Residential Capital, LLC

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
RESIDENTIAL CAPITAL, LLC, et al.
Debtors.
NOT FOR PUBLICATION
Case No. 12-12020 (MG)
(Jointly Administered)
MEMORANDUM OPINION AND ORDER SUSTAINING OBJECTION AND
EXPUNGING CLAIM OF ROSALIND ALEXANDER-KASPARIK
A P E A R A N C E S:
MORRISON & FOERSTER LLP
Attorneys for ResCap Borrower Claims Trust
250 West 55th Street
New York, New York 10019
By: 	Norman S. Rosenbaum, Esq.
Jordan A. Wishnew, Esq.
Benjamin W. Butterfield, Esq.
CATE LEGAL GROUP
Attorneys for Rosalind Alexander-Kasparik
7710 Balboa Avenue, Suite 316
San Diego, California 92111
By: 	Allan O. Cate, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Before the Court is the ResCap Borrower Claims Trust’s Supplemental Objection in
Support of its Objection to Proof of Claim No. 3695 Filed on Behalf of Rosalind Alexander-
Kasparik (the “Objection,” ECF Doc. # 9583).1 The ResCap Borrower Claims Trust (the
“Trust”) seeks to disallow and expunge, without leave to amend, proof of claim number 3695
(the “Claim”), asserting claims of Rosalind Alexander-Kasparik (“Kasparik”) against Debtor
GMAC Mortgage, LLC (“GMACM”). Opposing the Objection is the Claimant Rosalind
1 	Previously, the Court sustained the Trust’s objection (as defined below) to all causes of action asserted in
the Claim other than negligence and promissory estoppel on the basis of res judicata and collateral estoppel. (Obj. at
1.)
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Alexander-Kasparik’s Supplemental Opposition to ResCap Borrower Claims Trust’s Objection
to Proof of Claim No. 3695 (the “Opposition,” ECF Doc. # 9644). The Trust thereafter filed a
reply (the “Reply,” ECF Doc. # 9669).
For the reasons stated below, the Objection is SUSTAINED and the Claim is
DISALLOWED and EXPUNGED.
I. 	BACKGROUND
A. 	Claim Background
On May 16, 2006, Kasparik signed a promissory note (the “Note”) in favor of Unitrust
Mortgage, Inc. (“Unitrust”), secured by a deed of trust (the “Deed of Trust,” together with the
Note, the “Loan”). (See “Initial Objection,” ECF Doc. # 9402, ¶ 15.) The Loan, dated May 16,
2006, encumbered property located at 1021 Scott Street #149, San Diego, CA 92106 (the
“Property”). (Id.) The Deed of Trust named as its beneficiary Mortgage Electronic Registration
Systems, Inc. (“MERS”), as nominee for Unitrust and its successors and assigns. (Id.) GMACM
began servicing the Loan on June 16, 2006, and on July 18, 2011, MERS assigned its beneficial
interest in the Deed of Trust to GMACM. (Id. ¶ 17–18.)
1. 	Loan Background
The Loan became delinquent when Kasparik failed to make the monthly payment due on
December 1, 2008. (Id. ¶ 19.) GMACM delayed foreclosure on several occasions to provide
Kasparik with time to submit an application for a loan modification. (Id.) This delinquency was
resolved when Kasparik and GMACM entered into a loan modification on March 26, 2010. (Id.)
On May 17, 2010, Kasparik made her first payment under the modified Loan, but became
delinquent on the modified Loan when she did not make the June 2010 payment until August 20,
2010, and failed to make any further payments under the modified Loan. (Id. ¶ 20.)
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On August 31, 2010, GMACM mailed a breach letter to Kasparik because she had not
made any payments on the modified Loan for the months of July and August of 2010. (Id. ¶ 21.)
On October 4, 2010, GMACM referred the modified Loan to active foreclosure because
payments for July through October 2010 remained due and owing. (Id.) A trustee’s sale was
scheduled for February 10, 2011. (Id.) Between February 2011 and March 2012, GMACM
postponed the trustee’s sale several times because the Property was potentially subject to the
automatic stay in bankruptcy cases under chapters 11 and 13 of the Bankruptcy Code (the
“California Bankruptcies”). (Id. ¶ 22.) During this period, GMACM received and denied an
additional loan modification request from Kasparik on the ground that GMACM could not
further reduce the interest rate or further extend the remaining term of the Loan under the Home
Affordable Modification Program (“HAMP”) and investor guidelines. (Id. ¶ 23.) After the
conclusion of the California Bankruptcies, GMACM set June 19, 2012 as the trustee’s sale date.
(Id. ¶ 24.)
On May 25, 2012 Kasparik contacted GMACM to discuss her application with Keep
Your Home, California (“KYHC”). (Id. ¶ 25.) On June 11, 2012, Kasparik requested a
postponement of the June 19 trustee’s sale. (Id. ¶ 26.) GMACM advised Kasparik that it would
need proof of KYHC’s approval before it could consider her postponement request. (Id.) On
June 12, 2012, Kasparik contacted GMACM about the June 19 trustee’s sale and requested
additional time to obtain approval from KYHC and requested another loan modification. (Id. ¶
27.) GMACM postponed the trustee’s sale to July 3, 2012 to provide Kasparik additional time to
obtain KYHC’s approval. (Id.)
On June 19, 2012, GMACM received an email from KYHC requesting another
postponement of the trustee’s sale to allow time for KYHC to underwrite Kasparik’s account.
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(Id. ¶ 28.) GMACM advised KYHC that it was unable to postpone the sale because Kasparik
had not made a payment from July 2010 to June 2012. (Id.) KYHC advised GMACM that it
needed 21 days to underwrite Kasparik’s account and that there was no guarantee that Kasparik’s
application would be approved both because Kasparik’s delinquency exceeded KYHC’s cap and
the prior loan modification had already lowered Kasparik’s interest rate and extended the Loan to
the maximum allowed under HAMP. (Id.) On July 2, 2012, GMACM received formal
paperwork from KYHC showing Kasparik had been approved for loan assistance. (Id. ¶ 29.)
On July 3, 2012, Federal Home Mortgage Corporation (“Freddie Mac”) contacted
GMACM inquiring about the KYHC approval. (Id. ¶ 30.) GMACM informed Freddie Mac that
the notice of KYHC’s approval was received on July 2, 2012, which did not allow enough time
for it to properly review KYHC’s approval. (Id.) Freddie Mac informed GMACM that Freddie
Mac would not agree to postpone the July 3 trustee’s sale. (Id.)
On the same day, Kasparik spoke with GMACM about the KYHC approval. (Id. ¶ 31.)
GMACM informed her that because the approval was received less than seven days prior to the
trustee’s sale, KYHC’s assistance had been denied for Kasparik’s account. (Id.) Kasparik
informed GMACM that she had spoken with Freddie Mac and was told that a postponement
request would be made. (Id.) GMACM advised Kasparik that her request to postpone the
trustee’s sale had been denied by Freddie Mac and the trustee’s sale would be held as planned.
(Id.)
On July 3, 2012, the trustee’s sale was conducted and ownership of the Property was
transferred to GMACM. (Id. ¶ 32.) At that time, Kasparik’s account remained due and owing
for July 2010 to July 2012 payments. (Id.)
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2. 	Prior Litigation
On July 31, 2012, Kasparik filed a complaint (the “Complaint”) in the Superior Court of
California, County of San Diego, Central District (the “California Superior Court”), Case No.
37-2012-00101531-CU-BC-CTL (the “California Action”). The Complaint asserted claims
against, among others, GMACM and Freddie Mac (the “Defendants”), for intentional and
negligent misrepresentation, breach of fiduciary duty, unjust enrichment, breach of contract, and
quiet title to real property, as well as violations of California Civil Code section 2923.6 and
California Business & Professional Code section 17200. (Initial Obj. ¶ 1.) The Defendants filed
a demurrer to the Complaint. (Id. ¶ 33.)
On October 10, 2012, GMACM filed a Notice of Bankruptcy and Suggestion of
Automatic Stay (“NOB”) with the California Superior Court. (Id. ¶ 34.) The California action
was stayed until April 7, 2014, when the Court entered a consent order (ECF Doc. #6753)
modifying the automatic stay. (Id.) The order permitted Kasparik to prosecute claims against
GMACM in the California Superior Court, “solely to the extent they are asserted for the purpose
of defending and unwinding the foreclosure” of the Loan secured by the Deed of Trust against
the Property. (Id.)
On July 31, 2014, Kasparik filed an amended complaint (the “First Amended
Complaint”) restating all the causes of action asserted in the original Complaint, and asserting
other factual allegations and a claim for promissory estoppel. (Id. ¶ 35.) The Defendants filed a
demurrer to the First Amended Complaint. (Id. ¶ 36.) On December 5, 2014, the California
Superior Court dismissed each cause of action asserted in the First Amended Complaint with
leave to amend. (Id. ¶ 37.) Kasparik filed a further amended complaint (the “Second Amended
Complaint”) asserting all of the causes of action contained in the First Amended Complaint and
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other factual allegations. (Id. ¶ 38.) The Defendants jointly filed a demurrer to the Second
Amended Complaint. (Id. ¶ 39.) On April 3, 2015, the California Superior Court sustained the
demurrer to the Second Amended Complaint “without leave to amend as to all causes of action,
with the exception that [Kasparik] may file a Third Amended Complaint to state causes of action
for promissory estoppel and negligence, only.” (Id. ¶ 40.)
Kasparik filed a third amended complaint (the “Third Amended Complaint,” ECF Doc. #
9402-3, Ex. N). Freddie Mac filed a demurrer to the Third Amended Complaint, which the
California Superior Court sustained with prejudice. (Lathrop Declaration, ECF Doc. # 9402-3, ¶
29.) On October 23, 2015, the California Superior Court entered a minute order (the “Minute
Order”) sustaining the demurrer to the Third Amended Complaint in its entirety without leave to
amend. (Obj. ¶ 2.) On November 3, 2015, the California Superior Court entered a judgment
dismissing (the “Superior Court Dismissal”) the Third Amended Complaint, stating that
Kasparik “shall take nothing by way of her Third Amended Complaint from Freddie Mac and/or
GMAC Mortgage, LLC.” (Initial Obj. ¶ 41.) Kasparik did not timely file an appeal. (Id. ¶ 42.)
But GMACM had not filed a response to the Third Amended Complaint nor did it join Freddie
Mac’s demurrer. (Obj. ¶ 10.) On December 31, 2015, the California Superior Court entered an
order (the “December 31 Order”) vacating and setting aside the Superior Court Dismissal as to
GMACM only, since GMACM had not filed a response to the Third Amended Complaint or
joined in the demurrer. (Id. ¶ 12.)
On January 21, 2016, this Court sustained the Trust’s objection “to all causes of action
other than negligence and promissory estoppel, based on res judicata and collateral estoppel.”
The Court held that the Superior Court Order was “final as to those other causes of action.” (the
“January 21 Transcript,” ECF Doc. # 9549, at 48:2–7.)
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II. 	PARTIES’ POSITIONS
A. 	GMACM’s Position
The Trust argues that the Claim is barred by collateral estoppel because the Minute Order
satisfies the requirements for the application of collateral estoppel under California law. (Obj. ¶
19.) Under California law, a court may apply the doctrine of collateral estoppel only if five
threshold requirements have been met:
(1) 	the issue sought to be precluded from relitigation must be identical to that
decided in a former proceeding;
(2) 	the issue must have been actually litigated in the former proceeding;
(3) 	the issue must have been necessarily decided in the former proceeding;
(4) 	the decision in the former proceeding must be final and on the merits; and
(5) 	the party against whom preclusion is sought must be the same as, or in privity
with, the party to the former proceeding.
(Id. ¶ 17 (citing Lucido v. Superior Court, 795 P.2d 1223, 1225 (Cal. 1990)).)
The Trust argues that each of these requirements is satisfied. According to the Trust, the
California Superior Court decided identical issues in the California Action because the
Kasparik’s remaining allegations against GMACM (i) overlap entirely with the allegations
against Freddie Mac in the Third Amended Complaint and (ii) involve the same rules of law as it
claims against Freddie Mac. (Obj. ¶ 21.)
The Trust contends that each of the causes of action asserted in the Claim was litigated in
the California Action—each of the remaining factual allegations and causes of action asserted
against GMACM is identical to a factual allegation or cause of action previously asserted against
Freddie Mac and resolved by the California Superior Court. (Id. ¶ 22.) Accordingly, the Trust
argues, each of the cause of actions was also necessarily decided in the California Action. (Id. ¶
23.)
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The Trust argues that the California Action was terminated with a final judgment on the
merits—the Minute Order constitutes a judgment issued on the merits and it was not appealed.
(Id. ¶ 24.) The “privity” requirement is satisfied because Kasparik was a party to the California
Action. (Id. ¶ 25.) Finally, the Trust argues that public policy supports the application of
collateral estoppel in this case because the Kasparik already had a full and fair opportunity in the
California Action to litigate against Freddie Mac causes of action identical to those raised here
against GMACM. (Id. ¶ 26.)
The Trust also argues that the negligence claim fails on the merits. (Id. ¶ 29.) The Trust
contends that Claim fails to identify any representation made by GMACM. (Id.) Each cause of
action asserted by the Kasparik against GMACM relies on an allegation that GMACM made a
false representation to the Kasparik regarding a postponement of the Trustee’s sale. (Id.)
However, the Complaint does not identify any such statement. (Id.) To the contrary, the
Complaint identifies only alleged false representations made to the Kasparik by a Freddie Mac
representative. (Id.)
Additionally, the Trust argues that Kasparik’s negligence claim also fails because (i)
GMACM, as lender, does not owe fiduciary duties the Kasparik, as borrower, because the
Kasparik cannot demonstrate that a special trust or confidence was reposed in GMACM, (ii)
GMACM does not owe a duty of care to the Kasparik and (iii) an oral promise to postpone a
foreclosure sale is unenforceable. (Id. ¶ 40.)
The Trust argues that the promissory estoppel claim fails on the merits. (Id.¶ 41.) The
Trust contends that the Kasparik has failed to identify a clear promise by GMAMC that would be
enforceable. (Id. ¶¶ 43–45) Additionally, the Trust argues that the Kasparik is unable to
demonstrate that she detrimentally relied on any statement by GMAMC because she has failed to
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demonstrate that she took any steps to initiate bankruptcy, refinance the Loan or market the
Property. (Id. ¶ 49.) The Trust also contends that there is no private right of action under
HAMP. (Id. ¶ 50.)
B. 	Kasparik’s Position
Kasparik argues that the Claim is not barred by collateral estoppel. (Opp’n ¶¶ 10–13.)
Kasparik contends that, although the Minute Order effectively decided identical issues as to
Freddie Mac, those claims were not adjudicated as to GMACM and GMACM cannot claim the
benefit of collateral estoppel because GMACM is not in privity with Freddie Mac. (Id. ¶ 12.)
Additionally, Kasparik argues that applying collateral estoppel in this case would be contrary to
public policy because she has not had a full opportunity to litigate her claims against GMACM in
state court. (Id. ¶ 13.)
Kasparik contends that her negligence claim is meritorious. (Id.) 	She argues that
GMACM and Freddie Mac constantly mishandled her loan modification application by failing to
provide a consistent point of contact and by providing her with conflicting information regarding
her application status and the sale of her home. (Id. ¶ 16.) She contends that GMACM failed to
uphold its duty to assist her in her loan modification in good faith. (Id.)
III. 	DISCUSSION
A. 	The Claim is Barred by Collateral Estoppel
Collateral estoppel, or issue preclusion, “bars relitigation of any factual or legal issue that
was actually decided in previous litigation between the parties, whether on the same or a
different claim.” Dennis v. Rhode Island Hosp. Tr. Nat’l Bank, 744 F.2d 893, 899 (1st Cir.
1984) (internal quotation marks omitted). Under California law, collateral estoppel applies if:
First, the issue sought to be precluded from relitigation must be identical to that
decided in a former proceeding. 	Second, this issue must have been actually
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litigated in the former proceeding. 	Third, it must have been necessarily decided
in the former proceeding. Fourth, the decision in the former proceeding must be
final and on the merits. Finally, the party against whom preclusion is sought must
be the same as, or in privity with, the party to the former proceeding.
Harmon v. Kobrin (In re Cantrell), 329 F.3d 1119, 1123 (9th Cir. 2003).
Additionally, California courts will consider whether public policies will be advanced by
the application of collateral estoppel in a particular setting, such as the “preservation of the
integrity of the judicial system, promotion of judicial economic, and protection of litigants from
harassment by vexatious litigation . . . .” Lucido v. Superior Court, 795 P.2d 1223, 1227 (Cal.
1990).
The Court previously sustained the Trust’s objection to all causes of action asserted in the
Claim other than negligence and promissory estoppel. (Obj. at 1.) In the Minute Order, the
California Superior Court sustained Freddie Mac’s demurrer to the Third Amended Complaint
on the merits and likely would have sustained the demurrer with respect to GMACM if GMACM
had joined the demurrer.
The Minute Order satisfies the requirements for the application of collateral estoppel to
Kasparik’s Claim based on negligence and promissory estoppel. For the reasons explained
below, the Claim is disallowed and expunged. Because collateral estoppel clearly applies to the
Claim, it is unnecessary to reach the merits of the Claim.
1. 	Identical Issues were before the California Superior Court
Collateral estoppel is applicable only if “identical factual allegations” were at stake in the
prior opinion. Lucido, 795 P.2d at 1225. To determine whether two proceedings involve
“identical issues,” courts consider, among other things: (i) whether there is a substantial overlap
between the evidence or argument advanced in the two proceedings, (ii) whether the evidence or
arguments involve application of the same rule of law, and (iii) whether the claims involved in
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the two proceedings are closely related. Burdette v. Carrier Corp., 71 Cal. Rptr. 3d 185, 201
(Cal. Ct. App. 2008), as modified on denial of reh’g, No. C060299, 2008 Cal. App. LEXIS 236
(Cal. Ct. App. Feb. 14, 2008).
Here, the remaining portions of the Claim—based upon negligence and promissory
estoppel and made against Freddie Mac and GMACM—overlap entirely in the Third Amended
Complaint. With respect to the negligence claim, Kasparik alleges that Freddie Mac and
GMACM owed her the “highest obligations of good faith, fair dealing, loyalty and due dare in all
of their dealings . . . .” (Third Am. Compl. ¶ 19.) With respect to the promissory estoppel claim,
Kasparik alleges, among other things, that “GMAC[M] and [Freddie Mac] made a promise,
through oral and written representations, to Plaintiff’s loan modification assistance company
[KYHC], and to Plaintiff that they would not foreclose on the Subject Property because Plaintiff
had been deemed qualified for third party government assistance.” (Id. ¶ 24.) Kasparik’s claims
against GMACM and Freddie Mac arise out of the same transaction, making them “closely
related.” Further, in the Third Amended Complaint, Kasparik does not make allegations against
GMACM that she does not also make against Freddie Mac, further demonstrating the identity of
the issues. (See generally Third Am. Compl.)
2. 	The Issues were Actually Litigated in the California Action
Collateral estoppel requires that the issues were actually litigated in the prior proceeding.
“An issue is actually litigated when it is raised by the pleadings and factually resolved either by
proof or failure of proof.” Betyar v. Pierce, 252 Cal. Rptr. 907, 909 (Cal. Ct. App. 1998)
(citations omitted). The factual allegations and causes of action asserted here against GMACM
are the same factual allegations and causes of action previously asserted by Kasparik against
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Freddie Mac and resolved by the California Superior Court in the Minute Order. As such, the
issues were “actually litigated” in the previous action.
3. 	The California Superior Court Necessarily Decided the Issues
Collateral estoppel applies only to issues that were “necessarily decided” in the prior
proceeding. An issue is “necessarily decided” in a proceeding so long as the issue is not
“entirely unnecessary to the judgment in the . . . proceeding.” Lucido, 795 P.2d at 1226 (internal
quotation marks omitted).
The causes of action asserted here by Kasparik against GMACM are identical to the
causes of action dismissed against Freddie Mac in the Minute Order. (See Minute Order at 2
(“For these reasons, Defendants’ demurrer as to the negligence cause of action is sustained
without leave to amend.”); id. at 3 (“Defendant’s demurrer to the promissory estoppel cause of
action is sustained without leave to amend.”).) As such, the “necessarily decided” prong for the
application of collateral estoppel is fulfilled.
4. 	The California Superior Court Rendered a Final Decision on the Merits
The Minute Order was a judgment on the merits by the California Superior Court. Both
the Minute Order and the Superior Court Dismissal became final and non-appealable when
Kasparik did not appeal either one. See Cal. Super Ct. L.R. 8.104(a) (requiring that a notice of
appeal be filed within 60 days from the date of service and notice of entry); Cal. Civ. Code §
1013(a) (adding five days to appeal period if service is made within California).
5. 	Privity is Present
The “privity” requirement is satisfied where the doctrine is “asserted against a party to
the former action . . . .” Kelly v. Vons Companies, Inc., 79 Cal. Rptr. 2d 763, 769 (Cal. Ct. App.
1998) (stating that the doctrine of collateral estoppel is applicable where, among other things, it
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is being “asserted against a party to the former action or one who was in privity with such a party
. . . .”).
Here, GMACM is asserting collateral estoppel against Kasparik, the plaintiff in the
California Action. Kasparik misunderstands collateral estoppel as requiring that the party
asserting collateral estoppel be in privity with a party from the previous action. (See Opp’n ¶ 12
(“[GMACM] cannot claim the benefit of collateral estoppel it is not in privity with [Freddie
Mac], GMAC[M] and [Freddie Mac] are separate entities and distinct entities, both of whom
were defendants in the state court matter.”).) Kasparik’s argument fails because GMACM is
asserting collateral estoppel against her—she was a party to the California Action. See Kelly,
Cal. Rptr. 2d at 769 (stating that “the doctrine is asserted against a party to the former action or
one who was in privity with such a party” (emphasis added)).
As such, the “privity” requirement is satisfied.
6. 	Public Policy Favors the Application of Collateral Estoppel
Public policy favors the application of collateral estoppel to Kasparik’s claims. She had a
full and fair opportunity in the California Action to litigate against Freddie Mac the exact same
causes of action raised here against GMACM. (See generally Third Am. Compl.)
IV. 	CONCLUSION
For the reasons explained above, the Objection to the claim is SUSTAINED and the
Claim is DISALLOWED and EXPUNGED.
IT IS SO ORDERED.
Dated: 	April 26, 2016
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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