Court Opinion

ID: 4113390
Source: CourtListenerOpinion
Date Created: 2017-01-05 16:02:53.456283+00
Date Added: 2024-06-11T14:13:34.093529
License: Public Domain

NOTICE: NOT FOR OFFICIAL PUBLICATION.
  UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                  AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

                                     IN THE
              ARIZONA COURT OF APPEALS
                                 DIVISION ONE

        GARY LOWRY and MARIAN CAROL, husband and wife,
                      Plaintiffs/Appellants,

                                         v.

 JP MORGAN CHASE AND COMPANY, a Delaware corporation; EMC
MORTGAGE LLC, a Delaware limited liability corporation; JP MORGAN
     CHASE BANK, N.A., a Delaware corporation; and U.S. BANK
                 NATIONAL ASSOCIATION,
                      Defendants/Appellees.

                              No. 1 CA-CV 16-0047
                                FILED 1-5-2017

            Appeal from the Superior Court in Yavapai County
                        No. V1300CV201580163
           The Honorable Jeffrey G. Paupore, Judge Pro Tempore

                                   AFFIRMED

                                APPEARANCES

Gary F. Lowry, Marian Carol, Mesa
Plaintiffs/Appellants In Propria Persona

Bryan Cave LLP, Phoenix
By Robert W. Shely, Gregory B. Iannelli
Counsel for Defendants/Appellees
                   LOWRY et al. v. JP MORGAN et al.
                       Decision of the Court

                      MEMORANDUM DECISION

Chief Judge Michael J. Brown delivered the decision of the Court, in which
Presiding Judge Diane M. Johnsen and Judge Jon W. Thompson joined.

B R O W N, Chief Judge:

¶1            Gary Lowry and Marian Carol (“Lowry”) appeal the superior
court’s order dismissing their lawsuit against JP Morgan Chase &
Company, EMC Mortgage LLC (“EMC”), JP Morgan Chase Bank N.A., and
U.S. Bank National Association (“U.S. Bank”) (collectively “Defendants”).
For reasons that follow, we affirm.

                             BACKGROUND

¶2            In 2006, Lowry obtained a $480,000 loan secured by a deed of
trust against real property located in Cottonwood, Arizona. Several years
later, Lowry sought loan modifications through the Making Home
Affordable (“MHA”) program and the Home Affordable Modification
Program (“HAMP”); both applications were denied.

¶3            Lowry filed a 70-page complaint (“Lowry I”) for “equitable
relief and damages” in the superior court against Defendants (except U.S.
Bank) alleging, inter alia, unlawful business practices, breach of contract,
breach of good faith and fair dealing, unjust enrichment, fraud, unfair debt
collection practices, promissory estoppel, violation of consent judgment,
and violations of numerous statutory (state and federal) provisions.
Broadly summarized, Lowry alleged that Defendants changed the loan
modification requirements to prevent Lowry from obtaining a loan
modification by declining to consider income from their nonprofit spiritual
retreat center instead of their personal income. Lowry also alleged that
Defendants’ conduct was deceptive and misleading by making confusing
demands for documentation, while giving assurances that a modification
was underway and near completion. Lowry further claimed that
Defendants “knowingly made promises that were false, deceitful, [and]
misleading” in 2008 when Defendants stated that they would “work with
families” and “offer modifications to borrowers who were not currently
delinquent, but who could be at risk of defaulting,” in violation of the
Arizona Consumer Fraud Act. Lowry thus sought an injunction to prevent
Defendants from practicing their “illegal and fraudulent business

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                    LOWRY et al. v. JP MORGAN et al.
                        Decision of the Court

practices,” an injunction to prevent foreclosure, a declaratory judgment that
Defendants’ conduct was unlawful, and punitive damages on the fraud
cause of action.

¶4           Defendants removed the case to the United States District
Court of Arizona (No. CV11-08177-PCT- JAT) and filed a motion to dismiss
under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.
The court granted Defendants’ motion without prejudice, but granted
Lowry leave to amend the complaint. Lowry then filed an 88-page
amended complaint, withdrawing the unjust enrichment claim.
Defendants again sought dismissal for failure to state a claim, which the
court granted with prejudice, finding that any further amendments to the
complaint would be futile. Lowry’s subsequent appeal of the dismissal
order is pending in the Ninth Circuit Court of Appeals.

¶5             Lowry then commenced the instant action (“Lowry II”), filing
a 71-page “complaint and motion for TRO and preliminary injunction”
against Defendants, which now included U.S. Bank National in its role as
successor trustee of the deed of trust. Lowry alleged the following claims:
fraud under the Arizona Consumer Fraud Act and Federal False Claims
Act, negligence per se, filing of false documents, breach of contract of the
note and deed of trust, negligent performance of undertaking, violation of
the Fair Debt Collection Practices Act, slander of title, breach of the
covenant of good faith and fair dealing, breach of trustee’s fiduciary duty,
filing false documents in violation of Arizona Revised Statutes (“A.R.S.”)
section 33-420, quiet title, unconscionability, defamation, discharge of the
debt, and equitable relief under A.R.S. §§ 47-3602 and -360.

¶6            The Lowry II allegations stem from multiple assignments of
the loan to different companies, their debt collection efforts, and Lowry’s
unsuccessful attempts to obtain a loan modification. Lowry alleged that
Defendants engaged in “unlawful and abusive lending and collection
practices” when Defendants repeatedly called about collecting the debt and
breached a contract when EMC purchased the mortgage and failed to rely
on Lowry’s spiritual retreat center income in assessing whether to modify
the loan.     Lowry asserted that Defendants’ practices of falsifying
documents, making false promises, and changing the modification
requirements were deceptive and fraudulent, which inevitably led Lowry
to default on the loan and caused foreclosure of the deed of trust.

¶7           Lowry also asserted that Defendants lacked the authority to
foreclose due to multiple transfers of the loan and failure to comply with
required formalities, such as title recordation and signature by the borrower

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                    LOWRY et al. v. JP MORGAN et al.
                        Decision of the Court

and lender. According to Lowry, Defendants recorded documents with the
Yavapai County Recorder’s Office that include false or misleading
information. Lowry also pointed to separate litigation in which Defendants
allegedly engaged in fraudulent and deceptive acts with respect to loan
practices, including modification. Lowry further alleged that Defendants
had no right to foreclose because there was no longer a lien against the
subject property, given that the note allegedly was “paid in full” due to
multiple ineffective assignments of the note.

¶8             As with Lowry I, Defendants removed the case to federal court
(CV-15-8140-PCT-SPL). In response, Lowry filed a motion to remand to the
superior court, while at the same time Defendants sought dismissal for
failure to state a claim. While the motions were pending, Lowry filed an
application for entry of default against U.S. Bank, and the district court
clerk entered default against U.S. Bank. Before judgment was entered, the
district court granted Lowry’s motion to remand to the superior court and
Lowry sought a default judgment in the superior court. U.S. Bank filed a
special motion to set aside the district court’s entry of default, asserting
ineffective service of process. Defendants (including U.S. Bank) then filed
a motion to dismiss, asserting Lowry’s claims were barred by the doctrine
of res judicata and, alternatively, any claims not barred by res judicata failed
to state a claim upon which relief could be granted. After considering the
pending motions, the superior court granted Defendants’ motion to
dismiss, finding Lowry’s claims were precluded based on res judicata
and/or failure to state a claim, and that amendment of the complaint would
not cure the defects. The court also found that the motions relating to the
district court’s entry of default against U.S. Bank were moot. This timely
appeal followed.

                               DISCUSSION

¶9            Lowry argues the superior court erred in granting
Defendants’ motion to dismiss, focusing only on the court’s ruling that the
claims alleged in Lowry II were barred by res judicata. Lowry also argues
the court erred by finding that the entry of default against U.S. Bank was
moot.

¶10           We review the superior court’s ruling on a motion to dismiss
de novo. Coleman v. City of Mesa, 230 Ariz. 352, 355–56, ¶ 7 (2012). Dismissal
is appropriate only when, as a matter of law, the plaintiff is not “entitled to
relief under any interpretation of the facts susceptible of proof.” Id. at 356,
¶ 8 (internal quotation omitted). In deciding whether a complaint states a
claim upon which relief can be granted, we “must assume the truth of all

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                     LOWRY et al. v. JP MORGAN et al.
                         Decision of the Court

well-pleaded factual allegations and indulge all reasonable inferences from
those facts, but mere conclusory statements are insufficient.” Id. at ¶ 9.1
We are bound to affirm if the superior court was “correct in its ruling for
any reason.” Phelps Dodge Corp. v. El Paso Corp., 213 Ariz. 400, 404 n. 7, ¶ 17
(App. 2006).

       A.      Res judicata

¶11            When a federal court issues a judgment, federal law dictates
the preclusive effect of the judgment. In re Gen. Adjudication of All Rights to
Use Water in the Gila River Sys. & Source, 212 Ariz. 64, 69, ¶ 13 (2006). Res
judicata bars a claim when the earlier suit “(1) involved the same ‘claim’ or
cause of action as the later suit, (2) reached a final judgment on the merits,
and (3) involved identical parties or privies.” Mpoyo v. Litton Electro–Optical
Sys., 430 F.3d 985, 987 (9th Cir. 2005) (internal quotation marks omitted).

¶12           Lowry argues that the claims raised in Lowry II are not
identical to the claims in Lowry I and thus res judicata is inapplicable.
Whether the claims are the same, however, does not turn on whether they
are identically worded, but instead on whether they arise out of the same
transaction. See Frank v. United Airlines, Inc., 216 F.3d 845, 851 (9th Cir. 2000)
(“The central criterion in determining whether there is an identity of claims
between the first and second adjudications is ‘whether the two suits arise
out of the same transactional nucleus of facts.’” (quoting Costantini v. Trans
World Airlines, 681 F.2d 1199, 1201–02 (9th Cir. 1982))). Here, the superior
court ruled that “[t]he facts, claims, and issues are substantially the same in
Lowry I and Lowry II,” and the record supports this finding.

¶13          In Lowry I, the district court analyzed each of the five counts
alleged in the amended complaint (consumer fraud, unlawful business
practices, breach of contract, unfair debt collection practices, and
promissory estoppel), each of which relate to Lowry’s failed home loan
modifications. The complaint in Lowry II includes some claims that are

1    Although Defendants attached some of the pleadings and rulings filed
in Lowry I to their motion to dismiss, we are not required to convert the
motion to dismiss to a motion for summary judgment. See Strategic Dev. &
Constr., Inc. v. 7th & Roosevelt Partners, LLC, 224 Ariz. 60, 64, ¶ 13 (App. 2010)
(noting “a Rule 12(b)(6) motion that presents a document that is a matter of
public record need not be treated as a motion for summary judgment.”).

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                    LOWRY et al. v. JP MORGAN et al.
                        Decision of the Court

identical to those raised in Lowry I; those claims are plainly barred by res
judicata. Other claims raised in Lowry II, although given different labels—
abusive lending and collection practices, impermissible transfers of the
mortgage to varying loan servicers, deceptive and fraudulent schemes—
arise from the same circumstances underlying the claims in Lowry I. Both
lawsuits are predicated on the 2006 loan and Lowry’s unsuccessful efforts
to modify the loan. Thus, except for claims that arguably arose after Lowry
I,2 the claims in Lowry II derive from the same transactional nucleus and
therefore Lowry could have brought them in Lowry I. See Owens v. Kaiser
Found. Health Plan, Inc., 244 F.3d 708, 714 (9th Cir. 2001) (“[T]hese are 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.” (quoting Gregory v. Widnall, 153 F.3d 1071, 1074 (9th Cir. 1998))).

¶14           Lowry also argues that res judicata is inapplicable because no
judgment on the merits was issued in Lowry I since it was dismissed on a
motion for failure to state a claim. The dismissal in Lowry I, however, was
with prejudice, which means it is a judgment on the merits to which res
judicata applies. See Stewart v. U.S. Bancorp, 297 F.3d 953, 957 (9th Cir. 2002)
(“Supreme Court precedent confirms that a dismissal for failure to state a
claim under Rule 12(b)(6) is a ‘judgment on the merits’ to which res judicata
applies.”) (quoting Federated Dep't Stores v. Moitie, 452 U.S. 394, 399 n. 3
(1981))). Moreover, Lowry does not dispute that U.S. Bank (the only new
entity in Lowry II) was in privity with the other defendants. Therefore, the
superior court properly found that the majority of claims alleged in Lowry
II were precluded by res judicata.3

2      The fifteen-count complaint in Lowry II includes several claims
(negligence per se, filing false documents, slander of title, breach of
fiduciary duty, unconscionability, defamation) that arguably arose after the
dismissal order in Lowry I was entered and therefore may not be barred by
res judicata. As explained infra ¶¶ 15-19, the superior court properly
dismissed those claims for failure to state a claim upon which relief could
be granted.

3     Lowry also asserts that res judicata does not apply because the
dismissal order in Lowry I is subject to a pending appeal. Contrary to
Lowry’s assertion, “[t]he established rule in the federal courts is that a final
judgment retains all of its res judicata consequences pending decision of the
appeal.” Tripati v. Henman, 857 F.2d 1366, 1367 (9th Cir. 1988).

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                    LOWRY et al. v. JP MORGAN et al.
                        Decision of the Court

         B.      Failure to State a Claim

¶15           Defendants acknowledge that several of Lowry’s claims
(negligence per se, violation of A.R.S. § 33-420, slander of title, breach of
trustee’s fiduciary duty, unconscionability, and defamation) likely are not
barred by res judicata because the alleged acts on which those claims are
based occurred after judgment in Lowry I was entered, or were withdrawn
from the original complaint in Lowry I and thus did not reach final
judgment. Defendants instead challenged these claims in their motion to
dismiss for failure to state a claim pursuant to Arizona Rule of Civil
Procedure 12(b)(6).

¶16           A complaint must consist of a short and plain statement of the
claim showing that the pleader is entitled to relief. Ariz. R. Civ. P. 8(a)(2).
Though the court assumes the truth of all factual allegations, mere
conclusory statements are insufficient. See Cullen v. Auto-Owners Ins. Co.,
218 Ariz. 417, 419, ¶ 7 (2008).

¶17            In their motion to dismiss, Defendants argued that the
remaining counts not barred by res judicata failed to state claims for which
relief could be granted because Lowry alleged purely legal conclusions.
Defendants asserted that for the claim of negligence per se, Lowry failed to
allege an act or omission that would constitute negligence per se/false
recordings pursuant to A.R.S. § 39-161 (presenting false instrument for
filing), § 13-2320(A)(4) (residential mortgage fraud), or § 33-420(E)
(claiming false lien) and did not allege Defendants had any knowledge the
recorded documents contained a material misstatement or false claim.
Defendants argued the slander of title claim was based solely on the
subjective but unsupported conclusion that Defendants had no right or
interest in the property. As to the defamation claim, Lowry has not alleged
the loan payments are current; thus, there is no factual allegation that
Defendants provided false information to credit reporting agencies.
Finally, Defendants argued the claim of unconscionability is barred by the
six-year statute of limitations, A.R.S. § 12-548, and the alleged breach of
fiduciary duty claim fails as a matter of law because the relationship
between a loan servicer and borrower creates no fiduciary duty.

¶18            In response to Defendants’ motion to dismiss, Lowry failed to
address any of Defendants’ arguments and simply asserted that adequate
“facts, violations, and particularities” had been alleged in the complaint.
Nor has Lowry offered any meaningful arguments on appeal why
Defendants’ arguments in the motion to dismiss are incorrect, or why the
superior court erred in dismissing the claims for failure to state a claim.

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                   LOWRY et al. v. JP MORGAN et al.
                       Decision of the Court

Based on our own review of the record, and in light of Lowry’s failure to
address the merits of Defendants’ motion to dismiss the claims that were
not otherwise barred by res judicata, the superior court did not err in
granting the motion.

¶19           Finally, we reject Lowry’s contention that the superior court
erred in dismissing Lowry’s claims against U.S. Bank because entry of
default had been entered against U.S. Bank in federal district court. As the
superior court properly concluded, the court’s decision to dismiss all of
Lowry’s claims made U.S. Bank’s provisional motion to set aside the default
and Lowry’s motion for entry of default moot. Because the district court
did not enter a default judgment in favor of Lowry against U.S. Bank, the
superior court was not precluded from entering an order dismissing all of
Lowry’s claims.

                              CONCLUSION

¶20           For the foregoing reasons, we affirm the superior court’s
ruling granting Defendants’ motion to dismiss.

                         AMY M. WOOD • Clerk of the Court
                         FILED: AA

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