Ditech Holding Corporation

UNITED STATES BANKRUPTCY COURT 	NOT FOR PUBLICATION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 FOURTEENTH
OMNIBUS OBJECTION (NO BASIS CONSUMER CREDITOR CLAIMS) WITH
RESPECT TO CLAIM OF PAUL MALLOY
A P P E A R A N C E S :
WEIL, GOTSHAL & MANGES, LLP
Attorneys for Plan Administrator
767 Fifth Avenue
New York, New York 10153
By: 	Sunny Singh, Esq.
Richard W. Slack, Esq.
JENNER & BLOCK LLP
Attorneys for the Consumer Claims Representative
919 Third Avenue
New York, NY 10022
By: 	Richard Levin, Esq.
Mr. Paul Malloy
Appearing Pro Se
12637 Moss Park Ridge Drive
Orlando, FL 32832
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 1100 Virginia Drive, Suite 100, Fort Washington, Pennsylvania 19034.
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HON. JAMES L. GARRITY, JR.
U.S. BANKRUPTCY JUDGE
Introduction2
Paul Malloy (the “Claimant”) filed Proof of Claim No. 1238 (the “Claim”) against Ditech
Financial LLC f/k/a Green Tree Servicing LLC (“Ditech”) in these Chapter 11 Cases. As
explained below, although the Claim recites that it is an unsecured claim of $350,000, it also
provides that it is secured in the amount of $550,000. In support of the Claim and in substance,
the Claimant contends that in 2016, Ditech conducted an illegal foreclosure sale of his Property
(defined below); in the Claim he seeks damages occasioned by that allegedly illegal conduct.
In their Fourteenth Omnibus Claims Objection (the “Objection”),3 the Plan Administrator
and the Consumer Claims Representative (collectively, the “Estate Representatives”) seek to
disallow and expunge the Claim. The Claimant, through counsel, responded to the Objection (the
“Response”),4 although he acted pro se at the April 29, 2021 Sufficiency Hearing. The Estate
Representatives submitted a joint reply to the Response (the Reply”).5
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,6 the
Court conducted a Sufficiency Hearing on the Claim. The legal standard of review at a
2 	Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Third
Amended Plan.
3 	See Fourteen Omnibus Objection to Proofs of Claim (No Basis Consumer Creditor Claims) [ECF No. 1746].
References to “ECF No. __” are to documents filed in the electronic docket in these jointly administered cases under
Case No. 19-10412 (the “Chapter 11 Cases”).
4 	See Claimant’s Motion in Opposition to Objection to Claimant’s Proof of Claim [ECF No. 2150].
5 	See Joint Reply of Administrator and Consumer Representative in Support of the Fourteenth Omnibus
Objection with Respect to Claim of Paul Malloy (Claim No. 1238) [ECF No. 3339].
6 	See Order Approving (I) Claim Objection Procedures and (II) Claim Hearing Procedures [ECF No. 1632].
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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)”).7 See Claims Procedures Order ¶ 3(iv)(a). In the Claim, Claimant
seeks relief that is identical to the relief he sought against Ditech in a pre-petition lawsuit that he
unsuccessfully prosecuted in the Washington state courts (the “State Court Action”). The state
court dismissed the State Court Action, with prejudice, and the state appellate court affirmed the
dismissal on appeal.
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
preclusion. As explained below, construing the Claim in the light most favorable to the
Claimant, and drawing all inferences in his favor, the Claimant fails to state a claim for relief
against Ditech. The Court sustains the Objection and disallows and expunges the Claim on the
grounds that the doctrine of res judicata, as applied under Washington state law, bars the
Claimant from obtaining any recovery under 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).
7 	Rule 12(b)(6) is incorporated herein by Rule 7012 of the Federal Rules of Bankruptcy Procedure (the
“Bankruptcy Rules”).
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Background8
On March 30, 2006, Claimant executed a promissory note (the “Note”) in the sum of
$325,000 secured by a deed of trust (the “Deed of Trust”) in favor of Quicken Loans, Inc.
(“Quicken”) on the real property located at 12604 52nd Place West, Mukilteo, Washington (the
“Property”).9 The Deed of Trust named Orange Coast Title Co. as trustee and Mortgage
Electronic Registration Systems Inc. (“MERS”) as nominee for Quicken, as the beneficiary. The
Deed of Trust provides that MERS was “acting solely as a nominee for Lender and Lender’s
successors and assigns.”10 In June 2011, MERS assigned its interest to BAC Home Loans
Servicing LP (“BAC”).11 In January 2013, Bank of America, N.A., successor-in-interest by
merger to BAC, assigned its interest in the Note and Deed of Trust to Ditech.12 In June 2013,
8 	As discussed below, 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 Claimant and Estate Representatives rely on
pleadings filed and decisions rendered in the State Court 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 Claimant in the State Court Action. The documents cited by the Claimant 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 Claimant and Estate Representatives rely
on in support of their respective positions in this matter. As necessary, the Court cites to those documents herein.
9 	See Claim at 11. References herein to pages of the Claim and Response are cited to the particular PDF page of
the Claim and Response.
10 	Id.; see also Malloy v. Quality Loan Serv. of Washington, 1 Wash. App. 2d 1038 (2017) (“State Appellate
Decision”).
11 	State Appellate Decision at *1.
12 	Id.
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Ditech recorded an “Appointment of Successor Trustee,” appointing Quality Loan Service
Corporation of Washington (“Quality”) as the new trustee.13
In September 2013, following Claimant’s failure to make the requisite mortgage
payments, Quality mailed Claimant a “Notice of Default,” stating that no loan payments had
been made since November 2012 and Claimant was in default under the terms of the mortgage.14
Before mailing the notice, Ditech filed a “Declaration of Beneficiary,” stating it was “the actual
holder” of the Promissory Note.15 On February 9, 2015, Quality recorded a “Notice of Trustee’s
Sale,” scheduling a sale for June 12, 2015. 16 Later, Quality discontinued the sale by recording a
“Notice of Discontinuance of Trustee’s Sale.”17 In August 2015, Quality recorded a second
notice of sale scheduling a sale for December 11, 2015. 18 On or about December 5, 2015, Quality
issued a Notice of Continuance of Trustee’s Sale notifying Claimant that the sale was postponed
to January 15, 2016. 19
On January 7, 2016, the Claimant filed suit in the Superior Court of the State of
Washington, Snohomish County against Quality, MERS, Ditech, Federal National Mortgage
Association, Bank of America, and other unnamed defendants, alleging violations of the
Washington Consumer Protection Act (“CPA”) and the Deed of Trust Act and seeking to enjoin
13 	Id.
14 	Id.; see also Claim at 12.
15 	See State Appellate Decision at *1
16 	See Claim at 11.
17 	Id.; see also State Appellate Decision at *1.
18 	See Claim at 12.
19 	Id. at 12, 21.
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the Trustee’s Sale.20 After the court denied the injunction, the Property sold to a third party at
the Trustee’s Sale.21 Ditech filed a motion to dismiss the complaint and on December 14, 2016,
after hearing argument, the state court dismissed all claims against Ditech, with prejudice,
finding that Claimant failed to state a claim, upon which relief may be granted.22 The Claimant
appealed and on December 11, 2017, the state appellate court affirmed the lower court’s
decision.23
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
20 	See Malloy v. Quality, et al., No. 16-2-01774-4, Plaintiff Malloy’s Complaint Against Foreclosure in Violation
of Washington Deed of Trust Act and Violation of RCW Chapter 19.86 (Wash. Superior Ct. Jan. 7, 2016).
21 	See State Appellate Decision at *1.
22 	See Malloy v. Quality et. al., No. 16-2-01774-4, Order Granting Mortgage Electronic Registration System Inc.,
Federal National Mortgage Association, and Green Tree Servicing, LLC’s Motion to Dismiss (Wash. Superior Ct.
Dec. 14, 2016).
23 	See State Appellate Decision at *8.
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Date”).24 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).25
On September 26, 2019, the Debtors confirmed their Third Amended Plan,26 and on
September 30, 2019, that plan became effective.27 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. 28 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 with the Third Amended Plan.29 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 Third Amended Plan, Art. VII, § 7.1.
24 	See Order Establishing Deadline for Filing Proofs of Claim and Approving the Form and Manner of Notice
Thereof [ECF No. 90].
25 	See Order Further Extending General Bar Date for Filing Proofs of Claim for Consumer Borrowers Nunc Pro
Tunc [ECF No. 496].
26 	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].
27 	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].
28 	See Third Amended Plan, Art. I, ¶¶ 1.130, 1.184, 1.186.
29 	Id., Art. I, ¶ 1.41.
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The Proof of Claim
On April 23, 2019, Claimant timely filed the Claim against Ditech, as a secured claim in
the amount of $550,000, based on the value of the Property.30 The Claim includes $350,000 as
the amount of the Claim but asserts that the Claim is secured in the amount of $550,000 and
unsecured in the amount of $0.31 In support of the Claim, the Claimant relies on a declaration
that he submitted in the State Court Action.32 Without limitation, and in summary, in support of
the Claim, he alleges that he did not authorize the transfers of the Note and Deed of Trust to
BAC or a subsequent transfer from BAC to Ditech and did not authorize or ratify the
appointment by Ditech of Quality as successor trustee for his Note and Deed of Trust.33 He
maintains that Ditech was not the owner of the Note or assignee of the Deed of Trust and
therefore had no authority to substitute the trustee, who in turn conducted a non-judicial
foreclosure sale.34
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 ¶
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
30 	See Claim at 2.
31 	Id.
32 	See id. at 10-16.
33 	Id. at 11.
34 	See id. at 14. See also Response at 1, ¶¶ 2-4.
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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, with
prejudice, in the State Court Action. They maintain that since these issues have already been
litigated and found to have no merit, the doctrine of res judicata bars the Claimant from asserting
the Claim herein. Reply ¶¶ 20-24. Alternatively, they contend that the Court should expunge the
Claim because it fails to state a claim for relief under Washington state law (id. ¶¶ 25-32) 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. ¶¶ 33-41.
Applicable Legal Standards
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
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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).
Section 502(b) sets forth the grounds for disallowing a properly filed proof of claim. See 11
U.S.C. § 502(b); see also Travelers Cas. and Sur. Co. of Am. v. Pacific Gas and Elec. Co., 549
U.S. 443, 449 (2007) (“But even where a party in interest objects [to a claim], the court ‘shall
allow’ the claim ‘except to the extent that’ the claim implicates any of the nine exceptions
enumerated in § 502(b)”).
In filing the Objection to the Claim, 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. 35 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,
35 	As noted, Bankruptcy Rule 7012 incorporates Rule 12.
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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.36 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
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
36 	Rule 8 is incorporated herein pursuant to Bankruptcy Rule 7008.
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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 Claimant is proceeding pro se, the Court will liberally construe the Claim,
although the claims 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 a debtor. 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
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 State Court Action, the Claimant asserted that the foreclosure sale of his Property
was illegal and ineffective because Ditech lacked authority to appoint Quality as trustee and to
direct the foreclosure because it was not the holder and owner of the Note and because of earlier
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ineffective assignments.37 The Claimant also argued that the allegedly invalid assignments and
violations of foreclosure procedures violated the CPA. 38 The Washington state court rejected the
Claimant’s contentions. It found that Ditech possessed the Note and that the Declaration of
Beneficiary definitively declared Ditech as the actual holder of the Note.39 In so ruling, it found
that “[t]he validity of any prior assignments had no effect on [Ditech’s] authority to foreclose.”40
Moreover, it found that the “but for” cause of the foreclosure was the fact that the Malloys
defaulted on the loan and failed to cure their defaults, despite receiving notice of foreclosure.41
The state appellate court affirmed the lower court’s dismissal of all claims against Ditech under
Washington Superior Court Civil Rule 12(b)(6) (“CR 12(b)(6)”), finding the claims insufficient
as a matter of law.42
Although the Court construes this Claim liberally, the pro se Claimant is 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
37 	See State Appellate Decision at *3,*4.
38 	Id. at *5.
39 	Id. at *4.
40 	Id.
41 	Id. at *5.
42 	See id. at *3, *4, *6, *8. See also J.S. v. Vill. Voice Media Holdings, L.L.C., 184 Wash. 2d 95, 146, 359 P.3d
714, 739 (2015) (“[F]ederal and state law do not differ about crediting legal conclusions in a plaintiff’s complaint on
a CR [12(b)(6)] or Fed. R. Civ. P. 12(b)(6) motion. . . . [t]he court need not accept legal conclusions as correct”)
(citation omitted).
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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.’”).
“[T]he preclusive effect of a state court determination in a subsequent federal action is
determined by the rules of the state where the prior action occurred. . . .” In re Sokol, 113 F.3d
303, 306 (2d Cir. 1997). See also Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75,
81 (1984) (“a federal court must give to a state-court judgment the same preclusive effect as
would be given that judgment under the law of the State in which the judgment was rendered.”).
In Washington state, “dismissal on res judicata grounds is appropriate where the subsequent
action is identical with a prior action in four respects: ‘(1) persons and parties; (2) causes of
action; (3) subject matter; and (4) the quality of the persons for or against whom the claim is
made.’” Ensley v. Pitcher, 152 Wash. App. 891, 902, 222 P.3d 99, 104 (2009) (citation omitted).
Accord Loveridge v. Fred Meyer, Inc., 125 Wash. 2d 759, 763, 887 P.2d 898, 900 (1995) (For
[res judicata] to apply, “a prior judgment must have a concurrence of identity with a subsequent
action in (1) subject matter, (2) cause of action, and (3) persons and parties, and (4) the quality of
the persons for or against whom the claim is made.”) (citation omitted). Washington courts
follow federal law and treat a CR 12(b)(6) dismissal as a final judgment on the merits and with
prejudice, unless otherwise specified. Moseid v. U.S. Bank, N.A., 186 Wash. App.1008, *5
(Mar. 2, 2015); In re Pers. Restraint of Metcalf, 92 Wn.App. 165, 175 n.6, 963 P.2d 911 (1998).
The Court considers the effect of the State Appellate Decision below.
The first element of res judicata is satisfied, as the Claimant and Ditech are parties to the
State Court Action and are the parties to the Claim. The fourth element is satisfied as well.
“[R]es judicata requires identity in the quality of persons for or against whom the claim is
made.” Pederson v. Potter, 103 Wash. App. 62, 73, 11 P.3d 833, 838 (2000). “Because the
parties are identical, the quality of the persons is also identical.” Id.; see also Ensley v. Pitcher,
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152 Wash. App. at 905 (noting that “the ‘identity and quality of parties’ requirement is better
understood as a determination of who is bound by the first judgment—all parties to the litigation
plus all persons in privity with such parties.”) Finally, the second and third elements are satisfied
because the claims for relief and subject matter at issue in the Claim are identical to those at
issue in the State Court Action. The Claimant makes the same arguments in support of the Claim
as he made in the State Court Action. See Claim at 14-15; Response at 1. Indeed, both the Claim
and Response rely predominantly on briefing materials from the state trial and appellate courts.
See Claim at 8 (attaching “CR 56 Declaration of Plaintiff Paul A. Malloy in Support of
Plaintiff’s Reply to Defendant Quality Loan Service of Washington Motion for Summary
Judgment”); Response at 4-5 (attaching “Appellants Malloy’s Reply Brief to Respondents
Opening Briefs of Quality Loan Service Corp. of Washington, Inc. (QLS), Mortgage Electronic
Registration Systems (MERS), Green Tree Services, LLC (GT), and Federal National Mortgage
Association (FNMA)”).
Conclusion
Based on the foregoing, the Court sustains the Objection and disallows and expunges the
Claim, as recovery on the Claim is barred by application of the doctrine of res judicata, as
applied under Washington state law. In so ruling, the Court does not consider the Estate
Representatives’ alternative arguments in support of the Objection.
IT IS SO ORDERED.
Dated: New York, New York
May 13, 2021
/s/ James L. Garrity, Jr.
Hon. James L. Garrity, Jr.
U.S. Bankruptcy Judge
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