United States Court of Appeals

For the First Circuit

No. 09-1469

MICHAEL C. DILLON,

Plaintiff, Appellant,

JENNIFER KRESGE,

Plaintiff,

v.

SELECT PORTFOLIO SERVICING ET AL.,

Defendants, Appellees,

PMI GROUP, INC.,

Defendant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Joseph N. Laplante, U.S. District Judge]

Before

Lynch, Chief Judge,

Boudin and Howard, Circuit Judges.

Kevin Demko, with whom Richard H. Frankel was on brief, for

appellant.

William P. Breen, Jr., with whom Dorothy A. Davis and Eckert

Seamans Cherin & Mellott, LLC were on brief, for appellees.

January 13, 2011
-2-

LYNCH, Chief Judge. In a New Hampshire state court

action, Michael Dillon received an injunction against Select

Portfolio Servicing (SPS) and associated entities that had engaged

in illegal practices in seeking to foreclose upon his home

mortgage. SPS and its associates did not obey the terms of the

state court's order, and Dillon successfully moved for contempt and

received relief. 

In this later litigation, begun in a new lawsuit in New

Hampshire state court and removed to federal court, Dillon alleges

continued legal violations arising from the same facts by the same

defendants as in the first suit but now seeks to add damages claims

under new theories. The district court granted summary judgment to

the defendants, holding that res judicata precludes this action.

Applying New Hampshire law, we affirm.

I.

In March 2001, Dillon borrowed $100,300 from a division

of Superior Bank, securing the debt with a mortgage on his home in

Manchester, New Hampshire. Dillon made monthly mortgage payments

to Superior Bank from May 2001 until July 2001 without incident.

He made his August 2001 payment late, but included the required 5%

late fee with the payment. Dillon sent his September and October

2001 payments to Superior Bank. On October 1, 2001, Superior Bank

transferred the mortgage's servicing rights to SPS, then known as
For ease of exposition, we refer to this entity as "SPS" 1

throughout the opinion.

-3-

Fairbanks Capital Corporation. A series of disputes ensued 1

between Dillon and SPS, which led to both the preceding state court

lawsuit and this lawsuit.

These disputes began immediately after the transfer.

Neither SPS nor Superior Bank informed Dillon of the transfer until

after the deadline for the October 2001 payment, but SPS

nonetheless assessed late fees on the September and October 2001

payments Dillon initially sent to Superior Bank. SPS also secured

an insurance policy on Dillon's home and began charging him

premiums even though Dillon had provided proof of pre-existing

insurance in accordance with the mortgage agreement. Beginning in

January 2002, moreover, SPS began assessing fees, in varying and

sometimes undisclosed amounts, in excess of the fees provided in

the loan. 

Dillon contested these actions in communications with SPS

representatives, but his efforts were rebuffed. On January 28,

2002, Dillon made his January mortgage payment along with what he

considered the appropriate 5% late fee. Dillon made a single

payment in April 2002 for his February, March, and April monthly

payments, along with 5% late fees for the February and March

payments. He did not pay the additional fees that SPS demanded

accompany these payments. SPS accepted the payments, as well as
-4-

Dillon's monthly payment for May 2002, but it refused to accept

Dillon's payments thereafter. In a June 2002 letter, SPS notified

Dillon that it intended to accelerate the balance of the loan and

foreclose on his mortgage. 

In the months before this June 2002 letter, Dillon

alleges, representatives from SPS called his home and cell phone

"almost continuously during the day and evening," saying that there

was a pending foreclosure action against him. Shortly before he

received the notice of pending foreclosure, Dillon filed a formal

complaint with the New Hampshire Banking Department. Initially,

the Banking Department persuaded SPS not to act on its intent to

foreclose on Dillon's mortgage given the payment dispute. On

December 23, 2003, however, SPS notified Dillon through its counsel

that his home would be sold at a foreclosure auction on January 26,

2004. 

During the course of these disputes, SPS and its legal

counsel, Harmon Law Offices (Harmon), were subject to separate

class action lawsuits concerning their loan servicing and debt

collection practices. Dillon opted out of the lawsuit against

Harmon on October 28, 2003. He did not opt out of the lawsuit

against SPS, however, until shortly before the final approval of a

settlement on May 13, 2004. A preliminary settlement agreement,

reached on November 14, 2003, barred class members from bringing

any claims against SPS and affiliated parties except for those
-5-

asserted in an effort to defeat any pending foreclosure action.

Dillon concedes that he was subject to the terms of this

preliminary agreement until he opted out of the class.

In January 2004, shortly after he received the

foreclosure notice, Dillon filed the petition in New Hampshire

Superior Court we referred to earlier, seeking an injunction

against foreclosure and other remedies. In his petition, Dillon

alleged that SPS had engaged in predatory, harassing, and wrongful

conduct. He alleged that (1) SPS was engaged in ongoing improper

accounting practices and had wrongfully assessed late fees,

misapplied payments, and misreported his balance, (2) SPS

representatives had harassed him in combative and incessant phone

calls, (3) the pending foreclosure action had prompted the paying

tenants in his home to vacate the premises, leaving him with no

source of income, and (4) SPS had failed to take reasonable steps

to ensure that a reasonable price would be obtained at the planned

mortgage sale.

The petition requested that the Superior Court enjoin the

foreclosure sale, order the defendants to provide Dillon with an

accounting of his arrearage and an opportunity to cure and

reinstate the mortgage, and order "such other and further relief"

as it "deem[ed] equitable and just." The petition named as

defendants Fairbanks Capital Corporation, LaSalle National Bank

Association, Merrill Lynch Mortgage Capital Investors, and Harmon.
-6-

Fairbanks Capital Corporation, as noted previously, is the former

name of SPS. The Superior Court issued a temporary restraining

order and, after a hearing, a preliminary injunction against

actions in furtherance of the foreclosure sale. 

Before proceeding to a bench trial, the Superior Court

dismissed all claims against Harmon. The entity conducting the

foreclosure sale on behalf of SPS, Harmon had sent Dillon multiple

letters scheduling and rescheduling the foreclosure sale, including

after the Superior Court's issuance of the temporary restraining

order. The Superior Court held that Dillon no longer possessed any

substantive claims against Harmon, as the preliminary injunction

issued by the court precluded Harmon from taking further action

against Dillon until after the resolution of the lawsuit. 

On July 1, 2005, the Superior Court entered a permanent

injunction against the remaining defendants. The court found that

there was "no doubt that [SPS's] sleight of accounting resulted in

improper assessments against plaintiff that, in turn, resulted in

the 'default' and the acceleration of the mortgage." Dillon v.

Fairbanks Capital Corp., No. 04-E-25, slip op. at 2 (N.H. Super.

Ct. July 1, 2005). It found that Dillon's conduct "was not

contributory, as he should never have been placed in default to

begin with." Id. The defendants, the court held, "created a

predatory scheme of penalties generating the default, contrary to

the documents signed by the parties." Id.
-7-

The permanent injunction included three requirements.

First, it enjoined the defendants from "pursuing any foreclosure of

plaintiff's property based on the default declared in June 2002."

Id. at 4. Second, it enjoined the defendants to "allow plaintiff

an opportunity to reinstate the loan by resuming payments without

penalties as of August 1, 2005." Id. Third, it enjoined the

defendants to "send a separate accounting to plaintiff, again

without penalties, of the amounts it has paid for force placed

insurance from March, 2002 through the present and for taxes paid

on the property." Id. The court stated that "[a]ll other requests

by the parties are denied, as they have not been pleaded." Id.

Shortly thereafter, Dillon returned to the Superior Court

seeking an order of contempt or, in the alternative, a

clarification of the court's prior order. On August 25, 2006, the

Superior Court found SPS in contempt of its order of July 1, 2005.

It held that SPS had (1) failed to provide Dillon with an

opportunity to reinstate his loan because it had not provided him

with accurate billing statements, (2) continued to assess late fees

and charges for alleged missed payments, and (3) failed to clarify

its reclassification of past payments between interest and

principal and thus presumably violated the court's order that it

allow Dillon to reinstate his loan without penalty. In the

contempt order, the court reiterated the requirements of the

preliminary injunction granted on July 1, 2005. 
The prior action named "LaSalle National Bank 2

Association" rather than "LaSalle Bank National Association" and

"Merrill Lynch Mortgage Capital Investors" rather than "Merrill

Lynch Mortgage Capital, Inc." and "Merrill Lynch Mortgage

Investors." Dillon does not contest that these different

identifications of the same parties are immaterial.

-8-

In December 2006, Dillon and his fiancee Jennifer Kresge

filed this subsequent action in New Hampshire Superior Court, which

was removed to federal court on the basis of diversity. The

complaint named as defendants SPS, Harmon, Merrill Lynch Mortgage

Investors, Merrill Lynch Mortgage Capital, LaSalle Bank National

Association, and PMI Group, Inc. Dillon does not dispute that

these are the same defendants he named in his initial action, with

the exception of the addition of PMI Group, Inc. The complaint 2

listed twenty-four counts, including violations of the Fair Debt

Collection Practices Act, 15 U.S.C. § 1692 et seq., and the

Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.

§ 1961 et seq. It also enumerated state statutory and common-law

claims including breach of contract, negligence, infliction of

emotional distress, fraud, misrepresentation, defamation, unfair

and deceptive commercial practices, unfair collection practices,

interference with advantageous relations, conspiracy, and avoidance

of note. 

The district court dismissed all claims against PMI

Group, Inc., all claims brought by Kresge for lack of standing, and

a few claims Dillon conceded should be dismissed, including his
-9-

avoidance of note claim. See Dillon v. Select Portfolio Servicing,

Inc., No. 07-0070, 2009 WL 242912, at *1 & n.1 (D.N.H. Feb. 2,

2009). It later granted summary judgment on the remaining claims

on the ground that they were precluded by res judicata. Id. at *1.

Dillon timely appealed the district court's grant of summary

judgment.

II.

We review a district court's grant of summary judgment on

res judicata grounds de novo, accepting as true all well-pleaded

facts and drawing all reasonable inferences in favor of the party

opposing summary judgment. Sutliffe v. Epping Sch. Dist., 584 F.3d

314, 325 (1st Cir. 2009). The burden of establishing the

affirmative defense of res judicata rests on the defendants. SBT

Holdings, LLC v. Town of Westminster, 547 F.3d 28, 36 (1st Cir.

2008).

Under federal law, a state court judgment receives the

same preclusive effect as it would receive under the law of the

state in which it was rendered. Sutliffe, 584 F.3d at 326. New

Hampshire's law of res judicata bars re-litigation of matters

actually decided and matters that could have been litigated in an

earlier action when three conditions are met. Id. at 327. First,

the parties in both actions must be the same or in privity with one

another. Id. Second, the same cause of action must be before the
-10-

court in both instances. Id. Third, the first cause of action

must have resulted in a final judgment on the merits. Id. 

Dillon's claims on appeal only concern the second of

these three conditions--the same cause of action condition. He

makes three arguments. First, Dillon argues that he could not have

brought his present claims in the first action because he was then

subject to the preliminary settlement in the class action against

SPS. Second, Dillon argues that his present claims arose after he

filed the first action and thus constitute a separate cause of

action. Third, Dillon argues that he could not have raised his

avoidance of note claim during the first action because the

defendants had falsely represented during that action that they

owned the note. The record does not support these arguments.

A. Class Settlement Claim

Dillon's first argument fails because it has been waived.

In his complaint, Dillon did not argue that the preliminary

settlement of the class action against SPS prevented him from

bringing his present claims in the first action. He first raised

this argument in a motion for reconsideration of the district

court's grant of summary judgment. When a party makes an argument

for the first time in a motion for reconsideration, the argument is

not preserved for appeal. Loguidice v. Metro. Life Ins. Co., 336

F.3d 1, 7 (1st Cir. 2003). At any rate, Dillon does not dispute

that he had enough time to add legal claims for damages between the
-11-

time of his withdrawal from the SPS plaintiff class and the hearing

in the first action. He argues only that doing so would have

risked frustrating the court. 

B. Separate Cause of Action Argument

Dillon's second argument requires more analysis. Under

New Hampshire law, two causes of action are the same for res

judicata purposes when they arise from the same factual

transaction. Sutliffe, 584 F.3d at 327. A second suit that

contains additional factual allegations does not necessarily arise

from a different factual transaction under New Hampshire law. Id.

Claims arise from the same transaction if "[n]o material fact is

alleged in action No. 1 that was not alleged in action No. 2." Id.

(alterations in original) (quoting Patterson v. Patterson, 306 F.3d

1156, 1159-60 (1st Cir. 2002)). A plaintiff's desire to present

new grounds or theories of a case in a subsequent action is not

relevant to this transactional analysis. See id. 

As we noted in Sutliffe, the New Hampshire Supreme Court

has repeatedly defined res judicata with reference to the

Restatement (Second) of Judgments § 24. Id. at 327 n.7. That

Section states that a factual transaction "connotes a natural

grouping or common nucleus of operative facts." Restatement

(Second) of Judgments § 24 cmt. b (1982). It states further that

"[a]mong the factors relevant to a determination whether the facts

. . . constitute a single claim are their relatedness in time,
-12-

space, origin, or motivation, and whether, taken together, they

form a convenient unit for trial purposes." Id. Under New

Hampshire law, a factual transaction may include events that occur

after the initiation of a lawsuit. See Sutliffe, 584 F.3d at 328

(citing cases).

Dillon has not raised a material fact in this action that

he did not allege in the prior action. In his state court

complaint, Dillon alleged that the defendants engaged in a range of

wrongful conduct culminating in their effort to foreclose upon his

mortgage. That conduct included, Dillon alleged, improper

accounting practices, wrongful assessment of fees, misapplication

of payments, inaccurate mortgage statements, and harassing

telephone calls. In his federal court complaint, Dillon

accompanied these same allegations with the assertion that the

defendants continued engaging in this improper behavior. Dillon

alleges that SPS continued to harass him after the Superior Court

initially granted his application for a temporary restraining order

and continued to provide inaccurate statements, assess improper

penalties, misapply payments, and improperly report the foreclosure

to Dillon's credit report after the Superior Court issued a

permanent injunction.

Like the new factual allegations at issue in Sutliffe,

the new factual allegations at issue here reflect a continuation of

the wrongful conduct alleged in the state court action. Dillon
-13-

raised most of these new factual allegations in his motion for

contempt in the state court action. In that motion, Dillon alleged

that the defendants provided inaccurate statements, assessed

improper penalties, misapplied fees, and improperly reported the

foreclosure to Dillon's credit report in violation of the court's

permanent injunction. These claims arise from the same pattern of

behavior Dillon challenged in his state court complaint. Dillon's

contempt motion could have but did not mention the alleged

harassment that occurred after the Superior Court granted his

motion for a temporary restraining order. Nevertheless, that

allegation also falls within the pattern of conduct Dillon alleged

in his state court complaint. 

To his credit, Dillon acknowledged before the district

court that he could have brought the claims in the present action

in his state court action. He explained that he did not bring the

additional claims because of strategic concerns and his shifting

theory of the claims available to him in his case. He did not

argue before the district court, or before this court, that any of

the new factual allegations were materially different from those he

had previously alleged. As the district court held, "The surest

indication that this case asserts the same 'cause of action' as its

state-law antecedent is Dillon's exclusive reliance on the Superior

Court's findings and rulings on his claims there as sufficient

proof of each of his claims here." Dillon, 2009 WL 242912, at *5.
-14-

In an effort to avoid this conclusion, Dillon argues that

under New Hampshire law, res judicata does not preclude a second

action for damages when the first action sought injunctive relief.

New Hampshire courts have rejected this argument, which is

inconsistent with New Hampshire's well-established law on the

second res judicata condition. See E. Marine Const. Corp. v. First

S. Leasing, Ltd., 525 A.2d 709, 713-14 (N.H. 1987) (holding that

where an initial suit sounded in equity and a second suit sought

legal relief, res judicata bars the second action when both suits

derive from the same factual transaction). 

Dillon nonetheless invokes New Hampshire and federal

cases that have allowed claims for damages in a second action after

the plaintiff received injunctive relief in a first action

involving different transactions. His citations to these cases are

inapposite and ignore that under New Hampshire preclusion law, the

analysis goes to the scope of the transaction at issue in the first

action, not the forms of relief sought. The cases Dillon cites

each involve different transactions and do not turn on the type of

relief sought. See, e.g., Grossman v. Murray, 681 A.2d 90, 94

(N.H. 1996) (holding that claims were not precluded because they

arose after an initial bankruptcy proceeding and could not have

been raised in that proceeding under bankruptcy rules).

Dillon raises three additional arguments, all for the

first time on appeal. Because these arguments were not raised
-15-

before the district court, they are waived. See In re New Motor

Vehicles Canadian Exp. Antitrust Litig., 533 F.3d 1, 6 (1st Cir.

2008). At any rate, each argument fails.

First, Dillon argues that Sutliffe misapplied New

Hampshire law in holding that a factual transaction may include

conduct that postdates the complaint in the first action. He

relies on two New Hampshire Supreme Court decisions, Schwartz v.

State Department of Revenue Administration, 606 A.2d 806 (N.H.

1992) and In re Alfred P., 495 A.2d 1264 (N.H. 1985). These

decisions each concern discrete acts that postdated a complaint;

they do not establish a transactional barrier when a plaintiff

files a complaint. See Schwartz, 606 A.2d at 809 (finding that

each time an illegal tax is imposed, a new cause of action arises);

In re Alfred P., 495 A.2d at 1265-66 (finding that an action for

involuntary commitment was not precluded by res judicata because

the second action involved different specific acts).

Second, Dillon seeks to distinguish Sutliffe by arguing

that unlike the plaintiffs in that case, he did not introduce the

post-complaint evidence during the first action. As an initial

matter, this claim misstates the facts in Sutliffe. We made clear

that "[a]lmost" all--but not all--of the post-complaint evidence in

that case had been presented to the state court. See Sutliffe, 584

F.3d at 328-29. Even if Dillon had described the facts in Sutliffe

correctly, his assertion would still be irrelevant. The issue here
-16-

is whether Dillon raises a fact beyond the factual transaction that

he pleaded in the state action, not whether he raises a fact beyond

the particular instances identified in the state action. 

Third, Dillon argues that the factual allegations that

postdate the state court's grant of permanent injunctive relief

must give rise to a new cause of action. Dillon contends that a

contrary rule would have required him to amend his complaint during

the contempt proceeding and thereby transgress the limited scope of

contempt under New Hampshire law. This argument misses the mark.

The only factual allegations Dillon raises that postdate the state

court's grant of permanent injunctive relief concern ongoing

conduct in violation of that injunctive relief, matters which he

raised in the New Hampshire courts. That Dillon then chose not to

raise the new legal theories he now advances for additional relief

does not help his cause. The pattern of factual allegations that

yielded the permanent injunction is the same pattern that prompted

a contempt motion alleging violations of that permanent injunction.

See Restatement (Second) of Judgments § 24 cmt. b. 

C. Avoidance of Note Claim

Dillon contends that even if the remainder of his claims

are barred by res judicata, his purported avoidance of note claim

falls under an exception to that doctrine. The Restatement

(Second) of Judgments provides that "a defendant cannot justly

object to being sued on a part or phase of a claim that a plaintiff
-17-

failed to include in an earlier action because of the defendant's

own fraud." Restatement (Second) of Judgments § 26 cmt. j. Dillon

argues that the defendants have misrepresented that SPS owned his

mortgage note. Dillon presents no evidence that SPS does not own

the note, but points to the defendants' ongoing failure to produce

proof of ownership. 

This claim fails because it has been waived. Dillon

conceded before the district court that his avoidance of note claim

could not survive the defendants' motion to dismiss under Fed. R.

Civ. P. 12(b)(6). He made no argument before the district court

that this claim, although previously conceded, remained viable.

Nor did Dillon make an argument that this claim, even if it

remained viable, would not be precluded because of his allegation

that SPS committed fraud. Because Dillon made neither of these

arguments before the district court, they are waived on appeal.

See In re New Motor Vehicles, 533 F.3d at 6. At any rate, Dillon

does not explain how he may concede a count and then seek to revive

it to avoid res judicata. 

III.

The judgment of the district court is affirmed.