Court Opinion

ID: 2757153
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:36.323598+00
Date Added: 2024-06-11T10:27:44.355752
License: Public Domain

FILED
 1                       NOT FOR PUBLICATION             FEB 08 2012
                                                    SUSAN M SPRAUL, CLERK
 2                                                    U.S. BKCY. APP. PANEL
                                                      O F T H E N IN T H C IR C U IT
 3               UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                         OF THE NINTH CIRCUIT
 5
 6   In re:                        )    BAP No.     AZ-11-1188-JuKiCl
                                   )
 7   DOUGLAS C. RHOADS and SHANNON )    Bk. No.     10-17533-RTB
     N. RHOADS,                    )
 8                                 )    Adv. No.    10-02256-RTB
                    Debtors.       )
 9   ______________________________)
                                   )
10   DOUGLAS C. RHOADS; SHANNON N. )
     RHOADS,                       )
11                                 )
                    Appellants,    )
12                                 )
     v.                            )    M E M O R A N D U M*
13                                 )
     DEUTSCHE BANK NATIONAL TRUST )
14   COMPANY as Trustee for the    )
     WAMU Mortgage Pass-Through    )
15   Certificates Series 2003-AR7 )
     Trust; CALIFORNIA RECONVEYANCE)
16   COMPANY; JP MORGAN CHASE BANK;)
     WASHINGTON MUTUAL BANK, FA,   )
17                                 )
                    Appellees.     )
18   ______________________________)
19               Argued and Submitted on January 18, 2012
                           at Phoenix, Arizona
20
                         Filed - February 8, 2012
21
              Appeal from the United States Bankruptcy Court
22                      for the District of Arizona
23     Honorable Redfield T. Baum Sr., Bankruptcy Judge, Presiding
                          ______________________
24
25
26        *
            This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8013-1.
 1   Appearances:    Cynthia L. Johnson, Esq. appeared on behalf of
                     Appellants Douglas and Shannon Rhoads; Brian A.
 2                   Paino, Esq. appeared on behalf of Appellees
                     Deutsche Bank National Trust Company, et al.
 3                        _________________________
 4   Before:   JURY, KIRSCHER, and CLARKSON,** Bankruptcy Judges.
 5        Debtors Douglas and Shannon Rhoads appeal the decisions of
 6   the bankruptcy court dismissing their adversary proceeding under
 7   the doctrine of claim preclusion and denying their motion for
 8   reconsideration of that ruling.   Because the elements of claim
 9   preclusion are satisfied and grounds for reconsideration under
10   Civil Rule 60(b)1 are absent, we AFFIRM.
11              I.   BACKGROUND FACTS AND PROCEDURAL HISTORY
12   A. Loan and Foreclosure Related Events
13        This appeal arises from the purported wrongful foreclosure
14   on debtors’ principal residence which occurred several months
15   prior to the filing of debtors’ bankruptcy petition.      It is one
16   in a series of litigation tactics debtors have undertaken to
17   challenge that foreclosure, all of them unsuccessful.
18        On April 28, 2003, Douglas obtained a mortgage loan from
19   Washington Mutual (“WaMu”) in the principal amount of $962,500,
20   which was reflected in a promissory note secured by a recorded
21   deed of trust encumbering the real property located at 4834 E.
22   Crystal Ln., Paradise Valley, Arizona 85253.   California
23
24        **
            Hon. Scott C. Clarkson, Bankruptcy Judge for the Central
     District of California, sitting by designation.
25
          1
26          Unless otherwise indicated, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27   “Rule” references are to the Federal Rules of Bankruptcy
     Procedure and “Civil Rule” references are to the Federal Rules
28   of Civil Procedure.

                                     -2-
 1   Reconveyance Company (“CRC”) was named as the original trustee
 2   under the deed of trust.
 3        On May 5, 2003, Shannon Rhoads quitclaimed all of her
 4   right, title or interest in the property to Douglas Rhoads, as a
 5   married man as his sole and separate property.
 6        On September 25, 2008, the Office of Thrift Supervision
 7   closed WaMu and appointed the FDIC as receiver.    Pursuant to an
 8   agreement between the FDIC and JPMorgan Chase Bank, N.A.
 9   (“Chase”), Chase acquired all loans and loan commitments of
10   WaMu.   Subsequently, Deutsche Bank National Trust Company
11   (“Deutsche Bank”) purchased Douglas’ loan in its capacity as
12   Trustee of the WAMU Mortgage Pass-Through Certificates Series
13   2003-AR7 Trust (“Trust”).
14        In approximately December 2008, Douglas defaulted under the
15   note.   On December 31, 2008, CRC recorded a Notice of Trustee’s
16   Sale in the Official Records of Maricopa County, State of
17   Arizona.   Thereafter, on January 4, 2010, Deutsche Bank as
18   foreclosing creditor acquired the property at a nonjudicial
19   foreclosure sale.   On January 7, 2010, Deutsche Bank recorded
20   the deed memorializing the sale.     On January 11, 2010, Deutsche
21   Bank served debtors with a Notice Requiring Delivery of
22   Possession of Premises.
23   B. The District Court Complaint
24        On September 15, 2009, prior to the foreclosure sale,
25   Douglas filed a complaint against WaMu, Washington Mutual Home
26   Loans, Chase, CRC, and various other individual defendants,
27   asserting eighteen claims for relief, in the Superior Court of
28   the State of Arizona for the County of Maricopa (“State Court

                                    -3-
 1   Action”).2    On January 28, 2010, the State Court Action was
 2   removed to the United States District Court for the District of
 3   Arizona (“District Court Action”).
 4        On February 2, 2010, Chase and CRC filed a motion to
 5   dismiss the District Court Action pursuant to Civil Rule
 6   12(b)(6) on grounds the complaint failed to state a claim upon
 7   which relief could be granted.    Douglas filed a combined
 8   Response to the Motion to Dismiss and Request for Leave to Amend
 9   the Complaint to include Deutsche Bank and the Trust as
10   defendants.    The district court denied, without prejudice,
11   Douglas’ request for leave to amend to add Deutsche Bank and the
12   Trust for failure to comply with the district court’s local
13   rules.
14        On April 7, 2010, the district court entered an order
15   dismissing fourteen of the eighteen claims with prejudice.      The
16   district court granted Douglas leave to amend his remaining four
17   claims.   After Douglas failed to amend the complaint, the
18   district court entered a Judgment of Dismissal wherein the court
19   dismissed the District Court Action in its entirety as to Chase
20   and CRC, with prejudice.
21
22
          2
23          The complaint alleged violations of the Arizona
     Commercial Code regarding foreclosing on secured notes,
24   violations of the Fair Debt Collection Practices Act, violations
     of the Truth In Lending Act, violations of the Real Estate
25   Settlement Procedures Act, violations of the Home Ownership and
26   Equal Protection Act, and numerous violations sounding in fraud.
     All the claims arose out of the note and trust deed, debtors’
27   default thereunder, debtors’ attempts to address that default,
     and the subsequent acts to enforce the note and trust deed by
28   the lenders.

                                      -4-
 1   C. The Bankruptcy and Adversary Complaint
 2        On June 4, 2010, debtors filed a voluntary chapter 11
 3   petition.   On December 28, 2010, Deutsche Bank obtained relief
 4   from the automatic stay with respect to the property.3
 5        On December 21, 2010, debtors filed an adversary complaint
 6   alleging four claims for relief (wrongful foreclosure, unlawful
 7   foreclosure in tort, accounting, lack of standing) against
 8   Deutsche Bank, Chase, and CRC.    On January, 3, 2011, debtors
 9   filed a first amended complaint (“FAC”) which contained seven4
10   claims for relief against Deutsche Bank, Chase, CRC, WaMu, and
11   the Trust (“Appellees”), the subject of this appeal.
12        Appellees filed a motion to dismiss the FAC alleging claim
13   preclusion based on the district court dismissal of the
14   complaint with similar claims and insufficient service of
15   process.    Debtors filed a response to the Appellees’ motion
16   wherein they alleged their claims were not barred by claim
17   preclusion because the issues raised in the FAC were distinct
18   from those in the district court complaint.    Additionally,
19   debtors stated they would cure the service deficiencies as to
20   Chase.   At the hearing on the motion, neither debtors nor their
21   counsel appeared.    After a short oral argument by Appellees on
22
23
24
25        3
            Because debtors failed to timely appeal the order
26   granting the motion for relief from stay, we cannot consider
     that order in this appeal.
27
          4
            The FAC ends with the sixth claim, but debtors
28   misnumbered and there were actually seven.

                                      -5-
 1   the merits, the bankruptcy court granted the motion to dismiss.5
 2        On March 11, 2011, debtors filed, concurrently, a motion
 3   for relief from judgment pursuant to Civil Rule 60(b) and an
 4   objection to the proposed order of dismissal.    In their motion,
 5   debtors objected to the notice provided in the motion to dismiss
 6   and to the bankruptcy court’s findings on claim preclusion.
 7   Debtors’ counsel also submitted that she inadvertently missed
 8   the hearing because of a calendaring error on her part.
 9        At the hearing, debtors’ attorney withdrew their objection
10   to service, stating “I’m used to seeing that notice of hearing
11   come out.   I’m used to seeing that.   I somewhat rely on it.”
12   Hr’g Tr. April 7, 2011 at 3:7-9.     Thereafter, debtors’ attorney
13   argued that the FAC was not barred by claim preclusion,
14   reasserting the arguments in debtors’ initial response to the
15   motion to dismiss.
16        First, debtors’ attorney argued “[the] allegation for fraud
17   is not about what happened in the district court . . . [the]
18   allegation here is did [defendants] obtain [the lien] with
19   fraud.”   Hr’g Tr. April 7, 2011 at 5:16-19.   The bankruptcy
20   court rejected this argument, noting “[t]he fraud claim now
21   alleged may be on different underlying facts, actions, et
22   cetera, but there was the opportunity [in the district court].”
23
          5
24          The bankruptcy court granted Appellees’ motion to dismiss
     the FAC with prejudice “based upon the arguments of counsel,
25   pleadings, filings, and record before the court . . . .” The
26   bankruptcy court did not make specific oral findings with
     respect to claim preclusion at the initial hearing on the motion
27   to dismiss. However, the bankruptcy court did make specific
     findings at the subsequent hearing on the motion for
28   reconsideration, when debtors appeared.

                                    -6-
 1   Hr’g Tr. April 7, 2011 at 6:5-7.
 2        Second, debtors’ attorney asserted that Appellees committed
 3   fraud on the district court.    The bankruptcy court also
 4   dismissed this argument, stating “assuming the validity of your
 5   [fraud on the court] assertions, seems to me those ought to be
 6   made to Judge Wake.   The Court where the deception allegedly
 7   occurred.”   Hr’g Tr. April 7, 2011 at 8:8-10.   The bankruptcy
 8   court entered a combined order denying debtors’ motion for
 9   relief from judgment and overruling debtors’ objection to the
10   order dismissing the FAC.
11        On April 21, 2011, debtors filed a Notice of Appeal.6
12   While the appeal was pending, debtors filed a motion for relief
13   from judgment pursuant to Civil Rule 60(b)(6) in the district
14   court asserting fraud on the court.    On August 8, 2011, the
15   district court denied the motion.
16                            II.   JURISDICTION
17        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
18   §§ 1334 and 157(b)(1).   This Panel has jurisdiction under § 28
19   U.S.C. § 158.
20
21
          6
            Appellees submitted three requests for judicial notice.
22
     The first request is a list of cases in which Douglas Rhoads is
23   a party. We find these irrelevant and deny the request. The
     second request contains several documents filed with the
24   bankruptcy court. To the extent the documents supplement the
     record on appeal we grant the request for judicial notice.
25   Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R.
26   227, 233 n.9 (9th Cir. BAP 2003). The third request includes
     the district court Order Denying the District Court Motion for
27   Reconsideration and several state court orders. We take
     judicial notice of the former, but deny the request for judicial
28   notice of the state court orders as irrelevant.

                                      -7-
 1                               III.    ISSUES
 2        A.   Whether the bankruptcy court erred in dismissing the
 3   FAC as to the Appellees under Civil Rule 12(b)(6); and
 4        B.   Whether the bankruptcy court abused its discretion in
 5   denying the Appellants’ motion for relief from final judgment
 6   under Civil Rule 60(b)(1) and (6).
 7                        IV.   STANDARDS OF REVIEW
 8        We review de novo the bankruptcy court’s grant of a motion
 9   to dismiss under Civil Rule 12(b)(6).        Movsesian v. Victoria
10   Versicherung AG, 629 F.3d 901, 905 (9th Cir. 2010).        De novo
11   means we will look at the case anew, giving no deference to the
12   bankruptcy judge’s determinations.       Freeman v. DirecTV, Inc.,
13   457 F.3d 1001, 1004 (9th Cir. 2006).       We presume all facts
14   alleged in the complaint are true for purposes of analyzing a
15   Civil Rule 12(b)(6) decision.      Mir v. Little Co. of Mary Hosp.,
16   844 F.2d 646, 649 (9th Cir. 1988).       A bankruptcy court’s ruling
17   on claim preclusion is also reviewed de novo.        Holcombe v.
18   Hosmer, 477 F.3d 1094, 1097 (9th Cir. 2007).
19        We review a bankruptcy court’s denial of a motion for
20   relief from an order under Civil Rule 60(b) for an abuse of
21   discretion.   Zurich Am. Ins. Co. v. Int’l Fibercom, Inc. (In re
22   Int’l Fibercom, Inc.), 503 F.3d 933, 939 (9th Cir. 2007).          We
23   apply a two-part test to determine whether the bankruptcy court
24   abused its discretion: (1) we review de novo whether the
25   bankruptcy court “identified the correct legal rule to apply to
26   the relief requested” and (2) if it did, whether the bankruptcy
27   court’s application of the legal standard was illogical,
28   implausible or “without support in inferences that may be drawn

                                        -8-
 1   from the facts in the record.”    United States v. Hinkson, 585
 2   F.3d 1247, 1261–63 (9th Cir. 2009).
 3                             V.   DISCUSSION
 4        Deutsche Bank filed its motion to dismiss under Civil Rule
 5   12(b)(6), asserting that the doctrine of claim preclusion was a
 6   total bar to the case proceeding.      Dismissal for claim
 7   preclusion is appropriate if all relief is barred.      Holcombe,
 8   477 F.3d at 1100 (affirming dismissal under Civil Rule 12(b)(6)
 9   where the claims were barred by the doctrine of claim
10   preclusion).
11                            Claim Preclusion
12        Claim preclusion proscribes relitigation of all grounds of
13   recovery that were asserted, or could have been asserted, in a
14   previous action between the same parties or their privies.
15   United States v. Northrop Corp., 147 F.3d 905, 909 (9th Cir.
16   1998).   The doctrine protects parties against the expense
17   associated with litigating multiple lawsuits, conserves judicial
18   resources, and fosters reliance on judicial action by minimizing
19   the possibility of inconsistent decisions.      Montana v. United
20   States, 440 U.S. 147, 153-54 (1979).      Claim preclusion applies
21   when there is (1) an identity of claims, (2) a final judgment on
22   the merits, and (3) identity or privity between parties.      Owens
23   v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 713 (9th Cir.
24   2001).
25        Here, the parties do not dispute that the district court
26   entered a final judgment in the District Court Action.       United
27   States v Schimmels (In re Schimmels), 172 F. 3d 875, 884 (9th
28   Cir. 1997) (involuntary dismissal with prejudice acts as a

                                      -9-
 1   judgment on the merits).   Therefore, only the first and third
 2   elements are at issue.
 3                            Identity of Claims
 4        Debtors contend there is a difference in the nature of
 5   their claims in the former district court action versus the
 6   adversary proceeding.    For purposes of determining whether two
 7   successive lawsuits involve the same cause of action, the Ninth
 8   Circuit uses the following criteria: (1) whether rights or
 9   interests established in the prior judgment would be destroyed
10   or impaired; (2) whether the evidence is substantially the same;
11   (3) whether the two suits involve infringement of the same
12   right; and (4) whether the two suits arise out of the same
13   transactional nucleus of facts.   Constantini v. Trans World
14   Airlines, 681 F.2d 1199, 1201-02 (9th Cir. 1982).
15        As aptly pointed out by debtors, the most significant
16   factor is the last.   However, nowhere do debtors establish that
17   the district court action arose out of different transactional
18   facts.   Rather, debtors merely recite historical facts
19   supporting a new legal theory under which they argue Deutsche
20   Bank wrongly foreclosed on their property.
21        Further, other factors to be considered in determining
22   identity of claims also lead us to the conclusion that debtors’
23   adversary proceeding was barred by claim preclusion.   Our review
24   of the portion of the district court complaint provided to us
25   shows that it was not solely based on origination and pre-sale
26   conduct as debtors contend.   In ¶ 46 of the complaint, Douglas
27   alleged “[t]his is an illegal non-judicial foreclosure and that
28

                                     -10-
 1   is the core of our argument.”7    We find significant that
 2   debtors’ adversary complaint in the prayer for relief sought a
 3   declaratory judgment rendering void the trustee’s sale held on
 4   September 16, 2009.   Moreover, the district court established
 5   Chase’s right to foreclose on debtors’ property by rejecting
 6   Douglas’s claims based on the “show me the note“ argument and
 7   violations of numerous federal and state statutes through
 8   dismissal of the complaint.
 9        Debtors further contend that the adversary complaint
10   contains new allegations of fraud based on new evidence.     Our
11   review of the FAC shows that not a single cause of action
12   relates to any unlawful act that occurred after the dismissal of
13   the district court complaint.    See Int’l Union of Operating
14   Eng’rs-Emp’rs Constr. Indus. Pension, Welfare & Training Trust
15   Funds v. Karr, 994 F.2d 1426, 1430 (9th Cir. 1993) (“The fact
16   that some different evidence may be presented in this action
17   . . . does not defeat the bar of res judicata.”).    Accordingly,
18   debtors’ claims in the adversary proceeding are barred under the
19   doctrine of claim preclusion.    Even if Douglas did not raise the
20   exact same claims in the district court, he certainly had the
21
22        7
            The district court complaint contained several
23   allegations regarding the sale of the property. The district
     court complaint alleged, among other things, that WaMu and Chase
24   were not in possession of the note, that improper and fraudulent
     recording effectuated a trustee sale, and that CRC conducted a
25   trustee’s sale in bad-faith. Further, the district court
26   complaint asserted a trustee sale occurred September 16, 2009,
     when in fact, the trustee sale occurred after the complaint was
27   filed on January 4, 2010. Nevertheless, Douglas had an
     opportunity to amend the district court complaint prior to
28   dismissal on April 22, 2010.

                                      -11-
 1   opportunity to raise them.    Clark v. Bear Stearns & Co., 966
 2   F.2d 1318, 1320 (9th Cir. 1992) (claim preclusion “bars all
 3   grounds for recovery which could have been asserted, whether
 4   they were or not”).
 5                   Identity or Privity Between Parties
 6        The general rule states that a person who was not a party
 7   to a suit has not had a full and fair opportunity to litigate
 8   their claims.   Richards v. Jefferson Cnty., 517 U.S. 793, 798
 9   (1996).   The general rule is subject to seven exceptions, two of
10   which are relevant to this appeal.     Taylor v. Sturgell, 553 U.S.
11   880, 893 (2008).    First, a nonparty may be bound by a judgment
12   because of a pre-existing substantive legal relationship.    Id.
13   at 894.   Second, a nonparty may be bound by a judgment if they
14   were “virtually represented” by a party to the previous
15   litigation.    Adams v. Cal. Dept. of Health Servs., 487 F.3d 684,
16   691 (9th Cir. 2007).    The United States Supreme Court
17   established the test for the doctrine of virtual representation,
18   stating that it requires, “at a minimum: (1) the interests of
19   the nonparty and her representative are aligned (citation
20   omitted); and (2) either the party understood herself to be
21   acting in a representative capacity or the original court took
22   care to protect the interests of the nonparty.”    Taylor, 553
23   U.S. at 900.
24             a. Privity Between Debtors
25        Here, privity exists between debtors because of their
26   substantive legal relationship and under the doctrine of virtual
27   representation.    The relationship between debtors is that of
28   husband and wife.    Under Arizona law, a fiduciary relationship

                                     -12-
 1   exists between spouses with respect to community assets.      Gerow
 2   v. Covill, 960 P.2d 55, 64 (Ariz. Ct. App. 1998).    The spousal
 3   fiduciary relationship satisfies the privity requirement for
 4   purposes of claim preclusion.    Sparks Nugget Inc., v. C.I.R.,
 5   458 F.2d 631, 639 n.4 (9th Cir. 1972); see also Cuauhtli v.
 6   Chase Home Fin. LLC, 308 Fed. Appx. 772, 774 (5th Cir. 2009).
 7        In addition, Douglas was the virtual representative of his
 8   wife, Shannon.    Both share identical interest in the law suits,
 9   the purpose of which is to avoid Appellees’ foreclosure of the
10   property.    See Trevino v. Gates, 99 F.3d 911, 924 (9th Cir.
11   1996) (grandmother-granddaughter relationship found to be
12   “sufficient in this case”).    Further, Douglas understood that he
13   was acting in a representative capacity to his wife.    The
14   district court complaint acknowledges that “Plaintiff and his
15   wife lived in the subject property as their primary residence.”
16               b. Privity Between Appellees
17        Debtors also assert that the identity of parties
18   requirement is not satisfied because Deutsche Bank and the Trust
19   were not parties to the district court complaint.    Deutsche
20   Bank, however, qualifies as a nonparty bound by the district
21   court judgment based on its substantive legal relationship as
22   successor in interest.    Taylor, 553 U.S. at 894 (“Qualifying
23   relationships include, but are not limited to, preceding and
24   succeeding owners of property . . . .”).    Likewise, the Trust
25   qualifies because Deutsche Bank is the trustee of the Trust.
26        Based on the foregoing analysis, we conclude that all of
27   the elements of claim preclusion as a bar to relitigation have
28   been satisfied.    Accordingly, the bankruptcy court’s decision to

                                     -13-
 1   grant the motion to dismiss based on the principles of claim
 2   preclusion was proper.
 3                         Motion for Reconsideration
 4        Civil Rule 60(b)(1) provides that a court may relieve a
 5   party from a final judgment for “(1) mistake, inadvertence,
 6   surprise, or excusable neglect.”    Civil Rule 60(b)(6) provides
 7   relief for “any other reason that justifies relief.”
 8        Here, the bankruptcy court did not abuse its discretion by
 9   failing to grant relief under either subsection of Civil Rule
10   60(b) because the bankruptcy court reconsidered its prior
11   decision.    Debtors contend that the bankruptcy court incorrectly
12   applied Civil Rule 60(b) with respect to debtors’ attorney’s
13   failure to appear at the initial hearing on Appellee’s motion to
14   dismiss.    Contrary to Debtors’ assertion, however, the
15   bankruptcy court did in fact reconsider its prior ruling.    At
16   the hearing on the motion for reconsideration, the bankruptcy
17   court stated “[w]ell again, I’m not going to decide this because
18   of the notice . . . . So let me turn to what I kind of see as
19   the merits . . . .”    Hr’g Tr. April 7, 2011 at 4:1-7.
20   Thereafter, debtors’ attorney and the bankruptcy court engaged
21   in a lengthy discussion on the merits of claim preclusion.
22   Accordingly, the bankruptcy court provided debtors a full and
23   fair opportunity to be heard on the merits.    The bankruptcy
24   court concluded, as we conclude, debtors’ adversary complaint
25   was barred by claim preclusion.
26        Accordingly, the bankruptcy court did not abuse its
27   discretion in denying debtors’ motion for relief from judgment.
28

                                      -14-
 1                           VI.   CONCLUSION
 2        Having determined there is no basis for reversal for either
 3   of the court’s orders, we AFFIRM.
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