Ditech Holding Corporation

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UNITED STATES BANKRUPTCY COURT 	NOT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK
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In re:
Ditech Holding Corporation, et al.,
Debtors.1
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Case No. 19-10412 (JLG)
Chapter 11
(Jointly Administered)
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MEMORANDUM DECISION AND ORDER SUSTAINING THE FORTY-EIGHTH
OMNIBUS OBJECTION (NO BASIS CONSUMER CREDITOR LITIGATION CLAIMS)
WITH RESPECT TO CLAIM OF LUCILLE WILLS AND EDWARD BAILEY
A P P E A R A N C E S :
WEIL, GOTSHAL & MANGES LLP
Attorneys for the Plan Administrator
767 Fifth Avenue
New York, New York 10153
By: 	Ray C. Schrock, P.C.
Richard W. Slack, Esq.
Sunny Singh, Esq.
JENNER & BLOCK LLP
Attorneys for the Consumer Claims Representative
919 Third Avenue
New York, NY 10022
By: 	Richard Levin, Esq.
Mr. Edward Bailey
Ms. Lucille Wills
Appearing Pro Se
c/o Law Office of Richard L. Antognini
2036 Nevada City Hwy, Ste 636
Grass Valley, CA 95945
1 	The confirmation of the Debtors’ Third Amended Plan (as defined below) created the Wind Down Estates. The
Wind Down Estates, along with the last four digits of their federal tax identification number, as applicable, are
Ditech Holding Corporation (0486); DF Insurance Agency LLC (6918); Ditech Financial LLC (5868); Green Tree
Credit LLC (5864); Green Tree Credit Solutions LLC (1565); Green Tree Insurance Agency of Nevada, Inc. (7331);
Green Tree Investment Holdings III LLC (1008); Green Tree Servicing Corp. (3552); Marix Servicing LLC (6101);
Walter Management Holding Company LLC (9818); and Walter Reverse Acquisition LLC (8837). The Wind Down
Estates’ principal offices are located at 2600 South Shore Blvd., Suite 300, League City, TX 77573.
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HON. JAMES L. GARRITY, JR.
U.S. BANKRUPTCY JUDGE
Introduction2
Lucille Wills (the “Borrower”) and Edward Bailey3 (together, the “Claimants”) filed
amended Proof of Claim No. 2861 (the “Claim”) against Ditech Financial LLC f/k/a Green Tree
Servicing LLC (“Ditech”) in these Chapter 11 Cases.4 As explained below, the Claim recites
that it is both a secured and unsecured claim in the sum of $220,692. It seeks damages from
Ditech for its failure to acknowledge that Borrower paid off her loan in full via an International
Promissory Note which Claimants assert is legal tender under the United Nations Convention on
International Bills of Exchange and International Promissory Notes (the “UNCITRAL
Convention.”).
In their Forty-Eighth Omnibus Claims Objection (the “Objection”),5 the Plan
Administrator and the Consumer Claims Representative (collectively, the “Estate
Representatives”) seek to disallow and expunge the Claim. The Claimants, appearing pro se,
2 	Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Forty-
Eighth Omnibus Claims Objection and the Third Amended Plan. References to “ECF No. __” herein are to
documents filed in the electronic docket in these jointly administered cases under Case No. 19-10412 (the “Chapter
11 Cases”).
3 	The WPO-International Trust owns the Property (as defined below). Edward Bailey is the trustee under the
trust. See Bailey v. Ditech Fin., LLC, No. 3:16-CV-0274-SI, 2018 WL 1547352, at *1 (D. Or. Mar. 29, 2018) (the
“Oregon Federal Decision”).
4 	Claimants previously filed proofs of claim on April 25, 2019 (Claim No. 21507), January 13, 2020 (Claim No.
2853), and January 17, 2020 (Claim No. 2854). On February 21, 2020, the Plan Administrator and Consumer
Representative filed the Thirty-Sixth Omnibus Objection to Proofs of Claim (Amended/Duplicative Consumer
Creditor Claims) [ECF No. 1882], which included Claim Nos. 2853, 2854, and 21507, on the basis that such claims
were either duplicative of, or had been amended or superseded by a subsequent filing of a proof of claim. On May
15, 2020, this Court granted the Thirty-Sixth Omnibus Objection to Proofs of Claim Amended/Duplicative
Consumer Creditor Claims), expunging Claim Nos. 2853, 2854, and 21507. See Order Granting Thirty-Sixth
Omnibus Objection to Proofs of Claim (Amended/Duplicative Consumer Creditor Claims) [ECF No. 2366].
5 	See Forty-Eighth Omnibus Objection to Proofs of Claim (No Basis Consumer Creditor Litigation Claims) [ECF
No. 2148].
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responded to the Objection (the “Response”).6 The Estate Representatives submitted a joint reply
to the Response (the Reply”).7
The Estate Representatives contend that the Court should expunge the Claim because it
fails to state a claim for relief against Ditech. Pursuant to the Claims Procedures Order,8 the
Court conducted a Sufficiency Hearing on the Claim, at which time counsel for the Estate
Representatives and Claimants appeared and was heard by the Court.9 The legal standard of
review at a Sufficiency Hearing is equivalent to the standard applied to a motion to dismiss for
failure to state a claim upon which relief may be granted under Rule 12(b)(6) of the Federal
Rules of Civil Procedure (“Rule 12(b)(6)”).10 See Claims Procedures Order ¶ 3(iv)(a). In the
Claim, Claimants seek relief that is identical to the relief they sought against Ditech in a pre-
petition lawsuit (the “Oregon Federal Action”) that they unsuccessfully prosecuted in the United
States District Court for the District of Oregon, Portland Division. Pursuant to the Oregon
Federal Decision,11 the Oregon District Court granted summary judgment in favor of Ditech and
dismissed the Oregon Federal Action. The Claimants appealed that ruling to the Ninth Circuit
Court of Appeals. The appeal was stayed upon the commencement of these Chapter 11 Cases.
It is settled that under Rule 12(b)(6), dismissal of a claim on res judicata grounds is
appropriate when the elements of res judicata are apparent on the face of the claim. It is also
settled that pro se claimants are subject to application of the principles of res judicata and claim
6 	See Response to the Objection on Claim Number 2861 of Lucille Wills and Edward Bailey [ECF No. 2514].
7 	See Joint Reply of Plan Administrator and Consumer Representative in Support of the Forty-Eighth Omnibus
Objection with Respect to Claim of Lucille Wills and Edward Bailey (Claim No. 2861) [ECF No. 3392].
8 	See Order Approving (I) Claim Objection Procedures and (II) Claim Hearing Procedures [ECF No. 1632].
9 	See May 27, 2021 Hr’g. Tr. [ECF No. 3423].
10 	Rule 12(b)(6) is incorporated herein by Rule 7012 of the Federal Rules of Bankruptcy Procedure (the
“Bankruptcy Rules”).
11 	See supra note 3.
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preclusion. As explained below, the Court sustains the Objection and disallows and expunges
the Claim on the grounds that the doctrine of res judicata, as applied under Oregon state law,
bars the Claimants from obtaining any recovery under the Claim. Moreover, and in any event,
construing the Claim in the light most favorable to the Claimants, and drawing all inferences in
their favor, the Claimants fail to state a claim for relief against Ditech. For that additional reason,
the Court disallows and expunges the Claim.
Jurisdiction
The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334
and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States
District Court for the Southern District of New York, dated January 31, 2012 (Preska, C.J.). This
is a core proceeding pursuant to 28 U.S.C. § 157(b).
Background12
On March 27, 2007, Borrower executed a promissory note in the sum of $211,500
secured by a deed of trust (the “Deed of Trust”) in favor of Decision One Mortgage Company,
12 	As discussed herein, in applying Rule 12(b)(6) to the Claim, the Court tests the legal sufficiency of the Claim.
Accordingly, in resolving the Objection, the Court assumes the truth of the well plead facts in support of the Claim.
See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); see also Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007) (“In
any event, a ruling on a motion for dismissal pursuant to Rule 12(b)(6) is not an occasion for the court to make
findings of fact.”). In support of the Claim and the Objection, both the Claimants and Estate Representatives rely on
pleadings filed and decisions rendered in the Oregon Federal Action. It is well settled that in resolving a Rule
12(b)(6) motion, the court “may take notice of proceedings in other courts, both within and without the federal
judicial system, if those proceedings have a direct relation to matters at issue.” St. Louis Baptist Temple, Inc. v.
FDIC, 605 F.2d 1169, 1172 (10th Cir.1979); Kasey v. Molybdenum Corp. of America, 336 F.2d 560, 563 (9th Cir.
1964) (where parties had history of litigation in state court, court took “judicial notice of . . . officially reported
decisions and refers to them for a better understanding of the complicated factual situation here existing.”); Wingate
v. Gives, 05 Civ. 1872 (LAK), 2016 WL 519634, at *1 (S.D.N.Y. Feb. 5, 2016) (court took judicial notice of facts in
reported state court decisions); Church of Scientology Int’l v. Time Warner, Inc., 806 F.Supp. 1157, 1159 n.2
(S.D.N.Y.1992) (court took judicial notice of reported decisions dealing with Scientology organizations). See also
Glob. Network Commc’ns, Inc. v. City of New York, 458 F.3d 150, 156 (2d Cir. 2006) (stating that on a motion to
dismiss for failure to state a claim a court may consider materials extrinsic to the pleadings, if the materials are
integral to the complaint or matters subject to judicial notice). The matters at issue in the Claim mirror those at issue
and finally resolved against the Claimants in the Oregon Federal Action. The documents cited by the Claimants and
Estate Representatives directly bear on the merits of those claims. Thus, subject to the standards applicable to Rule
12(b)(6) motions, the Court takes judicial notice of the documents that the Claimants and Estate Representatives rely
on in support of their respective positions in this matter. As necessary, the Court cites to those documents herein.
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LLC on the real property located at 13049 NE Broadway Street, Portland, Oregon (the
“Property”). See Claim at 35.13 The Deed of Trust named Fidelity National Title as trustee and
Mortgage Electronic Registration Systems Inc. (“MERS”) as nominee for Decision One
Mortgage Company, LLC, as the beneficiary. Id. at 45. The Deed of Trust provides that MERS
was “acting solely as a nominee for Lender and Lender’s successors and assigns.” See Reply Ex.
A, Deed of Trust at 1. On November 1, 2013, Specialized Loan Servicing, LLC (“SLS”)
transferred servicing of the loan to Ditech. See Oregon Federal Decision at *2. At that time,
Borrower was two payments delinquent on the loan and more than 180 days past due. Id. SLS
had initiated foreclosure proceedings against Claimants. Id. Ditech began accepting payments
from the Borrower and applied them to the oldest balances due. Id. The payments did not correct
the delinquent status of the loan, and in March 2014, Ditech informed Borrower that it would no
longer accept payments on the loan and requested that the account be brought current. Id.
Borrower wrote a letter to Ditech detailing her hardship and explaining why she became
delinquent. See Reply Ex. C, Letter to Ditech dated April 14, 2014. In response, Ditech agreed
to waive her late fees of $1,054.11. See id. Ex. D, Letter to Borrower dated June 17, 2014.
In a letter dated November 4, 2014, Ditech sent payoff instructions to the Borrower. See
Claim at 19-21. That letter specifically provides that “[p]ayoff funds must be remitted using a
money order, cashier’s check, or other certified instrument unless a Title Company remits
funds.” Id. at 20. On November 24, 2014, Claimants purported to file a UCC Financing
Statement (the “Financing Statement”) pursuant to the Uniform Commercial Code in the sum of
$220,642 “payable on demand/at sight” to Ditech for the “discharge of debt” via the
International Promissory Note. Id. at 29-36. The International Promissory Note is dated
November 15, 2014. See Reply at 47. It provides that it is “certified government funds currency”
13 	References herein to pages of the Claim and Response are cited to the particular PDF page of the Claim and
Response.
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a “Negotiable Instrument” “an obligation (debt) of the United States (12 U.S.C. §411; 18 U.S.C.
§ 826; and USC § 108(e)(10)(A))” “THE EQUIVALENT OF MONEY” and “UCC1
CERTIFIED and REGISTERED” by the “MASSECHUTTES [sic] Secretary of State.” Id. By
letter dated February 3, 2015, Borrower advised that she tendered payment in full to Ditech via
the International Promissory Note. See Oregon Federal Decision at *3. See also Reply Ex. E,
Letter to Ditech dated Feb. 3, 2015. Ditech rejected the International Promissory Note on the
grounds that it is not legal tender and “will not be accepted now or in the future as payment on
the note or mortgage.” See Reply Ex. E at 2. By letter dated March 16, 2015, Ditech notified
Borrower that it completed an investigation of payments on the account, found that there were no
errors and confirmed that the information it reported to the credit bureau was correct. See Oregon
Federal Decision at *3.
On February 16, 2016, Claimants commenced the Oregon Federal Action against various
entities alleging causes of action based “upon the facts and circumstances surrounding Plaintiffs’
original loan transactions and subsequent securitization.” Claim No. 21507 at 4, 7. On June 23,
2016, Claimants filed their First Amended Complaint which added Ditech as a defendant. In the
complaint, Claimants sought damages for violations of 12 U.S.C. § 2605 (the Real Estate
Settlement Procedures (“RESPA”)), unlawful foreclosure and breach of contract. See First
Amended Complaint, Edward Bailey, Trustee of the WPO-International Trust, et. al., v. Ditech
Financial, LLC, et. al., Case No. 3:16-cv-274-SI, (D. Or. June 23, 2016) (Doc. 32). The First
Amended Complaint raises the same issues as the Claim—failure by Ditech to account for
payment on the loan and breach of contract for Ditech’s failure to accept the International
Promissory Note as payment in 2014. Compare First Amended Complaint ¶¶10-12, 15-16 with
Response and Claim at 13-47.
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Ditech filed a motion for summary judgment in the Oregon Federal Action and Claimants
did not file a response, despite receiving an extension of time in which to do so. See Oregon
Federal Decision at *2.14 On March 29, 2018, the Oregon District Court reviewed the
undisputed material facts and granted summary judgment in favor of Ditech and dismissed the
case. Id. at *2-3. In granting summary judgment, the Oregon District Court found that “Ditech
refused to accept payments in an amount less than would make Ms. Wills’ account current, but
that is allowable under the express terms of the Deed of Trust. Ditech also refused to accept the
‘Unconditional International Promissory Note,’ but acceptance of that form of payment is not
required under RESPA.” Id. at *3. On April 26, 2016, Borrower executed a Deed of Revocation
on the Property revoking the January 25, 2005 Deed of Trust in favor of Fidelity National Title
as Trustee and MERS and the beneficiary. See Claim at 45. On April 30, 2018, Claimants
appealed the Oregon Federal Decision to the United States Court of Appeals for the Ninth
Circuit. See Lucille Wills, Beneficiary, Edward Bailey, Trustee for and on behalf of the WPO-
International Trust v. Ditech Financial, LLC, Case No. 18-35345 (9th Cir. April 30, 2018). On
Ditech’s Notice of Bankruptcy and Imposition of Automatic Stay, the circuit stayed the appeal.
See Order, Lucille Wills, Beneficiary, Edward Bailey, Trustee for and on behalf of the WPO-
International Trust v. Ditech Financial, LLC, Case No. 18-35345 (9th Cir. April 15, 2019) (Doc.
27).
14 	The Oregon District Court appointed pro bono counsel to represent Claimants, but the Claimants did not
respond to their court appointed counsel. After the court encouraged Claimants to meet with counsel, Borrower
indicated that she was not able to work with her court appointed counsel. Thereafter, the Oregon District Court
terminated that appointment and provided Claimants three additional weeks, until March 2, 2018, to respond to
Ditech’s motion for summary judgment. Claimants did not file a response. See Oregon Federal Decision at *2.
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The Chapter 11 Cases
On February 11, 2019, Ditech Holding Corporation (f/k/a Walter Investment
Management Corp.) and certain of its affiliates (“Debtors”) filed petitions for relief under chapter
11 of title 11 of the United States Code (the “Bankruptcy Code”) in this Court. The Debtors
remained in possession of their business and assets as debtors and debtors in possession pursuant
to sections 1107(a) and 1108 of the Bankruptcy Code. On February 22, 2019, the Court entered
an order fixing April 1, 2019 at 5:00 p.m. (prevailing Eastern Time) as the deadline for each
person or entity, not including governmental units (as defined in section 101(27) of the
Bankruptcy Code) to file a proof of claim in the Debtors’ Chapter 11 Cases (the “General Bar
Date”).15 Thereafter, the Court extended the General Bar Date for consumer borrowers, twice,
and ultimately to June 3, 2019 at 5:00 p.m. (prevailing Eastern Time).16
On September 26, 2019, the Debtors confirmed their Third Amended Plan,17 and on
September 30, 2019, that plan became effective.18 The Plan Administrator is a fiduciary
appointed under the Third Amended Plan who is charged with the duty of winding down,
dissolving and liquidating the Wind Down Estates. See Third Amended Plan, Art. I, ¶¶ 1.130,
1.184, 1.186. The Consumer Claims Representative is a fiduciary appointed under the Third
Amended Plan who is responsible for the reconciliation and resolution of Consumer Creditor
Claims and distribution of funds to holders of Allowed Consumer Creditor Claims in accordance
15 	See Order Establishing Deadline for Filing Proofs of Claim and Approving the Form and Manner of Notice
Thereof [ECF No. 90].
16 	See Order Further Extending General Bar Date for Filing Proofs of Claim for Consumer Borrowers Nunc Pro
Tunc [ECF No. 496].
17 	See Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation and its Affiliated Debtors [ECF No.
1326] (the “Third Amended Plan”); Order Confirming Third Amended Joint Chapter 11 Plan of Ditech Holding
Corporation and its Affiliated Debtors [ECF No. 1404].
18 	Notice of (I) Entry of Order Confirming Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation
and its Affiliated Debtors, (II) Occurrence of Effective Date, and (III) Final Deadline for Filing Administrative
Expense Claims [ECF No. 1449].
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with the Third Amended Plan. Id., Art. I, ¶ 1.41. Under the plan, the Plan Administrator, on
behalf of each of the Wind Down Estates, is authorized to object to all Administrative Expense
Claims, Priority Tax Claims, Priority Non-Tax Claims, and Intercompany Claims; and the
Consumer Claims Representative has the exclusive authority to object to all Consumer Creditor
Claims. See id., Art. VII, § 7.1.
The Proof of Claim
On April 25, 2019, Claimants, by their counsel, filed their initial claim (Claim 21507) as
a general unsecured claim in an undetermined amount. See Claim No. 21507. On February 7,
2020, Claimants, acting pro se, amended that claim, to assert the Claim in the sum of $220,642
that they labeled as both a secured and unsecured claim. See Claim at 2. As support for the
Claim, the Claimants rely on a certificate of service filed in the appeal, a document titled
“Amending Proof of Claim #21507, For Lucille Wills and Edward Bailey filed on April 25, 2019
for the Order Confirming the Third Amended Joint Chapter 11 Plan of Ditech Holding
Corporation and its Affiliated Debtors,” as well as various documents including the Financing
Statement, International Promissory Note and letters from Ditech. See id. at 4-47. In substance,
the Claimants maintain that the loan on their Property was paid in full via the International
Promissory Note and as such, Ditech’s failure to accept and apply the note to their account
results in a breach of contract on account of which they are entitled to receive damages. Id. at 6,
8-10.
Claims Procedures Order
On November 19, 2019, the Court entered the Claims Procedures Order. Under that
order, the Estate Representatives are authorized to file Omnibus Objections seeking reduction,
reclassification, or disallowance of Claims on the grounds set forth in Bankruptcy Rule 3007(d)
and additional grounds set forth in the Claims Procedures Order. See Claims Procedures Order ¶
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2(i)(a)-(h). A properly filed and served response to an Objection gives rise to a “Contested
Claim” that will be resolved at a Claim Hearing. Id. ¶ 3(iv). The Estate Representatives have the
option of scheduling the Claim Hearing as either a “Merits Hearing” or a “Sufficiency Hearing.”
Id. ¶ 3(iv)(a),(b). A “Merits Hearing” is an evidentiary hearing on the merits of a Contested
Claim. A “Sufficiency Hearing” is a non-evidentiary hearing to address whether the Contested
Claim states a claim for relief against the Debtors. The legal standard of review that will be
applied by the Court at a Sufficiency Hearing is equivalent to the standard applied by the Court
upon a motion to dismiss for failure to state a claim upon which relief can be granted. Id. ¶
3(iv)(a).
The Objection
In the Objection, the Estate Representatives challenge the sufficiency of the Claim and
contend that it fails to state a claim for relief, and that by application of Rule 12(b)(6), the Court
must disallow and expunge the Claim. They contend that the Claim is barred by application of
the doctrine of res judicata because it is based upon the same claims that were dismissed in the
Oregon Federal Action. They maintain that since these issues have already been litigated and
found to have no merit in the Oregon Federal Action, the doctrine of res judicata bars the
Claimants from relitigating those claims herein through the claim allowance process. Reply ¶¶
24-29. Alternatively, they contend that the Court should expunge the Claim because it fails to
state a claim for relief under Oregon state law (id. ¶¶ 31-35) or, at a minimum, reclassify the
secured claim to an unsecured Consumer Creditor Claim, subject to further determination of its
status as a section 363(o) or non-section 363(o) claim. Id. ¶¶ 36-45.
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Applicable Legal Standards
Section 502(b)(1) of the Bankruptcy Code provides, in relevant part, that a claim may not
be allowed to the extent that “such claim is unenforceable against the debtor and property of the
debtor, under any agreement or applicable law. . . .” 11 U.S.C. 502(b)(1). Whether a claim is
allowable “generally is determined by applicable nonbankruptcy law.” In re W.R. Grace & Co.,
346 B.R. 672, 674 (Bankr. D. Del. 2006). “What claims of creditors are valid and subsisting
obligations against the bankrupt at the time a petition is filed, is a question which, in the absence
of overruling federal law, is to be determined by reference to state law.” In re Hess, 404 B.R.
747, 749 (Bankr. S.D.N.Y. 2009) (quoting Vanston Bondholders Protective Comm. v. Green,
329 U.S. 156, 161 (1946)). The Property is located in Oregon, so the laws of that state are
applicable. “Property interests are created and defined by state law.” Canney v. Merchants Bank
(In re Canney), 284 F.3d 362, 370 (2d Cir. 2002) (citing Butner v. United States, 440 U.S. 48, 55
(1979)).
Under section 502(a) of the Bankruptcy Code, “a claim ... proof of which is filed under
section 501 of this title, is deemed allowed, unless a party in interest ... objects.” 11 U.S.C. §
502(a). The filing of a proof of claim constitutes “prima facie evidence of the validity and
amount of a claim.” Fed. R. Bank. P. 3001(f). If an objection refuting at least one of the claim’s
essential allegations is asserted, the claimant has the burden to demonstrate the validity of the
claim. See, e.g., Rozier v. Rescap Borrower Claims Tr. (In re Residential Capital, LLC), 15 Civ.
3248(KPF), 2016 WL 796860, at *9 (S.D.N.Y. Feb. 22, 2016); Hasson v. Motors Liquidation
Co. (In re Motors Liquidation Co.), No. 09-50026, 2012 WL 1886755, at *3 (S.D.N.Y. May 12,
2012); In re Oneida Ltd., 400 B.R. 384, 389 (Bankr. S.D.N.Y. 2009), aff’d sub nom. Peter J.
Solomon Co., L.P. v. Oneida, Ltd., No. 09-cv-2229, 2010 WL 234827 (S.D.N.Y. Jan. 22, 2010).
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In filing the Objection, the Estate Representatives initiated a contested matter. See Fed.
R. Bankr. P. 3007 advisory committee’s note (“[t]he contested matter initiated by an objection to
a claim is governed by Rule 9014. . .”). See also In re Tender Loving Care Health Servs., Inc.,
562 F.3d 158, 162 (2d Cir. 2009) (stating that “when a debtor files an objection to a claim, the
objection has initiated a contested matter”). Bankruptcy Rule 9014 governs contested matters.
The rule does not explicitly provide for the application of Bankruptcy Rule 7012. However,
Bankruptcy Rule 9014 provides that a bankruptcy court “may at any stage in a particular matter
direct that one or more of the other Rules in Part VII shall apply.” Fed. R. Bankr. P. 9014. The
Court did so here. Under the Claims Procedures Order, the legal standard of review the Court
applies at a Sufficiency Hearing is equivalent to the standard applied by the Court under Rule
12(b)(6) on a motion to dismiss for failure to state a claim upon which relief could be granted.
See Claims Procedure Order ¶ 3(iv)(a). See also In re 20/20 Sport, Inc., 200 B.R. 972, 978
(Bankr. S.D.N.Y. 1996) (“In bankruptcy cases, courts have traditionally analogized a creditor’s
claim to a civil complaint [and] a trustee’s objection to an answer. . . ”).
In applying Rule 12(b)(6) to the Claim, the Court assesses the sufficiency of the facts
alleged in support of the Claim in light of the pleading requirements under Rule 8(a) of the
Federal Rules of Civil Procedure.19 Rule 8(a)(2) states that a claim for relief must contain “a
short and plain statement of the claim showing that the pleader is entitled to relief[.]” Fed. R.
Civ. P. 8(a)(2). To meet that standard, the Claim “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) (“Iqbal”) (citations omitted); accord Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007) (“Twombly”). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
19 	Rule 8 is incorporated herein pursuant to Bankruptcy Rule 7008.
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misconduct alleged.” Iqbal, 556 U.S. at 678; accord Twombly, 550 U.S. at 570. To satisfy Rule
12(b)(6), the “pleadings must create the possibility of a right to relief that is more than
speculative.” Spool v. World Child Int’l Adoption Agency, 520 F.3d 178, 183 (2d Cir. 2008)
(citation omitted). In considering whether that standard is met for a particular claim, the court
must assume the truth of all material facts alleged in support of the claim and draw all reasonable
inferences in the claimant’s favor. See ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98
(2d Cir. 2007). However, the court “need not accord ‘legal conclusions, deductions or opinions
that are couched as factual allegations . . . a presumption of truthfulness.’” Hunt v. Enzo
Biochem, Inc., 530 F.Supp.2d 580, 591 (S.D.N.Y. 2008) (quoting In re NYSE Specialists Sec.
Litig., 503 F.3d 89, 95 (2d Cir. 2007)). In short, “[i]n ruling on a motion pursuant to Fed. R. Civ.
P. 12(b)(6), the duty of a court is merely to assess the legal feasibility of the complaint, not to
assay the weight of the evidence which might be offered in support thereof.” DiFolco v. MSNBC
Cable L.L.C., 622 F.3d 104, 113 (2d Cir. 2010) (citation and internal quotation marks omitted).
Where, as here, the Claimants are proceeding pro se, the Court will liberally construe the Claim,
although the Claim must nonetheless be supported by specific and detailed factual allegations
that provide a fair understanding for the basis of the claim and the legal grounds for recovery
against Ditech. Kimber v. GMAC Mortgage, LLC (In re Residential Capital, LLC), 489 B.R. 489,
494 (Bankr. S.D.N.Y. 2013) (citing Iwachiw v. New York City Bd. of Elections, 126 Fed. Appx.
27, 29 (2d Cir. 2005)).
Res judicata and claim preclusion bar the “relitigation ... of claims that were, or could
have been, brought in an earlier litigation between the same parties or their privies.” Bank of N.Y.
v. First Millennium, Inc., 607 F.3d 905, 919 (2d Cir.2010). The doctrine of res judicata is
applicable to motions under Rule 12(b)(6). “Dismissal under Rule 12(b)(6) on res
judicata grounds is appropriate when the elements of res judicata [sic] are apparent on the face of
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the pleadings.” Murry v. Gen. Servs. Admin., 553 Fed. Appx. 362, 364 (5th Cir.2014) (citation
omitted). See also Freeman v. Sikorsky Aircraft Corp., 151 Fed. App’x 91, 92 (2d Cir. 2005)
(noting that the affirmative defense of res judicata may be raised in a Rule 12(b)(6) motion
“when all of the relevant facts are shown by the court’s own records.” (quoting Day v.
Moscow, 955 F.2d 807, 811 (2d Cir.1992)).
Discussion
In the First Amended Complaint, the Claimants assert that Ditech, among others, violated
RESPA by failing to timely act in response to their requests to correct errors in accounting for
mortgage payments in 2013 and 2014. See First Amended Complaint ¶10. They claim that
Ditech also violated RESPA when it “refused to respon[d] to plaintiff’s attempts to correct the
delinquent status of their loan and by refusing to accept plaintiff’s loan payments in 2014 and
2015.” Id. ¶ 11. Claimants also assert that Ditech and other servicers breached the terms of the
loan documents by failing to properly account for, accept payments and apply payments made on
account of the loan (id. ¶¶ 15-16), and further breached the contract when it failed to correct its
error. Id. ¶ 15.
The Oregon District Court rejected the Claimants’ contentions. It found that Claimants’
claims under RESPA were without merit. See Oregon Federal Decision at *3. Based on the
undisputed facts, the court ruled that Ditech did respond to Claimants’ requests by investigating
the account to reconcile payments made, notifying Claimants that the account was delinquent
and even waiving the late fees as a courtesy. See id. The court found that under the terms of the
Deed of Trust, Ditech was empowered to refuse to accept any further payments in amounts less
than would make the account current, and that Ditech was not required to accept the International
Promissory Note as payment. Id. Moreover, the Oregon District Court held that Ditech did not
breach the terms of the Deed of Trust when it failed to account for, and applied payments made
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by check numbers 4508 and 4578 to Bank of America when Specialized Loan Servicing, LLC
was the loan servicer. Id. In any event, the court found that Ditech provided evidence that those
two payments were received and applied to the loan by Bank of America. The Oregon District
Court ruled that the undisputed facts showed that Ditech did not breach the Deed of Trust. Id.
Although the Court construes this Claim liberally, the pro se Claimants are not exempt
from the rules of res judicata. See Birl v. Estelle, 660 F.2d 592, 593 (5th Cir.1981) (“The right of
self-representation does not exempt a party from compliance with relevant rules of procedural
and substantive law. One who proceeds pro se with full knowledge and understanding of the
risks involved acquires no greater rights than a litigant represented by a lawyer, unless a liberal
construction of properly filed pleadings be considered an enhanced right.”) (internal citations
omitted). Traguth v. Zuck, 710 F.2d 90, 95 (2d Cir. 1983) (“Petitioner [appearing pro se] is not,
however, excused ‘from compliance with relevant rules of procedural and substantive law.’”).
The claims at issue in the Claim are Oregon state law claims. Accordingly, the claim
preclusive effect of the Oregon Federal Decision, is based upon “the law that would be applied
by state courts in the State in which the federal diversity court sits.” Semtek Int’l Inc. v. Lockheed
Martin Corp., 531 U.S. 497, 508 (2001). See also Howard Carr Companies, Inc. v. Cumberland
Farms, Inc., 833 F. App’x 922, 923 (2d Cir. 2021) (“Because the federal court that issued the
first judgment sat in diversity in New York, we apply the preclusion law of that state”).
In Oregon, “a plaintiff who has prosecuted one action against a defendant through to a
final judgment ... is barred [i.e. precluded] ... from prosecuting another action against the same
defendant where the claim in the second action is one which [1] is based on the same factual
transaction that was at issue in the first, [2] seeks a remedy additional or alternative to the one
sought earlier, and [3] is of such a nature as could have been joined in the first action.” Dauven v.
U.S. Bancorp, 390 F. Supp. 3d 1262, 1277 (D. Or. 2019) (citing Drews v. EBI Companies, 310
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Or. 134, 140, 795 P.2d 531, 535 (1990) (quoting Rennie v. Freeway Transport, 294 Or. 319, 323,
656 P.2d 919 (1982)). See also W. Radio Servs. Co. v. Glickman, 123 F.3d 1189, 1192 (9th Cir.
1997) (“In order for res judicata to apply there must be: 1) an identity of claims, 2) a final
judgment on the merits, and 3) identity or privity between parties.”) (citing Blonder–Tongue Lab.
v. University of Ill. Found., 402 U.S. 313, 323–24 (1971)). “Oregon has adopted the transactional
approach of the Restatement (Second) of Judgments, which requires that all claims arising out of
a particular set of factual circumstances be brought in a single action.” Haines v. Oliver, No.
CIV. 10-3027-CL, 2011 WL 886206, at *4 (D. Or. Feb. 4, 2011), report and recommendation
adopted, No. CIV. 10-3027-CL, 2011 WL 884454 (D. Or. Mar. 14, 2011). The application of res
judicata under Oregon law “forecloses a party that has litigated a claim against another from
further litigation on that same claim on any ground or theory of relief that the party could have
litigated in the first instance.” Bloomfield v. Weakland, 339 Or. 504, 511, 123 P.3d 275 (2005).
In Oregon, “the pendency of an appeal does not prevent a judgment from operating as res
judicata or collateral estoppel.” Icon Groupe, LLC v. Washington Cty., No. 3:12-CV-1114-AC,
2015 WL 3397170, at *4 (D. Or. May 26, 2015) (citing Ron Tonkin Gran Turismo, Inc. v.
Wakehouse Motors, Inc., 46 Or. App. 199, 207 (Or. Ct. App. 1980)). “Consequently, the mere
fact [that] the [Oregon Federal Decision] is currently on appeal does not prevent it from
operating as res judicata or collateral estoppel.” Id. See also Haines v. Oliver, No. CIV. 10-3027-
CL, 2011 WL 886206, at *4 (D. Or. Feb. 4, 2011), report and recommendation adopted, No.
CIV. 10-3027-CL, 2011 WL 884454 (D. Or. Mar. 14, 2011) (determining claim was barred by
res judicata based on summary judgment ruling that was pending on appeal).
Before considering whether application of the doctrine of claim preclusion bars the
Claim, the Court must determine whether the Claimants had a “full and fair opportunity” to
participate in the Oregon Federal Action. See Haines v. Oliver, 2011 WL 886206, at *4 (“A
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limitation on application of preclusion is that the litigant must have had a ‘full and fair
opportunity’ to litigate the issue in the earlier case.”) (citation omitted).
The Oregon District Court provided Claimants with pro bono counsel, which they
rejected. The court also afforded them additional time to respond to the summary judgment
motion – to no avail since they failed to respond to the motion. It is clear that Claimants had a
full and fair opportunity to litigate their claims in the Oregon Federal Action. The first element
of res judicata is satisfied because the same transaction is at issue in the Claim as in the Oregon
Federal Action. The undisputed facts in the Oregon Federal Decision indicate Borrower was
delinquent in her payments and attempted “to pay off her loan with an ‘Unconditional
International Promissory Note.’” See Oregon Federal Decision at *3. That is what Claimants
assert in support of the Claim. The second element of res judicata also is satisfied. In granting
summary judgment to Ditech, the Oregon District Court found that Ditech had not “[f]ailed
properly to account for and apply payments made” by Borrower and Ditech was not required to
accept the International Promissory Note under RESPA. See id. In support of the Claim,
Claimants make similar allegations. They assert that Ditech failed to discharge the mortgage
based on the alleged satisfaction pursuant to the International Promissory Note. See Claim at 8-
9, 28-29. Thus, the factual allegations asserted in support of the Claim were already litigated in
the Oregon Federal Action. Finally, to the extent that Claimants are asserting additional or other
claims or causes of action, they are doing so based “upon the facts and circumstances
surrounding Plaintiff’s original loan transaction and subsequent securitization.” See Claim 21507
at 7. Those events pre-date the Oregon Federal Decision and could have been alleged and
adjudicated in the Oregon Federal Action. Thus, any such causes of action based on the same
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transactions or set of facts are barred by res judicata. For that reason, the Court disallows and
expunges the Claim.20
Even if the application of the principles of res judicata do not bar the Claim, it
nonetheless should be disallowed and expunged as a matter of law. In substance, Claimants
assert that Ditech failed to discharge the mortgage based on the alleged satisfaction of the
International Promissory Note. See Claim at 8-9, 28-29. They seem to contend that Ditech failed
to discharge the Deed of Trust as required “after full performance of the condition of the
mortgage.” O R. REV. STAT . § 86.140 (1993); see Claim at 8-9; Response at 1. “Under Oregon
law, a mortgage or trust deed is satisfied when the debt is discharged. . . . Payment of secured
debt extinguishes the lien of the mortgage or deed of trust by itself and instantaneously.” Matter
of Estate of Casebeer, 443 P.3d 718, 723 (Or. Ct. App. 2019) (internal citations and quotations
omitted).
The Claimants assert that they paid off their secured debt in full by tendering the
International Promissory Note. There is no merit in that contention. A promissory note is merely
an “unconditional written promise” to pay. See Promissory Note, Black’s Law Dictionary (11th
ed. 2019). It does not constitute actual payment, much less one made in U.S. currency as
required by the Deed of Trust. See Deed of Trust at 3. The Claimants never paid the debt, so the
statutory requirements for discharge do not apply. Moreover, while the Claimants tendered the
International Promissory Note, the Deed of Trust does not allow for such form of payment and
Ditech informed Claimants that such form of payment was not acceptable. See Deed of Trust at
3; Response at 3. Under Oregon law, “payment means the discharge of a debt or obligation in
money.” Nw. Foundry & Furnace Co. v. Willamette Mfg. & Supply Co., 521 P.2d 545, 549 (Or.
1974) (citing Smith v. Mills, 230 P. 350, 352 (Or. 1924)). “But anything of value delivered by the
20 	Because the Court concludes that the Claim should be disallowed and expunged, it does not consider the Estate
Representatives alternative claims for relief.
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debtor and accepted by the creditor in discharge of the debt will constitute payment . . . . In such
case it is the distinct agreement of the creditor to accept the thing in discharge of the debt that
gives it the character of payment.” Id.
Courts routinely reject attempts by borrowers to pay off debts with a promissory note.
The case of Marvin v. Capital One, No. 1:15-CV-1310, 2016 WL 4548382 (W.D. Mich. Aug.
16, 2016), report and recommendation adopted, No. 1:15-CV-1310, 2016 WL 4541997 (W.D.
Mich. Aug. 31, 2016), aff’d, No. 16-2307, 2017 WL 4317143 (6th Cir. June 6, 2017), is
instructive. There, a creditor purported to pay off “credit card debt with a ‘negotiable
international promissory note.’” 2016 WL 4548382, at *1. The plaintiff sought to hold Capital
One liable for its refusal to accept this international promissory note – allegedly based on the
“UNCITRAL CONVENTION” – to pay off the credit card debt. Id. at *4. The Claimants seek
the same relief from Ditech. See Claim at 17 (“This International promissory note (UNCITRAL
Convention) is ‘THE EQUIVALENT’ OF MONEY as per 12 USC 1813 (L).”). Capital One
moved to dismiss the complaint, which the court granted, holding that:
The gist of plaintiff’s argument is that there is no lawful money in circulation, that
his personal international promissory note was authorized under the “UNCITRAL
CONVENTION,” and that Capital One violated federal and state law by refusing
to accept it. This is nonsense. “UNCITRAL is the United Nations Commission on
International Trade Law. Established by the United Nations General Assembly in
1966, UNCITRAL plays an important role in developing and improving a legal
framework to facilitate international trade and investment.” BP Exploration Libya
Limited v. ExxonMobil Libya Limited, 689 F.3d 481, 485, n. 1 (5th Cir. 2012).
Plaintiff cannot pay his debt owed to Capital One by use of a purported
“international promissory note” authorized under the UNCITRAL convention
because such a note is not legal tender. . .
2016 WL 4548382, at *4 (citations omitted). See also In re Walters, No. 14-10119 (SMB), 2015
WL 3935237, at *3 (Bankr. S.D.N.Y. June 25, 2015) (holding that International Promissory Note
did not “discharge the underlying indebtedness because the Notes were not legal tender. . . . The
mortgagees bargained for cash, and they are entitled to cash.”); Blocker v. U.S. Bank, N.A., 993
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N.E.2d 1154, 1157-58 (Ind. Ct. App. 2013) (rejecting mortgagors’ effort to discharge mortgage
through delivery of an International Promissory Note drawn on the U.S. Treasury).
The Claimants also raise causes of action for fraud, intentional infliction of emotional
distress, rescission, as well as violations of the Truth in Lending Act, RESPA, and the Home
Ownership and Equity Protection Act based “upon the facts and circumstances surrounding
Plaintiff’s original loan transaction and subsequent securitization.” Claim No. 21507 at 7. None
of Claimants’ allegations in support of these causes of action allege any conduct by Ditech. See
Claim No. 21507 (attaching Claimants’ complaint in the Federal Court Action, which neither
includes Ditech as a defendant, nor discusses any actions taken by Ditech). The Claimants also
have failed to plead fraud “with particularity” and thus do not meet the heightened pleading
requirements for allegations based on fraud. See Fed. R. Civ. P. 9(b).21
Consequently, even if the Court accepts Claimants’ allegations of fact as true and
construes them in the light most favorable to Claimants, the allegations presented in the Claim
and Response fail to demonstrate any conduct by Ditech that would entitle Claimants to
recovery. The Claim sets forth conclusory assertions and fails to articulate a cognizable legal
claim. There is no reading of the Claim or the Response that suggests a plausible claim for
recovery exists against Ditech. For that additional reason, the Court disallows and expunges the
Claim.
21 	Rule 9(b) is made applicable herein by Bankruptcy Rule 7009.
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Conclusion
Based on the foregoing, the Court sustains the Objection and disallows and expunges the
Claim.
IT IS SO ORDERED.
Dated: New York, New York
July 6, 2021
/s/ James L. Garrity, Jr.
Hon. James L. Garrity, Jr.
U.S. Bankruptcy Judge
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