Federal National Mortgage Association v. Cory Thompson

2018 WI 57
SUPREME COURT OF WISCONSIN
CASE NO.: 2016AP1496
COMPLETE TITLE: Federal National Mortgage Association,
Plaintiff-Respondent,
v.
Cory Thompson,
Defendant-Appellant,
Unknown Spouse of Cory Thompson,
Defendant.
ON CERTIFICATOIN FROM THE COURT OF APPEALS
OPINION FILED: May 24, 2018
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: February 19, 2018
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Dane
JUDGE: Amy Smith
JUSTICES:
CONCURRED:
DISSENTED:
NOT PARTICIPATING:
ATTORNEYS:
For the defendant-appellant, there were briefs and an oral
argument by Christopher Stroebel and Stroebel Law, LLC, Madison.
For the plaintiff-respondent, there was a brief and an oral
argument by Thomas C. Dill and BP Peterman Law Group, LLC,
Brookfield.
2018 WI 57
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2016AP1496
(L.C. No. 2014CV3377)
STATE OF WISCONSIN : IN SUPREME COURT
Federal National Mortgage Association,
Plaintiff-Respondent,
v.
FILED
Cory Thompson,
MAY 24, 2018
Defendant-Appellant,
Sheila T. Reiff
Unknown Spouse of Cory Thompson, Clerk of Supreme Court
Defendant.
APPEAL from an order of the Circuit Court for Dane County.
Affirmed.
¶1 SHIRLEY S. ABRAHAMSON, J. This appeal comes before
the court on certification by the court of appeals.1 Cory
Thompson, the debtor defendant, appeals an order of the Dane
County Circuit Court, Amy Smith, Judge, granting Federal
1
Fed. Nat'l Mortg. Ass'n v. Thompson, No. 2016AP1496,
unpublished certification (Wis. Ct. App. June 29, 2017).
No. 2016AP1496
National Mortgage Association a foreclosure judgment and a
monetary judgment of $152,355.98, plus any amounts held in
escrow, interest after August 16, 2012, and costs incurred by
Federal National Mortgage Association.2
¶2 The issue certified is as follows: Where a
foreclosure action brought on a borrower's default on a note has
been dismissed, is the lender barred by claim preclusion from
bringing a second foreclosure action on the borrower's
continuing default on the same note?
¶3 Essentially, we must answer the following question:
When a foreclosure action brought on the borrower's default on
the note has been dismissed with prejudice,3 and the lender had
not validly accelerated payment of the amount due under the
note, does claim preclusion bar the lender from bringing a
second foreclosure action based upon the borrower's continuing
default on the same note?
¶4 We conclude that when a lender does not validly
accelerate payment of the amount due under the note and a
foreclosure action brought on the borrower's default on an
installment payment under the note has been dismissed with
prejudice, claim preclusion does not bar the lender from
2
Federal National Mortgage Association replaced Bank of
America as the plaintiff in the instant case in December 2015.
3
For a summary of the facts and decision in the previous
action in 2010, see BAC Home Loans Servicing LP v. Thompson, No.
2013AP210, unpublished slip op. (Wis. Ct. App. Dec. 19, 2013).
2
No. 2016AP1496
bringing a subsequent foreclosure action based upon the
borrower's continuing default on the same note.
¶5 For an earlier action to bar a subsequent action under
the doctrine of claim preclusion, there must be, among other
elements, "an identity of causes of action in the two suits[.]"
N. States Power Co. v Bugher, 189 Wis. 2d 541, 551, 525
N.W.2d 723 (1995).
¶6 There is no identity of causes of action in the
instant case and in the earlier lawsuit. The matters that were
litigated or might have been litigated in the earlier lawsuit
are not the same as those in the instant case. A different set
of operative facts predicated upon separate and distinct
defaults on the note is alleged in each lawsuit.
¶7 Upon dismissal of the first lawsuit, the parties
continued the same contractual relationship with the same
continuing obligations they had before the commencement of the
first lawsuit. The borrower's default resulting from the
borrower's failure to make an installment payment due after
dismissal of the first lawsuit was not and could not have been
litigated in the first lawsuit. Thus, the failure of the
borrower to pay an installment after the termination of the
first lawsuit created a new set of operative facts upon which
the lender could base a subsequent foreclosure action.
¶8 After the first lawsuit, the lender gave new notice of
intent to accelerate payment. The second lawsuit alleged a
different date of default than was alleged in the first lawsuit.
These constitute new facts giving rise to a new and subsequent
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No. 2016AP1496
default and a different transaction from that presented in the
first foreclosure action.
¶9 Additionally, the parties raised and addressed the
issues of whether the circuit court erred at trial by admitting
a copy of the promissory note into evidence and whether Federal
National Mortgage Association proved that it had possession of
the original wet-ink promissory note.4
¶10 We conclude that these additional issues are governed
by our decision in Deutsche Bank National Trust Co. v. Wuensch,
2018 WI 35, ___ Wis. 2d ___, ___ N.W.2d ___.
¶11 Accordingly, we affirm the order of the circuit court.
I
¶12 The facts are undisputed for purposes of this review.
¶13 In November 2004, Cory Thompson executed a promissory
note payable to America's Wholesale Lender for $162,800.00,
secured by a mortgage on real property. The note was endorsed
in blank by America's Wholesale Lender. The note contained an
acceleration clause stating that the holder of the note may
require Thompson to pay the full amount of unpaid principal plus
interest immediately under the following conditions:
4
When this court grants direct review upon certification,
it acquires jurisdiction over all issues, not merely the issues
certified or the issue for which the court accepts the
certification. Wis. Const. art. VII, § 3(3); Wis. Stat.
§§ 808.05(2), 809.61; State v. Stoehr, 134 Wis. 2d 66, 70, 396
N.W.2d 177 (1986).
4
No. 2016AP1496
(1) Thompson must have defaulted by failing to make a
monthly payment on the date that it was due;
(2) the holder of the note must have sent written notice
to Thompson stating that it may accelerate the
payments under the note if Thompson fails to cure the
default by a given date; and
(3) the amount of time in which Thompson is afforded the
opportunity to cure his default must not be less than
30 days after the date on which the notice is mailed
or otherwise delivered to Thompson.
¶14 In November 2010, BAC Home Loans Servicing, LP,
(formerly Countrywide Home Loans Servicing, LP) filed a lawsuit
against Thompson. The complaint alleged that Thompson failed to
make required payments on the note as of April 2009. In its
complaint, BAC Home Loans purported to accelerate the debt,
which made the principal balance of $153,202.53 immediately
payable in full. BAC Home Loans sought a money judgment in the
full amount owed under the note and sought to foreclose on the
property securing the note.
¶15 At a court trial held on August 16, 2012, the circuit
court determined that BAC Home Loans failed to present
sufficient evidence to prevail in its foreclosure action and
dismissed the lawsuit with prejudice. The circuit court
reasoned that BAC Home Loans failed to present evidence of the
original notice of intent to accelerate full payment and failed
to present evidence that BAC Home Loans was in possession of the
5
No. 2016AP1496
original wet-ink note (i.e., that BAC Home Loans was the holder
of the note with the right to enforce the note).
¶16 In March 2014, Bank of America, N.A., (the entity
servicing Thompson's loan beginning in 2011), sent Thompson a
notice of intent to accelerate payment of the note. The notice
of intent to accelerate payment informed Thompson of the amount
due to cure his default ($89,586.63), when payment was due (on
or before May 4, 2014), and where to remit payment. Thompson
did not cure his default on or before May 4, 2014.
¶17 In December 2014, Bank of America filed a complaint
initiating the instant lawsuit. The complaint alleged that
Thompson had failed to make payments on the note as of September
2009 and that because Bank of America had accelerated the debt,
the principal balance of $152,355.98 was immediately payable in
full.
¶18 Thompson moved to dismiss the December 2014 lawsuit,
arguing that it was barred by the doctrine of claim preclusion.
¶19 The circuit court reasoned that the 2010 lawsuit and
the instant 2014 lawsuit involved the same parties, the same
note and mortgage, the same "essential" allegations of default,
and the same remedy. According to the circuit court, the only
difference between the 2010 and 2014 lawsuits was the different
default period. The 2010 lawsuit was based on a default as of
April 2009, and the 2014 lawsuit was based on a default as of
September 2009.
¶20 The circuit court concluded that claim preclusion
barred the portion of Bank of America's default claim that was
6
No. 2016AP1496
alleged to have occurred between April 2009 and August 16, 2012,
the date of the trial in the 2010 lawsuit. The circuit court
further concluded that any default claim alleged to have
occurred after August 16, 2012, "remain[ed] viable."
¶21 The circuit court explained that applying claim
preclusion to any default alleged to have occurred after
judgment was entered in the 2010 lawsuit would "be analogous to
parties in a contract litigating to conclusion one contract
violation, and then being forever barred from litigating
subsequent contract violations. Surely, the policies behind
claim or issue preclusion do not contemplate such a result."
¶22 Accordingly, Bank of America amended its complaint to
allege a date of default occurring after the trial in the 2010
lawsuit. The amended complaint alleged that Thompson had failed
to make payments on the note as of September 2012 and that on
acceleration of the debt due, Thompson owed a principal balance
of $152,141.69.
¶23 A court trial was held on May 12, 2016. Prior to
calling any witnesses, Federal National moved to admit into
evidence a purported copy of the note. Counsel for Federal
National presented the copy of the note, along with a document
purporting to be the original wet-ink note. Thompson objected,
stating that he was unable to tell whether the purported
original wet-ink note was in fact the original wet-ink note or
whether either document was identical to the original document
that he signed in November 2004.
7
No. 2016AP1496
¶24 The circuit court visually compared the copy of the
note with the document that Federal National's counsel presented
to the court as the original wet-ink note. The circuit court
observed that the document presented by counsel as the original
note appeared to be the original wet-ink note. The circuit
court admitted the copy of the original wet-ink note based on
the court's visual comparison of the original and copy and
because the circuit court viewed the copy as self-
authenticating.
¶25 The circuit court granted Federal National a monetary
judgment of $152,355.98——plus any amounts held in escrow, costs,
and interest after August 16, 2012——along with a judgment of
foreclosure to satisfy the monetary judgment. Thompson
appealed.
¶26 The court of appeals certified the issue as follows:
Where a foreclosure action brought on a borrower's default on a
note has been dismissed, is the lender barred by claim
preclusion from bringing a second foreclosure action on the
borrower's continuing default on the same note?
II
¶27 We begin by setting forth the standard of review
applicable to the certified issue.
¶28 The certified issue involves the application of the
doctrine of claim preclusion to undisputed facts. "The question
of whether claim preclusion applies under a given factual
scenario is a question of law that this court reviews de novo."
N. States Power Co., 189 Wis. 2d at 551 (citing DePratt v. West
8
No. 2016AP1496
Bend Mut. Ins. Co., 113 Wis. 2d 306, 310, 334 N.W.2d 883
(1983)).
III
¶29 We address whether the doctrine of claim preclusion
applies to the undisputed facts in the instant action.
¶30 Under the doctrine of claim preclusion, "a final
judgment is conclusive in all subsequent actions between the
same parties [or their privies] as to all matters which were
litigated or which might have been litigated in the former
proceedings." N. States Power Co., 189 Wis. 2d at 550 (brackets
in original); Lindas v. Oday, 183 Wis. 2d 547, 558, 515
N.W.2d 458 (1994); DePratt, 113 Wis. 2d at 310. "Claim
preclusion thus provides an effective and useful means to
establish and fix the rights of individuals, to relieve parties
of the cost and vexation of multiple lawsuits, to conserve
judicial resources, to prevent inconsistent decisions, and to
encourage reliance on adjudication." Kruckenberg v. Harvey,
2005 WI 43, ¶20, 279 Wis. 2d 520, 694 N.W.2d 879.5
¶31 Three elements must be present for an earlier action
to bar a subsequent action: "(1) an identity between the
parties or their privies in the prior and present suits; (2) an
identity between the causes of action in the two suits; and, (3)
a final judgment on the merits in a court of competent
5
For further discussion of the public policies underlying
the doctrine of claim preclusion, see Kruckenberg v. Harvey,
2005 WI 43, ¶¶19-22, 279 Wis. 2d 520, 694 N.W.2d 879, and
accompanying footnotes.
9
No. 2016AP1496
jurisdiction." N. States Power Co., 189 Wis. 2d at 551;
DePratt, 113 Wis. 2d at 311.
¶32 The parties do not dispute, and we agree, that only
the second factor of claim preclusion, that is, identity between
causes of action in the two lawsuits, is at issue in the present
case.
¶33 In determining whether there is identity between
causes of action for purposes of applying claim preclusion,
Wisconsin courts apply the "transactional approach" as described
in Restatement (Second) of Judgements. Kruckenberg, 279
Wis. 2d 520, ¶25; N. States Power Co., 189 Wis. 2d at 553-54;
DePratt, 113 Wis. 2d at 311-12.
¶34 The Restatement explains that the transactional
approach views a claim in factual terms and coterminous with the
transaction, rather than in terms of legal theories:
The present trend is to see a claim in factual terms
and to make it coterminous with the transaction
regardless of the number of substantive theories, or
variant forms of relief flowing from those theories,
that may be available to the plaintiff; regardless of
the number of primary rights that may have been
invaded; and regardless of the variations in the
evidence needed to support the theories or rights.
The transaction is the basis of the litigative unit or
entity which may not be split.
Restatement (Second) of Judgments § 24 cmt. a (1982); DePratt,
113 Wis. 2d at 311.
¶35 Section 24(2) of the Restatement (Second) of Judgments
describes the "transactional approach" in terms of the facts as
follows:
10
No. 2016AP1496
What factual grouping constitutes a "transaction", and
what groupings constitute a "series", are to be
determined pragmatically, giving weight to such
considerations 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 or
business understanding or usage.
Restatement (Second) of Judgments § 24(2) (1982); N. States
Power Co., 189 Wis. 2d at 553-54.
¶36 "The transactional approach to claim preclusion
reflects 'the expectation that parties who are given the
capacity to present their "entire controversies" shall in fact
do so.'" Kruckenberg, 279 Wis. 2d 520, ¶27 (quoting the
Restatement (Second) of Judgments § 24 cmt. a (1982)). In other
words, "[t]he concept of a transaction connotes a common nucleus
of operative facts." Kruckenberg, 279 Wis. 2d 520, ¶26.
¶37 Whether a common nucleus of operative facts is
involved in the two actions at issue is determined pragmatically
by "look[ing] to see if the claim asserted in the second action
should have been presented for decision in the earlier action,
taking into account practical considerations relating mainly to
trial convenience and fairness." Kruckenberg, 279 Wis. 2d 520,
¶27 (quoting Robert C. Casad & Kevin M. Clermont, Res Judicata:
A Handbook on its Theory, Doctrine, and Practice 66 (2001)).
¶38 The 2010 lawsuit and the instant case do not share "a
common nucleus of operative facts." Each lawsuit relates to a
set of operative facts that occurred at a different time. In
the 2010 lawsuit, the claim asserted was that Thompson had
defaulted on the note as of April 2009. In the instant case,
11
No. 2016AP1496
the amended complaint6 asserts that Thompson defaulted on the
note as of September 2012 (i.e., after judgment was entered in
the 2010 lawsuit).
¶39 Thompson's brief assumes that an identity of claims
exists between the 2010 lawsuit and the claims in the instant
case because the same total amount, namely the entire balance on
the note, was the remedy sought in both lawsuits. This
assumption rests on another assumption, namely that an effective
acceleration of payments occurred in the 2010 lawsuit. Thompson
conceded at oral argument, however, that payment of the note was
not effectively accelerated in the 2010 lawsuit.
¶40 Nevertheless, Thompson continues to assert that the
instant case is barred by claim preclusion. In support of his
claim preclusion argument, Thompson relies on Johnson v. Samson
Construction Corp., 704 A.2d 866 (Me. 1997), and U.S. Bank
National Ass'n v. Gullotta, 899 N.E.2d 987 (Ohio 2008).7
¶41 In each of these cases, in ruling that the lender was
forever barred from placing the entire balance of the note at
issue once again in a second proceeding, the state supreme court
assumed that full payment of the note had been validly
6
The operative allegations in the instant case are in the
amended complaint filed by Bank of America on August 14, 2015.
7
The certification memorandum filed by the court of appeals
explains that state courts have taken varied approaches to the
question of the application of the doctrine of claim preclusion
to a subsequent foreclosure action after a prior foreclosure
action is dismissed.
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No. 2016AP1496
accelerated and the entire balance of the note was the subject
of the first lawsuit, which was dismissed with prejudice.
¶42 The Maine Supreme Court summarized its reasoning in
Johnson that a lawsuit based on default of an accelerated debt
barred a second lawsuit on the debt as follows:
The promissory note between Johnson and Samson
required 240 equal monthly payments of principal and
interest. However, the note's acceleration clause
provided that "[i]f any default be made in any payment
under this Note, and if such default is not made good
within thirty (30) days after written notice of same,
the entire unpaid principal and accrued interest shall
become immediately due and payable without further
demand." Johnson's first cause of action alleged that
Samson "defaulted on its obligations to the Plaintiff
under the Note" and demanded payment of the entire
unpaid principal balance. This suit was an action for
the accelerated debt. Once Johnson triggered the
acceleration clause of the note and the entire debt
became due, the contract became indivisible. The
obligations to pay each installment merged into one
obligation to pay the entire balance on the note.
Johnson, 704 A.2d 866, ¶8.
¶43 The Ohio Supreme Court also relied on a purportedly
valid acceleration of the balance due on default in reaching its
decision that a subsequent lawsuit on the note was barred. It
explained in Gullotta the distinction between the consequences
for a second lawsuit of an initial action for recovery of an
installment payment and of an initial action for recovery of the
entire debt as follows:
The key here is that the whole note became due upon
Gullotta's breach, not just the installment he missed.
There is a distinction between an action for recovery
of installment payments under an installment note
where the entire principal is accelerated, and an
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No. 2016AP1496
action to recover for nonpayment under an installment
note where only the amount of the principal to date,
and no future amount, is sought. The general rule
that each missed payment in an installment loan gives
rise to a separate cause of action does not hold true
when there is an acceleration clause in the loan
agreement[.]
Gullotta, 899 N.E.2d 987, ¶29.
¶44 Neither Thompson's arguments nor these cases upon
which Thompson relies are persuasive in deciding the instant
case in Thompson's favor. Why? Because in the instant case,
unlike in the cases described above, no valid acceleration of
the debt occurred in the 2010 lawsuit.
¶45 Generally, and in the instant case, there cannot be a
valid acceleration of the debt without a default by the
borrower. That is, the borrower's default is a condition
precedent to the lender's right to accelerate the debt.
¶46 After a lawsuit based on the debtor's failure to make
one or more payments is dismissed with prejudice but payment of
the note was not validly accelerated because it was never proved
that the borrower was actually in default, the parties are
simply placed back into the position they held before the
commencement of the lawsuit, with the same continuing
obligations. See, e.g., Singleton v. Greymar Assocs., 882
So. 2d 1004 (Fla. 2004); Afolabi v. Atlantic Mortg. & Invest.
Corp., 849 N.E.2d 1170 (Ind. App. 2006).
¶47 In the instant case, when the 2010 lawsuit against
Thompson was dismissed with prejudice, it had the legal effect
of conclusively establishing that Thompson was not in default
for having missed installment payments due on the note up until
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No. 2016AP1496
the date of trial in the 2010 lawsuit (i.e., August 16, 2012).
Thus, because it was never proved in the 2010 lawsuit that
Thompson was in default, the entire balance of the note was
never validly accelerated. In such circumstances, the parties
are placed back into the position they held before the
commencement of the lawsuit. Thompson was obligated to continue
making installment payments after the dismissal of the 2010
lawsuit, and claim preclusion does not prevent Federal National
from suing Thompson for failing to make those payments.8
¶48 Accordingly, we conclude that the instant lawsuit
alleging a default as of September 2012 is not barred by the
doctrine of claim preclusion.
¶49 In the instant case, the debt was not validly
accelerated in the 2010 lawsuit. Claim preclusion should not
bar the mortgagee from challenging a subsequent default payment
solely because the mortgagee failed to prove in a prior action
an earlier alleged default. Preventing a mortgagee from suing
to collect a subsequent default even after the earlier claimed
default could not be established would essentially insulate the
mortgagor from future mortgage foreclosure actions on the note
merely because the mortgagor prevailed in the first action.
8
We note that the 2010 lawsuit was dismissed with prejudice
based on insufficient evidence. We do not address the
application of claim preclusion to a situation in which the
prior lawsuit was dismissed due to a defect in substantive
enforceability of the note.
15
No. 2016AP1496
¶50 The subject of the instant case is an alleged default
in September 2012. In the prior lawsuit between the parties,
the default was alleged to have occurred in April 2009. The
instant lawsuit arises out of a different set of operative facts
than those addressed in the prior lawsuit. The default alleged
in the instant case could not have been litigated in the prior
lawsuit. There is no identity of claims between the instant
lawsuit and the prior lawsuit. Accordingly, we conclude that
the instant lawsuit alleging a default as of September 2012 is
not barred by the doctrine of claim preclusion.
IV
¶51 Before we end this opinion, we briefly address the
following two additional issues the parties raised:
(1) whether the circuit court erred at trial by admitting
a copy of the note into evidence; and
(2) whether Federal National proved that it had possession
of the original wet-ink note.
¶52 These two issues are presented in and are governed by
our decision in Deutsche Bank National Trust Co. v. Wuensch,
2018 WI 35, ___ Wis. 2d ___, ___ N.W.2d ___. With respect to
these two issues, the facts of the instant case are
substantially the same in all material respects to the facts
presented in Deutsche Bank.
¶53 In Deutsche Bank, we concluded that a promissory note
endorsed in blank constitutes self-authenticating commercial
paper that may be enforced by the holder of the note. Deutsche
Bank, ___ Wis. 2d ___, ¶¶23-24. We further concluded that the
16
No. 2016AP1496
circuit court did not err by admitting into evidence a copy of
the promissory note that was endorsed in blank, noting that the
copy of the note was compared side-by-side to the original and
that generally speaking, a duplicate of a document is admissible
to the same extent as the original. Deutsche Bank, ___
Wis. 2d ___, ¶23.
¶54 We also concluded that because Deutsche Bank's counsel
physically possessed the original note on his client's behalf at
trial, Deutsche Bank proved that it had possession of the
original promissory note and could bring the lawsuit. Deutsche
Bank, ___ Wis. 2d ___, ¶24.
¶55 In the instant case, counsel presented the original
wet-ink note to the circuit court along with a copy of the note.
The circuit court in the instant case, sitting as the finder of
fact, determined that the purported original appeared to be the
original wet-ink note. Upon comparing the original wet-ink note
to the copy of the note, the circuit court admitted the copy
into evidence.
¶56 Consistent with our decision in Deutsche Bank, we
conclude that Federal National proved that it possessed the
original wet-ink note, that it could bring the lawsuit, and that
the circuit court did not err in admitting a copy of the
original wet-ink note at trial.
V
¶57 As to the certified issue, we conclude that when a
lender does not validly accelerate payment of the amount due
under the note and a foreclosure action brought on the
17
No. 2016AP1496
borrower's default on an installment payment under the note has
been dismissed with prejudice, claim preclusion does not bar the
lender from bringing a subsequent foreclosure action based upon
the borrower's continuing default on the same note.
¶58 As to the additional issues raised by the parties, we
conclude that Federal National proved that it possessed the
original wet-ink note, that it could bring the lawsuit, and that
the circuit court did not err in admitting a copy of the
original wet-ink note at trial.
By the Court.—The order of the circuit court is affirmed.
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1