In re: Kim C. Kerrigan ( 2018 )

NOT FOR PUBLICATION
FILED
NOV 07 2018
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. WW-17-1271-KuTaB
KIM C. KERRIGAN, Bk. No. 2:16-bk-16219-TWD
Debtor. Adv. No. 2:17-ap-01075-TWD
KIM C. KERRIGAN,
MEMORANDUM*
Appellant,
v.
BAYVIEW LOAN SERVICING, LLC;
M&T BANK; FEDERAL HOME LOAN
MORTGAGE CORPORATION,
Appellees.
Argued and Submitted on October 25, 2018
at Seattle, Washington
Filed – November 7, 2018
Appeal from the United States Bankruptcy Court
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
for the Western District of Washington
Honorable Timothy W. Dore, Bankruptcy Judge, Presiding
Appearances: Appellant Kim C. Kerrigan argued pro se; Gregor A.
Hensrude, Klinedinst PC, argued for appellees Bayview
Loan Servicing, LLC, M&T Bank, and Federal Home Loan
Mortgage Corporation.
Before: KURTZ, TAYLOR, and BRAND, Bankruptcy Judges.
Chapter 131 debtor, Kim C. Kerrigan, appeals from the bankruptcy
court's order dismissing her adversary complaint in favor of appellee-
defendants, Bayview Loan Servicing, LLC (Bayview), M&T Bank (M&T),
and Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively,
Defendants) with prejudice. We AFFIRM.
FACTS
A. Prepetition Events
Ms. Kerrigan owned residential property on 9th Avenue in Seattle
(Property). In February 2008 she refinanced the loan secured against the
Property with Washington Mutual (WAMU). Bayview is the assignee of
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.
2
the WAMU deed of trust. Quality Loan Corporation of Washington
(Quality) was appointed the successor trustee in March 2015. Qualstar
Credit Union (Qualstar) is the beneficiary under a second deed of trust on
the Property.
1. The State Court Complaint
In August 2016, Ms. Kerrigan filed a complaint against Bayview,
Quality, and Qualstar in King County Superior Court alleging that
Bayview's and Quality's attempt to foreclose on her Property violated the
Washington Collection Agency Act (WCAA), the Federal Fair Debt
Collection Practices Act (FDCPA), and the Washington Consumer
Protection Act (CPA). Ms. Kerrigan asserted that she had not made any
payments for six years on the notes and deeds of trust and therefore the
six-year statute of limitations barred any threatened foreclosure.
Ms. Kerrigan also asserted a quiet title cause of action, alleging that the
liens against her Property were void on the grounds that the statute of
limitations had run.
Bayview removed the proceeding to the United States District Court
for the Western District of Washington in September 2016.2
2
On September 8, 2016, Ms. Kerrigan filed a bankruptcy case to stop the pending
foreclosure sale (Bankr. Case No. 16-14638-TWD). The case was dismissed on
November 14, 2016, due to Ms. Kerrigan's failure to participate or follow the court
deadlines.
3
2. The District Court's Ruling
Bayview and Qualstar filed motions to dismiss Ms. Kerrigan's
complaint, asserting that she failed to state a claim for relief under Civil
Rule 12(b)(6).
In December 2016, the district court granted the motions and entered
a judgment dismissing all claims with prejudice. In connection with
Ms. Kerrigan's quiet title claim, the district court observed that a deed of
trust foreclosure remedy was subject to a six-year statute of limitations. The
court noted that under Washington law, when recovery was sought on an
obligation payable by installments, the statute of limitations runs against
each installment from the time it becomes due; that is, from the time when
action might be brought to recover it. Edmundson v. Bank of Am., 378 P.3d
272, 276 (Wash. Ct. App. 2016). The court found that the six-year statute of
limitations did not bar a future action for foreclosure because there were
still payments that would have become due in the last six years and there
were future payments that would become due for the next twenty-two
years after that. The court dismissed Ms. Kerrigan's quiet title claim against
Qualstar, Bayview, and Quality with prejudice on this basis.
The district court also found that Ms. Kerrigan's claims against
Bayview and Quality for violations of the WCAA, FDCPA and CPA failed
to state a claim upon which relief could be granted. Noting that the statute
of limitations was tolled, the court concluded that Bayview and Quality did
4
not act unlawfully by initiating the most recent notice of trustee's sale. The
court dismissed these claims with prejudice.
Ms. Kerrigan filed a motion seeking, among other things, a chance to
amend her complaint. The district court denied her motion. Ms. Kerrigan
appealed the district court's dismissal order to the Ninth Circuit. The Ninth
Circuit affirmed the district court's ruling in Kerrigan v. Qualstar Credit
Union, 728 F. App’x 787 (9th Cir. 2018).
B. Bankruptcy Events
Ms. Kerrigan filed a chapter 13 bankruptcy case in December 2016
just days after dismissal of the federal proceeding and to stop the newly-
noticed foreclosure sale.
Her second amended plan provided for monthly payments to
Bayview and Qualstar and $0 to allowed nonpriority unsecured claims
over the term of the plan. The plan also provided that Ms. Kerrigan would
seek a complete modification of her first mortgage, refinance her residence,
or obtain a fully executed purchase and sale agreement for her residence.
The plan required her to have attained one of these options no later than
180 days following confirmation.3 Finally, her plan stated that she would
file an adversary against Bayview, alleging improprieties on the part of the
original lender or at the time of loan origination. The bankruptcy court
confirmed Ms. Kerrigan's plan in June 2017.
3
It is unclear whether Ms. Kerrigan followed through with any of these options.
5
1. The Adversary Proceeding
Prior to confirmation, Ms. Kerrigan filed an adversary proceeding
against Bayview, M&T, and Freddie Mac. In the factual background,
Ms. Kerrigan alleged that Freddie Mac claimed to be the owner and holder
of her note. She further asserted that M&T and Bayview alternatively
claimed to be the servicer of her promissory note. Finally, she alleged that
Bayview claimed to be the owner and holder of the note and deed of trust.
Ms. Kerrigan asserted five claims for relief. In the first claim for relief,
Ms. Kerrigan asserted that she was not certain which, if any, of the three
defendants were entitled to enforce the note. In the second claim,
Ms. Kerrigan alleged that her chapter 13 debtor status allowed her to use
the avoiding powers of the trustee under § 544 to void the WAMU deed of
trust which was not properly acknowledged. In her third claim for relief,
Ms. Kerrigan maintained that she properly exercised her rights to rescind
her loan with WAMU under the Truth in Lending Act, 15 U.S.C. § 1601, et
seq. (TILA), and was therefore entitled to rescission. Her fourth claim was
for attorneys' fees under the WAMU note and deed of trust, and the fifth
claim was for violation of the FDCPA.
Ms. Kerrigan moved to amend the complaint to eliminate the fifth
claim for relief for damages under the FDCPA and replace it with a claim
for civil penalties plus reasonable attorneys' fees for WAMU's alleged
violation of the TILA. She eventually conceded that her claim for civil
6
penalties and attorneys' fees under TILA was beyond the statute of
limitations. Ms. Kerrigan filed a proposed second amended complaint
removing that claim, leaving only the first three claims in contention.
2. Defendants' Motion to Dismiss
Meanwhile, Defendants filed a motion to dismiss the adversary
complaint, asserting that (1) Ms. Kerrigan's claims were barred under the
doctrine of claim preclusion; (2) the pending Ninth Circuit appeal of the
district court's judgment dismissing all claims divested the bankruptcy
court of jurisdiction; and (3) the FDCPA and TILA claims were time barred.
3. The Bankruptcy Court's Ruling
In August 2017, the bankruptcy court heard Defendants' motion and
stated its ruling on the record.
First, the court found that despite Ms. Kerrigan's pending appeal of
the district court's dismissal judgment, it had jurisdiction to determine
whether the doctrine of claim preclusion barred further review of
Ms. Kerrigan's claims alleged in the adversary proceeding.
Next, the bankruptcy court considered whether the elements for
federal claim preclusion applied to Ms. Kerrigan's claims; i.e., whether
there was (1) an identity of claims, (2) a final judgment on the merits, and
(3) identity or privity between the parties. W. Radio Servs. Co. v. Glickman,
123 F.3d 1189, 1193 (9th Cir. 1997).
The court found that except for Ms. Kerrigan's second claim which
7
involved the application of the trustee's strong arm powers, there was an
identity of claims because the claims arose from the same transactional
nucleus. The bankruptcy court explained that Ms. Kerrigan's state court
complaint asserted that the WAMU deed of trust was void because the
relevant statute of limitations for the collection of the debt had passed and,
because the WAMU deed of trust was void, the attempt to foreclose on the
WAMU deed of trust was a violation of the CPA and the FDCPA. The court
explained that Ms. Kerrigan's adversary complaint asserted that the
WAMU deed of trust was void under TILA and that she was uncertain
which entity was entitled to enforce the WAMU note. The bankruptcy
court concluded that both suits arose from the same transactional
nucleus—the WAMU deed of trust and note. Further, both suits sought the
same relief—to void the WAMU deed of trust. Finally, the court found that
both suits involved substantially the same evidence—the WAMU deed of
trust and note and Ms. Kerrigan's payment history.
The bankruptcy court also observed that if Ms. Kerrigan won in the
adversary proceeding, the rights of the parties established in the district
court action would be impaired. The court reasoned that the district court's
dismissal of the claims in the state court complaint with prejudice
established that Bayview and Quality's notice of trustee's sale did not
violate the FDCPA, the WCAA, or CPA. Moreover, inherent in the district
court's judgment was the determination that Bayview and Quality's
8
foreclosure was lawful. The bankruptcy court stated that if Ms. Kerrigan
believed that Bayview's foreclosure was problematic, either because it
lacked the right to enforce the WAMU deed of trust and note or because
the WAMU deed of trust and note was void since it had been rescinded,
those claims should have been raised in the previous lawsuit.
The bankruptcy court further found that the district court's judgment
dismissing Ms. Kerrigan's claims with prejudice was a final judgment on
the merits.
Lastly, with respect to the identity of the parties, the court found that
the parties in the adversary proceeding were the same or in privity with the
parties to the proceeding in the district court. The court noted that Bayview
was a party in both proceedings. Further, M&T was alleged to be a
potential servicer and Freddie Mac was alleged to be the owner of the note
and deed of trust. The court concluded that to the extent M&T or Freddie
Mac were the servicer or the owner of the WAMU note and deed of trust,
their interests are substantially aligned with, if not identical to, those of
Bayview.
In addition, the court found that Ms. Kerrigan’s acting both
individually and as a representative of her chapter 13 estate did not make
her "different parties" under the holding in Cheng v. K&S Diversified
Investments, Inc. (In re Cheng), 308 B.R. 448 (9th Cir. BAP 2004) as she
argued. The court found the reasoning in Cheng inapplicable due to the
9
differences in the cases. Finally, the court found that to the extent
Ms. Kerrigan individually and as a representative of her chapter 13 estate
could be considered different parties, they were in privity. In reaching this
conclusion, the court reasoned that it was in Ms. Kerrigan's interest to
minimize her secured debts and maximize the value of her assets.
Likewise, it was in the chapter 13 estate's interest to maximize asset value
and minimize secured debt to create a fund to fully pay unsecured
creditors. In the end, the bankruptcy court concluded that all the elements
for claim preclusion were met with respect to Ms. Kerrigan's first and third
claims for relief.
The court also found that Ms. Kerrigan's second claim for relief
regarding her use of the trustee's avoiding powers under § 544 to void
WAMU's lien against her Property failed to state a claim for relief. The
court observed that Ms. Kerrigan did not point to any Bankruptcy Code
section or applicable state law that would allow her to void WAMU's lien
using § 544. Based on the facts in the adversary complaint and the
proposed amended complaint, the bankruptcy court concluded that she
could not establish such a claim.
The court explained that Ms. Kerrigan's claim under § 544(a)(3) 4
4
Section 544(a)(3) provides:
(a) The trustee shall have, as of the commencement of the case, and
(continued...)
10
failed because the WAMU deed of trust was recorded and therefore
constructive notice was given under Wash. Rev. Code § 65.08.030.5 The
court noted that Ms. Kerrigan's adversary complaint showed at
paragraph 15 that the WAMU deed of trust was recorded on February 26,
2008. Therefore, Ms. Kerrigan had constructive notice of the deed of trust
prior to her bankruptcy filing which defeated the trustee's strong arm
power under § 544(a)(3).
In the end, the court denied Ms. Kerrigan's request for leave to
amend her complaint because further attempts to amend would be futile.
4
(...continued)
without regard to any knowledge of the trustee or of any creditor, the
rights and powers of, or may avoid any transfer of property of the debtor
or any obligation incurred by the debtor that is voidable by–
...
(3) a bona fide purchaser of real property, other than fixtures, from the
debtor, against whom applicable law permits such transfer to be
perfected, that obtains the status of a bona fide purchaser and has
perfected such transfer at the time of the commencement of the case,
whether or not such a purchaser exists.
5
The statute entitled "Recorded irregular instrument imparts notice" provides:
An instrument in writing purporting to convey or encumber real estate or
any interest therein, which has been recorded in the auditor's office of the
county in which the real estate is situated, although the instrument may
not have been executed and acknowledged in accordance with the law in
force at the time of its execution, shall impart the same notice to third
persons, from the date of recording, as if the instrument had been
executed, acknowledged, and recorded, in accordance with the laws
regulating the execution, acknowledgment, and recording of the
instrument then in force.
11
The court dismissed all claims in the adversary proceeding with prejudice
by order entered on August 2, 2017.
4. Ms. Kerrigan's Motion For Reconsideration
Ms. Kerrigan filed a timely motion for reconsideration. On August 30,
2017, the bankruptcy court denied her motion, finding that its dismissal
order was not based on any manifest errors of law or fact and that
Ms. Kerrigan did not submit any new evidence that could not have been
asserted earlier. Ms. Kerrigan filed a timely notice of appeal from the
bankruptcy court's dismissal order on September 13, 2017.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334
and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Did the bankruptcy court err in granting Defendants' motion to
dismiss Ms. Kerrigan's first and third claims on claim preclusion grounds?
Did the bankruptcy court err in granting Defendants' motion to
dismiss Ms. Kerrigan's second claim under § 544 for failure to state a claim
under Civil Rule 12(b)(6)?
Did the bankruptcy court abuse its discretion in denying Debtor's
motion for reconsideration?
STANDARDS OF REVIEW
We review rulings regarding the availability of claim preclusion de
12
novo as a mixed question of law and fact in which legal questions
predominate. Robi v. Five Platters, Inc., 838 F.2d 318, 321 (9th Cir. 1988);
Alary Corp. v. Sims (In re Associated Vintage Grp., Inc.), 283 B.R. 549, 554 (9th
Cir. BAP 2002). De novo review requires that "we consider a matter anew,
as if no decision had been rendered previously." Mele v. Mele (In re Mele),
501 B.R. 357, 362 (9th Cir. BAP 2013).
Once we determine that claim preclusion is available to be applied,
the actual decision to apply the doctrine is left to the trial court's discretion.
Robi, 838 F.2d at 321. A bankruptcy court abuses its discretion if it applies
the wrong legal standard, misapplies the correct legal standard, or if it
makes factual findings that are illogical, implausible, or without support in
inferences that may be drawn from the facts in the record. See
TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing
United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).
We review de novo the bankruptcy court's order granting a motion to
dismiss for failure to state a claim under Civil Rule 12(b)(6) (incorporated
by Rule 7012). Movsesian v. Victoria Versicherung AG, 670 F.3d 1067, 1071
(9th Cir. 2012) (en banc).
We review the denial of a motion for reconsideration for abuse of
discretion. First Ave. W. Bldg., LLC v. James (In re Onecast Media, Inc.), 439
F.3d 558, 564 (9th Cir. 2006). Courts enjoy "considerable discretion" in
deciding reconsideration motions. McDowell v. Calderon, 197 F.3d 1253, 1255
13
n.1 (9th Cir.1999).
We may affirm the decision of the bankruptcy court on any basis
supported by the record. See ASARCO, LLC v. Union Pac. R.R. Co., 765 F.3d
999, 1004 (9th Cir. 2014).
DISCUSSION
In deciding this appeal, we liberally construe Ms. Kerrigan's pro se
brief. See Erickson v. Pardus, 551 U.S. 89, 94 (2007) (documents filed pro se
are to be liberally construed and must be held to less stringent standards
than formal pleadings drafted by lawyers); Nordeen v. Bank of Am., N.A.
(In re Nordeen), 495 B.R. 468, 483 (9th Cir. BAP 2013). However, even under
the most liberal reading of Ms. Kerrigan's four page informal brief, she fails
to address how the bankruptcy court erred in dismissing her adversary
complaint with prejudice and identifies no specific error for this court to
consider. Instead, she raises numerous issues which are not relevant to the
order on appeal. We do not consider issues relating to the merits of her
underlying claims such as "serious chain of title issues" nor do we decide
whether Defendants violated TILA, RESPA, or FDCPA. We also do not
answer her "one central question" as to which entity is the true creditor.
These issues are beyond the scope of the issues pertaining to the order on
appeal.
What is at issue is whether the bankruptcy court properly dismissed
Ms. Kerrigan's first and third claims for relief on claim preclusion grounds
14
and her second claim for relief under § 544 for failure to state a claim.
While Ms. Kerrigan's comments about her credit history at oral argument
appeared sincere, this appeal is not about her credit history or sincerity. If
there is an error, it was incumbent on Ms. Kerrigan to brief it. "It is not the
Court's role to make arguments for any party." Ortiz v. Ga. Pac., 973 F.
Supp. 2d 1162, 1185 (E.D. Cal. 2013); see also Gross v. Town of Cicero, 619 F.3d
697, 704 (7th Cir. 2010) ("[I]t is not this court's responsibility to research and
construct the parties' arguments."); see also Cruz v. Int'l Collection Corp., 673
F.3d 991, 998 (9th Cir. 2012) ("We review only issues which are argued
specifically and distinctly in a party's opening brief."). We do the best we
can with what we have in the record.
After a careful review, we discern no errors. The bankruptcy court
carefully analyzed the elements for claim preclusion in connection with
Ms. Kerrigan's first and third claims for relief. In deciding whether there
was an identity of claims, the bankruptcy court properly applied the
transactional test. This test focuses on the transactional nucleus of
operative facts and includes all rights to remedies with respect to all or any
part of the "transaction," determined pragmatically, out of which the action
arose, so long as they could conveniently be tried together. George v. City of
Morro Bay (In re George), 318 B.R. 729, 735 (9th Cir. BAP 2004) (citing
Restatement (Second) Of Judgments § 24.8). We see no error with the
court's analysis or conclusion that there was an identity of claims between
15
those Ms. Kerrigan asserted in the prior lawsuit and those she asserted in
the adversary proceeding.
The court also correctly found that the district court's order
dismissing Ms. Kerrigan's complaint was a final judgment on the merits.
See Stewart v. U.S. Bancorp, 297 F.3d 953, 957 (9th Cir. 2002) ("[A] dismissal
for failure to state a claim under [Civil] Rule 12(b)(6) is a 'judgment on the
merits' to which res judicata applies."); Hagans v. Lavine, 415 U.S. 528, 542
(1974) ("[I]t is well settled that the failure to state a proper cause of action
calls for a judgment on the merits."). The pendency of Ms. Kerrigan's
appeal did not affect the finality determination. See Tripati v. Henman, 857
F.2d 1366, 1367 (9th Cir. 1988) ("The established rule in the federal courts is
that a final judgment retains all of its res judicata consequences pending
decision of the appeal . . . ."). Nonetheless, the Ninth Circuit's affirmance
"added a dimension to the finality" of the district court's decision. In re
George, 318 B.R. at 734.
Finally, the bankruptcy court did not err by concluding that the third
element—identity or privity between the parties—was met. The Cheng case
does not support Ms. Kerrigan's argument that her posture as an
individual and as a representative of her chapter 13 estate makes her
"different parties" for purposes of the claim preclusion analysis. In Cheng,
the bankruptcy court found that the debtors were judicially estopped,
based on representations previously made on their motion to avoid a
16
judicial lien on exemption impairment grounds, from challenging the
creditor's proof of claim. On appeal, the Panel reversed, finding that
debtors acted as debtors when they filed a motion under § 522(f)(1) to
protect their homestead exemption, but acted as debtors-in-possession
when they filed an objection to the creditor's claim. The BAP found because
they acted in different capacities they were not judicially estopped by
representations made as debtors. The holding in Cheng has nothing to do
with the standards for deciding whether the identity of the parties is the
same for purposes of claim preclusion.
In sum, the bankruptcy court did not err by dismissing
Ms. Kerrigan's first and third claims based on the doctrine of claim
preclusion.
The bankruptcy court also properly dismissed Ms. Kerrigan's second
claim for relief which relied § 544 for avoidance of WAMU's lien. As
observed by the court, this claim failed to state a claim for relief when
Ms. Kerrigan had constructive notice of the recorded deed of trust which
was alleged to be improperly acknowledged.
As we have found no reversible error in the bankruptcy court's
decision to dismiss Ms. Kerrigan's adversary complaint with prejudice, we
hold that the bankruptcy court did not abuse its considerable discretion in
denying her motion for reconsideration.
CONCLUSION
For the reasons explained above, we AFFIRM.
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