FILED
1 NOT FOR PUBLICATION FEB 08 2012
SUSAN M SPRAUL, CLERK
2 U.S. BKCY. APP. PANEL
O F T H E N IN T H C IR C U IT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5
6 In re: ) BAP No. AZ-11-1188-JuKiCl
)
7 DOUGLAS C. RHOADS and SHANNON ) Bk. No. 10-17533-RTB
N. RHOADS, )
8 ) Adv. No. 10-02256-RTB
Debtors. )
9 ______________________________)
)
10 DOUGLAS C. RHOADS; SHANNON N. )
RHOADS, )
11 )
Appellants, )
12 )
v. ) M E M O R A N D U M*
13 )
DEUTSCHE BANK NATIONAL TRUST )
14 COMPANY as Trustee for the )
WAMU Mortgage Pass-Through )
15 Certificates Series 2003-AR7 )
Trust; CALIFORNIA RECONVEYANCE)
16 COMPANY; JP MORGAN CHASE BANK;)
WASHINGTON MUTUAL BANK, FA, )
17 )
Appellees. )
18 ______________________________)
19 Argued and Submitted on January 18, 2012
at Phoenix, Arizona
20
Filed - February 8, 2012
21
Appeal from the United States Bankruptcy Court
22 for the District of Arizona
23 Honorable Redfield T. Baum Sr., Bankruptcy Judge, Presiding
______________________
24
25
26 *
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.
1 Appearances: Cynthia L. Johnson, Esq. appeared on behalf of
Appellants Douglas and Shannon Rhoads; Brian A.
2 Paino, Esq. appeared on behalf of Appellees
Deutsche Bank National Trust Company, et al.
3 _________________________
4 Before: JURY, KIRSCHER, and CLARKSON,** Bankruptcy Judges.
5 Debtors Douglas and Shannon Rhoads appeal the decisions of
6 the bankruptcy court dismissing their adversary proceeding under
7 the doctrine of claim preclusion and denying their motion for
8 reconsideration of that ruling. Because the elements of claim
9 preclusion are satisfied and grounds for reconsideration under
10 Civil Rule 60(b)1 are absent, we AFFIRM.
11 I. BACKGROUND FACTS AND PROCEDURAL HISTORY
12 A. Loan and Foreclosure Related Events
13 This appeal arises from the purported wrongful foreclosure
14 on debtors’ principal residence which occurred several months
15 prior to the filing of debtors’ bankruptcy petition. It is one
16 in a series of litigation tactics debtors have undertaken to
17 challenge that foreclosure, all of them unsuccessful.
18 On April 28, 2003, Douglas obtained a mortgage loan from
19 Washington Mutual (“WaMu”) in the principal amount of $962,500,
20 which was reflected in a promissory note secured by a recorded
21 deed of trust encumbering the real property located at 4834 E.
22 Crystal Ln., Paradise Valley, Arizona 85253. California
23
24 **
Hon. Scott C. Clarkson, Bankruptcy Judge for the Central
District of California, sitting by designation.
25
1
26 Unless otherwise indicated, all chapter and section
references are to the Bankruptcy Code,
11 U.S.C. §§ 101-1532.
27 “Rule” references are to the Federal Rules of Bankruptcy
Procedure and “Civil Rule” references are to the Federal Rules
28 of Civil Procedure.
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1 Reconveyance Company (“CRC”) was named as the original trustee
2 under the deed of trust.
3 On May 5, 2003, Shannon Rhoads quitclaimed all of her
4 right, title or interest in the property to Douglas Rhoads, as a
5 married man as his sole and separate property.
6 On September 25, 2008, the Office of Thrift Supervision
7 closed WaMu and appointed the FDIC as receiver. Pursuant to an
8 agreement between the FDIC and JPMorgan Chase Bank, N.A.
9 (“Chase”), Chase acquired all loans and loan commitments of
10 WaMu. Subsequently, Deutsche Bank National Trust Company
11 (“Deutsche Bank”) purchased Douglas’ loan in its capacity as
12 Trustee of the WAMU Mortgage Pass-Through Certificates Series
13 2003-AR7 Trust (“Trust”).
14 In approximately December 2008, Douglas defaulted under the
15 note. On December 31, 2008, CRC recorded a Notice of Trustee’s
16 Sale in the Official Records of Maricopa County, State of
17 Arizona. Thereafter, on January 4, 2010, Deutsche Bank as
18 foreclosing creditor acquired the property at a nonjudicial
19 foreclosure sale. On January 7, 2010, Deutsche Bank recorded
20 the deed memorializing the sale. On January 11, 2010, Deutsche
21 Bank served debtors with a Notice Requiring Delivery of
22 Possession of Premises.
23 B. The District Court Complaint
24 On September 15, 2009, prior to the foreclosure sale,
25 Douglas filed a complaint against WaMu, Washington Mutual Home
26 Loans, Chase, CRC, and various other individual defendants,
27 asserting eighteen claims for relief, in the Superior Court of
28 the State of Arizona for the County of Maricopa (“State Court
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1 Action”).2 On January 28, 2010, the State Court Action was
2 removed to the United States District Court for the District of
3 Arizona (“District Court Action”).
4 On February 2, 2010, Chase and CRC filed a motion to
5 dismiss the District Court Action pursuant to Civil Rule
6 12(b)(6) on grounds the complaint failed to state a claim upon
7 which relief could be granted. Douglas filed a combined
8 Response to the Motion to Dismiss and Request for Leave to Amend
9 the Complaint to include Deutsche Bank and the Trust as
10 defendants. The district court denied, without prejudice,
11 Douglas’ request for leave to amend to add Deutsche Bank and the
12 Trust for failure to comply with the district court’s local
13 rules.
14 On April 7, 2010, the district court entered an order
15 dismissing fourteen of the eighteen claims with prejudice. The
16 district court granted Douglas leave to amend his remaining four
17 claims. After Douglas failed to amend the complaint, the
18 district court entered a Judgment of Dismissal wherein the court
19 dismissed the District Court Action in its entirety as to Chase
20 and CRC, with prejudice.
21
22
2
23 The complaint alleged violations of the Arizona
Commercial Code regarding foreclosing on secured notes,
24 violations of the Fair Debt Collection Practices Act, violations
of the Truth In Lending Act, violations of the Real Estate
25 Settlement Procedures Act, violations of the Home Ownership and
26 Equal Protection Act, and numerous violations sounding in fraud.
All the claims arose out of the note and trust deed, debtors’
27 default thereunder, debtors’ attempts to address that default,
and the subsequent acts to enforce the note and trust deed by
28 the lenders.
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1 C. The Bankruptcy and Adversary Complaint
2 On June 4, 2010, debtors filed a voluntary chapter 11
3 petition. On December 28, 2010, Deutsche Bank obtained relief
4 from the automatic stay with respect to the property.3
5 On December 21, 2010, debtors filed an adversary complaint
6 alleging four claims for relief (wrongful foreclosure, unlawful
7 foreclosure in tort, accounting, lack of standing) against
8 Deutsche Bank, Chase, and CRC. On January, 3, 2011, debtors
9 filed a first amended complaint (“FAC”) which contained seven4
10 claims for relief against Deutsche Bank, Chase, CRC, WaMu, and
11 the Trust (“Appellees”), the subject of this appeal.
12 Appellees filed a motion to dismiss the FAC alleging claim
13 preclusion based on the district court dismissal of the
14 complaint with similar claims and insufficient service of
15 process. Debtors filed a response to the Appellees’ motion
16 wherein they alleged their claims were not barred by claim
17 preclusion because the issues raised in the FAC were distinct
18 from those in the district court complaint. Additionally,
19 debtors stated they would cure the service deficiencies as to
20 Chase. At the hearing on the motion, neither debtors nor their
21 counsel appeared. After a short oral argument by Appellees on
22
23
24
25 3
Because debtors failed to timely appeal the order
26 granting the motion for relief from stay, we cannot consider
that order in this appeal.
27
4
The FAC ends with the sixth claim, but debtors
28 misnumbered and there were actually seven.
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1 the merits, the bankruptcy court granted the motion to dismiss.5
2 On March 11, 2011, debtors filed, concurrently, a motion
3 for relief from judgment pursuant to Civil Rule 60(b) and an
4 objection to the proposed order of dismissal. In their motion,
5 debtors objected to the notice provided in the motion to dismiss
6 and to the bankruptcy court’s findings on claim preclusion.
7 Debtors’ counsel also submitted that she inadvertently missed
8 the hearing because of a calendaring error on her part.
9 At the hearing, debtors’ attorney withdrew their objection
10 to service, stating “I’m used to seeing that notice of hearing
11 come out. I’m used to seeing that. I somewhat rely on it.”
12 Hr’g Tr. April 7, 2011 at 3:7-9. Thereafter, debtors’ attorney
13 argued that the FAC was not barred by claim preclusion,
14 reasserting the arguments in debtors’ initial response to the
15 motion to dismiss.
16 First, debtors’ attorney argued “[the] allegation for fraud
17 is not about what happened in the district court . . . [the]
18 allegation here is did [defendants] obtain [the lien] with
19 fraud.” Hr’g Tr. April 7, 2011 at 5:16-19. The bankruptcy
20 court rejected this argument, noting “[t]he fraud claim now
21 alleged may be on different underlying facts, actions, et
22 cetera, but there was the opportunity [in the district court].”
23
5
24 The bankruptcy court granted Appellees’ motion to dismiss
the FAC with prejudice “based upon the arguments of counsel,
25 pleadings, filings, and record before the court . . . .” The
26 bankruptcy court did not make specific oral findings with
respect to claim preclusion at the initial hearing on the motion
27 to dismiss. However, the bankruptcy court did make specific
findings at the subsequent hearing on the motion for
28 reconsideration, when debtors appeared.
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1 Hr’g Tr. April 7, 2011 at 6:5-7.
2 Second, debtors’ attorney asserted that Appellees committed
3 fraud on the district court. The bankruptcy court also
4 dismissed this argument, stating “assuming the validity of your
5 [fraud on the court] assertions, seems to me those ought to be
6 made to Judge Wake. The Court where the deception allegedly
7 occurred.” Hr’g Tr. April 7, 2011 at 8:8-10. The bankruptcy
8 court entered a combined order denying debtors’ motion for
9 relief from judgment and overruling debtors’ objection to the
10 order dismissing the FAC.
11 On April 21, 2011, debtors filed a Notice of Appeal.6
12 While the appeal was pending, debtors filed a motion for relief
13 from judgment pursuant to Civil Rule 60(b)(6) in the district
14 court asserting fraud on the court. On August 8, 2011, the
15 district court denied the motion.
16 II. JURISDICTION
17 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
18 §§ 1334 and 157(b)(1). This Panel has jurisdiction under § 28
19 U.S.C. § 158.
20
21
6
Appellees submitted three requests for judicial notice.
22
The first request is a list of cases in which Douglas Rhoads is
23 a party. We find these irrelevant and deny the request. The
second request contains several documents filed with the
24 bankruptcy court. To the extent the documents supplement the
record on appeal we grant the request for judicial notice.
25 Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),
293 B.R.
26 227, 233 n.9 (9th Cir. BAP 2003). The third request includes
the district court Order Denying the District Court Motion for
27 Reconsideration and several state court orders. We take
judicial notice of the former, but deny the request for judicial
28 notice of the state court orders as irrelevant.
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1 III. ISSUES
2 A. Whether the bankruptcy court erred in dismissing the
3 FAC as to the Appellees under Civil Rule 12(b)(6); and
4 B. Whether the bankruptcy court abused its discretion in
5 denying the Appellants’ motion for relief from final judgment
6 under Civil Rule 60(b)(1) and (6).
7 IV. STANDARDS OF REVIEW
8 We review de novo the bankruptcy court’s grant of a motion
9 to dismiss under Civil Rule 12(b)(6). Movsesian v. Victoria
10 Versicherung AG,
629 F.3d 901, 905 (9th Cir. 2010). De novo
11 means we will look at the case anew, giving no deference to the
12 bankruptcy judge’s determinations. Freeman v. DirecTV, Inc.,
13
457 F.3d 1001, 1004 (9th Cir. 2006). We presume all facts
14 alleged in the complaint are true for purposes of analyzing a
15 Civil Rule 12(b)(6) decision. Mir v. Little Co. of Mary Hosp.,
16
844 F.2d 646, 649 (9th Cir. 1988). A bankruptcy court’s ruling
17 on claim preclusion is also reviewed de novo. Holcombe v.
18 Hosmer,
477 F.3d 1094, 1097 (9th Cir. 2007).
19 We review a bankruptcy court’s denial of a motion for
20 relief from an order under Civil Rule 60(b) for an abuse of
21 discretion. Zurich Am. Ins. Co. v. Int’l Fibercom, Inc. (In re
22 Int’l Fibercom, Inc.),
503 F.3d 933, 939 (9th Cir. 2007). We
23 apply a two-part test to determine whether the bankruptcy court
24 abused its discretion: (1) we review de novo whether the
25 bankruptcy court “identified the correct legal rule to apply to
26 the relief requested” and (2) if it did, whether the bankruptcy
27 court’s application of the legal standard was illogical,
28 implausible or “without support in inferences that may be drawn
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1 from the facts in the record.” United States v. Hinkson, 585
2 F.3d 1247, 1261–63 (9th Cir. 2009).
3 V. DISCUSSION
4 Deutsche Bank filed its motion to dismiss under Civil Rule
5 12(b)(6), asserting that the doctrine of claim preclusion was a
6 total bar to the case proceeding. Dismissal for claim
7 preclusion is appropriate if all relief is barred. Holcombe,
8
477 F.3d at 1100 (affirming dismissal under Civil Rule 12(b)(6)
9 where the claims were barred by the doctrine of claim
10 preclusion).
11 Claim Preclusion
12 Claim preclusion proscribes relitigation of all grounds of
13 recovery that were asserted, or could have been asserted, in a
14 previous action between the same parties or their privies.
15 United States v. Northrop Corp.,
147 F.3d 905, 909 (9th Cir.
16 1998). The doctrine protects parties against the expense
17 associated with litigating multiple lawsuits, conserves judicial
18 resources, and fosters reliance on judicial action by minimizing
19 the possibility of inconsistent decisions. Montana v. United
20 States,
440 U.S. 147, 153-54 (1979). Claim preclusion applies
21 when there is (1) an identity of claims, (2) a final judgment on
22 the merits, and (3) identity or privity between parties. Owens
23 v. Kaiser Found. Health Plan, Inc.,
244 F.3d 708, 713 (9th Cir.
24 2001).
25 Here, the parties do not dispute that the district court
26 entered a final judgment in the District Court Action. United
27 States v Schimmels (In re Schimmels),
172 F. 3d 875, 884 (9th
28 Cir. 1997) (involuntary dismissal with prejudice acts as a
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1 judgment on the merits). Therefore, only the first and third
2 elements are at issue.
3 Identity of Claims
4 Debtors contend there is a difference in the nature of
5 their claims in the former district court action versus the
6 adversary proceeding. For purposes of determining whether two
7 successive lawsuits involve the same cause of action, the Ninth
8 Circuit uses the following criteria: (1) whether rights or
9 interests established in the prior judgment would be destroyed
10 or impaired; (2) whether the evidence is substantially the same;
11 (3) whether the two suits involve infringement of the same
12 right; and (4) whether the two suits arise out of the same
13 transactional nucleus of facts. Constantini v. Trans World
14 Airlines,
681 F.2d 1199, 1201-02 (9th Cir. 1982).
15 As aptly pointed out by debtors, the most significant
16 factor is the last. However, nowhere do debtors establish that
17 the district court action arose out of different transactional
18 facts. Rather, debtors merely recite historical facts
19 supporting a new legal theory under which they argue Deutsche
20 Bank wrongly foreclosed on their property.
21 Further, other factors to be considered in determining
22 identity of claims also lead us to the conclusion that debtors’
23 adversary proceeding was barred by claim preclusion. Our review
24 of the portion of the district court complaint provided to us
25 shows that it was not solely based on origination and pre-sale
26 conduct as debtors contend. In ¶ 46 of the complaint, Douglas
27 alleged “[t]his is an illegal non-judicial foreclosure and that
28
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1 is the core of our argument.”7 We find significant that
2 debtors’ adversary complaint in the prayer for relief sought a
3 declaratory judgment rendering void the trustee’s sale held on
4 September 16, 2009. Moreover, the district court established
5 Chase’s right to foreclose on debtors’ property by rejecting
6 Douglas’s claims based on the “show me the note“ argument and
7 violations of numerous federal and state statutes through
8 dismissal of the complaint.
9 Debtors further contend that the adversary complaint
10 contains new allegations of fraud based on new evidence. Our
11 review of the FAC shows that not a single cause of action
12 relates to any unlawful act that occurred after the dismissal of
13 the district court complaint. See Int’l Union of Operating
14 Eng’rs-Emp’rs Constr. Indus. Pension, Welfare & Training Trust
15 Funds v. Karr,
994 F.2d 1426, 1430 (9th Cir. 1993) (“The fact
16 that some different evidence may be presented in this action
17 . . . does not defeat the bar of res judicata.”). Accordingly,
18 debtors’ claims in the adversary proceeding are barred under the
19 doctrine of claim preclusion. Even if Douglas did not raise the
20 exact same claims in the district court, he certainly had the
21
22 7
The district court complaint contained several
23 allegations regarding the sale of the property. The district
court complaint alleged, among other things, that WaMu and Chase
24 were not in possession of the note, that improper and fraudulent
recording effectuated a trustee sale, and that CRC conducted a
25 trustee’s sale in bad-faith. Further, the district court
26 complaint asserted a trustee sale occurred September 16, 2009,
when in fact, the trustee sale occurred after the complaint was
27 filed on January 4, 2010. Nevertheless, Douglas had an
opportunity to amend the district court complaint prior to
28 dismissal on April 22, 2010.
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1 opportunity to raise them. Clark v. Bear Stearns & Co., 966
2 F.2d 1318, 1320 (9th Cir. 1992) (claim preclusion “bars all
3 grounds for recovery which could have been asserted, whether
4 they were or not”).
5 Identity or Privity Between Parties
6 The general rule states that a person who was not a party
7 to a suit has not had a full and fair opportunity to litigate
8 their claims. Richards v. Jefferson Cnty.,
517 U.S. 793, 798
9 (1996). The general rule is subject to seven exceptions, two of
10 which are relevant to this appeal. Taylor v. Sturgell,
553 U.S.
11 880, 893 (2008). First, a nonparty may be bound by a judgment
12 because of a pre-existing substantive legal relationship.
Id.
13 at 894. Second, a nonparty may be bound by a judgment if they
14 were “virtually represented” by a party to the previous
15 litigation. Adams v. Cal. Dept. of Health Servs.,
487 F.3d 684,
16 691 (9th Cir. 2007). The United States Supreme Court
17 established the test for the doctrine of virtual representation,
18 stating that it requires, “at a minimum: (1) the interests of
19 the nonparty and her representative are aligned (citation
20 omitted); and (2) either the party understood herself to be
21 acting in a representative capacity or the original court took
22 care to protect the interests of the nonparty.” Taylor, 553
23 U.S. at 900.
24 a. Privity Between Debtors
25 Here, privity exists between debtors because of their
26 substantive legal relationship and under the doctrine of virtual
27 representation. The relationship between debtors is that of
28 husband and wife. Under Arizona law, a fiduciary relationship
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1 exists between spouses with respect to community assets. Gerow
2 v. Covill,
960 P.2d 55, 64 (Ariz. Ct. App. 1998). The spousal
3 fiduciary relationship satisfies the privity requirement for
4 purposes of claim preclusion. Sparks Nugget Inc., v. C.I.R.,
5
458 F.2d 631, 639 n.4 (9th Cir. 1972); see also Cuauhtli v.
6 Chase Home Fin. LLC,
308 Fed. Appx. 772, 774 (5th Cir. 2009).
7 In addition, Douglas was the virtual representative of his
8 wife, Shannon. Both share identical interest in the law suits,
9 the purpose of which is to avoid Appellees’ foreclosure of the
10 property. See Trevino v. Gates,
99 F.3d 911, 924 (9th Cir.
11 1996) (grandmother-granddaughter relationship found to be
12 “sufficient in this case”). Further, Douglas understood that he
13 was acting in a representative capacity to his wife. The
14 district court complaint acknowledges that “Plaintiff and his
15 wife lived in the subject property as their primary residence.”
16 b. Privity Between Appellees
17 Debtors also assert that the identity of parties
18 requirement is not satisfied because Deutsche Bank and the Trust
19 were not parties to the district court complaint. Deutsche
20 Bank, however, qualifies as a nonparty bound by the district
21 court judgment based on its substantive legal relationship as
22 successor in interest. Taylor, 553 U.S. at 894 (“Qualifying
23 relationships include, but are not limited to, preceding and
24 succeeding owners of property . . . .”). Likewise, the Trust
25 qualifies because Deutsche Bank is the trustee of the Trust.
26 Based on the foregoing analysis, we conclude that all of
27 the elements of claim preclusion as a bar to relitigation have
28 been satisfied. Accordingly, the bankruptcy court’s decision to
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1 grant the motion to dismiss based on the principles of claim
2 preclusion was proper.
3 Motion for Reconsideration
4 Civil Rule 60(b)(1) provides that a court may relieve a
5 party from a final judgment for “(1) mistake, inadvertence,
6 surprise, or excusable neglect.” Civil Rule 60(b)(6) provides
7 relief for “any other reason that justifies relief.”
8 Here, the bankruptcy court did not abuse its discretion by
9 failing to grant relief under either subsection of Civil Rule
10 60(b) because the bankruptcy court reconsidered its prior
11 decision. Debtors contend that the bankruptcy court incorrectly
12 applied Civil Rule 60(b) with respect to debtors’ attorney’s
13 failure to appear at the initial hearing on Appellee’s motion to
14 dismiss. Contrary to Debtors’ assertion, however, the
15 bankruptcy court did in fact reconsider its prior ruling. At
16 the hearing on the motion for reconsideration, the bankruptcy
17 court stated “[w]ell again, I’m not going to decide this because
18 of the notice . . . . So let me turn to what I kind of see as
19 the merits . . . .” Hr’g Tr. April 7, 2011 at 4:1-7.
20 Thereafter, debtors’ attorney and the bankruptcy court engaged
21 in a lengthy discussion on the merits of claim preclusion.
22 Accordingly, the bankruptcy court provided debtors a full and
23 fair opportunity to be heard on the merits. The bankruptcy
24 court concluded, as we conclude, debtors’ adversary complaint
25 was barred by claim preclusion.
26 Accordingly, the bankruptcy court did not abuse its
27 discretion in denying debtors’ motion for relief from judgment.
28
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1 VI. CONCLUSION
2 Having determined there is no basis for reversal for either
3 of the court’s orders, we AFFIRM.
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