Home NATIONSTAR MORTGAGE, LLC v. ORATAI CULHANE and another [Note 1]

2016 Mass. App. Div. 131

October 16, 2015 - November 14, 2016

Appellate Division Southern District

Court Below: District Court, Quincy Division

Present: Hand, P.J., Finnerty & Kirkman, JJ.

Reneau J. Longoria, Brian C. Linehan, John A. Doonan, and Stephen Valente for the plaintiff.

Adam T. Sherwin for defendant Oratai Culhane.


FINNERTY, J. This is a summary process action in which the plaintiff, Nationstar Mortgage, LLC ("Nationstar"), successor of a foreclosing mortgage holder, appeals the trial court's September 24, 2013 decision denying its motion for summary judgment (and succeeding motion to reconsider) and granting the cross motion for summary judgment of the former owner, defendant Oratai Culhane ("Culhane"). [Note 2]

By deed dated May 29, 2013, Aurora Loan Services, LLC ("Aurora") granted all of its right, title, and interest in the premises occupied by Culhane to Nationstar. Nationstar commenced this proceeding when Culhane did not vacate the property after service of the notice to quit. Culhane's answer asserted three affirmative defenses: (1) the underlying foreclosure [by Aurora] is void for failure to comply with Massachusetts law related to foreclosures; (2) the underlying foreclosure is void for failure to comply with the terms of the mortgage; and (3) Nationstar's claim is barred by the doctrine of unclean hands.

The litigation regarding Culhane's April 4, 2006 mortgage began with Culhane's default in December, 2008. On January 7, 2009, Aurora, the servicer of the loan, sent a notice of right to cure to Culhane. That notice provided, in relevant part:

"You are hereby informed that you have the right to 'cure' or reinstate the loan after acceleration and the right to assert in the foreclosure proceeding the non-existence of a default or any other defense you may have to acceleration and sale" (emphasis added). [Note 3]

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Aurora then filed an action in the Land Court, in which, on October 21, 2009, it received judgment declaring that Culhane was not entitled to the benefits of the Service Members Civil Relief Act. Foreclosure sales were scheduled and continued several times in order to allow Culhane to pursue loan modifications or loss mitigation and because of three bankruptcy filings by Culhane that were each dismissed. In June, 2011, days before a scheduled foreclosure sale, Culhane filed an action in Norfolk Superior Court, challenging the lawfulness of the foreclosure and seeking injunctive relief. [Note 4] Aurora removed the case to the United States District Court for Massachusetts, which ultimately granted judgment to Aurora on November 28, 2011, affirming its standing to foreclose. Culhane v. Aurora Loan Servs. of Neb., 826 F. Supp. 2d. 352 (D. Mass. 2011). [Note 5] The District Court was affirmed on appeal to the United States Circuit Court of Appeals for the First Circuit in Culhane v. Aurora Loan Servs. of Neb., 708 F.3d. 282 (1st Cir. 2013). Prior to that appeal, on December 8, 2011, Aurora conducted its foreclosure sale and acquired the property as the high bidder. By deed recorded on June 3, 2013, Aurora conveyed the subject premises to Nationstar. This summary process action was filed on July 15, 2013.

Nationstar argues that the defenses raised in the Quincy District Court are res judicata as a result of the judgments of the Federal courts in Culhane v. Aurora Loan Servs. of Neb.; that it complied with G.L. c. 244, § 35A; and that Pinti v. Emigrant Mtge. Co., 472 Mass. 226 (2015) does not apply to this case. Pinti mandated strict compliance with a mortgage covenant that required that notice to the defaulting mortgagor prior to the commencement of foreclosure must inform the mortgagor of his or her right to bring a court action to assert the nonexistence of a default or any other defense. Id. at 240. [Note 6]

Culhane argues that Nationstar did not timely file its notice of appeal of the summary judgment decisions; that Nationstar lacked standing to bring a summary process case because it failed to comply strictly with the terms of the mortgage; and that the mortgage default notice provided to Culhane did not strictly comply with the standard mortgage terms.

The appeal is properly before this Division as, on November 12, 2014, following a motion for reconsideration, this Division granted Nationstar leave to file its appeal within ten days. The appeal was filed within that time on November 20, 2014.

The trial court in granting Culhane's motion for summary judgment held that the foreclosing entity, Aurora, had failed to comply strictly with G.L. c. 244, § 35A and, therefore, the foreclosure was void. It did not reach the issue of compliance with paragraph 22 of the mortgage. The trial court also held that the case was not res judicata by the Federal court decisions in favor of Aurora, nor were the defenses of noncompliance with § 35A or paragraph 22 of the mortgage collaterally estopped. In deciding the § 35A compliance issue, the trial court did not have the benefit of U.S. Nat'l Bank Ass'n v. Schumacher, 467 Mass. 421 (2014), in which the

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Supreme Judicial Court held that failure to comply strictly with § 35A does not void the foreclosure, id. at 431, unless the defendant proves that the violation rendered the foreclosure fundamentally unfair. Id. at 433 (Gants, J., concurring). The grant of summary judgment for failure to comply strictly on that basis therefore cannot stand, as application of Schumacher here defeats Culhane's § 35A defense for summary judgment purposes.

Nationstar urges that Pinti not be retroactively applied, as the Supreme Judicial Court held that it would be applied prospectively. Id. at 243. However, Aurora Loan Servs., LLC v. Murphy, 88 Mass. App. Ct. 726 , 731 (2015) extended Pinti to cases pending on appeal at the time Pinti was decided where the issue had been raised and preserved. This case falls into that category, and Pinti would apply subject to our consideration of the res judicata and collateral estoppel arguments.

We look to the Federal law of res judicata (claim preclusion and issue preclusion) when determining the preclusive effect of the Federal court's judgment. Mancuso v. Kinchla, 60 Mass. App. Ct. 558 , 564 (2004). As Justice Alito noted in his dissent in Whole Woman's Health v. Hellerstedt, 136 S. Ct. 2292 (2016),

"Res judicata -- or, to use the more modern terminology, 'claim preclusion' -- is a bedrock principle of our legal system. As we said many years ago, '[p]ublic policy dictates that there be an end of litigation[,] that those who have contested an issue shall be bound by the result of the contest, and that matters once tried shall be considered forever settled as between the parties.' Baldwin v. Iowa State Traveling Men's Ass'n, 283 U.S. 522, 525 (1931). This doctrine 'is central to the purpose for which civil courts have been established, the conclusive resolution of disputes within their jurisdictions. . . . To preclude parties from contesting matters that they have had a full and fair opportunity to litigate protects their adversaries from the expense and vexation attending multiple lawsuits, conserves judicial resources, and fosters reliance on judicial action by minimizing the possibility of inconsistent decisions.' Montana v. United States, 440 U.S. 147, 153-154 (1979). These are 'vital public interests' that should be '"cordially regarded and enforced."' Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 401 (1981)."

Id. at 2331 (Alito, J., dissenting).

If a set of facts gives rise to a claim based on both State and Federal law, and the claimant brings the action in a Federal court that had pendent jurisdiction to hear the State claim, but the claimant declines to assert such State claim, he may not subsequently assert the State ground in a State court action. Mancuso, supra at 565. Clearly here, the Federal court decided State law claims -- in fact, entirely State law claims. [Note 7] The modern Federal doctrine of "nonmutual claim preclusion" permits

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a person who was not named a party in the prior action, here Nationstar, to raise claim preclusion in a subsequent suit involving significantly related subject matter. Id. at 568. See Kale v. Combined Ins. Co. of Am., 924 F.2d 1161 (1st Cir. 1991). Here, though, privity exists because Nationstar is Aurora's successor in interest. See Sarvis v. Boston Safe Deposit & Trust Co., 47 Mass. App. Ct. 86 , 99-100 (1999).

In her action filed in the Norfolk Superior Court and ultimately decided in the Federal court, Culhane challenged the foreclosure contending that Nationstar's predecessor violated the Truth in Lending Act; breached the contract between the parties; violated Massachusetts law and lacked standing to foreclose. [Note 8] The trial judge in this action ruled that because the issue of paragraph 22 compliance had been raised as a defense against summary process and not as a claim, the defense was not barred by the Federal court decisions.

Res judicata, consisting of claim preclusion and issue preclusion, bars litigation of all matters that were raised or could have been raised in prior litigation and legal or factual issues actually decided in a prior action pursuant to a valid and final judgment. Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 30 (1st Cir. 1994). "Res judicata prevents litigation of all grounds for, or defenses to, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding." Brown v. Felsen, 442 U.S. 127, 131 (1979).

"[W]hen the complaint, the documents incorporated by reference in it, matters of public record, and other matters susceptible to judicial notice coalesce to show beyond doubt that an action is barred, under the doctrine of res judicata, by a prior adjudication," Banco Santander de P.R. v. Lopez-Stubbe, 324 F.3d 12, 20 (2003), a subsequent change in the law does not affect res judicata. Culhane's challenges to the foreclosure, to the extent not raised in the prior proceeding, could have been raised there. [Note 9] Culhane's argument that the foreclosure had not gone through at the time of her Federal court action is unavailing. The issues she raises are based on facts that existed at the time of that prior action, specifically, the faulty January 7, 2009 notice to cure. There were no new material operative facts that occurred after the Federal decisions. See Whole Woman's Health, supra at 2305, citing Restatement (Second) of Judgments § 24 comment f (1980). A subsequent change in the law does not affect res judicata. See Federated Dep't Stores, Inc., supra at 398; Residential Funding Co. v. Randle, U.S. Dist. Ct., No. 13-40076 (D. Mass. Nov. 25, 2013).

The Supreme Court has said that "a losing litigant deserves no rematch after a defeat fairly suffered, in adversarial proceedings, on an issue identical in substance to the one he subsequently seeks to raise." Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 107 (1991).

Because we find that Culhane is estopped from raising as defenses in this case issues that have either actually been litigated or that could have been litigated

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in the prior proceeding, we need not return the case to the trial judge on the Schumacher question of fundamental unfairness, and instead allow the appeal and direct that judgment enter for Nationstar for possession.


FOOTNOTES

[Note 1] Michael J. Culhane.

[Note 2] Defendant Michael J. Culhane, the son of Oratai Culhane, was defaulted below and is not a party to this appeal.

[Note 3] This language is problematic because Massachusetts is a nonjudicial foreclosure jurisdiction, and there is no "foreclosure proceeding." The mortgagor would be required to initiate his or her own court proceeding to challenge the foreclosure. See Pinti v. Emigrant Mtge. Co., 472 Mass. 226 , 237-238 (2015).

[Note 4] That complaint is not part of the record.

[Note 5] The conclusion of the opinion states: "Judgment shall enter for Aurora declaring that it may foreclose the mortgage on Culhane's home in a commercially reasonable manner." Id. at 379

[Note 6] The specific language at issue is usually in paragraph 22 of the standard mortgage, as it was in Pinti and is in this case. See note 3, supra.

[Note 7] The trial judge in the Federal court wrote that "this Court has considered certifying the issue . . . to the Supreme Judicial Court." Ultimately, the trial judge decided that "certification is inappropriate. Certification is 'manifestly inappropriate . . . where . . . there is no uncertain question of state law whose resolution might affect the pending federal claim'" (citation omitted). Culhane, 826 F. Supp. 2d at 377 n.15.

[Note 8] The complaint filed in that proceeding is not part of the record before us, and this reference comes from the published opinion in the Federal District Court case.

[Note 9] We note that if we were to apply State claim preclusion and issue preclusion principles in this case, our decision would be the same. See Heacock v. Heacock, 402 Mass. 21 , 23 (1988). See also Kiah v. Carpenter, No. 15-P-911 (Mass. App. Ct. March 18, 2016) (unpublished Rule 1:28 decision).