Baker et al v. The Bank of New York Mellon as Trustee, by and thr

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
HOWARD G. BAKER and
FANNIE M. BAKER,
No. 09-12997 t13
Debtors.
HOWARD G. BAKER and
FANNIE M. BAKER,
Plaintiffs,
v. 	Adv. No. 11-1131
THE BANK OF NEW YORK
MELLON AS TRUSTEE, and
VANDERBILT MORTGAGE AND
FINANCE, INC.,
Defendants.
MEMORANDUM OPINION ON DEFENDANTS’ MOTION FOR SUMMARY
JUDGMENT
This matter is before the Court on Defendants’ Motion for Summary
Judgment and Memorandum in Support (the “Motion”). In the Motion Defendants
argue that Plaintiffs’ claims are barred under principles of res judicata and/or
issue preclusion, due to a prior state court foreclosure judgment. Plaintiffs timely
responded to the Motion. 	For the reasons set forth below, the Court finds that
the Motion should be denied.
I. 	SUMMARY JUDGMENT STANDARDS
Summary judgment is appropriate if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any, show
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that there is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law. 	Fed.R.Civ.P. 56.1 “[A] party seeking
summary judgment always bears the initial responsibility of informing the district
court of the basis for its motion, and … [must] demonstrate the absence of a
genuine issue of material fact.” 	Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). 	In determining whether summary judgment should be granted, the Court
will view the record in the light most favorable to the party opposing summary
judgment. 	Harris v. Beneficial Oklahoma, Inc. (In re Harris), 209 B.R. 990, 995
(10th Cir. BAP 1997).
The party opposing a motion for summary judgment must “set forth
specific facts showing that there is a genuine issue for trial as to those dispositive
matters for which it carries the burden of proof.” 	Applied Genetics Int'l, Inc. v.
First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir.1990). 	See also Vitkus
v. Beatrice Co., 11 F.3d 1535, 1539 (10th Cir.1993) (“[T]he nonmoving party may
not rest on its pleadings but must set forth specific facts showing that there is a
genuine issue for trial as to those dispositive matters for which it carries the
burden of proof.”); Otteson v. United States, 622 F.2d 516, 519 (10th Cir.1980)
(once a properly supported summary judgment motion is made, the opposing
party must respond with specific facts showing the existence of a genuine factual
issue to be tried); Lazaron v. Lucas (In re Lucas), 386 B.R. 332, 335 (Bankr.
D.N.M. 2008) (same).
1 Fed.R.Civ.P. 56 applies in adversary proceedings. See Bankruptcy Rule 7056.
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To deny a motion for summary judgment, genuine factual issues must
exist that “can be resolved only by a finder of fact because they may reasonably
be resolved in favor of either party.” 	Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 250 (1986). A mere “scintilla” of evidence will not avoid summary judgment.
Vitkus, 11 F.3d at 1539. 	Rather, there must be sufficient evidence on which the
fact finder could reasonably find for the nonmoving party. 	See Anderson, 477
U.S. at 251; Vitkus, 11 F.3d at 1539. “[T]here is no evidence for trial unless there
is sufficient evidence favoring the nonmoving party for a jury to return a verdict
for that party. If the evidence is merely colorable . . . or is not significantly
probative . . . summary judgment may be granted.” 	Anderson, 477 U.S. at 249.
Where a rational trier of fact, considering the record as a whole, could not find for
the non-moving party, there is no genuine issue for trial. 	See Matsushita Elec.
Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
II. 	FACTS
The Court finds that the following facts are not in material dispute:
1. 	On August 18, 2004, JPMorgan Chase Bank, as trustee (“Chase”),
filed a complaint against Plaintiffs in New Mexico’s Third Judicial District Court,
styled JPMorgan Chase Bank, as Trustee, v. Fannie M. Baker and Howard G.
Baker, case no. D-307-CV-200401028 (the “State Court Foreclosure Action”).
2. 	The State Court Foreclosure Action concerns the same promissory
note and mortgage now held by Defendant Bank of New York Mellon, as Trustee
(“Mellon”), 	and 	serviced 	by 	Vanderbilt 	Mortgage 	and 	Finance, 	Inc., 	as
subservicer (“VMFI”).
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3. 	The real property and manufactured home at issue in the State
Court Foreclosure Action are the same as is in this proceeding.
4. 	On March 7, 2005, the State Court entered a “Summary Judgment
and Order for Foreclosure Sale” (the “State Court Judgment”) in the State Court
Foreclosure Action, a copy of which is attached to the Motion as Exhibit A-1.
5. 	The State Court Judgment was entered in response to a motion for
summary judgment filed by Chase on February 28, 2005.
6. 	The docket attached to the Motion makes clear that Plaintiffs did
not respond to the summary judgment motion, and that judgment was entered
seven days after the motion was filed.
7. 	The issues determined in the State Court Judgment were never
litigated. The State Court Judgment is in the nature of a default judgment
8. 	The 	State 	Court 	Judgment 	granted 	Chase 	a 	judgment 	on 	a
promissory note it held in the amount of $95,664.70, together with interest on that
amount at 9% accruing after February 23, 2005. 	The judgment also foreclosed
Chase’s mortgage on the subject real property and ordered the property sold at a
special master’s sale.
9. 	Plaintiffs filed a Chapter 7 bankruptcy petition on April 4, 2005,
commencing case no. 05-12627-m7. A discharge was entered August 1, 2005.
10. 	Plaintiffs filed a Chapter 13 bankruptcy case on August 22, 2005,
commencing case no. 05-16720-s13. 	Plaintiffs voluntarily dismissed this case
February 10, 2009.
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11. 	Plaintiffs filed a Motion for Relief from Judgment in the State Court
Foreclosure Action on May 19, 2009, arguing excusable neglect and Rule 60(b)’s
“catch all” provision but not arguing newly discovered evidence. The State Court
denied the motion on July 9, 2009.
12. 	Plaintiffs filed this Chapter 13 bankruptcy case on July 10, 2009.
13. 	Defendants filed a proof of claim on July 27, 2009. 	Instead of
asserting a $100,000+ claim based on the State Court Judgment, Defendants
asserted a claim of $82,100.79 and attached copies of the 1997 promissory note
and mortgage allegedly foreclosed by the State Court Judgment.
14. 	Plaintiffs objected to the proof of claim on January 28, 2010.
15. 	Defendants 	amended 	their 	proof 	of 	claim 	on 	March 	2, 	2010,
reducing the claim amount from $82,100.79 to $80,721.04.
16. 	Defendants 	amended 	their 	claim 	against 	on 	June 	10, 	2011,
reducing the claim amount from $80,721.04 to $63,956.26.
17. 	On June 20, 2011, Plaintiffs withdrew their objection to the proof of
claim, as amended, but reserved all claims against Defendants.
II. 	RES JUDICATA
Defendants argue that res judicata bars Plaintiffs claims. 	Res judicata
bars litigation of claims that were or could have been advanced in an earlier
proceeding. 	Strickland v City of Albuquerque, 130 F.3d 1408, 1411 (10th Cir.
1997), citing State Ex. Rel 	Martinez v 	Kerr-McGee Corp., 120 N.M. 118, 898
P.2d 1256, 1259 (Ct. App. 1995).
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“Federal courts give the same preclusive effect to state court judgments
that 	those 	judgments 	would 	be 	given 	in 	the 	state 	court 	from 	which 	they
emerged.” 	Strickland, 130 F.3d at 1411, citing Kremer v. Chemical Construction
Corp., 456 U.S. 461, 466 (1982). 	Thus, this Court will look to what preclusive
effect a New Mexico state court would give to the State Court Judgment.
Under New Mexico law, res judicata requires four elements: “(1) the same
party or parties in privity; (2) the identity of capacity or character of persons for or
against whom the claim is made; (3) the same subject matter; and (4) the same
cause of action in both suits.” 	Strickland, citing Myers v. Olson, 100 N.M. 745,
676 P.2d 822, 824 (S. Ct. 1984).
Res judicata bars consideration in a subsequent suit of all matters that
could properly have been raised in the prior case. 	Blea v Sandoval, 107 N.M.
554, 557, 761 P.2d 432, 435 (Ct. App. 1988) In re: Mucci, 488 B.R. 186, 199
(Bankr. D.N.M. 2013) (citing Blea).
Plaintiffs’ complaint asserts the following causes of action:
1. 	Violation of New Mexico’s Unfair Trade Practices Act (“UTPA”);
2. 	Commission of an “Unconscionable Trade Practice” in violation of
the UTPA;
3. 	Violation of the implied covenant of good faith and fair dealing; and
4. 	Intentional infliction of emotional distress.
The question is whether any or all of these claims were or “could properly have
been raised in the prior case.” 	The Court concludes that the current claims are
sufficiently different in time, scope, and alignment that they are not precluded
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under res judicata principles. 	First, neither Defendant was a party to the State
Court Foreclosure Action. Plaintiffs seek only money damages, and Mellon could
not be held liable under the UTPA or tort for the actions of its predecessor in
interest Chase. 	Thus, there is no way the claims resolved by the State Court
Judgment could have included Plaintiffs’ current claims against Mellon.
Similarly, VMFI was not a named defendant in the State Court Foreclosure
Action. There are, at a minimum, fact issues about whether VMFI’s conduct prior
to March 7, 2005 could be the basis of a claim. 	However, there is no question
that VMFI’s actions after March 7, 2005 could provide the factual basis for a
claim that is not precluded by res judicata. The Court is not deciding at this time
whether 	VMFI’s 	pre-March 	7, 	2005 	conduct 	could 	be 	actionable, 	whether
considered separately or together with its post-March 7, 2005 conduct.
III. 	COLLATERAL ESTOPPEL
In the Mucci case, Judge Jacobvitz discussed the collateral estoppel: 2
When applying collateral estoppel to a judgment entered by a state
court, the Court must look to the law of the state in which the
judgment was entered. See, Jarrett v. Gramling, 841 F.2d 354, 356
(10th Cir. 1988) (explaining that under the Full Faith and Credit Act,
28 U.S.C. § 1738 (1982), federal courts are required to “give the
same preclusive effect to a state-court judgment that the judgment
would be given in the courts of the state in which the judgment was
rendered.”) (citations omitted); In re Fordu, 201 F.3d 693, 703 (6th
Cir. 1999) (“When a federal court is asked to give preclusive effect
to a state court judgment, the federal court must apply the law of
the state in which the prior judgment was rendered in determining
whether and to what extent the prior judgment should be given
preclusive effect in a federal action.”) (citations omitted); Bugna v.
McArthur (In re Bugna), 33 F.3d 1054, 1057 (9th Cir. 1994) (“in
determining the collateral estoppel effect of a state court judgment,
federal courts must, as a matter of full faith and credit, apply the
2 The term “collateral estoppel” means “issue preclusion,” as opposed to res judicata or
“claim preclusion.”
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state's law of collateral estoppel.”) (citations omitted); Crum v.
Howe (In re Howe), 2007 WL 1307913, *4 (Bankr. D.N.M. May 2,
2007) (J. McFeeley) (“In giving collateral estoppel effect to a state
court judgment, the Court must apply the applicable state law
standards for collateral estoppel.”) (citation omitted). 	Under New
Mexico law, the party asserting collateral estoppel must establish
the following elements:
(1) the party to be estopped was a party to the prior
proceeding, 	(2) 	the 	cause 	of 	action 	in 	the 	case
presently before the court is different from the cause
of action in the prior adjudication, (3) the issue was
actually litigated in the prior adjudication, and (4) the
issue 	was 	necessarily 	determined 	in 	the 	prior
litigation.
Shovelin v. Central New Mexico Elec. Co–op., Inc., 115 N.M. 293,
297, 850 P.2d 996, 1000 (1993) (citing Silva v. State, 106 N.M.
472, 474–76, 745 P.2d 380, 382–84 (1987). If all of these elements
are present, the Court must also determine “whether the party
against whom estoppel is asserted had a full and fair opportunity to
litigate the issue in the prior litigation.” Id.
488 B.R. at 197-98. 	Here, collateral estoppel does not bar Plaintiffs’ claims,
because it is clear from the record that Plaintiffs did not “fully and fairly” litigate
their claims or issues in state court. The State Court Judgment was in essence a
default judgment, entered only seven days after Chase filed its motion for
summary judgment. Plaintiffs did not respond to the motion, and the docket does
not indicate that a hearing was ever held.
IV. 	JUDICIAL ESTOPPEL
In New Hampshire v. Maine, 532 U.S. 742 (2001), the United States
Supreme Court addressed judicial estoppel:
“[W]here a party assumes a certain position in a legal proceeding,
and succeeds in maintaining that position, he may not thereafter,
simply because his interests have changed, assume a contrary
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position, especially if it be to the prejudice of the party who has
acquiesced 	in 	the 	position 	formerly 	taken 	by 	him.” 	Davis 	v.
Wakelee, 156 U.S. 680, 689, 15 S. Ct. 555, 39 L. Ed. 578 (1895).
This rule, known as judicial estoppel, “generally prevents a party
from prevailing in one phase of a case on an argument and then
relying on a contradictory argument to prevail in another phase.”
Pegram v. Herdrich, 530 U.S. 211, 227, n. 8, 120 S. Ct. 2143, 147
L. Ed. 2d 164 (2000); see 18 Moore's Federal Practice § 134.30, p.
134-62 (3d ed. 2000) (“The doctrine of judicial estoppel prevents a
party 	from 	asserting 	a 	claim 	in 	a 	legal 	proceeding 	that 	is
inconsistent 	with 	a 	claim 	taken 	by 	that 	party 	in 	a 	previous
proceeding”); 18 C. Wright, A. Miller, & E. Cooper, Federal Practice
and Procedure § 4477, p. 782 (1981) (hereinafter Wright) (“absent
any good explanation, a party should not be allowed to gain an
advantage 	by 	litigation 	on 	one 	theory, 	and 	then 	seek 	an
inconsistent advantage by pursuing an incompatible theory”).
532 U.S. at 749. The Court noted several factors courts have used to determine
when to apply judicial estoppel.
“First, a party's later position must be ‘clearly inconsistent’ with its
earlier position.” Id. (citation omitted). Moreover, the position to be
estopped must generally be one of fact rather than of law or legal
theory. Lowery v. Stovall, 92 F.3d 219, 224 (4th Cir.1996) Second,
“whether the party has succeeded in persuading a court to accept
that 	party's 	earlier 	position, 	so 	that 	judicial 	acceptance 	of 	an
inconsistent 	position 	in 	a 	later 	proceeding 	would 	create 	‘the
perception that either the first or the second court was misled.’ ”
New 	Hampshire, 	532 	U.S. 	at 	750, 	121 	S. 	Ct. 	1808 	(citation
omitted). The requirement that a previous court has accepted the
prior inconsistent factual position “ensures that judicial estoppel is
applied in the narrowest of circumstances.” Lowery, 92 F.3d at 224.
Third, “whether the party seeking to assert an inconsistent position
would derive an unfair advantage or impose an unfair detriment on
the opposing party if not estopped.”
532 U.S. at 751. 	See also Johnson v. Lindon City Corp., 405 F.3d 1065, 1069
(10th Cir. 2005) (quoting New Hampshire).
The 	Court 	raises 	judicial 	estoppel 	because, 	even 	if 	res 	judicata 	or
collateral estoppel otherwise applies to bar one or more of Plaintiffs’ claims, in
whole or in part, Defendants may be judicially estopped from asserting res
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judicata/collateral estoppel. 	Defendants argue that Plaintiffs are bound by the
State Court Judgment, but Defendants have clearly taken the position that they
are not bound. If Defendants had believed themselves bound by the State Court
Judgment, they would not have filed a proof of claim that mentions nothing about
the judgment, but instead attaches copies of the 1997 note and mortgage. 	It is
hornbook 	law 	that 	a 	promissory 	note 	and 	mortgage 	are 	“merged 	into 	the
judgment” once a foreclosure judgment is entered. See e.g., Huntington Natl.
Bank v. Sproul, 116 N.M. 254, 257, 861 P.2d 935, 938 (S. Ct. 1993) (citing
Bassett v. Eagle Telecommunications, Inc., 750 P.2d 73, 76, (Colo. App. 1987),
the court held that upon entry of an Ohio court judgment on a promissory note,
defendant’s 	liability 	under 	the 	note 	ceased 	to 	exist, 	replaced 	by 	the 	new
judgment liability). 	See also In re Acevedo, 2012 WL 2062399 (Bankr. D.N.M.
2012) (citing Huntington with approval). 	See generally Restatement (Second)-
Judgments, § 18 (Judgment For Plaintiff—The General Rule of Merger:
When a valid and final personal judgment is rendered in favor of the
plaintiff:
(1) The plaintiff cannot thereafter maintain an action on the original
claim or any party thereof, although he may be able to maintain an
action upon the judgment; and
(2) In an action upon the judgment, the defendant cannot avail
himself of defenses he might have interposed, or did interpose, in
the first action.
Indeed, there is a local rule in New Mexico’s First Judicial District requiring
holders of negotiable instruments to submit them to the court when a judgment
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on the instrument is submitted. 	See New Mexico District Court Local Rule LR1-
309.
Furthermore, if Defendants had thought themselves bound, they would not
have filed three proofs of claim with amounts claimed that are between $50,000-
$85,000 less than the judgment amount, plus accrued interest as of the petition
date. 	Finally, Defendants would not have reduced the principal balance of the
loan from $80,092 (the judgment amount) to $63,487.22 (in the second amended
proof of claim).
Defendants asked Plaintiffs to agree to their claim in this case by ignoring
the State Court Judgment. 	Plaintiffs did so. 	Defendants thereafter sought to
amend their answer and assert that Plaintiffs were bound by the same State
Court Judgment Defendants tacitly repudiated. At a minimum, there are disputed
fact issues about whether the doctrine of judicial estoppel precludes Defendants
from taking this position.
There is factual support in the record for the proposition that at some point
after the State Court Judgment was entered, Defendants discovered they had
miscalculated what Plaintiffs owed them, and that the miscalculation may have
resulted in Chase bringing a foreclosure action when there had been no default.
If this were to be proven at trial, then the Court would fully understand why
Defendants decided not to adhere blindly to the State Court Judgment—in such
an event it would be clear that the judgment was entered based upon the wrong
information. 	Defendants would then be commended for their decision to alter
their position based on the newly discovered evidence. 	There would be genuine
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fact issues, however, about whether Defendants could eat their cake and have it
too, i.e., ignore the State Court Judgment when it suits them, while insisting that
Plaintiffs are bound by the judgment.
IV. 	CONCLUSION
This matter is complicated, both factually and procedurally. 	The basic
facts of the dispute are not yet before the Court. 	The procedural history of the
dispute raises the res judicata issue, but for the reasons set forth above, the
Court does not believe res judicata or collateral estoppel require summary
judgment in Defendants’ favor. If Plaintiffs prove the allegations they have made
concerning the Defendants’ servicing errors, and the discovery thereof after entry
of the State Court Judgment, they may have valid claims that would not be
barred by res judicata. 	Plaintiffs have never had their “day in court,”, and they
are entitled to it. 	The Court has no idea whether any of Plaintiffs’ claims has
merit, and/or what reasonable damages might be if any claim does have merit,
but summary disposition is not appropriate. 	The Motion will be denied. 	A
separate order will be entered.
________________________________
Honorable David T. Thuma
United States Bankruptcy Judge
Date entered on docket: May 14, 2013
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Copies to:
R Trey Arvizu, III
P.O. Box 1479
Las Cruces, NM 88004-1479
Attorney for Plaintiffs
Susan P Crawford
150 Washington Ave Suite 220
Santa Fe, NM 87501
Attorney for Defendants
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