Opinion ID: 1253349
Heading Depth: 2
Heading Rank: 3

Heading: Declaratory Judgment and Claim Preclusion

Text: ¶ 63. MONY presents a dramatically different perspective of this case. It argues that its 1996 declaratory judgment, based upon an alternative interpretation of the facts, totally extinguished National Operating's rights. It asserts that the declaratory judgment thus precluded any claims founded in Article 9. [14] ¶ 64. MONY contends that in 1993, National Operating, after defaulting, convinced MONY to execute the Loan Modification and Extension Agreement, which extended the maturity date on the loan until the end of 1995. MONY argues in its brief: In addition, and as a means to provide MONY with additional security for the extension, National Operating assigned to MONY `all of its rights, title and interest in those certain rights and remedies granted in the Wrap Note and Mortgage by Bridgeview.' ¶ 65. When National Operating defaulted at the end of 1995, MONY brought a declaratory judgment action seeking to confirm the operation of the Assignment in light of National Operating's second default on the Underlying Note. According to MONY's brief, MONY prayed for a declaration confirming its full and unconditional ownership of the Wrap Note and Mortgage and extinguishing National Operating's remaining rights in these instruments. . . . . . . .On March 28, 1996. . .the Court entered a declaratory judgment consistent with MONY's request. . . . . In response to National Operating's [1998] Complaint, MONY moved to dismiss the action on [claim] preclusion grounds. MONY argued that the 1996 Declaratory Judgment, which confirmed the complete assignment of the Wrap Note and Mortgage to MONY, as well as the resulting extinguishment of National Operating's rights in those instruments, barred National Operating's current efforts. ¶ 66. This, in essence, was the view adopted by the circuit court and the court of appeals. MONY's interpretation of the 1996 declaratory judgment requires us to address claim preclusion under declaratory judgments.
[9] ¶ 67. The circuit court and the court of appeals both determined that National Operating's claims were barred by claim preclusion. Under the doctrine of claim preclusion, formerly known as res judicata, a final judgment is conclusive in all subsequent actions between the same parties as to any claim or cause of action that was litigated or could have been litigated in the first action. Sopha v. Owens-Corning Fiberglas Corp., 230 Wis. 2d 212, 233, 601 N.W.2d 627 (1999). ¶ 68. In Barbian v. Lindner Bros. Trucking Co., 106 Wis. 2d 291, 296-97, 316 N.W.2d 371 (1982), this court examined whether the same claim preclusion rule applies to declaratory judgments. We concluded that it does not, stating: [A] declaratory judgment is only binding as to matters which were actually decided therein and is not binding to matters which `might have been litigated' in the proceeding. Barbian, 106 Wis. 2d at 297. [10-12] ¶ 69. The declaratory judgment here was a default judgment. Subsequent actions may be precluded by a prior default judgment. A.B.C.G. Enters. v. First Bank Southeast, 184 Wis. 2d 465, 481, 515 N.W.2d 904 (1994). However, in default judgments, relief is limited to that which is demanded in the plaintiff's complaint. Klaus v. Vander Heyden, 106 Wis. 2d 353, 359, 316 N.W.2d 664 (1982). The judgment does not extend to issues which were not raised in the pleadings. Id. at 360. [13] ¶ 70. For claim preclusion to apply to an action, the following factors must be present: (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 jurisdiction. Northern States Power Co. v. Bugher, 189 Wis. 2d 541, 551, 525 N.W.2d 723 (1995). ¶ 71. The parties agree that the identity between the parties and the final judgment requirements are met in this case. MONY, National Operating, and Bridgeview were the named parties in the 1996 declaratory action, which was decided by a final declaratory judgment. The question for the court is whether an identity exists between the claims National Operating raised in its current action, and the causes of action pleaded, actually litigated, and decided in the 1996 declaratory judgment.
¶ 72. To determine what was actually pleaded and litigated in the declaratory judgment, we must examine the Assignment, MONY's declaratory complaint, and the resulting declaratory judgment. ¶ 73. We begin with the Assignment. The Assignment from National Operating to MONY states in relevant part: NOW, THEREFORE, [National Operating] does hereby assign to [MONY] all of its right, title and interest in those certain rights and remedies granted in the Wrap Note and Mortgage by Bridgeview, to [National Operating]. At any time after default, under the Wrap Note and Mortgage, [MONY] may exercise said rights and remedies at such time and instance [National Operating] would be able to exercise those rights and remedies, upon notice to and without recourse from [National Operating]. Upon payment of the [underlying] note and any amounts due under the [underlying] mortgage, [MONY] shall convey the Wrap Note and Mortgage to [National Operating]. ¶ 74. The heart of the Assignment includes three distinct paragraphs. Because the effectiveness of the first paragraph depends entirely upon the default referenced in the second paragraph, the Assignment cannot be viewed as an absolute assignment in which there is an immediate, absolute transfer of rights. An example of this kind of assignment, the 1978 assignment of the Underlying Note from the Trustees of MONY Mortgage Investors to MONY, is described above. See supra ¶ 7 note 2. It must instead be viewed as a collateral assignment, in which the collateral serves as security for a loan, [15] and as a conditional assignment in which the condition precedent is default on the loan. ¶ 75. The declaratory complaint was filed on February 22, 1996, eight days after MONY notified National Operating that it would exercise its rights under the Assignment. In the complaint, MONY meticulously details the relationships and transactions among the parties and attaches and incorporates by reference about 70 pages of exhibits, including the Underlying Note and Security Agreement, the Wrap Note and Purchase Money Mortgage along with the Security Agreement, and the Loan Modification and Extension Agreement along with the Assignment. ¶ 76. Paragraph 11 of the complaint reads in part: In consideration of the Loan Modification and Extension Agreement. . .National Operating. . .assigned its rights under the Note and Mortgage between it and. . .Bridgeview Plaza Partnership. . .to the Plaintiff pursuant to an Assignment dated October 18, 1993. . . .A copy of this Assignment is attached and incorporated herein by reference. ¶ 77. Paragraph 12 of the complaint states: Pursuant to the terms of the Assignment, notice was given to [National Operating] that [MONY] will exercise the rights and remedies of [National Operating] under the [Wrap] Note and Mortgage described in the Assignment. ¶ 78. After alleging the facts, MONY specifically sought relief in the form of: a Declaratory Judgment of this Court confirming its assumption of the Notes between the Defendant, National Operating, L.P., and the Defendant, Bridgeview Plaza Partnership; extinguishing the rights of the Defendant, National Operating, L.P., as a mortgagee under said Mortgage; extinguishing the rights of the Defendant, National Operating, L.P., as payee under the Note; and confirming the Plaintiff's interest as primary mortgagee and holder of the Note and Mortgage declared herein. ¶ 79. When National Operating did not answer the complaint, Judge Mulroy granted MONY a default judgment on March 28, 1996: (1) confirming the assignment and assumption of the Notes between. . .National Operating,. . .and Bridgeview Plaza Partnership, in LaSalle National Bank, as Indenture Trustee; [16] (2) extinguishing the rights of. . .National Operating,. . .as a mortgagee under said Mortgage; (3) extinguishing the rights of. . .National Operating. . .as payee under the Note; and (4) confirming LaSalle National Bank as the primary mortgagee and holder of the Note and Mortgage. ¶ 80. Taking a close look at the complaint, there is no reference to the contingency enumerated in the Assignment of the right to reconveyance of the Wrap Note and Mortgage upon payment of the Underlying Note. There is no reference in the complaint to the Uniform Commercial Code. There is no claim that National Operating had waived a statutory right. There is only a demand to extinguish certain of National Operating's rights. ¶ 81. The declaratory judgment closely follows the complaint. It does not acknowledge and then confirm, in specific terms, a waiver of National Operating's right to redeem collateral upon payment of the loan, nor does it make any specific reference to extinguishing rights under Article 9 or Chapter 409. ¶ 82. The declaratory judgment grants only what MONY asked in its complaint; it could have granted nothing more. Wis. Stat. § 806.01(1)(c); [17] Klaus, 106 Wis. 2d at 359. ¶ 83. The issue then is whether this 1996 declaratory judgment precludes the present claims by National Operating, irrespective of its rights under Chapter 409, because the substance of these claims was aptly pleaded by MONY and fully determined by the circuit court. [14] ¶ 84. Once again, the rule on claim preclusion in a declaratory judgment action is different from the rule on claim preclusion in typical litigation: A declaratory judgment is binding only as to matters which were actually decided in the action, not to matters which might have been litigated in the proceeding but were not. Barbian, 106 Wis. 2d at 297. [15] ¶ 85. Put bluntly, did MONY plead and did Judge Mulroy decide that National Operating, in the 1993 Assignment, bargained away its right to all surplus equity in the collateral and its right to commercially reasonable disposition of collateral, notwithstanding the protective provisions of Chapter 409? We see no evidence that MONY articulated such a far-reaching claim in its complaint and no evidence that Judge Mulroy bought into such a claim. To accept that proposition would require us to believe that Judge Mulroy consciously disregarded the statutory law. We decline to do so. ¶ 86. Whether National Operating waived its right to redeem collateral in the 1993 Assignment is a closer question. Nevertheless, for MONY to prevail, it must argue that its declaratory complaint implicitly alleged that National Operating defaulted in 1993; that after this default, National Operating consciously waived its right to redeem collateral within the written Assignment; that Judge Mulroy understood this implication of the complaint; that he made a determination that the default referred to in Wis. Stat. § 409.506 was the 1993 default, not the 1995 default; and that he granted judgment to confirm MONY's theory. ¶ 87. Such an argument is unreasonable for several reasons. Contrary to MONY's assertions, the 1993 Assignment does not on its face assign all right, title and interest in the Wrap Note and Mortgage to MONY. Instead, National Operating assigns all of its right, title and interest in those certain rights and remedies granted in the Wrap Note and Mortgage  (emphasis added). We perceive significance in this limiting language. Obviously, none of the debtor's rights in Chapter 409 is granted in the Wrap Note and Mortgage. Moreover, the right to reconveyance in the Assignmenta right that parallels the right of redemption in Wis. Stat. § 409.506is simply different from any right of redemption granted in the Wrap Note and Mortgage. After all, National Operating possessed the Wrap Note and Mortgage before default. Any right to redemption granted in the Wrap Note and Mortgage would have been Bridgeview's right, not National Operating's right, and would have come into play if and when Bridgeview paid off its obligation to National Operating. The surrender of some right to redemption granted in the Wrap Note and Mortgage is not the same as the surrender of a right to reconveyance granted in the Assignment. ¶ 88. MONY contends that the second and third relevant paragraphs of the Assignment are mutually exclusive and that the third paragraph of the Assignment on reconveyance applies only if National Operating paid the Underlying Note in full, without defaulting. These interpretations are not self-evident from the text, and MONY's interpretation of the third paragraph does not make sense. Why would National Operating insist on including a paragraph in the Assignment that substantively reduced its statutory right of redemption? [16] ¶ 89. When a debtor in default waives its statutory right to redeem collateral by paying off the obligations secured by the collateral, the waiver must be agreed to in writing by the parties. Wis. Stat. § 409.506. A clear, explicit written waiver records the agreement of the parties. Unclear, ambiguous language that is subject to after-the-fact interpretation is inconsistent with the debtor protections contained in Article 9 of the Code. [18] ¶ 90. Turning to the complaint, MONY asserts that the complaint alleged and sought a judgment declaring the extinguishment of all National Operating's rights in the Wrap Note and Mortgage. It claims that even if it did not specifically allege the extinguishment of all National Operating's rights, it effectively pleaded every provision of the Underlying Note, Wrap Note, and Assignment by incorporating each of those documents by reference. It cites Wis. Stat. § 802.04(3) for the proposition that a copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes. It therefore asserts that inasmuch as these documents were attached to the complaint and incorporated by reference, they were aptly pleaded, citing to A.B.C.G. Enters., 184 Wis. 2d at 481. ¶ 91. We disagree. MONY did not aptly plead all provisions of the Underlying Note, Wrap Note, and Assignment, as well as all the other documents, simply by attaching them to the complaint and incorporating them by reference. [17] ¶ 92. MONY's complaint consisted of six pages. Its request for relief was contained in a single tightly-written paragraph. National Operating could have read the complaint without discerning the interpretation now being advanced by MONY and without suspecting that the 70 pages of exhibits were more than documentation. [18] ¶ 93. Wisconsin Stat. § 802.04(3) must not be interpreted to mean that in a declaratory judgment action, a party aptly pleads every provision of every document that it incorporates by reference, for claim preclusion purposes. In a declaratory judgment action, claim preclusion is limited to those matters that are actually litigated. Barbian, 106 Wis. 2d at 297. To be actually litigated in this context, a matter must be pled with sufficient clarity to give notice to the opposing party and the court of what claims are at stake so that they will understand the claims that will be barred in future litigation. ¶ 94. Here there was a default judgment. By failing to answer the complaint, National Operating was conceding every claim actually pleaded. But National Operating was not given fair notice in the complaint that MONY sought to extinguish all its rights, as opposed to the certain rights granted it as a payee or mortgagee under two specific documents. This court will not countenance a procedure that permits a party to unconsciously surrender what it could not consciously waive, or to lose in ambiguity what it could only waive in an explicit writing. ¶ 95. The declaratory judgmenta document drafted by MONYgranted precisely the relief sought in MONY's complaint, nothing more. The broad scope attributed to the declaratory judgment by MONY simply is not present in the legal document. ¶ 96. By its plain language, the declaratory judgment confirmed the Assignment and MONY's assumption of the Wrap Note, confirmed MONY's interest as primary mortgagee and holder of the Wrap Note and Mortgage, and extinguished the rights of National as payee and mortgagee. It did not declare that National Operating had given up all its rights in or to the Wrap Note. It did not declare that National Operating agreed in the Assignment to give up its rights under Chapter 409. It did not by its plain language extinguish National Operating's right of reconveyance of collateral were MONY paid in full for obligations owed it on the Underlying Note. Consequently, MONY is still required to reconvey the collateral to National Operating once National Operating satisfies all its obligations, if the collateral is still available. Wis. Stat. § 409.506. ¶ 97. The declaratory judgment enforced the terms of the Assignment. It thereby eliminated any doubt that Bridgeview should make monthly interest payments on the Wrap Note to the assignee. It enabled MONY to dispose of the collateral in a commercially reasonable manner. Thus, MONY was authorized to sell the collateral to Bridgeview if it did so in a commercially reasonable manner. [19] ¶ 98. Conversely, MONY was not authorized to sell the collateral without notice to National Operating. Wis. Stat. § 409.504(3). It was not authorized to dispose of the property in a manner that was not commercially reasonable. Wis. Stat. §§ 409.501(3), 409.502(2), and 409.504(3). And it was not authorized to keep surplus equity for itself. Wis. Stat. § 409.504(2). ¶ 99. The Uniform Commercial Code is one of the preeminent achievements of American law. It is constantly under review so that it can address changing practices in the world of commerce. [19] Our role as a court is not to question the effect of Code provisions in a particular case. Our role is to apply the law.