VAZQUEZ RIVERA v. BANCO SANTANDER PR et al

OCR transcription for search; preserved printed pages are authoritative

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

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IN RE: : CASE NO. 99-13317
ISRAEL VAZQUEZ RIVERA ; CHAPTER 13
Debtor :;

ISRAEL VAZQUEZ RIVERA ADVERSARY NO. 07-00340
Plaintiff :

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BANCO SANTANDER PUERTO RICO

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OPINION AND ORDER

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This adversary proceeding is before the court upon the motion to dismiss filed by Banco

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Santander Puerto Rico (the “Defendant”) on June 9, 2008 (Docket No. 15) alleging that this action

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is barred by the doctrine of res judicata (claim preclusion) and alternatively by the lack of joinder of

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an indispensable party. Israel Vazquez Rivera (the “Plaintiff”) filed an opposition to the motion to

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dismiss on August 4, 2008 (Docket No. 25). For the reasons set forth below the motion to dismiss

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is denied.

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Facts and Procedural Background
Plaintiff Israel Vazquez Rivera filed a bankruptcy petition under Chapter 13 of the Bankruptcy

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Code on September 28, 1999. Banco Santander was scheduled as an unsecured creditor and included

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in the master address list. Banco Santander was duly notified of the filing of the bankruptcy case. The

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341 meeting of the creditors was held on November 12, 1999.

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On December 17, 1999, Banco Santander filed two proofs of claim. ' Debtor’s chapter 13 plan

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' The claims register shows that Banco Santander de Puerto Rico filed two unsecured claims
in the amounts of $8,624.13 and $2,959.22, claim numbers 7-1 and 8-1.

AUTHENTICATED
U.S. GOVERNMENT.
INFORMAFION

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was confirmed on December 13, 1999, and completed on February 11, 2004. ? The discharge order
was entered on April 26, 2004, and the case was closed on the same date. On December 6, 2007,
Plaintiff filed a motion to reopen the chapter 13 bankruptcy case (Docket No. 18 in lead case). A court
order granting the reopening of the case was issued on February 20, 2007 (Docket No. 21 in lead
case).

On December 13, 2007, Plaintiff filed an adversary proceeding against United Collection
Bureau, Inc., et als (Adversary Number 07-00341). In the complaimt Plaintiff alleges that United
Collection Bureau, Inc. violated the discharge injunction provisions of the Bankruptcy Code, 11
U.S.C. § 524 (a) and the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692c (a)(2) and 1692(f)(1)
(“FDCPA”). Plaintiff contends that United Collection Bureau, Inc. (“UCB”) willfully violated the
discharge injunction on various occasions by incurring in the following actions: (i) continuing its
collection efforts to collect on the discharged debt; (ii) sending a letter sometime in December 2006
requesting payment of the discharged debt in the amount of $2,268.50; (iii) sending letters to Plaintiff
on January 9, 2007 and February 23, 2007 requesting payment of the discharged debt; (iv) sending
another letter sometime in January of 2007 requesting payment in full of the discharged debt; and (v)
sending a letter sometime in February of 2007 informing Plaintiff that Banco Santander had
authorized UCB to make an offer to liquidate the debt. On April 17, 2008 the Plaintiff and UCB filed
a Joint Stipulation of Voluntary Withdrawal of Complaint (Docket No. 16) pursuant to Rule 7041 of
Bankruptcy Procedure, dismissing the case against UCB with prejudice. No further details of the
settlement were provided by the parties. |

On December 13, 2007, Plaintiff filed the present adversary proceeding alleging that
Defendant willfully violated the discharge injunction provisions of the Bankruptcy Code, 11 U.S.C.
§524 (a), by continuing its collection efforts against Plaintiff to collect on the discharged debt

knowing that such debt had been discharged. Plaintiff alleges that sometime following its discharge,

* The bankruptcy case docket shows that the chapter 13 trustee filed a final report on March
2, 2004 informing that the Debtors had completed their chapter 13 plan. The lead case included
Plaintiff's wife Maria Milagros Rodriguez Rosario. The trustee’s report discloses payments to
Banco Santander de Puerto Rico.

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Defendant sold, transferred or assigned its discharged debtto UCB. The complaint against Defendant
also includes several allegations which state that UCB violated the discharge injunction provisions
of the Bankruptcy Code on various occasions.

On June 9, 2008 Defendant filed a Motion to Dismiss and Memorandum of Authorities in
Support Thereof (Docket No. 15) alleging that Plaintiff's action is barred by the doctrine of res
judicata, which guards against claim-splitting. Defendant alleges that both of Plaintiffs complaints
are based upon the same set of facts, that Plaintiffs right of action is in its nature entire and
indivisible and, thus, may not be split up into several causes of action and sued piecemeal (Motion
to Dismiss, p. 4-5). Defendant also argues that the dismissal with prejudice in the adversary
proceeding against UCB bars the complaint against Defendant because it stems from the same
transaction and set of facts (Motion to Dismiss, p. 5). Defendant argues that the elements for a claim
to be precluded, as established in Porn v. National Grange Mutual Ins. Co., 93 F. 3d 31, 34 (1* Cir,
1996), were met; that is, a final judgment on the merits in an earlier action, sufficient identity between
the causes of action asserted in both suits, and sufficient identity between the parties in the two suits.
In the alternative, Defendant argues that this adversary proceeding should be dismissed under Fed.
R. Civ. P. 19(b) for failure to join an indispensable party (UCB) in this proceeding.

In its opposition Plaintiff argues that the doctrine of res judicata under the branch of collateral
estoppel (issue preclusion) is not applicable because it fails to satisfy all three components necessary
for an issue (as opposed to a claim) to be barred by the doctrine of res judicata. Plaintiffs argues that
the three factors necessary for the res judicata doctrine to apply were not met, namely, because there
is no privity between Defendant and UCB mainly because the former did not acquire any property
rights from UCB, the causes of action of the two different lawsuits are different because Banco
Santander’s violation of the discharge injunction is independent and separate from UCR’s violation,
and that the voluntary dismissal achieved by means of a joint stipulation with prejudice in the
adversary proceeding against UCB does not constitute a final judgment on the merits.

Subsequently, Defendant filed a Reply to Opposition to Motion to Dismiss (Docket No. 31).
Tn this motion Defendant explains the difference between collateral estoppel and claim preclusion and

concludes that claim preclusion is the branch of the res judicata doctrine which applies to this

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adversary proceeding. In addition, Defendant reasserts its position that all three prongs of the test to
determine claim preclusion have been satisfied in this adversary proceeding.

Plaintiff filed a reply to Opposition to Motion to Dismiss (Docket No. 24) in which he argues
that the doctrine of res judicata (claim preclusion) as one of its three components was not satisfied,
namely, a final judgment on the merits was not entered in the adversary proceeding against UCB.
Plaintiff does not discuss in his opposition whether the other two components of the three prong test.
necessary to establish claim preclusion were met by the Defendant. Plaintiffreasserts its position that
a voluntary dismissal achieved by means of a joint stipulation with prejudice does not constitute a
final judgment on the merits.

Lastly, Defendant filed a “Motion to Strike Plaintiffs’ Sur-Reply as to Motion to Dismiss
Surreptitiously Titled “Reply to Opposition’ and Incorrectly Filed in Bankruptcy Case No. 99-13317
And, Alternatively, for Leave to File the Tendered Sur-Reply” (Docket No. 41). In this motion
Defendant reasserts its position that a voluntary dismissal by means of a joint stipulation is an
adjudication on the merits for claim preclusion purposes.

Applicable Law and Analysis

Standard for Granting a Motion to Dismiss

Motions to dismiss are governed by Federal Rule of Civil Procedure 12(b)(6), which provides
that a defense of “failure to state a claim upon which relief can be granted” to a claim for relief may
be presented by motion before the filing of a responsive pleading.

For purposes of a motion to dismiss, “(1) the complaint is construed in the light most
favorable to the plaintiff, (2) its factual allegations are taken as true, and (3) all reasonable inferences
that can be drawn from the pleading are drawn in favor of the pleader.” Wright & Miller Federal

Practice and Procedure: Civil 3d § 1357 at 417, citing Viera Marcano v. Ramirez Sanchez, 224 F.

Supp. 2d 397 (D.P.R. 2002). See also, Correa Martinez v. Arrillaga-Belendez, 903 F.2d 49, 51 (1*
Cir. 1990). The plaintiff must set forth “factual allegations, either direct or inferential, regarding each
material element necessary to sustain recovery under some actionable theory.” Id., citing Gooley v.
Mobil Oil Corp., 851 F.2d 513, 514 (1* Cir, 1988). See also, LaChapelle v. Berkshire Life Insurance
Company, 142 F.3d 507, 508 (1* Cir. 1998) (In considering a motion to dismiss under Rule 12(b)(6),

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the court must “determine whether the complaint, so read, limns facts sufficient to justify recovery
on any cognizable theory.”)

“[A] complaint should not be dismissed for failure to state a claim unless it appears beyond
doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to
relief.” Federal Practice and Procedure §1357 at 571, quoting Conley v. Gibson, 355 U.S. 41, 78 S.Ct.

99, 2 L.Ed.2d 80 (1957); see also, In re Diamond, 346 F.3d 224 (1* Cir. 2003); Leopoldo Fontanillas,

Inc. v. Luis Ayala Colon Sucesores, Inc., 283 F. Supp.2d 579 (D.P.R. 2003); Eastern Food Services,

Inc. v. Pontifical Catholic University of Puerto Rico Service Association, Inc., 222 F. Supp.2d 131,

134 (D.P.R. 2002). Therefore, “the question on a motion to dismiss under Rule 12(b)(6) is whether
in the light most favorable to the plaintiff, and with every doubt resolved in the pleader’s behalf, the
complaint states any legally cognizable claim for relief” Id. at 640. “Because a dismissal terminates
an action at the earliest stages of the litigation, without a developed factual basis for decision, the
court must carefully balance the rule of simplified civil pleading against the need for something more
than conclusory allegations. Washington Legal Foundation v. Massachusetts Bar Foundation, 993 F.
2d 962, 971 (1* Cir. 1993), The court will not accept unsupported conclusions or interpretations of
the law. Id.
The Doctrine of Res Judicata

“Res judicata makes a valid final judgment conclusive on the parties... and prevents
relitigation of all matters that were or could have been adjudicated in the action. This doctrine is
sometimes known as “merger and bar,” nomenclature that emphasizes the doctrine’s role in guarding

against claim splitting.” Andrew Robinson Int’L, Inc. v. Hartford Fire Insurance Co., 547 F.3d 48, 52

(1* Cir. 2008) (citations omitted). Issues surrounding the application of the doctrine or res judicata

may arise because of the exercise of concurrent jurisdiction by state and federal courts over similar

claims based upon similar facts and involving the same parties. Suarez Cestero v. Pagan Rosa, 198
F. Supp. 52 73, 84 (D.P.R. 2002). “The doctrine of res judicata, now called claim preclusion,
forecloses litigation of all matters which have been litigated or might have been litigated in an earlier
case. The rule of collateral estoppel, now termed issue preclusion, precludes re-litigation of issues

actually adjudicated.” Id., citing 18 Charles Alan Wright, Arthur R. Miller and Edward H. Cooper,

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Federal Practice and Procedure: Jurisdiction, § 4402, 4404 (1981).

In this case both the allegedly precluding suit and the allegedly precluded suit were filed in
federal courts. Thus, federal law governs the res judicata effect of the first judgment. Mass. School
of Law at Andover v. American Bar Assoc., 142 F. 3d 26, 37 (1* Cir. 1998) (citation omitted), A three

prong test is used to determine whether res judicata precludes litigation of a party’s claims, to wit,
(1) a final judgment on the merits in an earlier suit, (2) sufficient identicality between the causes of
action asserted in the earlier and later suits, and (3) sufficient identicality between the parties in the

two suits. Perez v. Volvo Car Corporation, 247 F. 3d 303, 311, (1* Cir. 2001); Gonzalez v. Banco

Cent. Corp., 27 F. 3d 751, 755 (1* Cir. 1994), Apparel Art Int’l, Inc. v. Amertex Enters. Ltd., 48 F.

3d 576, 583 (1* Cir. 1995); Porn v. National Grange Mutual Ins. Co., 93 F. 3d at 34.

The first prong of the test needed to satisfy claim preclusion under the res judicata doctrine
is whether a final judgment on the merits was obtained in the adversary proceeding against UCB. The
adversary proceeding against UCB culminated with a Joint Stipulation of Voluntary Withdrawal of
Complaint filed on April 17, 2008 pursuant to Rule 7041 of the Bankruptcy Procedure, dismissing
the UCB case with prejudice. The issue presented before this court is whether a Joint Stipulation of
Voluntary Withdrawal with prejudice constitutes a final judgment on the merits.

Our analysis starts by stating that, “the principle that a judgment be on the merits before it can
be the basis for claim preclusion was established long ago. Modern opinions continue to refer to the
principle. However, the term is misleading, because many dispositions short of tria! are considered
‘on the merits’ for claim preclusion purposes even though the validity of some or all of the theories
of liability, claims for relief, and defenses of the parties may remain undetermined.” Moore’s Federal
Practice Civil §131.30 (3){a).

A voluntary dismissal with prejudice is ordinarily deemed a final judgment that satisfies the
res judicata criterion. See United States v. Cunan, 156 F. 3d 110 (1* Cir. 1998); Langton v. Hogan,
71 F, 3d 930, 935 (1* Cir. 1995). Also, a voluntary dismissal under Fed. R. Civ. P. 41(a) by which
the parties intend to put and end to their claims by means of a joint stipulation with prejudice is
considered to be a judgment on the merits for claim preclusion purposes and is an exercise of judicial

power having a presumption of validity. Moore’s Federal Practice Civil §131.30 (3)(c)(ii). Thus, the

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voluntary dismissal by way of a joint stipulation with prejudice under Rule 7041(a)(1)(A)Gi) of the
Bankruptcy Procedures which is analogous to Fed. R. Civ. P. 41(a)(1)(A)G@d) is considered an
adjudication on the merits for claim preclusion purposes. Furthermore, the dismissal ofan action with
prejudice pursuant to a settlement agreement constitutes a final judgment on the parties and precludes
parties from reasserting the same claim in a subsequent action. See Union of Operating Eng’rs v.
Karr, 994 F. 2d 1426, 1429 (9" Cir. 1993); In re Dominelli, 820 F. 2d 313, 316-317 (9" Cir. 1987);
Astron Indus. Assocs, Inc. v. Chrysler Motors Corp., 405 F. 2d 958 (5™ Cir. 1968).

The Plaintiff in its “Reply to Opposition to Motion to Dismiss” cite the case of American

Cyanamid Company v. Capuano, 381 F. 3d 6 (1* Cir. 2004) to sustain its argument that, “this type

of dismissal cannot be used as the bases of res judicata since no issues or facts were resolved nor any

question of law. Therefore, there is not a ruling on the merits” ( Reply to Opposition to Motion to

Dismiss, p. 3). In American Cyanamid Company v. Capuano the specific issue before the United
States Court of Appeals for the First Circuit, and which is relevant to the case at hand, is whether
under the doctrine of res judicata, Rohm and Haas Company (“R&H”) was precluded from seeking
contribution against Capuano.

American Cyanamid dealt with an action under the Comprehensive Environmental Response,

Compensation and Liability Act (“CERCLA”) §§ 101-405, as amended by the Superfund
Amendments and Reauthorization Act of 1986 (“SARA”), 42 U.S.C. §§ 9601-9675 brought by R&H
whose hazardous waste was deposited at the Picillo site against a group of people who were involved

with the site. American Cyanamid Company v. Capuano, 381 F. 3d at 9. R&H had entered into

multiple settlement agreements and dismissal agreements which were approved by the district court
in which the parties which entered these agreements also sued in the King Industries case. American
Cyanamid v. Capuano, 381 F. 3d at 16. Some of these settlement agreements included dismissals with
prejudice. Capuano’s position was that the dismissals with prejudice were judgments on the merits
and thus are barred by the doctrine of res judicata. However, the court established that, “a dismissal
with prejudice contained in a consent decree is ‘not a ruling on the merits... [that] applies to others
under the law of claim preclusion. American Cyanamid Company v, Capuano, 381 F. 3d at 17
quoting Langton v. Hogan, 71 F. 3d 930, 935 (1* Cir. 1995), The First Circuit held that the claims

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asserted by R&H against the Capuanos do not have a res judicata effect because (1) the Capuanos
were not defendants in the King Industries case and were not parties to any of the settlement
agreements, meaning that there is no identicality between the parties in the two suits; (2) at the time
of the King Industries lawsuit, R&H could not pursue a claim against the Capuanos because the
groundwater remediation had not yet occurred and the Capuanos had contribution immunity for
claims relating to the soil remediation, meaning that there was no sufficient identicality between the
cause of action asserted in the earlier and later suit; and (3) the “two dismissal rule” under Fed. R.
Civ. P. 41(a)(1) is not applicable because the defendants are not the same nor were they in privity
with the defendants in King Industries. See American Cyanamid Company vy. Capuano, 381 F. 3d
at 17. The First Circuit held that the res judicata doctrine does not apply to the claim presented by
R&H for the reasons stated above, however, the decision does not conclude that a voluntary dismissal
by joint stipulation with prejudice under Fed. R. Civ. P. 41(a)(1)(A)Gi) is not an adjudication on the

merits for claim preclusion purposes.

In light of the above discussion regarding the first prong of the claim preclusion test, this court
finds that a voluntary dismissal by joint stipulation with prejudice is a judgment on the merits.
The First Circuit has adopted the “transactional” approach to determine whether causes of

action are sufficiently related to support a res judicata defense. Massachussetts Sch. of Law at

Andover, Inc. v. American Bar Ass’n., 142 F. 3d 26, 38 (1% Cir. 1 998); Porn v. National Grange

Mutual Ins. Co., 93 F.3d at 34 citing Manego v. Orleans Bd. of Trade, 773 F. 2d 1, 5 (1" Cir. 1985),

cert. denied, 475 U.S. 1084, 89 L. Ed. 2d 722, 106 S. Ct, 1466 (1986); Aunyx Corporation v. Canon

ULS.A., Inc... 978 F. 2d 3, 11 (1* Cir. 1992); Gonzalez v. Banco Cent. Corp., 27 F. 3d at 755. Under

this approach, a valid and final judgment in the first action will extinguish subsequent claims “ ‘with
respect to all or any part of the transaction, or series of connected transactions, out of which the action

arose.’” Porn v. National: Grange Mutual Ins. Co., 93 F.3d at 34 quoting Restatement of the Law,

Second, Judgments §24 (1982)). The court determines the factual grouping which constitutes a
“transaction” ptagmatically, giving weight to such factors as “ whether the facts are related in time,

space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment

as a unit conforms to the parties’ expectations.” Porn v. National Grange Mutual Ins. Co., 93 F.3d

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at 34 citing Restatement §24; Aunyx Corporation v. Canon U.S.A.. Inc., 978 F. 2d at 7. However,

these factors are suggestive and are not intended to be exhaustive, nor is any one factor determinative.

Porn v. National Grange Mutual Ins. Co., 93 F.3d at 34, Therefore, we must analyze whether the facts

underlying the willful violation of the discharge injunction in the UCB and Banco Santander
adversary proceedings are related in time, space, origin or motivation, and whether, they arise out of
the same transaction, seek redress for essentially the same basic wrong, and rest on the same or a
substantially similar factual basis. Porn v. National Grange Mutual Ins. Co., 93 F. 3d at 34 citing
Kale v. Combined Ins. Co. of Am., 924 F. 2d 1161, 1166 (1* Cir.), cert. denied, 502 U.S. 816, 116

L. Ed. 2d 44, 112 8. Ct. 69 (1991).

The facts underlying the two different complaints stem from different transactions or
occurrences (which are not sufficiently identical) that involve the violation of the discharge injunction
by different parties which are not related to one another. Both claims seek redress for violations of
the discharge injunction. However, the adversary proceeding against UCB also alleges violations to
the FDCPA, 15 U.S.C. §§ 1692, et seq.

The claim in the adversary proceeding against UCB is derived from UCB’s violation of the
discharge injunction. UCB’s actions do not stem from the same common nucleus of operative facts
as the alleged violation of the discharge injunction by Banco Santander. The violations of the
discharge injunction allegedly caused by these two different entities (UCB and Banco Santander) are
separate and independent and do not stem from the same transaction. The complaint against Banco
Santander violated the provisions of the discharge injunction by continued collection efforts to collect
the discharged debt from the Plaintiff (paragraphs 20 and 21 of complaint). This complaint also
incorporates in its factual allegations specific instances in which UCB violated the discharge
injunction (paragraphs 23, 24, and 25 of complaint). The complaint against UCB pleads specific
instances in which UCB by itself violated the discharge injunction (paragraphs 21, 23, 24, 25 and 26
of complaint).

Furthermore, these facts do not form a convenient trial unit to the extent the witnesses or
proof needed in the second action do not overlap substantially with the witnesses or proof relevant

to the first as the claims alleged in the complaints stem from substantially different transactions. See

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Porn v. National Grange Mutual Ins. Co., 93 F.3d at 36 citing Restatement §24. This inquiry focuses

upon what would happen at trial. Jannochino v. Rodolakis, 242 F. 3d 36, 47 (1° Cir. 2001) citing
Restatement (Second) of Judgments §24 cmt. b (1982).

Finally, as to the parties’ expectations, we are guided by the principle that, where “two claims
arose in the same time frame out of similar facts, one would reasonably expect them to be brought
together.” Iannochino v. Rodolakis, 242 F. 3d at 48 citing Porn v. National Grange Mutual Ins. Co.,
93 F. 3d at 37. In the present case, the two claims for willful violation of the discharge injunction
arose at different times and from different facts or transactions, thus one would expect the claims be
brought separately under different cases. Thus, because the claims are independent and separate it
would be expected that they be brought under different cases or complaints by the Plaintiff.

In summary, applying the transactional test to this adversary proceeding, the court concludes
that the two lawsuits involve different causes of action which stem from different transactions which
occurred at different times.

The third requirement for claim preclusion requires sufficient identicality between the parties
in the two suits. A prior judgment obtained on a lawsuit bars a subsequent action on the same claim
only between the same parties or their privies. Moore’s Federal Practice Civil §131.40 (1). The
Supreme Court established that, “[i]t is a principle of general application in Anglo-American
Hurisprudence that one is not bound by a judgment in personam in a litigation in which he is not
designated as a party or to which he has not been made a party by service or process.” Hansberry v.
Lee, 311 U.S. 32, 40, 61 S. Ct. 115, 85 L. Ed. 22 (1940). The Hansberry principle establishes that
preclusion may not be used in an action by or against a person who was not a party in a prior
adjudication. Id. However, the term “parties” in light of the requirement of identicality between the
parties for claim preclusion purposes refers to parties in interest, meaning those parties whose interest
are so closely related that a judgment against one should preclude all. Moore’s Federal Practice Civil
§131.40 (3)(a) quoting Latham v. Wells Fargo Bank, N.A., 896 F. 2d. 979, 983 (5" Cir. 1990).
Traditionally, courts have referred to a “party” as a party of record and referred to nonparties who are

subject to the preclusive effect of the judgment as being in “privity” with a party. See Richards v.

Jefferson County, 517 U.S. 110, 129-130, 103 S. Ct. 1761, 135 L. Ed. 2d 76, 84 (1996). Given that

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there is no specific rule or test for determining privity the same is identified by specific relationships
between parties and nonparties that may preclude nonparties. Moore’s Federal Practice Civil §131.40
(3)(a) quoting the Restatement (Second) of Judgments Ch.1 intro. 13-14.

Generally to justify claim preclusion, a nonparty will be considered in privity, or sufficiently
close to a party in the prior suit in three situations: (1) a nonparty who has succeeded to a party’s
interest in property is bound by any prior judgments against that party, (2) anonparty who controlled
the original suit will be bound by the resulting judgment, and (3) federai courts will bind a nonparty

whose interests were represented adequately by a party in the original suit. Ford Gas Co. v. Wanda

Petroleum Co., 833 F’. 2d 1172, 1174 (5" Cir. 1987), Freeman v. Lester Coggins Trucking, Inc. ,771

F. 2d 860,864 (5 Cir, 1985) quoting Southwest Airlines Co. v. Texas International Airlines, 546 F.
2d 84,95 (5"Cir.). Privity will not exist if either a preexisting legal relationship or identity. of interests
is missing from the equation. Moore’s Federal Practice Civil §131.40 (3)(a).

Defendant in its Motion to Dismiss and in its Reply to Opposition to Motion to Dismiss argues
that there is a close relationship or privity of interest between the assignor Santander and the assignee
UCB. Defendant cites the case of In Re El San Juan Hotel Corporation, 841 F.2d 6 (1* Cir. 1988), to |
sustain its position that the requirement of sufficient identicality of the parties is met because there is

a close relationship or privity of interest between Defendant and UCB. In In Re El San Juan Hotel

Corporation, one of the issues before the court was whether nonmutual claim preclusion was

appropriate, meaning whether a party not involved in the earlier action may deflect the lawsuit because

he should have been, but was not, included in the earlier suit. In Re E] San Juan Hotel Corporation,
841 F.2d at 10. To support its holding, the First Circuit incorporates the rationale that, “[o]ther courts
have concluded that a version of claim preclusion is appropriate in these circumstances if the new
defendants have a close and significant relationship with the original defendants, such as when the new
defendants were named as conspirators in the first proceeding but were not joined in the action.” In

Re El San Juan Hotel Corporation, 841 F. 2d at 11 citing Gambocz v. Yelencsics, 468 F. 2d 837, 841

(3 Cir. 1972). Preclusion is appropriate “only if the new party can show good reasons why he should
have been joined in the first action and the old party cannot show any good reasons to justify a second

chance.” In Re El San Juan Hotel Corporation, 841 F. 2d at 11 citing 18 Wright & Miller §4464, at

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589. In this particular case, the court concluded that, “with regard to these allegedly joint harms, it is
evident that Cuprill [trustee’s counsel] as the co-perpetrator, shared a significant relationship with
Rodriguez |trustee].” In Re El San Juan Hotel Corporation, 841 F. 2d at 11. The court held that the
defendants were co-perpetrators of the harming act, and shared a significant relationship, thus the
claim preclusion factor of identicality of the parties was satisfied. However, in the present case the
complaint simply does not allege that Defendant and UCB were co-perpetrators of the violation of the
discharge injunction nor that they shared a significant relationship. Defendant in its Reply to the
Opposition to Motion to Dismiss argues that there is a substantial relationship in interest between UCB
and Defendant which stems from clause three (3) of the Settlement and General Release Agreement
(the “Agreement”) between UCB and Plaintiff Defendant alleges that this Agreement, “expressly
recognizes that Santander was a predecessor in interest to the claim that the parties settled in the first
case” (Reply to Opposition to Motion to Dismiss, p. 14). Upon reading this Agreement, this court
finds that such clause does not establish that Banco Santander is a predecessor in interest, but rather
excludes Banco Santander from the release, meaning that Plaintiff may initiate an action against Banco
Santander. However, pursuant to the guidelines to establish privity a party must establish that it is a
successor in interest, not a predecessor in interest. Defendant fails to establish how these two different
entities are closely related other than as the assignor and the assignee.

In this case, the Plaintiff is the same in both adversary proceedings but the defendants are
different. The next question to be answered is whether the defendants, though not identical, are
sufficiently in privity to satisfy this element. According to the pleadings in this adversary proceeding,
the only relationship that exists between Defendant and UCB is that of a business relationship in which
Defendant allegedly sold, transferred or assigned to UCB Plaintiff's discharged debt (paragraph #22
of complaint). This type of business relationship does not construe privity between these two separate
entities since they are not under common control or share a common economic interest in atiempting| _
to satisfy Plaintiff's discharged debt. This court finds that there is no identicality between Defendant
and UCB since they are separate and unrelated corporations that do not share a common economic

interest.

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Failure to Join an Indispensable Party

In the alternative, Defendant has presented to the court the position that this adversary
proceeding be dismissed under Fed. R. Civ. P. 19(b)for failure to join UCB. Fed. R. Civ. P. 19 states
in part the following:

“(a) Persons Required to Be Joined if Feasible.
(1) Required Party. A person who is subject to service of process and whose joinder
will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person’s absence, the court cannot accord complete relief among
existing parties; or
(B) that person claims an interest relating to the subject of the action and is
so situated that disposing of the action in the person’s absence may:
(i) as a practical matter impair or impede the person’s ability to
protect the interest; or
(ii) leave an existing party subject to a substantial risk of

incurring double, multiple, or otherwise inconsistent
obligations because of the interest.
(2) Joinder by Court Order. If a person has not been joined as required, the court
must order that the person be made a party. A person who refuses to join as a plaintiff
may be made either a defendant or, in a proper case, an involuntary plaintiff.
(3) Venue. If a joined party objects to venue and the joinder would make venue
improper, the court must dismiss that party.
(b) When Joinder Is Not Feasible. Ifa person who is required to be joined is feasible cannot
be joined, the court must determine whether, in equity and good conscience, the action should
proceed among the existing parties or should be dismissed.” Fed. R. Civ. P. 19.

Before analyzing whether Fed. R. Civ. P. 19(b) applies to this case, the court must first determine
whether the joinder of UCB as described in Fed. R. Civ. P. 19(a) is desirable but not feasible. See
Wright & Miller Federal Practice and Procedure: Civil 3d_§1608 at 91. A necessary precursor to a
decision under Fed. R. Civ. P. 19(b) is a decision under Fed. R. Civ. P. 19(a). See United States v. San
Juan Bay Marina, 239 F. 3d 400, 405 (1* Cir. 2001). “Rule 19(b), which governs indispensable parties,

works in two steps. Step one requires the district court to decide whether a person fits the definition

of those who should “be joined if feasible” under Rule 19(a).” Pujol v. Shearson American Express,

877 F. 2d 132, 134 (1* Cir. 1989) referring to Provident Tradesmens Bank v. Patterson, 390 U.S. 102,

118, 19 L, Ed. 2d 936, 88 S. Ct. 733 (1968). “Ifthe person is a ‘necessary’ party (i.e., fits the definition
of 19(a)), but joinder is not feasible, the court must take step two. It must decide, using four ‘factors,’
whether ‘in equity and good conscience the action should proceed among the parties before it, or

should be dismissed.” Pujol v. Shearson American Express, 877 F. 2d at 134.

The first step is to determine whether UCB is a necessary party under Fed. R. Civ. P. 19(a).

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Necessary parties are those, “who ought to be made parties, in order that the court may act on that rule
which requires it to decide on, and finally determine the entire controversy, and do complete justice,

by adjusting all the rights involved in it.” Shields v. Barrow, 58 U.S. 130, 139 15 L. Ed. 158 (1855).

“Thus, when applying Rule 19(a), a court essentially will decide whether considerations of efficiency
and fairness, growing out of the particular circumstances of the case, require that a particular person

be joined as a party.” Pujol v. ShearsonAmerican Express, Inc., 877 F. 2d at 134. Despite the fact

that Fed. R. Civ. P. 19(a)} no longer contains the word “necessary,” the term as been retained by the

courts as a convenient shorthand for the Rule 19(a) determination. Picciotto v. Continental Casualty

Company, 512 F.3d 9, 16 (1“ Cir. 2008) referring to Janney Montgomery Scott, Inc. v. Shepard Niles.

Inc., 11 F.3d, 399, 404 n.4 (3 Cir. 1993) (citing Provident Tradesmen Bank & Trust Co. v. Patterson,
390 U.S. at 116 n. 12). A party only has to satisfy one of the three criteria of Fed. R. Civ. P. 19(a) to
be deemed necessary. Picciotto v. Continental Casualty Company, 512 F. 3d at 16.

In this case, the analysis of Fed. R. Civ. P. 19(a) consists in determining whether UCB’s
absence from this adversary proceeding would “impair or impede” Defendant’s “ability to protect its
interest” or if the case would leave Defendant subject to multiple obligations, See Picciotto v.
Continental Casualty Company, 512 F. 3d at 16. If Defendant fails to satisfy this test, it is not even
a“Rule 19(a) person” who should be joined “if feasible,” let alone a Rule (1 9(b) “indispensable party.”
See Pujol v. Shearson American Express, Inc., 877 F. 2d at 135. This court finds that UCB is not an
indispensable party to this adversary proceeding because as previously discussed the violations of the
discharge injunction allegedly committed by UCB and Banco Santander are independent and separate,
meaning that they stem from a different nucleus of operative facts. Furthermore, it has not been
established that there is privity or any type of relationship between Defendant and UCB, except as
seller and buyer of debt obligations. This court finds that Defendant did not establish the
indispensability of UCB as a necessary party. UCB’s absence in this adversary proceeding does not
impair or impede in any manner Defendant’s ability to protect its interest in this lawsuit.

Since this court has determined that UCB is not a necessary party under Fed. R. Civ. P. 19(a)
we find it unnecessary to proceed to the second part of the analysis, that is of Fed. R. Civ. P. 19(b).

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Conclusion
For the reasons stated above, this court finds that the three prong test of the res judicata
doctrine for claim preclusion is not met and thus Plaintiffis not barred from ensuing their claim against
Defendant. The court also holds that UCB is not an indispensable party to this adversary proceeding
and Fed. Rule Civ. P. 19 is inapplicable and thus this court finds no reason to dismiss said adversary

proceeding.

In view of the foregoing, Defendant’s motion to dismiss is hereby DENIED.
SO ORDERED.
In San Juan, Puerto Rico, this/,Z * day of March 2009.

| _o. Bankeuptoy Judge

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