above and concluded that it was met by both Judge Chavez's ruling and Judge Teilborg's order. Finally, the third factor of privity between parties is met. BofA was a party in the previous cases, and LSF9 and Caliber are allegedly subsequent transferees of BofA's rights under the assigned DOT.
This Court also acknowledges that Judge Bolton's order undertook an analysis of claim preclusion in granting the motion to dismiss in the 2
Much of Counts I and II are repetitive and irrelevant. Many of the arguments raised in Counts I and II have already been dispensed with in the previous two sections dealing with the TILA rescission and the preclusive effects of the rulings in the Three Prior Lawsuits. However, Debtor points out a discrepancy relating to the ownership of the Note and/or DOT that was not previously addressed. Exhibit A to the SAC is a copy of a letter from BofA to Debtor. (DE #48, Exhibit A). It states that the residential loan was transferred to a new creditor, BofA Merrill Lynch Asset Holdings, Inc. ("BofA Merrill"), on March 18, 2014. Id. There is no plausible claim plead as to the invalidity of this transfer. However, nearly a year after the BofA to BofA Merrill transfer, on March 27, 2015, Debtor received another letter from BofA. (DE #48 Exhibit D). This letter asserted that BofA was ". . . the original mortgagee or beneficiary or the assignee of the mortgage or deed of trust for the referenced loan." (DE #48 Exhibit D). Approximately three months after this second letter, LSF9 recorded the Assignment of DOT from BofA on June 30, 2015. (DE #63 Exhibit 8). The Court has been unable to reconcile these transactions. It is unclear how BofA could transfer the loan to BofA Merrill on March 18, 2014, but still be the assignee of the DOT on March 27, 2015, and then subsequently transfer the beneficial interest under the DOT to LSF9 on June 30, 2015. Debtor argues that, at the time of the BofA to LSF9 transfer, BofA Merrill was the holder of DOT, not BofA. The Court believes that this is the sole issue plead in the SAC that is facially plausible and not either time barred, barred by the preclusive effect of the rulings in the Three Previous Lawsuits, or otherwise improperly plead.
The Court is therefore dismissing with prejudice Counts I and II but only to the extent that they attempt to argue that there is no Note or that BofA is or was not a holder of either the Note or a beneficial interest under the DOT. Debtor has made a facially plausible claim that the transfer from BofA to LSF9 may be invalid. Since that alleged transfer occurred after Judge Bolton's December 20, 2013 ruling, the causes of action related to the BofA to LSF9 transaction are not precluded by the Three Previous Lawsuits' rulings.
The only remaining cause of action not yet addressed above is Debtor's Slander of Title action raised in Count IV of the SAC. Debtor argues that this cause of action falls under A.R.S. 33-420(A)-(D). Essentially, Debtor argues that BofA, by assigning the DOT to LSF9, recorded a false document, an offense actionable under A.R.S. 33-420. Debtor's argument that the assignment of the DOT was false once again relies on the allegation that BofA did not have rights in the Note or DOT and therefore had no ability to transfer rights to Caliber or LSF9. (DE 48, ¶297). Debtor also nakedly asserts that certain loan documents were forged before being recorded. (DE 48, ¶303).
The Arizona Revised Statutes at section 33-420 details a cause of action for knowingly recording false documents. Case law further explains the factors for a successful claim:
City of Tempe v. Pilot Properties, Inc., 22 Ariz.App. 356, 363, 527 P.2d 515, 522 (1974). The malice element of a slander of title claim is further detailed in Barnett v. Hitching Post Lodge, Inc.
101 Ariz. 488, 493, 421 P.2d 507, 512 (1966). The Court finds that debtor has not so much as provided "a formulaic recitation of the elements of a cause of action," as contemplated under Twombly. 550 U.S. at 555. Debtor also makes the conclusory statement that "[t]he recordings were done with malice; acting with reckless regard for the statements truth or falsity, improper and unlawful motives with the intent to deceive and defraud Plaintiff out of her property and property rights." (DE 48, ¶ 312). Iqbal states, "a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). There is no plausible factual basis provided by Debtor to demonstrate that BofA or LSF9 recorded assignments of the DOT with malice, which is of course a requirement for a successful slander of title claim. Without a plausible allegation of malice, Debtor's slander of title claim fails.
For these reasons, the Court finds that Debtors claim for slander of title is not well plead and is therefore dismissed. The Court will provide Debtor thirty days from the date of entry of this ruling to amend this cause of action to include sufficient plausible facts to substantiate a cause of action for slander of title.
The Court has considered the arguments raised in the Motions filed by BofA, Caliber and LSF9 as well as the Response filed by Debtor. Much of the SAC alleged claims that were barred by the preclusive effect of prior rulings in the State Court as well as the District Court. The Court has, however, acknowledged two transactions that occurred after Judge Bolton's December 20, 2013 ruling. The Court finds no plausible claim plead that would challenge the validity of the March 18, 2014 transfer from BofA to BofA Merrill. To the extent that a cause of action may have arisen from BofA's June 30, 2015 transfer to LSF9, the Court has allowed such claim to survive the Motions.
For these reasons,
