Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_11-cv-01436/USCOURTS-azd-2_11-cv-01436-2/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1444 Petition for Removal- Foreclosure

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WO

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Kathi Ann Sharpe, 

Plaintiff, 

v. 

Select Portfolio Services, Incorporated, 

Defendant.

No. CV-11-01436-PHX-GMS

ORDER 

 Pending before the Court are the Parties’ Responses to the Court’s Order to Show 

Cause Concerning Transfer. (Doc. 27.) After reviewing the Responses, the Court hereby 

transfers the case to the District of Massachusetts. 

BACKGROUND 

 The facts of this case are set forth in the Court’s previous Orders and are 

recounted only briefly. (Doc. 10.) In 2003, Plaintiff Kathi Sharpe (“Plaintiff”) defaulted 

on her home mortgage loan. On May 23, 2002, Select, her loan servicer, noticed a 

trustee’s sale for August 28, 2003. (Id. ¶ 15.) On July 24, 2003, Plaintiff notified Select 

that she intended to rescind the loan because she was not provided with a signed and 

dated notice of her right to rescind pursuant to the Truth in Lending Act (“TILA”). 15 

U.S.C. § 1635(f) (2006). (Doc. 22 ¶ 17; Doc. 25 ¶ 10.) Plaintiff’s home was sold at a 

trustee’s sale on September 21, 2004. (Doc. 22 ¶ 45; Doc. 25 ¶ 29.) 

 Plaintiff filed suit in Maricopa County Superior Court on March 31, 2005 to 

rescind her loan under the TILA. The matter was subject to an arbitration hearing on May 

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17, 2001. On June 1, 2007, the arbitrator ruled that Plaintiff’s claims were time-barred. 

(Doc. 6, Ex. 6.) The arbitration decision was confirmed by the Superior Court on August 

13, 2008. (Doc. 1, Ex. 9.) 

 During the course of her litigation, Plaintiff discovered that Select had been the 

defendant in a class action in the District Court of Massachusetts in 2003 and a related 

enforcement action brought by the Federal Trade Commission (“FTC”) and the 

Department of Housing and Urban Development (“HUD”). (Doc. 1, Ex. 1 ¶ 14.) The 

suits alleged that “[Select] has engaged in a pattern and practice of uniform nationwide 

unfair, unlawful and deceptive business practices in its Servicing of residential mortgage 

loans, and that [Select] has engaged in other conduct that breaches statutes, contracts, and 

common law.” (Doc. 6, Ex. 10 at 1.) Both suits were settled together by an agreement 

approved by the Massachusetts District Court. United States v. Fairbanks Capital Corp., 

No. 03-12219-DPW, 2004 WL 3322609 (D. Mass. May 12, 2004); Curry v. Fairbanks 

Capital Corp., No. 03-10895-DPW, 2004 WL 3322609 (D. Mass. May 12, 2004). The 

Settlement Agreement certified a class consisting of, among others, all persons whose 

loans were serviced by Select between January 1, 1999, and November 14, 2003, and 

whose loans were “in Default or treated as being in Default by [Select]” during that 

period. (Doc. 23-2. Ex. A at 62 § I(3)(a)(i).) 

 The Settlement Agreement established a $40 million redress fund and substantial 

injunctive relief, including creating a “Default Resolution Program” and implementing 

specified “Operational Practices” designed to assist borrowers. (Doc. 6, Ex. 10.) The 

Default Resolution Program became effective on June 13, 2004, and the Operational 

Practices became effective July 1, 2004. (Doc. 22, ¶ 38.) In its order approving the 

settlement, the court wrote, “the Court hereby retains exclusive jurisdiction of all matters 

relating to the interpretation, administration, implementation, effectuation, termination 

(under the Settlement Agreement or otherwise) and enforcement of the Agreement and 

any orders entered in these cases.” Fairbanks, 2004 WL 3322609, at *5. The Settlement 

Agreement contains a section entitled “Reserved Claims and Defenses,” which excepts 

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from release, “any claims or defenses that a Settlement Class Member asserts, 

affirmatively or defensively, with respect to [Select]’s Servicing in an effort to defeat any 

pending or future real estate foreclosure action . . . .” (Doc. 23-2, Ex. A at 69-70 § 

I(31)(a).) 

 On September 21, 2010, Plaintiff filed this suit in Maricopa County Superior 

Court. Select removed this matter to federal court based upon diversity jurisdiction. 

(Doc. 1.) Plaintiff’s breach of contract cause of action, her only surviving claim, is 

predicated upon Select’s failure to notify Plaintiff of her status as a Curry class member, 

in addition to Select’s failure to abide by the terms of the Settlement Agreement. (Doc. 

10 at 10-11.) 

 In its Motion for Summary Judgment, Select proffered evidence establishing that 

Plaintiff was mailed notice of her class status and of the preliminary settlement 

agreement on February 24, 2004. (Doc. 26 at 4; Doc. 23-2, Ex. C.) However, the Court 

found that whether Select provided the best notice practicable under the circumstances, 

so as to bind Plaintiff, and whether Plaintiff may assert a claim under the Settlement 

Agreement are questions concerning “the interpretation, administration, implementation, 

effectuation, . . . and enforcement of the Agreement.” (Doc. 27 at 3-4.) Accordingly, the 

District of Massachusetts retains continuing jurisdiction over and has familiarity with the 

matters that form the basis of Plaintiff’s surviving claim. The Court ordered the Parties to 

show cause why this action should not be transferred to that District. (Id. at 4.) 

DISCUSSION 

 In its Response to the Court’s Order to Show Cause, Select contends that rather 

than transfer this matter to the District of Massachusetts, the Court should grant summary 

judgment on Plaintiff’s remaining breach of contract claim in favor of Select due to claim 

preclusion. The judicially-created doctrine of claim preclusion “bars all grounds for 

recovery which could have been asserted, whether they were or not, in a prior suit 

between the same parties on the same cause of action.” Costantini v. Trans World 

Airlines, 681 F.2d 1199, 1201 (9th Cir. 1982) (internal quotations and citations omitted). 

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“[A] federal court sitting in diversity must apply the [claim preclusion] law of the state in 

which it sits.” Costantini, 681 F.2d at 1201 (internal citation omitted). Claims that “might 

have been litigated” in the original case are also precluded. Pettit v. Pettit, 218 Ariz. 529, 

531, 189 P.3d 1102, 1104 (Ct. App. 2008). “To determine whether a second cause of 

action is the same as the first, Arizona follows the ‘same evidence’ test from the 

Restatement of Judgments § 61 (1942).” Pettit, 218 Ariz. at 532, 189 P.3d at 1105 (citing 

Phoenix Newspapers, Inc., 188 Ariz. at 240, 934 P.2d at 804 (“[T]he plaintiff is 

precluded from subsequently maintaining a second action based upon the same 

transaction, if the evidence needed to sustain the second action would have sustained the 

first action.”)). The Arizona Supreme Court has explained the rule as follows: 

Only such matters are adjudicated in a former judgment which appear upon 

its face to have been adjudicated or which were actually and necessarily 

included therein or necessary thereto. Rights, claims, or demands—even 

though they grow out of the same subject matter—which constitute separate 

or distinct causes of action not appearing in the former litigation, are not 

barred in the later action because of res judicata. 

Rousselle v. Jewett, 101 Ariz. 510, 512, 421 P.2d 529, 531 (1966) (internal citations 

omitted). An arbitration award confirmed by a state court binds the federal courts and has 

preclusive effect to the same extent it would under the laws of the state where the award 

was confirmed. Caldeira v. Cnty. of Kauai, 866 F.2d 1175, 1178 (9th Cir. 1989), cert. 

denied, 493 U.S. 817 (1989). 

 Select argues Plaintiff’s breach of contract claim is precluded because Plaintiff 

was aware of the facts underlying the claim during her previous lawsuit against Select 

and failed to pursue it. (Doc. 28 at 2.) Under Arizona law, Plaintiff’s breach of contract 

claim is only precluded if it is based upon the same evidence as was needed to sustain her 

claim in the previous action. Plaintiff earlier sued Select in Maricopa County Superior 

Court alleging causes of action for fraud, breach of contract, TILA, and unlawful 

foreclosure. (Doc. 6, Ex. 5, Compl.) The prior breach of contract claim was against 

Plaintiff’s mortgage broker, an unrelated party, for failure to provide copies of a “Notice 

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of Right to Cancel” before closing on Plaintiff’s refinance loan in 2002. (Id. at 8-9.) The 

unlawful foreclosure claim against Select was predicated on Select’s refusal to grant 

Plaintiff’s demand for rescission prior to foreclosure in 2004. (Id. at 9-11.) Plaintiff’s 

claims were found time-barred and judgment was awarded to Select. (Doc. 6, Ex. 6.) In 

this current matter, Plaintiff’s breach of contract cause of action alleges Select did not 

provide Plaintiff with protections pursuant to the “Default Resolution Program” and did 

not implement “Operational Practices” as required by the Curry Settlement Agreement, 

before Select foreclosed on her property. (Doc. 1, Ex. 1, Compl. at 3-6). Although the 

causes of action stem from the same subject matter, Plaintiff’s home mortgage, the 

evidence needed to sustain Plaintiff’s current breach of contract claim is not the same as 

the evidence needed to sustain the claims in her previous lawsuit. This action relies on the 

interpretation and application of the Settlement Agreement to Select’s foreclosure of 

Plaintiff’s property. Further, claim preclusion requires that the causes of action be 

similar, and Select has not proffered such a contention. 

 Select argues that Plaintiff’s breach of contract claim “might have been litigated” 

in the previous action and is thus precluded. (Doc. 28 at 2.) During that action, Plaintiff 

had devised the theory that the trustee’s sale of her property was unlawful under the 

Settlement Agreement but did not pursue it. (Doc. 25 ¶ 35; Doc. 22 ¶¶ 58-60.) Although 

Plaintiff was aware of the Agreement during the previous action, it was not referred to in 

her prior Complaint nor was the Agreement used as a factual basis for those claims. 

(Doc. 6, Ex. 5, Compl.) Thus Plaintiff’s breach of contract claim is not barred by res 

judicata. 

 Transfer of Plaintiff’s surviving claim, along with this case, is warranted. The 

Court may transfer a case “to any other district or division where it might have been 

brought” when such transfer serves “the convenience of parties and witnesses” and is “in 

the interest of justice.” 28 U.S.C. § 1404(a). The remaining questions of whether Select 

provided the best notice practicable to Plaintiff of her status as a Curry class member and 

whether Plaintiff may assert a breach of contact claim based on the Settlement 

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Agreement fall under the exclusive jurisdiction of the District of Massachusetts. See 

Fairbanks, 2004 WL 3322609, at *5 (“[T]he Court hereby retains exclusive jurisdiction 

of all matters relating to the interpretation, administration, implementation, effectuation, 

termination (under the Settlement Agreement or otherwise) and enforcement of the 

Agreement and any orders entered in these cases.”); see also Dowling v. Select Portfolio 

Servicing, Inc., 2007 WL 2815567, at *2, 5 (S.D. Ohio 2007) (granting plaintiff’s motion 

to dismiss in part because plaintiff wanted to challenge Select’s compliance with the 

Settlement Agreement, which “she can only do before the Curry court, given that court’s 

continuing jurisdiction over the Curry Settlement.”). Accordingly, 

 IT IS HEREBY ORDERED directing the Clerk of the Court to transfer this 

action to the District of Massachusetts. 

 Dated this 1st day of February, 2013. 

 

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