JEAN K. FITZSIMON, Bankruptcy Judge.
Before the Court is a motion for summary judgment (the "Motion") by plaintiff/debtor, Jennie Marie Moore ("Debtor"). Debtor contends that she should be granted summary judgment in this adversary proceeding because the proof of claim filed by defendant, PHH Mortgage Corporation ("PHH"), is precluded, pursuant to the doctrine of res judicata, by a state court order (the "Order"), dated April 12, 2005, which quieted title to the property located at 6232 Samson Street, Philadelphia, Pennsylvania (the "Property") in her. At the hearing on the Motion, both parties presented oral argument. At the conclusion of their arguments, the Court took the matter under advisement. After consideration, the Motion shall be denied.
PHH d/b/a Coldwell Banker Mortgage is a corporation existing under the laws of one of the states of the United States.
On November 21, 2008, Debtor filed a bankruptcy case under Title 13 of the Bankruptcy Code. PHH subsequently filed a proof of claim and then an amended
PHH bases its Amended Proof of Claim on the Mortgage, a copy of which it attached thereto.
The Mortgage also contains a paragraph titled "Protection of Lender's Interest in the Property and Rights Under this Security Instrument One Resources." This paragraph provides in relevant part:
Mortgage ¶ 9.
Both parties agree that Debtor never borrowed any money from PHH, never entered into any contract with PHH and never received any consideration of any kind from PHH.
On or about November 10, 2004, Muhammad filed an ejectment action (the "Litigation") in state court against Debtor and others seeking to obtain possession of the Property.
Civil Action Complaint, 3R Ejectment.
In response to Muhammad's complaint, Debtor filed an answer with new matter and a counterclaim ("Counterclaim"). In the Counterclaim, Debtor asked the state court, among other things, for an order quieting title to the Property in her favor.
Muhammad did not answer or otherwise respond to Debtor's Counterclaim so she filed a motion for a default judgment.
Order, dated April 12, 2005.
According to PHH, it was not aware: (i) of the Litigation which Muhammad filed; (ii) of the answer with new matter and the Counterclaims which Debtor filed; or (iii) that Debtor "sought to divest PHH's mortgage from the property until well after the Litigation was completed.
Notably, within approximately two months after the Debtor filed her bankruptcy case, PHH filed a motion for relief from the stay to proceed with a pre-petition action which it had filed against Debtor in state court seeking a declaration that PHH "is the holder of a valid first mortgage" on the Property and that Debtor's "right, title and interest" in the Property
Federal Rule of Civil Procedure 56(c) "sets forth the standard for summary judgment and states that summary judgment shall be granted only if `there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Smith v. Johnson and Johnson, 593 F.3d 280, 284 (3d Cir.2010) (quoting Fed.R.Civ.P. 56(c)). A motion for summary judgment will not be defeated by the mere existence of some disputed facts, but will be defeated when there is a genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A genuine issue exists when the "evidence is such that a reasonable [trier of fact] could return a verdict for the nonmoving party." Id. at 248, 106 S.Ct. 2505.
In deciding a motion for summary judgment, it is not the court's role to (i) "weigh the evidence to determine the truth of the matter" and decide which is more probative; or (ii) make credibility determinations. American Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 581 (3d Cir. 2009). Rather, the court must consider the evidence and all reasonable inferences in the light most favorable to the non-moving party. Robinson v. Matthews International Corp., 368 Fed.Appx. 301, 303 (3d Cir.2010). If a conflict arises between the evidence presented by both sides, the court must accept as true the allegations of the non-moving party, and "all inferences must be drawn" in its favor. American Eagle Outfitters, 584 F.3d at 581.
The moving party bears the initial responsibility of informing the court of the basis for its motion and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corporation v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party meets its burden, then "the nonmoving party must set forth `specific facts showing that there is a genuine issue for trial' or the factual record will be taken as presented by the moving party and judgment will be entered as a matter of law." Zahavi v. The PNC Financial Services Group, Inc., 2009 WL 904699, at *6 (W.D.Pa., March 31, 2009) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting Fed. R.Civ.P. 56(e))).
As stated above, Debtor contends that PHH is barred from asserting a proof of claim in her bankruptcy case based on the Order which quieted title to the Property in her and "against all claims of [Muhammad] and all persons claiming under him." Memorandum in Support of Plaintiff's Motion for Summary Judgment Based on April 12, 2005 Common Pleas Court Order and Doctrine of Res Judicata ("Debtor's Memorandum") at 5 (quoting Order). Debtor contends that the Order applies to
Federal common law has its own set of principles regarding res judicata but when the decision allegedly precluding a later action was issued by a state court, the federal courts apply the preclusion principles developed by that state. Randall v. Bank One National Association as Trustee (In re Randall), 358 B.R. 145, 164 (Bankr.E.D.Pa.2006).
Under Pennsylvania law, "when a final judgment on the merits exists, a future suit between the parties on the same cause of action is precluded."
Here, the parties' dispute focuses on the third requirement. Debtor contends that PHH's relationship with Muhammad, as the holder of a mortgage on property purportedly owned by him, placed PHH in privity with him at the time he filed the Litigation and when the Order was issued. See Debtor's Memorandum at 7-14. Debtor further argues that PHH and Muhammad were in privity because PHH had the right to control the Litigation, the right to intervene in it and the right to appeal. See Transcript, dated January 25, 2010 ("Transcript"), at 7-8. In support of the argument that PHH was in privity with Muhammad because it had the right to control the Litigation, Debtor cites Stonecipher v. Keane, 268 Pa. 540, 112 A. 233, 235 (1920). See, e.g., Transcript at 7.
PHH disagrees. It contends that, even though PHH and Muhammad had a mortgagee/mortgagor relationship, that relationship "did not establish the type of privity required for res judicata to exist." Memorandum of Law in Opposition to Motion for Summary Judgment ("PHH's Memorandum") at 9. PHH also asserts that it was unable to intervene in the Litigation or file an appeal from the Order since: (1) it did not have any knowledge of the Litigation until after the Order was entered; and (2) it was not a party to the Litigation. Id. at 12-14. PHH further argues that the issue of whether it had the right to control the Litigation is not relevant
PHH is correct that Stonecipher governs the disposition of this matter. In Stonecipher, there was a piece of real property located in Pittsburgh that was originally owned by Mr. and Mrs. Wilson. In 1905, the Wilsons sold the property to William Keane. However, in 1907, the Wilsons conveyed the same property to Archibald McGrew. In 1913, McGrew conveyed the property to Marie Kelly and, on the same day, she gave a bond and mortgage on the property to Stonecipher. The mortgage was immediately recorded. In 1918, the property was sold by the sheriff (by virtue of a judgment entered on the bond to Stonecipher). Stonecipher bought the property at the sheriffs sale. He thereupon filed an ejectment action against Keane who was in possession of the property as the result of an ejectment action which he had previously filed against Kelly. In Keane's ejectment suit against Kelly, Stonecipher appeared as an attorney and as a witness. Keane won the suit and obtained possession of the property from Kelly. In the ejectment action which Stonecipher filed, Keane sought to use the judgment which he had won in his ejectment action against Kelly as res judicata to preclude Stonecipher's suit against him. The trial court rejected the res judicata argument. The Pennsylvania Supreme Court agreed with the trial court, reasoning that res judicata did not apply because there was not "an identity of parties" in the suits. 268 Pa. at 546, 112 A. at 235. Expounding on its ruling, the court stated:
Id. (citations omitted) (emphasis added). Quoting from a treatise, the Pennsylvania Supreme Court further explained:
Applying the Pennsylvania Supreme Court's ruling in Stonecipher, PHH prevails. It is not bound by the Order since: (1) PHH's mortgage was executed and recorded prior to the commencement of the Litigation; and (2) PHH was not a party to the Litigation. Debtor's argument that PHH had the right to control the Litigation pursuant to the terms of the Mortgage is irrelevant in light of the fact that PHH was not a party to the Litigation. See Stonecipher, supra, 268 Pa. at 546, 112 A. at 235 ("To be concluded by a judgment, one must be a party to the suit, or what is equivalent thereto ... with a right to control the proceedings and take an appeal.").
Significantly, this matter is also controlled by the United States Supreme Court's decision in Chase National Bank v. City of Norwalk, 291 U.S. 431, 54 S.Ct. 475, 78 L.Ed. 894 (1934). While neither
In City of Norwalk, the property at issue was owned by the Ohio Electric Power Company. The property, interestingly, was the electric light and hearing system which was then serving residents of the City of Norwalk. Id. at 432-33, 54 S.Ct. 475. By a duly recorded mortgage deed, the power company transferred the property to a trustee to secure an issue of bonds. Id. at 433, 54 S.Ct. 475. Thereafter, Norwalk's city council passed a resolution requiring the power company to remove its poles, wires and other electrical equipment from the streets, alleys and other public places within 30 days. The power company refused to comply with the city's demand. Id. Thereafter, the state brought an action in quo warranto, in state court, against the power company to oust it from using the streets, alleys and public places for its purposes. Id. The state did not name the trustee as a party to the action and the trustee did not seek to intervene. Id. The state court decided against the power company and entered a judgment of ouster against it. Id. Before any effort was made by the state to enforce the judgment of ouster, the trustee under the mortgage deed of trust, brought suit in federal court to prevent the judgment of ouster from being enforced. Id. at 434, 54 S.Ct. 475. The district court ruled in favor of the trustee and issued an injunction granting the relief which the trustee had sought. Id. at 434-35, 54 S.Ct. 475.
On appeal, the Supreme Court addressed the issue of whether the federal court was bound by the state court's judgment of ouster. Id. at 437-38. It concluded that, "under well-settled principles of jurisdiction, governing all courts," that the federal court was not bound by the state court's judgment of ouster. Id. at 438, 54 S.Ct. 475. Explaining its ruling, the Supreme Court stated:
Id.
Under the Supreme Court's ruling in the City of Norwalk, the Order does not bind PHH because it was not made a party to the Litigation. PHH is entitled to have its day in court before being deprived of any interest and/or right it may have in the Property. Using the Supreme Court's words, PHH is entitled to "have a decision determining its rights rendered on the basis of the facts and considerations adduced by [it]."
As is noted above, PHH filed a motion for relief from the automatic stay shortly after Debtor filed her bankruptcy case. The motion was denied without prejudice. Since the Court has now concluded that PHH is not bound by the Order and PHH's state court action against the Debtor is still pending, see Transcript at 37, it would be an appropriate time for PHH to seek relief from the stay to continue with its state court action. According to PHH's counsel's representation, the state court action against the Debtor was on the verge of trial when Debtor filed her bankruptcy case. See Transcript at 23 ("We filed a proceeding in state court against Ms. Moore, seeking a determination ... that we are not bound by that prior order. That case went all the way to the weekend before trial.... The Friday or so before trial, Ms. Moore filed a bankruptcy."). Assuming the accuracy of this representation, it would seem to behoove this Court, should PHH file a motion for relief from the stay, to conserve judicial resources by granting PHH relief from the stay to proceed with its state court action to resolve the dispute of whether PHH has a mortgage lien on the Property.
For the reasons stated, the Motion shall be denied. An appropriate Order shall be issued.
In Albert, the property in dispute (the "Lehigh Property") was originally owned by the Lehigh Coal and Navigation Company ("Lehigh"). See id. at 603, 246 A.2d at 842. Lehigh properly paid taxes on its property but the taxes were incorrectly credited to a different tract of land. As a result, the tax records showed a nonpayment of taxes owed on the Lehigh Property for 1868 and 1869. To remedy the nonpayment of taxes, the county treasurer sold the property at a tax sale to the county commissioners. See id. The county commissioners thereafter sold the property, also at tax sale, to a third party named S.S. Winchester. Six days after the auction, Lehigh attempted to redeem its property by again paying the 1868 and 1869 taxes. See id. Winchester responded by filing a mandamus action against the county to compel it to execute and deliver the deed for the Lehigh Property to him. Significantly, Lehigh was not made a party to, and did not intervene in, the mandamus action. Winchester ultimately obtained relief in his favor in the mandamus action. The court issued a decree (the "1879 Decree") requiring the deed to the Lehigh Property to be delivered to Winchester which was done. See id. Winchester subsequently died and the Lehigh Property, after a series of conveyances, sold in 1958 to appellants, George Albert and Thomas Moore, who sought to have title to the Lehigh Property quieted in their names and against Lehigh. The trial court ruled against the appellants and in favor of Lehigh.
On appeal, the Pennsylvania Supreme Court affirmed the decision of the trial court. In so ruling, the Supreme Court held that the 1879 Decree did not bind Lehigh because he was not made a party to and did not intervene in the mandamus proceeding. Based on these "circumstances," the Pennsylvania Supreme Court held: "[T]he decree did not bind Lehigh in any manner whatsoever. To be concluded by a prior decree or judgment, one must be a party to the action, or what is equivalent thereto with a right to control the proceedings or take an appeal: Stonecipher v. Keane, 268 Pa. 540, 546, 112 A. 233 (1920)." 431 Pa. at 613, 246 A.2d at 846 (emphasis added).
422 F.2d at 623.