Duke et al v. Nationstar Mortgage, L.L.C.

Filing 30

MEMORANDUM OPINION and ORDER the order of 3/15/12, is AMENDED pursuant to Rule 54(b) to direct the entry of final judgment in favor of MorEquity and against plas, Kent Duke and spouse, Jacqueline C. Duke; DENYING 22 Motion for Summary Judgment as to Res Judicata; DENYING 26 MOTION to Strike 25 Response in Opposition to Motion. Signed by Judge William M Acker, Jr on 8/30/12. (KGE, )

FILED
2012 Aug-30 PM 03:09
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
KENT DUKE and JACQUELINE C.
DUKE,

}
}
}
}
}
}
}
}
}
}

Plaintiffs,
v.
NATIONSTAR MORTGAGE, L.L.C.,
Defendant.

CIVIL ACTION NO.
2:12-cv-00157-AR

MEMORANDUM OPINION AND ORDER
This case illustrates the shortcomings, even the dangers, of
the once mighty global secondary mortgage loan market, with its
arcane methods of doing business, conceived by ambitious, supersophisticated, big-brained, short-sighted financiers and their
lawyers, who did not realize that they were creating a Frankenstein
for everybody involved except the lawyers.

Based on the number of

somewhat similar cases pending in various federal and state courts,
the roof has come crashing down, and its restoration remains in
doubt.

Because of the complexities of the system and of the

overall facts of this case, the court will do its best to limit
itself to the single issue before it.
When
MorEquity,

this
Inc.

case

began,

there

(“MorEquity”)

and

were

two

named

Nationstar

defendants,

Mortgage,

LLC

(“Nationstar”). The action as against MorEquity was dismissed with
prejudice
defendant.

on March

15,

2012,

leaving

Nationstar

as

the only

For some unexplained reason, the parties are still

filing papers that include MorEquity as a defendant.

To resolve

any doubt, the order of March 15, 2012, is hereby AMENDED pursuant
to Rule 54(b) to direct the entry of final judgment in favor of
MorEquity and against plaintiffs, Kent Duke and spouse, Jacqueline
C. Duke (“the Dukes”, “Mrs. Duke” or “Mr. Duke”, as appropriate),
the court expressly determining that there was on March 15, 2012,
and still is, no reason for delay.
Before the court is a narrowly focused motion for summary
judgment (Doc. 22) by Nationstar, claiming that the Dukes’ claims
are barred by the doctrine of res judicata.

Also pending is the

Dukes’ motion to strike (Doc. 26) the declaration of A.J. Loll and
its attachments (“Loll Declaration”), submitted by Nationstar in
support of its Rule 56 motion.

There is no pending challenge to

the Dukes’ action on any basis except res judicata. Therefore, the
court need not consider of any evidence except that relevant to the
defense of res judicata.

For the reasons that follow, the Dukes’

motion to strike and Nationstar’s motion for summary judgment will
both be denied.
BACKGROUND1
On

April

27,

2004,

Mrs.

Duke

borrowed

$293,600.00

from

something calling itself “Wilmington Finance, a division of AIG
Federal

Savings

Bank”

(“Wilmington

1

Finance”).

She

signed

a

Because of the procedural posture, all facts are viewed in
the light most favorable to the Dukes.
2

promissory note payable to Wilmington Finance, securing the said
sum with a mortgage on her home.
copy of the note.

The record does not contain a

Mr. Duke, as spouse, executed the mortgage with

Mrs. Duke in favor of Wilmington Finance.

It is unknown whether

Wilmington Finance was at that time a juridical entity (something
it would have been if it was a corporate subsidiary of AIG, or
which it would not have been under Alabama land law if it was, in
fact, “AIG, d/b/a Wilmington Finance”).
does not appear from the record.

The answer to this enigma

The loan transaction began with

this potential problem, which, fortunately, has been resolved,
inasmuch as the parties do not complain about the status of the
original lender-mortgagee.

The court will therefore, assume, with

the parties, that Wilmington Finance was a legal entity, and was
the actual lender-mortgagee.
Wilmington Finance assigned its note and mortgage on or about
April 29, 2004, to MorEquity, Inc. (“MorEquity”).
In the complicated world of the high risk mortgage industry as
it existed at all times here pertinent, the answer to a question as
simple as “who is the owner of a mortgage?” is not always apparent
from a review of the land records where the real property is
located.

In fact, the term “owner” may mean “a hundred owners”

involved in a joint or divided undertaking or investment where the
original homeowner-borrower is unaware of who the “real” “owners”
are.

This complexity is exacerbated when the “owner” or “owners”

3

begin to split up and transfer the mortgage and note willy-nilly,
often effectuating the transfer by simply endorsing the note in
blank, affixing an allonge to it, and assuming that the mortgage
security

and

right

operation of law.

to

foreclose

will

pass

with

the

note

by

As recently as June 22, 2012, the Alabama Court

of Civil Appeals decided Coleman v. BAC Servicing, Agent for the
Secretary of Veterans Affairs, an officer of the United States of
America, ____ F.3d ____, 2012 W.L. 2362617 (Ala. Civ. App. 2012),
not yet released for publication.

This court does not fully

understand the impact of Coleman, but is bound by it to the extent
it may apply to this case.

Any defect in MorEquity’s title by

virtue of its possible lack of physical possession of the note at
the time of foreclosure, was cured by the res judicata bar that the
court has already found as to MorEquity.

After withdrawing its

first opinion that, if available, might help to understand the
Court’s second opinion, two of the five judges of the Court of
Civil Appeals concurred only in the result.

To the extent this

court understands the Court of Appeals, it held that in Alabama the
assignee and actual possessor of a note secured by a mortgage
automatically becomes the mortgagee, even if there is no recorded
assignment

of

the

mortgage,

and

foreclose in the event of default.

therefore

has

the

right

to

Whatever interesting question

Coleman might present elsewhere, the ownership of this note and
mortgage has been established by res judicata.
4

MorEquity was its own “servicer” of the mortgage until January
2011, at which time it mailed a “Notice of Assignment, Sale, or
Transfer of Servicing Rights” to the Dukes.

This letter stated

that “effective February 1, 2011 the servicing of [the Dukes’]
loan, that is the right to collect payments from you, will be
assigned, sold, or transferred from MorEquity, Inc. to Nationstar
Mortgage

LLC.”

The

letter

neither

mentioned

MorEquity

nor

explained MorEquity’s continued role as owner with a right to
foreclose.

It did not inform Mrs. Duke of the entity to whom her

checks or money orders were to be made payable.

This also becomes

academic, because at the time she received this letter, Mrs. Duke
was already delinquent.

On June 30, 2011, the Dukes received a

letter from MorEquity indicating that because of their default it
had instructed its law firm to foreclose.

It made no mention of

Nationstar or any role Nationstar would play in the proceedings.
After the requisite notices required by the original mortgage had
been published by MorEquity, the Dukes’ property was sold for the
loan balance to MorEquity at a foreclosure sale conducted on July
25, 2011.
On August 1, 2011, MorEquity filed an ejectment action against
the Dukes in the Circuit Court of Shelby County, Alabama, demanding
possession.

On October 27, 2011, MorEquity filed a motion for

summary judgment. After a hearing and briefing, in which the Dukes
participated pro se, the state court granted MorEquity’s motion for

5

summary

judgment

and

awarded

possession

of

the

premises

to

MorEquity on December 8, 2011. On January 6, 2012, after retaining
counsel, the Dukes filed a motion to alter, amend, or vacate the
summary

judgment.

The

Dukes’

motion

raised

several

issues,

pertaining both to MorEquity and to Nationstar, but Nationstar was
never named as a party in the Shelby County case.

On February 13,

2012, the Shelby County court entered an order holding that its
judgment was to remain in full force and effect, that the matter
was

“settled”,

“withdrawn.”

and

that

the

Dukes’

motion

to

vacate

was

What the purported “settlement” consisted of is

nowhere reflected.

As a matter of Alabama law and procedure, the

motion to vacate never existed insofar as it, if not withdrawn, may
have sought relief of any kind from Nationstar.
judgment against the Dukes was final.

The MorEquity

The Dukes did not appeal

from the state court’s final judgment, and the Dukes, as ordered,
have vacated the premises.
On January 17, 2012, the Dukes filed the present action
against both MorEquity and Nationstar.

In their complaint, the

Dukes initially claimed a violation of the Fair Debt Collection
Practices Act by Nationstar and state law claims of breach of
contract; negligent hiring, training, and supervision; negligence;
wantonness; wrongful foreclosure; outrage; and invasion of privacy
against both parties. MorEquity and Nationstar, represented by the
same law firm, filed a joint motion to dismiss on the grounds that

6

the Dukes’ claims are barred by the Rooker-Feldman doctrine and the
doctrine of res judicata (Doc. 8).

After briefing and a hearing,

this court entered an order dismissing with prejudice the Dukes’
action as against MorEquity on the basis of res judicata.
16).

Nationstar’s motion to dismiss was denied.

indicated

that

further

evidence

would

be

needed

(Doc.

The court
to

support

Nationstar’s argument for a dismissal on the ground of res judicata
arising out of alleged privity between Nationstar and MorEquity.
Nationstar has now offered two key pieces of evidence in
support of its current motion for summary judgment, the Loll
Declaration and the Subservicing Agreement (“Servicing Agreement”).
The Loll Declaration, to which the Servicing Agreement is an
exhibit, generally outlines the owner/servicer relationship between
MorEquity and others as Co-owners and Servicers, and Nationstar as
Sub-Servicer.

It covers the Dukes’ mortgage loan and loans owned

by others. The Servicing Agreement reflects that MorEquity was one
of the “Owners” and “Servicers” of the Dukes’ mortgage loan and
that

Nationstar

was

the

“Sub-servicer.”

As

Sub-servicer,

Nationstar was to service the Dukes’ mortgage loan on behalf of the
Owners and Servicers, which included MorEquity.

The Dukes contend

that Nationstar has not presented evidence that MorEquity actually
“owned” the loan, but the outcome in the Circuit Court of Shelby
County, adverse to the Dukes, precludes this contention.

Although

the

is

Servicing

Agreement

lists

7

three

Owners,

it

now

incontrovertible that MorEquity was the Owner of the Dukes’ loan.
MorEquity’s status as an Owner was confirmed by the state court
when it validated MorEquity’s foreclose.
DISCUSSION
A. Motion to Strike
The Dukes contend that the Loll Declaration (1) is not based
on personal knowledge; (2) does not show that the declarant is
competent to testify; (3) fails to establish the admissibility of
the documents relied upon; and (4) contains facts that are “wrong”
or “misleading,” and for these reasons is due to be stricken.
The requirements for affidavits and declarations offered in
support of or in opposition to a motion for summary judgment are
outlined in Rule 56(c)(4), Fed. R. Civ. P.

That rule provides

Affidavits or Declarations. An affidavit or declaration
used to support or oppose a motion must be made on
personal knowledge, set out facts that would be
admissible in evidence, and show that the affiant or
declarant is competent to testify on matters stated.
Fed. R. Civ. P. 56(c)(4).

The court will address each of these

requirements as they pertain to the Dukes’ challenges of the
declaration.
The rule’s personal knowledge requirement is clear.

To be

sufficient, a declaration must be based on personal knowledge. See
id.

An affidavit or declaration based on anything less than

personal knowledge is

insufficient.

Pace v. Capobianco, 283 F.3d

1275, 1278 (11th Cir. 2002) (citing Stewart v. Booker T. Washington
8

Ins., 232 F.3d 844, 851 (11th Cir. 2000) (“upon information and
belief” is insufficient); Fowler v. Southern Bell Tel. & Tel. Co.,
343 F.2d 150, 154 (5th Cir. 1965) (“upon knowledge, information and
belief” is insufficient); Robbins v. Gould, 278 F.2d 116, 118 (5th
Cir.

1960)

(“knowledge

and

belief”

is

insufficient)).

Additionally, the affidavit or declaration must state the basis for
such personal knowledge. See Bruce Constr. Corp. v. United States,
242 F.2d 873, 877 (5th Cir. 1957).
The Loll Declaration meets the personal knowledge requirement.
It states that “[b]ased upon my review of Nationstar’s records, I
have knowledge of the facts set forth in this declaration . . . .”
(Doc. 22-1 at ¶3).

Contrary to the Dukes’ contention, personal

knowledge can be based on a review of relevant business files and
records. See Mid-Continent Cas. Co. v. Don Brady Constr. Co., — F.
Supp. 2d — , No. 11-088-CG-C, 2012 WL 1598149, at *2 (S.D. Ala. May
7, 2012) (quoting In re Trafford Distrib. Center, Inc., 414 B.R.
858, 862 (Bktrcy. S.D. Fla. 2009)(“[A]s a matter of law, ‘personal
knowledge can come from the review of the contents of business
files and records.’”).
The Dukes erroneously rely on Hernandez-Santiago v. Ecolab,
Inc., 397 F.3d 30, 35 (1st Cir. 2005), for the proposition that a
review of “documents is insufficient to meet the personal knowledge
requirement of the Rule.”

(Doc. 26 at 4).

First Circuit held in Hernandez.
9

This is not what the

To the contrary, the court in

Hernandez determined that the affidavit was insufficient because
the affiant swore only that “‘a review of relevant manufacturing
and sales records . . . reveal[ed]’ that Ecolab Manufacturing sold
the Super Trump product to Hernandez’s employer.”

Id.

The fatal

shortcoming in the Hernandez affidavit was not that there was
simply a review of records upon which to acquire knowledge, but
that the affiant himself failed to attest that he had conducted or
supervised the review of the documents or that the had personal
knowledge of the review.
neither of these flaws.

Id.

The Loll Declaration contains

It states both that Mr. Loll reviewed

Nationstar’s records and that he has knowledge of the facts set
forth

in

the

declaration.

This

is

sufficient

to

meet

Rule

56(c)(4)’s personal knowledge requirement.
Rule 56(c)(4)’s competency requirement is also met because, as
vice

president

of

Nationstar,

Mr.

Loll’s

competency

reasonably inferred from his high level position.

may

be

See e.g., Dixit

v. Kettering Med. Ctr., No. 91-3494, 1992 WL 19951, at *2 (6th Cir.
1992); Barthelemy v. Air Lines Pilots Ass’n, 879 F.2d 999, 1018
(9th Cir. 1990); Branch Banking & Trust Co. v. Gedalia, No.
4:10-cv-461, 2012 WL 170945, at *3 (E.D. Tex. Jan. 20, 2012)
(determining that a company vice president was competent to make
statements in affidavit after review of company records).
The Dukes also argue that the Loll Declaration fails to
establish

the

admissibility

of
10

the

supporting

documents.

Specifically, the Dukes contend that Mr. Loll’s statements, which
lay the foundation for the business record hearsay exception,2 are
conclusory.

The Dukes cite Short v. Mando American Corp., 805 F.

Supp. 2d 1246, 1264 (M.D. Ala. 2011), for the proposition that
conclusions are not allowed in declarations because the facts must
be based on personal knowledge.

This is not, however, the point

that the court in Short was making.

In Short, the court found that

declarations are improper if they set forth conclusory arguments
rather than statements of fact based on personal knowledge.
id. There are no conclusory arguments in the Loll Declaration.

See
In

fact, several courts have explicitly held that blanket statements
that

the

declaration

is

made

based

on

“personal

knowledge,

observations and business records kept in the ordinary course of
business” are not deemed conclusory or improper.

See Underwriters

at Lloyds v. FedEx Freight Sys., Inc., No. 8:07-cv-212-T-EAJ, 2008
WL 2901049, at *2 (M.D. Fla. July 23, 2008); Gutierrez v. Tex.
Dept. Of Human Servs., No. Civ. A 3:09-CV-2771-P, 1999 WL 515829,
at

*4

(N.D.

Tex.

July

19,

1999);

see

e.g.,

Coleman

v.

BAC

Servicing, — So. 3d — , No. 2100453, 2012 WL 2362617, at *4-5 (Ala.

2

In the Eleventh Circuit, “[t]o satisfy [the business
records hearsay exception], . . . the proponent must establish
that it was the business practice of the recording entity to
obtain such information from persons with personal knowledge and
the business practice of the proponent to maintain the records
produced by the business entity.” United States v. Langford, 647
F.3d 1309, 1327 (11th Cir. 2011) (quoting United States v. BuenoSierra, 99 F.3d 375, 379 (11th Cir. 1966).
11

Civ. App. June 22, 2012). Mr. Loll’s undisputed statement that the
referenced

documents

are

kept

in

the

course

of

Nationstar’s

regularly conducted business activity, and that it is part of the
regular

practice

to

create

such

documents

is

sufficient

to

establish the admissibility of the supporting documents.
The Dukes next argue that statements in the Loll Declaration
are “wrong” and that Mr. Loll is “deliberately misrepresenting the
facts.”

This is not the stage at which the Dukes can make this

argument.

Whether Mr. Loll’s statements are true or not is not a

question for the court to address under Rule 56.

This is plainly

an issue of credibility and is not a proper ground for a motion to
strike. Statements in a declaration may be stricken as a matter of
law only when it is obvious that they constitute a “sham.”
v. Celotex Corp., 805 F.2d 949, 953 (11th Cir. 1986).

Tippens

This occurs

when there is a “flat contradiction” between the declaration and
prior,

sworn

testimony.

Id.

On

the

other

hand,

“[i]ssues

concerning the credibility of witnesses and weight of evidence[,],”
as

are

presented

here, “are

questions of

resolution by the trier of fact.”

fact

which require

Celotex Corp., 805 F.2d at 954;

see also Choudhry v. Jenkins, 559 F.2d 1085, 1090 (7th Cir. 1977)
(“[E]very discrepancy in an affidavit does not justify a district
court’s refusal to give credence to such evidence.”).

(emphasis

added).
For the foregoing reasons, the Dukes’ motion to strike is
12

DENIED.
B.

Res Judicata

The doctrine of res judicata, also known as claim preclusion,
prevents a party from relitigating a claim that was or could have
been litigated in a prior case.

Phenix-Girad Bank v. Cobb, 416 So.

2d 748, 749 (Ala. 1982) (citing Owen v. Miller, 414 So. 2d 889, 890
(Ala. 1981)).

When a federal court is asked to give res judicata

effect to a prior state court judgment, the federal court applies
the res judicata principles of the state from which the allegedly
preclusive ruling emanates.

Kizzire v. Baptist Health Sys., Inc.,

441 F.3d 1306, 1308 (11th Cir. 1985) (citing Amey, Inc. v. Gulf
Abstract & Title, Inc., 758 F.2d 1486, 1509 (11th Cir. 1985)).
Because Nationstar relies on a prior decision of an Alabama court,
the Alabama law of res judicata controls.

Under Alabama law, res

judicata, as in most other jurisdictions, requires (1) a prior
judgment on the merits, (2) rendered by a court of competent
jurisdiction, (3) with substantial identity of the parties, and (4)
that the same cause of action was or could have been presented in
both actions.

Equity Res. Mgmt., Inc. v. Vinson, 723 So. 2d 634,

636 (Ala. 1998).

When all four of these elements are present, any

claim that was or could have been adjudicated in the prior action
is barred.

Id. (citing Dairyland v. Ins. Co. v. Jackson, 566 So.

2d 723, 725-26 (Ala. 1990)).
1. A Prior Judgment on the Merits
13

The first element of res judicata is satisfied.

In Alabama,

“[a] summary judgment acts as a judgment on the merits.”

Ex parte

Jefferson County, 656 So. 2d 382, 385 (Ala. 1995) (citing Robinson
v. Holley, 549 So. 2d 1 (Ala. 1989)).

In the ejectment action, the

state court rendered a judgment on the merits when it granted
judgment for MorEquity and against the Dukes.

In their brief, the

Dukes confuse the elements of “a prior judgment on the merits” and
“the same cause of action.”

It may be true that the present action

against Nationstar relies on some substantially different facts and
law than those contained in the ejectment action.

The substantive

context of a merits judgment is irrelevant when determining whether
there as been a “prior judgment on the merits.”

Gonzales, LLC v.

DiVincenti, 844 So. 2d 1196, 1203 (Ala. 2002).

2

.

Rendered by a Court of Competent Jurisdiction
The Circuit Court of Shelby County was indisputably a court of
competent jurisdiction over the case before it.
3. With Substantial Identity of the Parties
That there be substantial identity of the parties, as a
general rule, requires that parties to be identical.

Greene v.

Jefferson County Comm’n, 13 So. 2d 901, 912 (Ala. 2008) (citing
Stewart v. Brinley, 902 So. 2d 1, 10 (Ala. 2004)).

However,

Alabama recognizes a not unusual exception, allowing a party who is
in privity with a party in the prior action to meet the requirement
of “substantial identity.” Id. (citing Stewart, 902 So. 2d at 10).
14

It is this exception that Nationstar relies upon.

“The identity

criterion of res judicata does not require complete identity, but
only that the party against whom res judicata is asserted was
either a party or in privity with a party to the prior action.”
Chapman Nursing Home, Inc. v. McDonald, 985 So. 2d 914, 921 (Ala.
2007) (quoting Dairyland Ins. Co. v. Jackson, 566 So. 2d 723,
725-26 (Ala. 1990)).

Although “privity” has not been uniformly or

perfectly defined, it regularly arises from a mutual successive
relationship to the same rights of property, or for an identity of
interest in the subject matter of the prior litigation.

Baker v.

Merrill Lynch, Pierce, Fenner & Smith, Inc., 821 So. 2d 158, 165
(Ala. 2001) (citing Hughes v. Martin, 533 So. 2d 188, 191 (Ala.
1988)).3

Whether privity exists in a given case is generally

resolved in an ad hoc fashion based on whether the circumstances
support a person being bound by or entitled to the benefits of a
prior judgment.

Id.

(citing Hughes, 533 So. 2d at 191).

There is no dispute that the Dukes, against whom res judicata
is here asserted by NationStar, were parties to the prior ejectment
action.

The Dukes, however, point out that Nationstar was not a

party to the prior action and that it has failed to establish that
it was in privity with MorEquity.

3

While the court in
concept with respect to
Hughes v. Martin, which
Martin, 533 So. 2d 188,

Nationstar contends that it is

Baker v. Merrill Lynch discusses this
collateral estoppel, the court relies on
is based on res judicata. See Hughes v.
190-91 (Ala. 1988).
15

in

privity

interest

with

in

the

MorEquity

because

it

shares

subject

matter

of

the

an

“identity

litigation,”

of
or,

alternatively, because it acted as MorEquity’s agent in servicing
the mortgage and was “represented” at the defense of the Dukes’
motion to set aside the judgment entered by the state court.
Alabama courts have not addressed the relatively new questions
of whether a servicer and lender (or its assignee, as in this case)
are in privity for purposes of res judicata.

A handful of district

courts across the country have, however, faced this issue and found
privity. These courts have concluded that there is privity between
a servicer and lender because they share an identity of interests
in the subject matter of the litigation.

Although these cases are

not binding on this court, they would be persuasive on this court
if this court were not bound by a separate peculiarity in Alabama
that will hereinafter be discussed and be found dispositive.
In Stewart v. Deutsche Bank National Trust Co., a district
court in Tennessee, applying Tennessee law, determined that the
trustee, lender, and servicer of a mortgage loan were in privity
because they shared an identity of interests in the subject matter
of the litigation.

No. 3:08-cv-475, 2010 WL 4004670, at *6 (E.D.

Tenn. Oct. 12, 2010).

In the prior action in that case, Deutsche

Bank, the mortgage trustee, had foreclosed and filed an ejectment
action against the mortgagor, and the state court had entered
judgment for Deutsche Bank.

Id. at *2.

16

After the mortgagor’s

appeal was denied, he made several claims against Deutsche Bank as
well as against the lender and the servicer.

Id.

Applying the

same “identity of interest in the subject matter of the litigation”
standard for privity as employed in Alabama, the Tennessee court
determined that the mortgage trustee, lender, and servicer were in
privity because each sought “to avoid [] liability by relying on
the

state

court’s

foreclosure
Property.”

and

judgment

Deutsche

Id. at *6.

regarding

Bank’s

right

the

lawfulness

of

the

to

possession

of

the

The facts in the instant case are virtually

identical to those in Stewart. The ejectment action brought in the
Circuit Court of Shelby County by MorEquity, assignee of the
lender, was against the Dukes, the mortgagors.

The Dukes’ present

action began with claims against MorEquity, the owner of the note,
and Nationstar, the servicer.

If the reasoning of the court in

Stewart were followed by this court, Nationstar’s and MorEquity’s
interests were the same, and they were in privity.
The Southern District of New York likewise found that privity
exists

between

a

servicer

and

a

lender

because

the

lender

adequately represented the servicer’s interest when the servicer
was servicing the loan at the time the lender initiated the
allegedly preclusive action. Yeiser v. GMAC Mortgage Corp., 535 F.
Supp. 2d 413, 423 (S.D.N.Y. 2008).
exists

when,

inter

alia,

the

Under New York law, privity

present

17

party’s

interests

were

represented by a party to a prior action.4

Id.

In Yeiser, the

mortgagors executed a mortgage in favor of MERS as nominee for
MortgageIt, and the mortgage was subsequently transferred to Option
One and then to GMAC for servicing.

Id. at 417.

After the

mortgagors defaulted, MERS filed a foreclosure action in state
court, whereupon a judgment of foreclosure was entered.

Id. at

418. The mortgagors then filed suit in federal court against MERS,
GMAC, and Option One alleging violations of federal and state laws
arising from the allegedly wrongful foreclosure proceeding. Id. at
419.

The district court dismissed the action against GMAC, the

servicer, based on res judicata.
there was

privity

between

Id. at 423.

GMAC,

the

In concluding that

servicer,

and

MERS,

the

ultimate mortgagee, the district court stated that “GMAC’s interest
in the mortgage loan was represented by MERS because GMAC serviced
the loan at the time of the foreclosure.”

Id.

Based on this

reasoning, Nationstar would be in privity with MorEquity.
Other

courts

have

recognized

privity

between

servicer and lender based on an identity of interest.

a

mortgage

The federal

district court for Nevada found privity between a lender and
servicer when they showed an interest in allowing foreclosure to
proceed.

Huggins

v.

Bank

Deutsche

4

Nat’l

TR

CO

TRS,

No.

Although worded differently, the Alabama standard, “an
identity of interest in the subject matter of the litigation,”
and the New York standard, “the party’s interests are represented
by a party to a prior action,” are similar.
18

2:11-cv-147-KJD-LRL, 2011 WL 2976818, at *3-4 (D. Nev. July 21,
2011) (applying the privity standard “a person [is] so identified
in interest with another that he represents the same legal right”).
Also, a district court in Mississippi found privity between the
holder and servicer of a mortgage loan.

Anderson v. Bank of Am.,

No. 2:09-cv-183-DCB-JMR, 2009 WL 3647516, at *4 (S.D. Miss. Nov. 3,
2009) (applying the privity standard “the non-party’s interest were
adequately represented by a party to the original suit”).
The Dukes have provided the court with no Alabama cases and no
foreign cases to contradict the above decisions that this court
would find persuasive if they had not been superceded and rendered
irrelevant by the Alabama Supreme Court.
several

reasons

based

Servicing

Agreement

interests

are

not

as

on
to

aligned.

Nationstar’s
why

The Dukes have given
obligations

MorEquity’s

These

arguments

and

under

the

Nationstar’s

miss

the

mark.

Nationstar’s specific obligations under the Servicing Agreement are
immaterial in a determination of whether MorEquity and Nationstar
had an identity of interest in the subject matter of the Shelby
County litigation sufficient to support privity.

The proper

inquiry, as outlined by the several courts who have addressed this
issue, is whether both parties seek to avoid liability by relying
on the state court judgment regarding the lawfulness of foreclosure
and the foreclosing party’s right to possession of the property.
See Stewart, 2010 WL 4004670 at *6; see also Yeiser, 535 F. Supp.

19

2d at 423 (lender and servicer’s interests were aligned for the
purpose of establishing privity when the servicer serviced the loan
at the time of foreclosure).
Here the Loll Declaration and the Servicing Agreement together
demonstrate

that

Nationstar

acted

servicing the Dukes’ mortgage loan.

on

MorEquity’s

behalf

in

Based on this relationship,

MorEquity and Nationstar had a sufficient identity of interest in
the subject matter of the litigation to have permitted Nationstar
to invoke res judicata as MorEquity’s privy, except for the fact
that Alabama has a peculiarity not discussed in any of the abovediscussed cases or by the Dukes, although casually mentioned by
Nationstar.
Because MorEquity and Nationstar’s identity of interest in the
subject matter of the litigation is sufficient to conclude that
they would be in privity under the normal rules for res judicata,
it is unnecessary to address Nationstar’s privity argument based on
agency.
MorEquity

The
had

court
an

will

assume

agency

arguendo that

relationship

that,

Nationstar
under

and

other

circumstances, would meet the standards to establish privity, but
for Alabama’s unique rule hereinafter discussed.
4. Same Cause of Action in Both Actions.
The Alabama Rule
The final routinely recognized requirement for invoking res
judicata is that the same cause of action must have been presented,

20

or could have been presented, in both actions.
Mgmt., Inc., 723 So. 2d at 636.

See Equity Res.

Nationstar contends that this

requirement is satisfied because the Dukes’ current claims were
compulsory counterclaims in the state court ejectment action. Rule
13(a), Ala. R. Civ. P., governing compulsory counterclaims, states
in pertinent part as follows:
(a) Compulsory Counterclaims. A pleading shall state as
a counterclaim any claim which at the time of serving the
pleading the pleader has against any opposing party, if
it arises out of the transaction or occurrence that is
the subject matter of the opposing party’s claim and does
not require for its adjudication the presence of third
parties of whom the court cannot acquire jurisdiction.
* * *
In the event an otherwise compulsory counterclaim is not
asserted . . . relitigation of the claim may be barred by
the doctrines of res judicata or collateral estoppel by
judgment in the event certain issues are determined
adversely to the party electing not to assert the claim.
Ala. R. Civ. P. 13(a).

Although the causes of action in the state

and federal cases may have arisen out of the same transaction or
occurrence

and

thus

be

related,

the

Dukes’

claims

against

Nationstar were not compulsory counterclaims in the state court
ejectment action because Nationstar was not an “opposing party.”
Little Narrows, LLC v. Scott, 1 So. 3d 973, 978-79 (Ala. 2008).

In

Little Narrows, the Alabama Supreme Court directly addressed the
scope of the term “opposing party” in Rule 13(a), Ala. R. Civ. P.
It limited the definition to those parties formally named as
parties in the prior action. Id. at 977-79.
21

Little Narrows argued

that its claims could not be considered compulsory counterclaims
because the Scotts (the opposing party in the second action) were
not “opposing part[ies] in the prior action.”

Id. at 977.

In

response, the Scotts argued, as does Nationstar in this case, that
they were “substantially identical” to the parties in the prior
action because the party to the prior action was their agent.

Id.

Additionally, the Scotts argued that the doctrine of res judicata,
upon

which

rule

is

substantial identity of the parties.

Id.

The

the

Alabama

counterclaim

Supreme

Court

rejected

based,

both

only

requires

arguments,

and

explicitly departed from the interpretation of “opposing party” in
the federal version of Rule 13(a).

As Nationstar points out,

federal precedent broadly interprets the term “opposing party” in
the federal version of Rule 13(a).

See Transam. Occidental Life

Ins. Co. v. Aviation Office of Am., Inc., 292 F.3d 384, 391-93 (3d
Cir. 2002) (concluding that “opposing party” in Fed. R. Civ. P.
13(a) should not be read strictly to encompass only named parties,
but should include those in privity).

Because the Scotts were not

parties to the prior action, the Alabama Supreme Court held that
any factual claims that Little Narrows had against them were not
compulsory counterclaims because they were not an “opposing party”
under Rule 13(a), Ala. R. Civ. P.

Because Nationstar was not a

party to the state court ejectment action, the Dukes’ claims
against it cannot be construed as compulsory counterclaims under
22

Rule 13(a), Ala. R. Civ. P., which is controlling authority.
Nationstar argues that this court has already recognized that
this action involves at least some of the same claims as the state
court ejectment action. This may be true, but the court’s previous
dismissal

of

the

action

as

to

MorEquity,

while

ending

the

controversy as between the Dukes and MorEquity, expressly reserved
Nationstar’s res judicata defense.

MorEquity was the only named

plaintiff in the prior state court ejectment action. The fact that
the Dukes may have been able to add Nationstar as a counterdefendant does not change the rule.

There is no basis for a

finding that the Dukes’ claims against Nationstar are the “same
claim” for purposes of res judicata in Alabama.

Because an

essential requirement for res judicata under Alabama law is not
met, Nationstar’s motion for summary judgment is DENIED.
* * *
The court anticipates the possibility of the filing of another
motion for summary judgment by Nationstar after discovery is
complete.
DONE this 30th day of August, 2012.

_____________________________
WILLIAM M. ACKER, JR.
UNITED STATES DISTRICT JUDGE

23