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Garcia v. JP Morgan Chase Bank NA

United States District Court, D. Arizona

June 21, 2017

Patricia Garcia, Plaintiff,
v.
JP Morgan Chase Bank NA, et al., Defendants.

          ORDER

          Douglas L. Rayes United States District Judge

         In July 2015, Plaintiff Patricia Garcia filed a verified complaint against Defendants JP Morgan Chase Bank N.A. ("Chase") and Bank of America N.A. (BANA) in case number CV-15-01493-PHX-DLR ("Garcia I"), alleging that Defendants broke promises, acted negligently, committed fraud, and otherwise violated the law while evaluating Garcia for a home loan modification. Roughly nine months later, Garcia filed this case ("Garcia II") questioning Defendants' relationship to her loan and seeking, inter alia, an order quieting title in her favor. In April 2017, however, the Court granted summary judgment in favor of Defendants on all claims asserted against them in Garcia I and, in so doing, found that BANA purchased Garcia's loan in 2007 and at all relevant times possessed it through Chase, which services the loan on BANA's behalf. The Court now considers whether this matter should be dismissed in light of the disposition of Garcia I. For the following reasons, the Court finds that claim preclusion principles require dismissal of this action.

         BACKGROUND

         Central to the question before the Court is whether Defendants' relationship to Garcia's loan-an issue characterized interchangeably throughout these cases as whether Defendants "own" the loan, are the "note holder, " or have "standing to foreclose"-was at issue in Garcia I such that the claims asserted in these two cases may be deemed transactionally related. The Court therefore recounts the relevant factual and procedural history of both cases, with special emphasis on the ownership issue.

         I. Garcia Attempts to Obtain a Home Loan Modification[1]

         On December 13, 2006, Garcia executed a promissory note ("note" or "loan") in the principal amount of $830, 000 in favor of Washington Mutual Bank, F.A. ("WaMu"). (Doc. 278 at 3 in Garcia I.) Garcia also executed a deed of trust in favor of WaMu, which secured the note using real property in Scottsdale, Arizona as collateral. (Id.) BANA purchased the note from WaMu in 2007, and at all relevant times BANA possessed the note through Chase, which services the loan on BANA's behalf. (Id.) Though Garcia generally paid the loan on time, she began missing payments in late 2012, and by April 2014 stopped making payments entirely because "she simply had run out of funds to pay her mortgage[.]" (Id. at 3-4.)

         During this period, Garcia applied several times for a home loan modification. (Id.) Defendants offered Garcia a permanent loan modification in February 2015, but Garcia did not execute the agreement because it required her to represent that her home was not in a state of disrepair. (Id. at 4.) Garcia's home had flooded in late 2014, and she could not make such a representation in light of the flood damage. (Id.) After Garcia experienced medical problems, and upon request by her attorneys, Defendants agreed to cease default-related communications. (Id. at 5-6.) Garcia, however, did not make any further payments on her loan, nor did she repair the flood damage and reapply for a loan modification. (Id. at 6-7.) Consequently, Defendants noticed a trustee's sale of the Scottsdale property in May 2015. (Id. at 7.)

         The looming trustee's sale prompted Garcia in July 2015 to file a verified complaint against Defendants in Maricopa County Superior Court, alleging eight claims related to her loan modification efforts and Defendants' foreclosure-related activities: (1) promissory estoppel, (2) breach of the covenant of good faith, (3) fraud, (4) negligence, (5) negligent performance of an undertaking, (6) violation of the Arizona Consumer Fraud Act (ACFA), (7) violation of the Real Estate Settlement Procedures Act (RESPA), and (8) negligence per se. (Doc. 1-1 at 18-44 in Garcia I.) Defendants removed the matter to this Court soon thereafter.

         II. Introduction of the Ownership Issue and the Filing of Garcia II

         Although her verified complaint in Garcia I alleged that BANA is the current beneficiary of the deed of trust, and that Chase services the loan on BANA's behalf (Doc. 1-1 at 20, 31 ¶¶ 11, 13, 110-11 in Garcia I), Garcia began questioning Defendants' relationship to her home loan as early as February 2016. For example, on February 5, 2016, Garcia's attorney, Daniel Cracchiolo, sent a letter to David Cowles, the trustee under the deed of trust, tendering $5.00 and demanding that BANA quiet title in Garcia's favor. (Doc. 114-1 at 12-13 in Garcia II.) The letter explained that Cyndee Rae Estrada, an expert witness Garcia had hired in connection with Garcia I, believed the BANA did not own Garcia's loan. The issue arose again on February 19, 2016, when, during a private mediation, Garcia's attorneys indicated that they believed BANA and Chase lacked "standing" to foreclose. (Doc. 39-1 ¶ 10 in Garcia I.) Notably, though these issues arose well before the February 29, 2016 deadline for amending pleadings, Garcia never amended her verified complaint and the allegations therein remained operative throughout the case.

         Rather than amend her verified complaint to remove the verified allegations regarding BANA and Chase's relationship to her loan and to add related claims, Garcia filed a separate verified complaint on March 14, 2016 in Maricopa County Superior Court "to determine the title and ownership of said property." (Doc. 1-2 at 6 ¶ 17; Doc. 12 in Garcia II.) Evidently, comments made by the private mediator in Garcia I led Garcia's attorneys to believe that the quiet title action was more appropriately brought in a separate state court lawsuit. (Doc. 94 at 4 in Garcia II.)

         III. Garcia Places Ownership "Directly" at Issue in Garcia I

         Despite filing a separate action on the ownership question, Garcia kept pursuing the issue in Garcia I. During a March 22, 2016 telephonic discovery dispute hearing in Garcia I, Garcia's attorney, Monique Wilhite, asked the Court to order Defendants to respond to inquiries "having to do with the ownership of the loan." (Doc. 66 at 4 in Garcia I.) She explained:

During the discovery process we've learned that [BANA] is not the owner of the loan, and we learned this, one, because in some of the documents that we have that our client has indicated that [BANA] simply manages some type of public security in which her loan is supposed to exist.
Furthermore, we found out that the loan when the loan was actually written-[WaMu] is the bank that the loan was written with-it was-it did not exist. She wrote the loan in 2006 and [WaMu] was gone, did not exist after 2004, I believe.
And we further have information from an actual employee of [BANA] indicating that the loan is not with [BANA].
We believe that that is completely relevant because if [BANA] owns the loan they approve or disapprove any type of loan modification or settlement in this case, and so we need to make sure that we're dealing with the right party.
So we believe that we're entitled to information regarding the whereabouts of this loan and who actually owns it so that we know we're dealing with the right person.
Furthermore, during the modification process our client was told that [BANA] had approved the loan modification and different aspects of it. If that was not the case, that further goes to the negligence and the other claims that we've made against Chase and how they handled this loan modification.

(Id. at 4-5.) Ms. Wilhite specified that "the information we need" included "the prospectus for the trust where the loan is supposed to be, the credit default swap and credit swap default provider, the [master] sales and servicing agreement for the loan, the custodial agreement and [master] servicing agreement, those types of things." (Id. at 8-9.)

         Bob Shely, counsel for Defendants, responded that Garcia:

just filed a quiet title action in [s]tate [c]ourt raising this issue with [WaMu] and so forth. So there's a whole [other] litigation in which the question of the bank's role is at issue, and we will address those issues in that lawsuit, but they are not-the standing question is not at issue here.

(Id. at 9-10.) Ms. Wilhite, however, maintained that the ownership issue:

is directly relevant to our claim of negligence in handling the loan modification and the like.
Because Miss Garcia was told that Chase consulted with [BANA] regarding her modification and they had to approve it and those type of things, and now we have information that [BANA] does not even own the loan.
So that's what we need to know. That's-and that information is absolutely relevant because if [BANA] doesn't own the loan and Chase was telling Miss Garcia that they did and that they had to approve her loan modification, that goes directly to all of our claims.

(Id. at 10-11 (emphasis added).)

         After hearing the parties' arguments-and accepting Ms. Wilhite's representation that Defendants' relationship to Garcia's loan was directly relevant to all of the claims in Garica I-the Court ordered Defendants "to produce the documents the bank relies on to establish its ownership or relationship to the loan[.]" (Id. at 27.) As early as March 22, 2016, then, Defendants' relationship to Garcia's home loan was "directly" at issue in Garcia I. Indeed, Garcia raised the issue again two days later, in her Reply in Support of Motion for Sanctions. (Doc. 47 in Garcia I.) Specifically, she argued that Defendants "have no standing to foreclose nor do they have any ownership interest in the Garcia loan, " and claimed that they could not settle the case because they could not document their ownership of the note and deed of trust. (Id. at 3-5.)

         Meanwhile, on April 12, 2016, Defendants removed Garcia II and the case was assigned to this Court. The following day, the Court heard oral argument in Garcia I on Garcia's motion for sanctions, during which the ownership issue again emerged. Mr.

         Cracchiolo argued:

While this is not in the pleadings, we've certainly given [Defendants] plenty of notice. We think this is really a real party in interest type of case, and we so told the mediator that in their presence, and what we told the mediator is we didn't think that [BANA] was the owner of this promissory note and had really no authority to settle and really had no standing.
And as I understand what the mediator did is he told us or told counsel for the defendant, [BANA], to see if the standing issue could be resolved, after which we would go in front of him again and see if we could resolve the matter.

(Doc. 68 at 6 in Garcia I.) Thus, by April 12, 2016, there were two separate cases involving the same parties, the same general factual predicate, and the same ownership issue.

         IV. Early Consolidation Efforts

         Unsurprisingly, on May 24, 2016, Garcia moved to consolidate Garcia I and Garcia II. (Doc. 79 in Garcia I.) In her motion, Garcia represented that the two cases share common issues of law and fact, involve substantially the same transaction or event, and involve substantially the same parties. She also stated that "one of the major issues in [Garcia I] is whether the Defendants had the authority to consider and offer Ms. Garcia a loan modification." (Id. at 3.) Likewise, "the main issue, " in Garcia II "is whether Bank of America is the owner and beneficiary of the loan." (Id.)

         On June, 2016, Mr. Shely wrote to Garcia's counsel:

Now that the Court has set dispositive motions dates and a trial date in Garcia I, it seems to me that he is unlikely to vacate those dates, so if he were to consolidate the two actions, he would have to consolidate under the rules to the first filed action. We might be willing to stip[ulate] to consolidation if you folks wanted to cross notice the upcoming depositions of BANA, Chase and Moore for Garcia II, allow us just to use the depo[sition] transcripts of Mrs. Garcia that we have already taken in Garcia I for the purposes of Garcia II. I think we have already produced all doc[uments] that would be relevant in both cases in Garcia I. If we can stipulate to use the dispositive motion deadline of this June 30, and the trial date of November 2016, then we would probably agree to consolidate just to take care of both cases sooner rather than later, which would allow a reduction in the amount of discovery that is needed, because really I don't think I need to retake Mrs. Garcia's depo[sition], and if we agree that you can depose the upcoming deponents for use in both cases, you would only have to take the depositions one time for both cases.
Let me know your thoughts as soon as convenient.

(Doc. 178-1 at 6 in Garcia I.) Garcia's attorneys did not respond to Mr. Shely's email. Instead, on June 9, 2016 Garcia withdrew her motion to consolidate without explanation. (Doc. 87 in Garcia I.) Had she not done so, these matters likely would have been consolidated and the need for the present order obviated.

         Nonetheless, counsel for Defendants still believed it would be more efficient to cross-notice Rule 30(b)(6) depositions in both cases, considering the substantial overlap in the issues. Counsel for Garcia, however, objected. Consequently, on June 15, 2016, the Court held a telephonic discovery dispute hearing in Garcia II to discuss the propriety of cross-noticing depositions. (Doc. 34 in Garcia II.) During that hearing, Mr. Cracchiolo reversed course and claimed that Garcia I and Garcia II:

don't have the same issues. Although we said that, we were mistaken. The only same issue is . . . that they're the same parties . . . .
[Garcia I] is the case for damages against Chase and [BANA] for negligence and other things because they failed to modify a loan in accordance with the dictates of TARP. Case number two is a quiet title action, completely different and has different areas of inquiry.
. . . We maintain [Defendants] don't own the loan in [Garcia II], which is completely different than the matters set forth in [Garcia I].

(Id. at 5.) Based on representations from Garcia's counsel that they could not adequately prepare for the depositions on the timeline established in Garcia I, the Court denied Defendants' request to cross-notice the depositions. (Id. at 14.)

         Later, during a June 23, 2016 Rule 16 Scheduling Conference in Garcia II, the Court remarked:

I'm looking at this new complaint. This looks a lot like the old one. I mean, the issues look almost identical. It seems to me that the resolution of [Garcia I] is going to, if not decide, have a significant impact on the claims being alleged in the second case. I don't know why we have two different cases.
. . .
[S]ome of the issues that have been raised involve whether or not the bank has an interest in the house. Isn't that one of the defenses or one of the claims that we're hearing in the other case?

         (Doc. 47 at 3-4 Garcia II.) When asked what would be left to decide in Garcia II after resolution of Garcia I, Garcia's attorney, Barbara Forde, responded: "As far as my understanding . . . the actual issue of who's entitled to enforce the loan is not directly at issue in the first lawsuit[.]" (Id. at 4.) Forde's statement contradicted Ms. Wilhite's March 22, 2016 representation that the ownership issue was "absolutely relevant" and "goes directly to all of our claims" in Garcia I.

         The Court explained:

I've heard a lot of arguments in [Garcia I] about discovery and that issue has been raised, at least by Mr. Cracchiolo, a number of times, as I ...

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