Johnson v. Nationstar Mortgage

2019 UT App 199THE UTAH COURT OF APPEALS
NEIL ALAN JOHNSON AND JODI LYN JOHNSON,
Appellants,
v.
NATIONSTAR MORTGAGE LLC,
Appellee.
Opinion
No. 20180417-CA
Filed December 12, 2019
Fourth District Court, Provo Department
The Honorable Christine S. Johnson
No. 180400119
Judson T. Pitts, Attorney for Appellants
Robert H. Scott and Jason T. Baker, Attorneys
for Appellee
JUDGE JILL M. POHLMAN authored this Opinion, in which
JUDGES DAVID N. MORTENSEN and RYAN M. HARRIS concurred.
POHLMAN, Judge:
¶1 Appellants Neil Alan Johnson and Jodi Lyn Johnson
(collectively, the Johnsons) appeal the district court’s dismissal
of their claims against Nationstar Mortgage LLC, with respect to
the Johnsons’ mortgage on a home in Lehi, Utah (the Property).
The Johnsons contend that the court erred in concluding that
their claims under the Truth in Lending Act are barred by the
doctrine of res judicata. We disagree with the Johnsons and
affirm.
Johnson v. Nationstar Mortgage
BACKGROUND
¶2 In April 2007, the Johnsons financed ownership of the
Property through a loan evidenced by a promissory note (the
Note) and secured by a trust deed on the Property. The trust
deed, duly recorded in the Utah County recorder’s office, named
Varent Inc. as the lender and Mortgage Electronic Registration
Systems Inc. (MERS) as the nominal beneficiary. The trust deed
was later assigned to Nationstar Mortgage LLC and U.S. Bank
NA.
¶3 The Note required the Johnsons to make payments on the
first day of each month and that any amounts still owing under
the Note as of the maturity date in May 2037 would be due at
that time. Additionally, the Johnsons agreed to nonjudicial
foreclosure of the Property in the event of default.
¶4 The Johnsons defaulted on the Note, and a notice of
default was recorded in the Utah County recorder’s office on
October 30, 2009. The default notice accelerated the loan, making
the entire obligation “immediately due and payable.” A trustee’s
sale was scheduled for September 2010.
The First Suit
¶5 The Johnsons filed suit in September 2010 (the First Suit),
naming as defendants, among others, Varent’s former CEO,
MERS, and the foreclosure trustee. The Johnsons sought relief
from the nonjudicial foreclosure proceedings that had been
initiated against them, alleging that it appeared “no entity exists
today with the right to commence a non-judicial foreclosure on
[the Property]” and that there was a controversy over “whether
or not any of the Defendants are qualified or entitled to sell [the
Property].” Among the factual bases allegedly entitling them to
relief, the Johnsons claimed that “[o]n or about March 17, 2010,
[they] executed and recorded their Notice of Right to Cancel”
20180417-CA 2 2019 UT App 199Johnson v. Nationstar Mortgage
pursuant to the Truth in Lending Act (TILA), see generally 15
U.S.C. § 1635 (2018), and that “[c]opies of [the Johnsons’]
executed and recorded Notice of Right to Cancel was delivered
to all known Defendants by same Process on or about March 26,
2010.” As relief, among other requests, the Johnsons asked the
court to enjoin the defendants from exercising their remedies
under the trust deed.
¶6 Several of the defendants—including the trustee and the
beneficiary under the trust deed at the time—filed a motion to
dismiss the First Suit with prejudice pursuant to rule 12(b)(6) of
the Utah Rules of Civil Procedure. In their motion, the
defendants addressed the TILA allegations and argued that the
Johnsons had failed to state a claim for relief under TILA where
“multiple courts have rejected the [Johnsons’] premise” that
“mere declaration of rescission of a loan for purported TILA
violations” automatically cancels “the security interest
represented by the recorded deed of trust so as to terminate any
right to proceed with nonjudicial foreclosure.” (Citing Large v.
Conseco Fin. Servicing Corp., 292 F.3d 49, 54–55 (1st Cir. 2002).) In
response, the Johnsons filed their own motion to dismiss
(without prejudice), stating that they wanted to file their
complaint in federal court.
¶7 In January 2011, the district court granted the defendants’
motion to dismiss with prejudice. In so doing, it specifically
addressed the Johnsons’ TILA allegations. The court adopted the
reasoning set forth in the cases cited by the defendants and
rejected the Johnsons’ premise that “mere declaration of
rescission of a loan for purported TILA violations” automatically
cancels “the security interest represented by the recorded deed
of trust so as to terminate any right to proceed with nonjudicial
foreclosure.” For this reason (and others not relevant to this
appeal), the court concluded that the Johnsons’ complaint failed
to state a claim.
20180417-CA 3 2019 UT App 199Johnson v. Nationstar Mortgage
¶8 The Johnsons did not appeal the dismissal of the First
Suit. Instead, between September 2010 and June 2017, they filed
seven bankruptcies, all of which were dismissed. No trustee’s
sale occurred during that time period. 1
The Present Suit
¶9 In December 2017, U.S. Bank issued a notice of sale of the
Property, scheduled for January 2018. That January, shortly
before the sale was to take place, the Johnsons filed the
complaint in the present suit (the Present Suit). The complaint
named Nationstar and U.S. Bank as defendants, and through it
the Johnsons sought injunctive and declaratory relief against the
scheduled nonjudicial foreclosure sale.
¶10 In an attempt to distinguish the Present Suit from the
previous two, the Johnsons asserted in the complaint that the
December 2017 notice of sale was an “independent and separate
action” not covered by the rulings in the previous suits. More
specifically, the Johnsons argued that the rulings in those suits
should have “no legal effect on the ability of a Court to apply the
fact of the [Johnsons’] Notice of Right to Cancel upon other facts
as presented to the Court here.” They also alleged that the
United States Supreme Court’s decision in Jesinoski v.
1. In 2017, the Johnsons filed a second suit in which they also
alleged, among other things, that they were entitled to relief
from the nonjudicial foreclosure proceedings pursuant to their
TILA rescission. The district court dismissed the suit with
prejudice, concluding, among other things, that the Johnsons’
TILA rescission claim was barred by the doctrine of claim
preclusion because the court in the First Suit considered and
rejected that claim and all the elements of claim preclusion had
been met. The Johnsons timely appealed the dismissal, and this
court dismissed that appeal without prejudice for lack of finality.
20180417-CA 4 2019 UT App 199Johnson v. Nationstar Mortgage
Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015), 2 essentially
“overruled the decisions” relied upon by the district court when
it dismissed their TILA rescission claims in the previous suits.
Thus, the court was “not barred from legally re-interpreting” the
effect of the Johnsons’ 2010 rescission notice on the trustee’s
authority to conduct the foreclosure sale in 2018.
¶11 Notwithstanding the Johnsons’ requests for relief, the
foreclosure sale took place on January 19, 2018, with U.S. Bank as
the successful bidder. On January 29, 2018, Nationstar and U.S.
Bank 3 filed a rule 12(b)(6) motion to dismiss, arguing, among
other things, that the TILA rescission claims raised in the
complaint with respect to the propriety of the foreclosure on the
Property had already “been heard and rejected by two prior
courts” and were accordingly barred under the doctrine of res
judicata.
¶12 The district court granted the motion to dismiss. The
court agreed that the claims raised in the Present Suit were
2. In Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790(2015), the Supreme Court addressed whether a borrower, to
effectively exercise rescission rights under TILA, is required to
file a lawsuit within three years of the loan’s consummation, or
whether it is sufficient for the borrower to simply provide
written notice to the lender within the three-year period. Id. at
791–93. The Court held that the relevant TILA provisions
unequivocally indicate that “a borrower need only provide
written notice to a lender in order to exercise his right to
rescind” and that “so long as the borrower notifies within three
years after the transaction is consummated, his rescission is
timely.” Id. at 792–93. In other words, “[t]he statute does not also
require him to sue within three years.” Id. at 792.
3. U.S. Bank has not made an appearance in this appeal.
20180417-CA 5 2019 UT App 199Johnson v. Nationstar Mortgage
barred by the claim preclusion branch of res judicata. It
determined that all three elements of claim preclusion had been
met with respect to the injunctive and declaratory relief
requested. While the court acknowledged that the new notice of
sale served on the Johnsons in December 2017 was a “new fact”
that “could not have been considered” in previous litigation, it
identified the relevant “transaction” at issue as the 2007 loan and
the “later attempt to rescind it under TILA.” In this respect, the
court explained that the “facts required to raise that TILA claim
were known and raised during both” of the previous suits,
noting that if those facts were “excised from the present case,
there is no cause of action.”
¶13 Additionally, the court explained that the Johnsons’
reliance on Jesinoski was misplaced because “the test for claim
preclusion does not include a requirement to review the prior
case for legal error.” If the Johnsons believed “that the [First Suit]
was improperly dismissed,” the court explained, an appeal “was
their remedy.” Thus, concluding that the claims in the Present
Suit arose from the same transaction as that involved in the First
Suit, the court dismissed the Present Suit as barred.
¶14 The Johnsons timely appeal the dismissal of their
complaint.
ISSUE AND STANDARD OF REVIEW
¶15 The Johnsons raise one issue on appeal that we address
on the merits. 4 They argue that the district court erred in
4. The Johnsons also ask that we determine that the district court
committed reversible error in declining to grant their request to
apply the TILA procedures to their case rather than Utah’s
nonjudicial foreclosure statutes. Because we conclude that the
(continued…)
20180417-CA 6 2019 UT App 199Johnson v. Nationstar Mortgage
concluding that claims based on their TILA rescission were
barred under the claim preclusion branch of res judicata.
“Whether a claim is barred by res judicata is a question of law
that we review for correctness.” Gillmor v. Family Link, LLC, 2012
UT 38, ¶ 9, 284 P.3d 622.
ANALYSIS
¶16 The Johnsons argue that the district court erred in
concluding that their claims with respect to their TILA rescission
are barred by the claim preclusion branch of res judicata. While
they make several arguments with respect to the correct
characterization of a TILA rescission, they essentially argue that
reliance on their TILA rescission as a basis for injunctive relief in
the First Suit did not amount to raising a claim for claim
preclusion purposes. We disagree.
¶17 Claim preclusion is a branch of res judicata “premised on
the principle that a controversy should be adjudicated only
once,” and it thereby precludes a party from relitigating a claim.
Mack v. Utah State Dep’t of Commerce, 2009 UT 47, ¶ 29, 221 P.3d
194 (cleaned up). To determine whether res judicata bars a claim,
courts evaluate three elements:
First, both cases must involve the same parties or
their privies. Second, the claim that is alleged to be
barred must have been presented in the first suit or
be one that could and should have been raised in
the first action. Third, the first suit must have
resulted in a final judgment on the merits.
(…continued)
district court properly dismissed the Present Suit as claim
precluded, we have no occasion to address this related issue.
20180417-CA 7 2019 UT App 199Johnson v. Nationstar Mortgage
Gillmor v. Family Link, LLC, 2012 UT 38, ¶ 10, 284 P.3d 622(cleaned up).
¶18 The Johnsons do not appear to contest the district court’s
specific determinations with respect to the elements themselves.
Instead, the Johnsons argue that the district court incorrectly
determined that the TILA rescission issue was a claim at all,
primarily by characterizing their TILA rescission as an “absolute
defense” to the nonjudicial foreclosure proceedings.
¶19 Our supreme court has defined claims or causes of action
broadly, explaining that they are “the aggregate of operative
facts which give rise to a right enforceable in the courts.”
Swainston v. Intermountain Health Care, Inc., 766 P.2d 1059, 1061
(Utah 1988) (cleaned up); accord Mack, 2009 UT 47, ¶ 19; American
Estate Mgmt. Corp. v. International Inv. & Dev. Corp., 1999 UT App
232, ¶ 9, 986 P.2d 765. More specifically, a claim is “the situation
or state of facts which entitles a party to sustain an action and
gives him the right to seek judicial interference in his behalf,”
petitioning “the court to award a remedy for injury suffered,”
while a cause of action “is necessarily comprised of specific
elements which must be proven before relief is granted.”
Swainston, 766 P.2d at 1061 (cleaned up). Both are “resolved by a
judicial pronouncement providing or denying the requested
remedy.” Id.; see also Claim, Black’s Law Dictionary (11th ed.
2019) (defining “claim” as “[t]he assertion of an existing right;
any right to payment or to an equitable remedy, even if
contingent or provisional,” or “[a]n interest or remedy
recognized at law; the means by which a person can obtain a
privilege, possession, or enjoyment of a right or thing”); Cause of
Action, Black’s Law Dictionary (11th ed. 2019) (defining “cause of
action” as “[a] group of operative facts giving rise to one or more
bases for suing; a factual situation that entitles one person to
obtain a remedy in court from another person,” or “[a] legal
theory of a lawsuit”).
20180417-CA 8 2019 UT App 199Johnson v. Nationstar Mortgage
¶20 Applying these principles, we conclude that the Johnsons
have not shown that their request for relief in the First Suit on
the basis of TILA rescission is not a claim subject to preclusion.
Regardless of whether their TILA rescission might be
characterized under the TILA framework as a defense in the
abstract, the Johnsons treated their TILA rescission as a claim or
cause of action for relief in the First Suit. See Pohl v. U.S. Bank,
859 F.3d 1226, 1230–31 (10th Cir. 2017) (rejecting the appellants’
assertion that their TILA rescission was not a claim for claim
preclusion purposes, concluding, based on the definition of
“claim,” that “it is apparent that once the lender rejected the
[appellants’] notice [of rescission], they had a ‘claim’ for
rescission and a ‘claim’ for TILA violations”). In the First Suit,
the Johnsons sought to enforce their rights in the Property and
affirmatively requested relief from the nonjudicial foreclosure
proceedings in progress against their interests, citing the TILA
rescission as a basis for granting such relief. See Mack, 2009 UT
47, ¶ 19 (“A party has a claim if the alleged facts give rise to a
right enforceable in the courts.” (cleaned up)). To that end, the
district court in the First Suit plainly resolved their requested
entitlement to relief based on the fact of the TILA rescission,
concluding that the rescission did not preclude the lenders’
“right to proceed with nonjudicial foreclosure.” See Swainston,
766 P.2d at 1061. The Johnsons did not appeal that decision. And
apart from delineating the burdens and procedures applicable to
rescissions under TILA and their supposed applicability
following Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790(2015), supra note 2, the Johnsons do not otherwise explain why
claim preclusion does not apply to the actions they affirmatively
took to enforce their rights—i.e., filing suit seeking judicial relief
from the nonjudicial foreclosure proceedings on the basis of their
TILA rescission.
¶21 For these reasons, we affirm the district court’s
determination that the Johnsons’ request for relief on the basis of
their TILA rescission is barred by the doctrine of res judicata.
20180417-CA 9 2019 UT App 199Johnson v. Nationstar Mortgage
CONCLUSION 5
¶22 We conclude that the district court properly dismissed the
Present Suit on the basis of res judicata. Accordingly, we affirm.
5. In a single sentence of the conclusion in its brief, Nationstar
asks this court to award it attorney fees incurred on appeal
pursuant to rule 33 of the Utah Rules of Appellate Procedure.
Rule 33 provides that if an appellate court determines that an
appeal taken is “either frivolous or for delay, it shall award just
damages, which may include . . . reasonable attorney fees, to the
prevailing party.” Utah R. App. P. 33(a). “[P]arties seeking
attorney fees under rule 33 face a high bar.” Porenta v. Porenta,
2017 UT 78, ¶ 51, 416 P.3d 487. This is because the “imposition of
such a sanction is a serious matter and only to be used in
egregious cases, lest the threat of such sanctions should chill
litigants’ rights to appeal lower court decisions.” Id. (cleaned
up). Here, Nationstar has not explained why the Johnsons’
appeal meets this standard. Because Nationstar has not
demonstrated that rule 33 fees are justified, we decline to award
them.
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