Jodway
Filing
7
OPINION and ORDER Affirming Bankruptcy Court's Decision to Dismiss Chapter 13 Bankruptcy Case - Signed by District Judge Gershwin A. Drain. (FMos)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
TIMOTHY M. JODWAY,
Appellant,
Case No. 17-cv-10437
v.
UNITED STATES DISTRICT COURT JUDGE
GERSHWIN A. DRAIN
FIFTH THIRD BANK, Servicer for FIFTH
THIRD BANK MORTGAGE COMPANY,
UNITED STATES MAGISTRATE JUDGE
MONA K. MAJZOUB
Appellee.
/
OPINION AND ORDER AFFIRMING BANKRUPTCY COURT’S DECISION TO DISMISS
CHAPTER 13 BANKRUPTCY CASE
I. INTRODUCTION
This is an appeal from a bankruptcy court’s dismissal of a Chapter 13
bankruptcy case. For the reasons stated below, the Court will AFFRIM the
bankruptcy court’s decision.
II. FACTS
On August 3, 2005, the Jodways took out a $649,000 mortgage on a
property at 324 Bay Street in Boyne City, Michigan (the “Property”), from Fifth
Third Mortgage Company (hereinafter “Appellee” or “Fifth Third Co.”).
Bankruptcy R., Dkt. No. 4, p. 94 (Pg. ID 104). Eventually, the Jodways failed to
meet their mortgage obligations, the Appellee referred the matter to foreclosure,
and a Chapter 13 Bankruptcy case commenced. The Jodways have an extensive
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history before the bankruptcy court. This appeal involves four separate stages of
litigation involving the Jodways, the Appellee, and the Property.
Jodway I
In September 2008, the Jodways filed suit in the Charlevoix County Circuit
Court alleging fraud claims against Fifth Third LLC, inter alia. Zanke-Jodway v.
Capital Consultants, Inc., No. 1:08-CV-930, 2010 WL 776743, at *3 (W.D. Mich.
Mar. 3, 2010). The Jodways claimed that they were fraudulently induced into the
Mortgage. Id. at *5–6. The case was removed on federal question grounds to the
U.S. District Court for the Western District of Michigan on October 3, 2008. Id. at
*4. Fifth Third LLC moved for summary judgment. However, the Jodways failed
to file any opposition to Fifth Third LLC’s Motion. Id. at *4. On March 3, 2010,
the U.S. District Court dismissed the Jodways’ claims against Fifth Third LLC
under Federal Rule of Civil Procedure 41(b) for failure to prosecute. Id. at *12–13.
On January 20, 2011, the mortgage was assigned to Appellee, Fifth Third
Mortgage Company. Dkt. No. 4, p. 75 (Pg. ID 1309).
Over the course of the litigation of Jodway I, the Jodways failed to meet
their mortgage obligations. Fifth Third Co. referred the matter to foreclosure and in
June 2014, foreclosure notice was posted. Dkt. No. 4, p. 99 (Pg. ID 110). The
Sheriff’s sale was scheduled for June 27, 2014. Id., p. 730 (Pg. ID 739). Tim
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Jodway filed for Chapter 13 relief in bankruptcy court on June 26, 2014 to stay
Fifth Third Co.’s foreclosure. Id., p. 72 (Pg. ID 82).
Jodway II
On February 11, 2015, while in bankruptcy, the Jodways filed an adversary
proceeding against Fifth Third Co. (“Jodway II”). Id. The Complaint raised the
same allegations they raised in Jodway I. On March 3, 2015, Fifth Third Co.
moved for dismissal. The bankruptcy court dismissed the action on April 13, 2015.
The bankruptcy court issued its opinion from the bench, holding that Count I was
barred by the doctrines of res judicata and collateral estoppel, and that Counts II
and III were not independent causes of action under Michigan law. The Jodways
did not appeal the bankruptcy court’s dismissal of their complaint. The Jodways,
the Trustee, and Fifth Third Co. eventually stipulated to the entry of an Order
Confirming Plan of Restructuring (“the Plan”). As a part of the Plan, the Jodways
agreed to surrender the Property. That order was entered by the bankruptcy court
on May 12, 2015. Fifth Third Co. later again tried to commence foreclosure
proceedings, allegedly in accordance with stipulations in the Plan, but the Jodways
disputed their claim. On April 15, 2016, the State court granted Fifth Third Co.
judgment of foreclosure on the Property in the amount of $945,139.55.
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Jodway III
On April 13, 2016, the Jodways filed a Motion to Reopen the Case, and a
Rule 60 Motion for relief from the April 13, 2015 Judgment (“Jodway III”). On
May 16, 2016, the bankruptcy court heard the parties’ arguments and denied the
motion from the bench. The bankruptcy court denied relief for the “reasons in
[Fifth Third Co.’s] brief” and further held that the Jodways were estopped from
pursuing their fraud claims further because they had already agreed to surrender
the Property as a part of their restructuring. Dkt. No. 6 at 1095 (Pg. ID No. 1116).
On August 29, 2016, this Court affirmed the bankruptcy court’s decision.
Jodway IV
On September 28, 2016, Fifth Third moved to dismiss the Chapter 13 case
for failure to make payments. At that time, Appellant had not made payments since
June 2016. On October 31, 2016, and December 14, 2016, the Jodways filed postconfirmation plan modifications, which Fifth Third objected to.
At a hearing, Fifth Third argued that dismissal was warranted because the
Appellant failed to surrender the property or pay in accordance with the terms of
the confirmed plan. In response, Mr. Jodway argued for the first time that dismissal
was not warranted due to newly discovered evidence regarding one of their loan
applications. The bankruptcy court was not persuaded by Mr. Jodway’s arguments.
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Accordingly, the bankruptcy court dismissed the Chapter 13 case pursuant to 11
U.S.C. 1307(c)(6).
Application # 3
The “newly discovered evidence” mentioned in Jodway IV is referred to as
“Application # 3”. According to the Jodways, Application # 3 is the third rendition
of the Jodway’s loan application. The Jodways contend that the signatures
contained in Application # 3 were illegally obtained in 2005. According to the
Jodways, they did not learn of Application # 3 until March 2016.
The only issue before the Court is whether the bankruptcy court erred by
dissing Mr. Jodway’s bankruptcy case.
II. STANDARD OF REVIEW
“Dismissal of a bankruptcy case is reviewed for abuse of discretion. A
bankruptcy court abuses its discretion when it relies upon clearly erroneous
findings of fact or when it improperly applies the law or uses an erroneous legal
standard. A bankruptcy court’s findings supporting dismissal of a bankruptcy
petition are factual determinations. Findings of fact are reviewed under the clearly
erroneous standard. A finding of fact is clearly erroneous “when although there is
evidence to support it, the reviewing court on the entire evidence is left with the
definite and firm conviction that a mistake has been committed.” In re Eastown
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Auto Co., 215 B.R. 960, 963–64 (B.A.P. 6th Cir. 1998) (internal citations and
quotations omitted).
III. DISCUSSION
On appeal, the Appellant asserts three arguments: (1) violations of the Equal
Credit Opportunity Act; (2) the Doctrine of Unclean Hands; and (3) violations of
due process. As best as the court can tell, it seems that the Appellant is arguing that
the dismissal of their Chapter 13 case was improper because the mortgage was
unlawful in the first instance. None of the Appellant’s arguments have merit.
The Equal Credit Opportunity Act “makes it ‘unlawful for any creditor to
discriminate against any applicant, with respect to any aspect of a credit transaction
[ ] on the basis of ... sex or marital status,’ among other things.” RL BB
Acquisition, LLC v. Bridgemill Commons Dev. Grp., LLC, 754 F.3d 380, 383 (6th
Cir. 2014) (quoting 15 U.S.C. § 1691(a). To establish a prima facie case under
Equal Credit Opportunity Act (ECOA), plaintiff must show that he or she is a
member of a protected class under the statute, that he or she applied for and was
qualified for credit, and that, despite his or her qualifications, plaintiff was denied
credit. Id. The Appellant argues that the ECOA was violated because Mrs. ZankeJodway’s signature on Application # 3 was acquired through fraud and trickery. It
is not entirely clear whether the Appellants are alleging discrimination on the basis
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of sex or marital status. Similarly it is unclear which of the Jodways is claiming to
have been discriminated against.
The doctrine of unclean hands “gives wide range to the equity court’s use of
discretion in refusing to aid the unclean litigant. It is ‘not bound by formula or
restrained by any limitation that tends to trammel the free and just exercise of
discretion.’ ” Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S.
806, 815, 65 S. Ct. 993, 997, 89 L. Ed. 1381 (1945). The Jodways argue that false
statements in the loan application process make the creditor an unclean litigant.
Lastly, due process confers the right to be heard and the duty of the
government to follow a fair process in decision-making when it acts to deprive a
person of his/her possessions. Fuentes v. Shevin, 407 U.S. 67, 80–81 (1983). The
Jodways argue that their right to due process during mortgage validation was
violated because the creditor did not “play by the court rules, nor did they adhere
to the Michigan Rules of Professional Conduct.” Dkt. No. 5, p. 32 (Pg. ID 1351).
Each of the Appellant’s arguments misses the point that this is an appeal
from the bankruptcy court’s dismissal of the Chapter 13 case, not an appeal from
the mortgage itself. The Appellant’s brief fails to cite specific assignments of error
(factual or legal) with respect to the bankruptcy court’s dismissal of the Chapter 13
case. Instead, the Appellant’s brief reads as a laundry list of grievances with the
Jodways’ mortgage and the process through which they negotiated the mortgage.
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To the extent that the Appellant asserts these arguments under the guise of reversal
of dismissal of the Chapter 13 case, each argument is barred by res judicata.
A. Res Judicata
Res judicata dictates that “a final judgment on the merits bars further claims
by parties or their privies based on the same cause of action.” Montana v. U.S., 440
U.S. 147, 153 (1979) (citations omitted). For res judicata to apply, the following
elements must be present:
(1) a final decision on the merits by a court of competent jurisdiction;
(2) a subsequent action between the same parties or their “privies”;
(3) an issue in the subsequent action which was litigated or which
should have been litigated in the prior action; and
(4) an identity of the causes of action.
Bittinger v. Tecumseh Products Co., 123 F.3d 877, 880 (6th Cir. 1997).
Res judicata “bars not only claims already litigated, but also every claim arising
from the same transaction that the parties, exercising reasonable diligence, could
have raised but did not.” Id. (internal quotation marks omitted). Buck v. Thomas M.
Cooley Law Sch., 597 F.3d 812, 817 (6th Cir. 2010).
1. Final Decision on the Merits
In this case, there is a final decision on the merits by a court of competent
jurisdiction. Jodway I constitutes a final decision on the merits. See Jodway v. Fifth
Third Mortg. Co., 557 B.R. 560, 565 (E.D. Mich. 2016) (Sept. 21, 2016) (holding
that Jodway I was dismissed on the merits).
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2. Privity
Jodway I dismissed claims that the creditor fraudulently induced the
Jodways into the mortgage. Given that the same parties to this litigation were the
same parties in Jodway I, there is privity. See Jodway I, supra, (dismissing
Timothy Jodway’s claims against Fifth Third Mortgage Company).
3. Actually Litigated or Should Have Been Litigated
Next, the issues brought up now: ECOA violations, unclean hands, and due
process should have been litigated in Jodway I because each argument presented
now seeks to invalidate the mortgage on some level of allegedly fraudulent
conduct. See id. (discussing Mr. Jodway’s motion for relief from a prior
bankruptcy court order dismissing his fraud claims against mortgage assignee
based on res judicata).
The Appellant seems to suggest that discovery of Application # 3 presents
new facts that make res judicata inapplicable. However, that argument is
unpersuasive. Even if the Court accepts the Appellant’s argument that Application
was not discovered until March 2016, Application # 3 is new evidence, but did not
produce any new material facts. “[R]es judicata should not be a bar to ‘fresh
litigation’ of issues that are appropriately the subject of periodic redetermination as
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is the case with termination proceedings where new facts and changed
circumstances alter the status quo.” In re Pardee, 190 Mich. App. 243, 249, 475
N.W.2d 870, 874 (1991). However, “[i]f the new claim or claims arise from the
same group of operative facts as the previously litigated claim or claims, even if
there are variations in the evidence needed to support the theories of recovery, we
will treat the claims as the same and res judicata will apply.” Green v. Ziegelman,
310 Mich. App. 436, 445 (2015) (citations omitted).
In this case Application # 3 cannot be said to transform this appeal into
“fresh litigation” that changes this case from Jodway I. At most, Application # 3
presents new evidence. But the essential terms, the mortgage amount, interest rates,
repayment schedule, and negotiations, which form the basis of the Appellant’s
ECOA, unclean hands, and due process allegations, were known to the Appellants
at the time of Jodway I. Therefore, the arguments made today could have been
made during Jodway I, even without Application # 3.
4. Identity
Finally, the identity of the causes of actions in this appeal are thematic of the
causes of action in Jodway I. In Jodway I, the Appellant argued that he was
fraudulently induced into the mortgage. The claims here, assert the same theme of
fraudulent inducement, arising out of the same mortgage transaction, against the
same defendant, albeit with slightly different reasoning.
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The four requirements to establish res judicata are met. Even if the Court
liberally construed the Appellant’s brief as appealing the Chapter 13 dismissal
rather than attempting to invalidate the mortgage, the claims on appeal are barred.
IV. CONCLUSION
For the preceding reasons, the Court will AFFIRM the bankruptcy court’s
decision to dismiss the Chapter 13 plan.
SO ORDERED.
Dated: May 31, 2017
s/Gershwin A. Drain__________
HON. GERSHWIN A. DRAIN
United States District Court Judge
Detroit, MI
I hereby certify that a copy of the foregoing document was mailed to the attorneys
of record on this date, May 29, 2017, by electronic and/or ordinary mail.
/s/Felicia Moses for Tanya Bankston
Case Manager, (313) 234-5213
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