Welch v. CitiMortgage, Inc. et al
Filing
31
MEMORANDUM OPINION AND ORDER granting defendants' 10 Motion to Dismiss; Adopt Magistrate Judge's 23 Report and Recommendation. (Written Opinion). Signed by Judge John R. Tunheim on March 18, 2014. (DML)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
CINDY WELCH,
Civil No. 13-1388 (JRT/JJK)
Plaintiff,
v.
CITIMORTGAGE, INC., MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC., MERSCORP HOLDINGS,
INC., and all other persons, unknown
claiming any right, title, estate, interest, or
lien in the real estate described in the
complaint herein,
MEMORANDUM OPINION AND
ORDER ADOPTING THE REPORT
AND RECOMMENDATION OF
THE MAGISTRATE JUDGE
Defendants.
Cindy Welch, 10000 Palm Street N.W., Coon Rapids, MN 55433, pro se.1
John L. Krenn and Kelly W. Hoversten, GRAY PLANT MOOTY
MOOTY& BENNETT, PA, 80 South Eighth Street, Suite 500,
Minneapolis, MN 55402; and Lucia Nale, Maritoni D. Kane, and
Thomas V. Panoff, MAYER BROWN, LLP, 71 South Wacker Drive,
Chicago, IL 60606, for defendants.
This case is one of more than seventy cases in this district where the plaintiff is
represented by William B. Butler – in each, the plaintiffs challenge the validity,
assignment, or foreclosure of their mortgage in an attempt to prevent or frustrate
1
William B. Butler was suspended from the practice of law effective December 26, 2013.
(Order, Miscellaneous Case No. 13-49, Jan. 14, 2014, Docket No. 10.) As a result, the Court
ordered Plaintiff Cindy Welch to either have new counsel enter an appearance on her behalf or
file a statement with the Court indicating an intent to proceed pro se by February 19, 2014.
(Order, Jan. 29, 2014, Docket No. 29.) On February 18, 2014, Welch filed a statement indicating
that “at this time [she is] representing [her]self and currently seeking new counsel.” (Statement,
Feb. 18, 2014, Docket No. 30.)
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foreclosure. Indeed, this is not the first case before the Court where a plaintiff is
represented by William B. Butler and asserting these same legal challenges to personal
mortgages. See, e.g., Sonsalla v. Mortg. Elec. Registration Sys., Inc., Civ. No. 13-659,
2013 WL 4052825 (D. Minn. Aug. 9, 2013).
Plaintiff Cindy Welch brings this action for a determination of adverse claims
under Minn. Stat. § 559.01, declaratory judgment, and slander of title, against defendants
CitiMortgage, Inc. (“CitiMortgage”), Mortgage Electronic Registration Systems, Inc.
(“MERS”), and MERSCORP Holdings, Inc. (collectively, “Defendants”). Defendants
move to dismiss all claims, arguing, among other things, that res judicata bars Welch’s
claims.
United States Magistrate Judge Arthur Boylan issued a Report and
Recommendation (“R&R”) recommending that the Court grant Defendants’ motion to
dismiss and dismiss Welch’s claims with prejudice, and Welch objects. Because it finds
that Welch’s claims are barred by res judicata, the Court will overrule Welch’s
objections, adopt the R&R, and dismiss all claims with prejudice.
BACKGROUND
Welch purchased the property located at 10000 Palm Street NW, Coon Rapids,
MN (the “Property”) and executed a promissory note for the Property secured by a
mortgage in 2007. (Notice of Removal, Ex. 1 (“Compl.”) ¶ 6, June 7, 2013, Doc. No. 1.)
Welch executed the mortgage in favor of MERS, and MERS subsequently assigned the
mortgage to CitiMortgage. (Id. ¶¶ 6, 8.) CitiMortgage began foreclosure proceedings on
the Property and ultimately conducted a Sheriff’s sale on March 4, 2011. (Id. ¶¶ 16-19,
22.)
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Welch initially challenged the foreclosure of her mortgage along with more than
thirty other plaintiffs in two separate actions in Minnesota state court, Jaakola v.
CitiMortgage, and Peterson v. CitiMortgage, both of which were removed to federal
court. See Peterson v. CitiMortgage, Inc., Civ. No. 11-2385, 2012 WL 1971138, at *1
(D. Minn. June 1, 2012) (noting procedural history of both Peterson and Jaakola).
Jaakola was brought first, but the plaintiffs voluntarily dismissed the action and re-filed a
complaint with substantially similar claims, which became the Peterson case. (Compare
Civ. No. 11-2385, Notice of Removal, Exs. 1-2, Aug. 18, 2011, Docket No. 1, with Civ.
No. 11-1272, Notice of Removal, Exs. 1-2, May 16, 2011, Docket No. 1.) Welch and the
other plaintiffs brought the Peterson action against two of the defendants in this action –
CitiMortgage and MERS – and several other defendants, including MERSCORP, Inc.2
Id. In Peterson, as in the present case, Welch challenged the validity of the foreclosure
of her home. (Compare id. at * 1-2 (outlining claims), with Compl. ¶¶ 30-46.) The
Peterson plaintiffs alleged that their mortgages had been invalidly transferred or assigned
to the defendants and asserted that the defendants were neither in possession of nor
otherwise authorized or entitled to enforce the original notes, although no plaintiffs
claimed to be current on their loans. Peterson, 2012 WL 1971138 at *1-*3. Specifically,
Welch, along with the other Peterson plaintiffs, alleged that the foreclosure on her home
was invalid due to defects in the defendants’ title, and she sought declaratory judgment
2
MERSCORP, Inc., a defendant in Peterson but not here, was alleged in Peterson to be
the “record keeper and record custodian” for MERS. (Civ. No. 11-2385, Notice of Removal,
Ex. 1 ¶ 27.) MERSCORP Holdings, Inc., a defendant here but not in Peterson, is alleged to be
the “parent company of MERS.” (Compl. ¶ 5.)
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and brought claims of quiet title, conversion, unjust enrichment, civil conspiracy, breach
of fiduciary duty, fraud, negligent misrepresentation, slander of title, and violation of due
process. Id. at *2.
The Peterson court rejected the argument that the defendants did not own the note
for the plaintiffs’ mortgages and thus could not foreclose on their mortgages, relying on
recent, explicit rejections of this legal theory by the Eighth Circuit and the Minnesota
Supreme Court. Id. at *4 (quoting Jackson v. Mortg. Elec. Registration Sys., Inc., 770
N.W.2d 487, 500 (Minn. 2009); Stein v. Chase Home Fin., LLC, 662 F.3d 976, 980
(8th Cir. 2011)). The court found no legal merit in any of the numerous claims and
dismissed all claims. Peterson, 2012 WL 1971138 at *4-*5. The Eighth Circuit affirmed
the dismissal, see Peterson v. CitiMortgage, Inc., 704 F.3d 548 (8th Cir. 2013), and
Welch did not petition for certiorari to the Supreme Court.
Welch now brings this action for quiet title, declaratory judgment, and slander of
title. Welch challenges the mortgage and foreclosure process on her home, claiming that
all assignments were invalid because the employee of MERS who executed the
assignment did not have the legal authority to do so and “was actually an employee of
CitiMortgage.” (Compl. ¶¶ 8-9.) Welch also alleges that the individuals who executed
the subsequent assignments of the mortgage lacked the authority to do so. (Id. ¶¶ 9, 17,
19.) Because of these defects, Welch contends that the foreclosure sale on her home is
void. (Id. ¶ 30.)
Defendants move to dismiss all claims, arguing that res judicata and collateral
estoppel bar Welch’s claims, that the claims are unsupported by any substantive facts,
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and that each count fails as a matter of law. The Magistrate Judge issued an R&R
recommending that the Court grant Defendants’ motion and dismiss Welch’s claims with
prejudice as barred by res judicata because they were previously litigated in Peterson.
Welch objects to the R&R, raising two specific objections to the R&R’s conclusion that
her claims are barred by res judicata.3 (Objection, Nov. 19, 2013, Docket No. 25.) First,
she argues that she did not have “a ‘full and fair opportunity’ to litigate her claims in
[the] prior case” because the Peterson court “committed the same errors as are present in
Magistrate Boylan’s R&R.” (Id. at 4.) Second, she argues the R&R and the Peterson
decision do not address the fact that MERS now requires its members to foreclose in the
name of or at the express direction of the note owner, a change which occurred four
months after the Jaakola complaint. (Id. at 4-5.) After de novo review, the Court
concludes that none of these objections rescue Welch’s claims from the res judicata bar,
and will adopt the R&R and dismiss Welch’s claims with prejudice.4
3
Welch filed her objections fifteen days after the R&R was issued, which is not within
the fourteen-day deadline for such objections. See D. Minn. LR 72.2(b)(1) (objections must be
filed within fourteen days). Although Welch’s failure to timely object to the R&R is an
independently sufficient basis upon which to overrule her objections, the Court will nevertheless
consider her objections. Cf. Jackson v. U.S. Dep’t of Justice, Civ. No. 09-846, 2010 WL 889884,
at *1 (D. Minn. Mar. 8, 2010).
4
In her objections, Welch raises several arguments regarding issues not addressed in or
relied upon by the R&R, including arguments regarding the burden of proof and whether Welch
defaulted on the note. (Objection at 2-3.) Because the Court concludes, upon de novo review,
that the R&R appropriately concluded that all claims are barred by res judicata, the Court need
not consider Welch’s objections that are not related to the issue of res judicata.
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ANALYSIS
I.
STANDARD OF REVIEW
Upon the filing of a report and recommendation by a magistrate judge, a party
may “serve and file specific written objections to the proposed findings and
recommendations.” Fed. R. Civ. P. 72(b)(2); accord D. Minn. LR 72.2(b)(1). “The
district judge must determine de novo any part of the magistrate judge’s disposition that
has been properly objected to.” Fed. R. Civ. P. 72(b)(3).
II.
RES JUDICATA
“The law of the forum that rendered the first judgment controls . . . res judicata
analysis.” Ashanti v. City of Golden Valley, 666 F.3d 1148, 1151 (8th Cir. 2012) (internal
quotation marks omitted). Under Minnesota law, res judicata operates to bar subsequent
litigation when “(1) the earlier claim involved the same set of factual circumstances;
(2) the earlier claim involved the same parties or their privies; (3) there was a final
judgment on the merits; [and] (4) the estopped party had a full and fair opportunity to
litigate the matter.” Minch Family LLLP v. Buffalo–Red River Watershed Dist., 628 F.3d
960, 966 (8th Cir. 2010) (citing Hauschildt v. Beckingham, 686 N.W.2d 829, 840 (Minn.
2004)). The first factor is satisfied if the subsequent claim arises out of “the same
nucleus of operative facts as the prior claim.” Banks v. Int’l Union Electronic, Elec.,
Technical, Salaried & Mach. Workers, 390 F.3d 1049, 1052 (8th Cir. 2004) (internal
quotation marks omitted); see also Costner v. URS Consultants, Inc., 153 F.3d 667, 673
(8th Cir. 1998) ( “Regarding the ‘same claims or causes of action’ element of claim
preclusion, we have stated that whether a second lawsuit is precluded turns on whether its
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claims arise out of the ‘same nucleus of operative facts as the prior claim.’”) (quoting
United States v. Gurley, 43 F.3d 1188, 1195 (8th Cir. 1994)). Res judicata “bars the
relitigation of issues which were actually litigated or which could have been litigated” in
the first action so long as the party against whom the earlier decision is being asserted
had a “full and fair opportunity to litigate the issue.” Lovell v. Mixon, 719 F.2d 1373,
1376 (8th Cir. 1983) (emphasis in original) (internal quotation marks omitted); see State v.
Joseph, 636 N.W.2d 322, 327 (Minn. 2001).
Here, Welch was a party in two previous lawsuits involving her mortgage
foreclosure, the second of which was dismissed with prejudice because the court found
the claims had no merit. See Peterson, 2012 WL 1971138 at *1, *5 (noting history of
Jaakola case and dismissing the asserted claims with prejudice). The Court concludes
that the Peterson case operates as a res judicata bar to Welch’s claims in the instant case
because all four requirements of res judicata are satisfied and that Welch’s objections do
not alter this analysis.
There is no dispute that the first, second and third requirements of res judicata are
satisfied. (See Objections at 4 (objecting only to the R&R’s finding of a full and fair
opportunity to litigate).)
The operative facts in Peterson surrounded the note and
mortgage on Welch’s house, the assignment of the mortgage, and the foreclosure
proceedings – the same operative facts relevant to this claim; Peterson included the same
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parties involved in this dispute;5 and it was a final judgment on the merits. Peterson,
2012 WL 1971138, aff’d, 704 F.3d 548 (8th Cir. 2013) (no petition for cert. filed).
With regard to the fourth factor, the Court concludes that Welch had a full and fair
opportunity to litigate these claims. Determination of a full and fair opportunity focuses
on whether there were significant procedural limitations in the prior proceeding, whether
the party had the incentive to litigate fully the issue, or whether effective litigation was
limited by the nature or relationship of the parties. Joseph, 636 N.W.2d at 328. Welch
makes no argument that any of these factors indicate that she did not have a full and fair
opportunity to litigate the instance claims. Instead, Welch alleges she was denied a full
and fair opportunity in Peterson because the Peterson court “committed the same errors
as are present in Magistrate Boylan’s R&R.”
(Objections at 4.)
“[A] litigant’s
disagreement with a legal ruling does not necessarily mean that the court denied the
litigant a full and fair opportunity to litigate a matter.” See Joseph, 636 N.W.2d at 329.
Welch’s recourse to a holding she believes is incorrect is an appeal, not a subsequent
action where she asserts she was denied a full and fair hearing because her legal theory
was rejected. Id.
Welch’s other arguments are similarly ineffective. Welch insists CitiMortgage’s
“unsafe and unsound foreclosure practices” and MERS’ new requirement of its members
5
Although one defendant here – MERSCORP Holdings, Inc. – was not party to the
Peterson case, it is sufficiently aligned with the defendants in Peterson, particularly MERS and
MERSCORP, Inc., to satisfy the privity requirement for this prong. Cf. Nelson v. Wells Fargo
Bank Minn., Nat’l Ass’n, Civ. No. 13-2246, 2014 WL 538686, at *3 (D. Minn. Feb. 11, 2014) (in
similar mortgage case, where plaintiff alleged Wells Fargo had been improperly assigned the
mortgage before improperly assigning it to CitiMortgage, which foreclosed upon the mortgage,
“Wells Fargo’s interests with respect to validity of the mortgage are aligned with those of
CitiMortgage and those defendants therefore satisfy the privity requirement”).
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to foreclose in the name of or at the express direction of the note owner indicate MERS’
and CitiMortgage’s guilt and should have been considered in the Peterson decision and in
the R&R. (Objections at 4-5.) However, this argument again alleges that errors were
made in Peterson, which does not bear on whether Welch received a full and fair
opportunity to litigate her claims. See Joseph, 636 N.W.2d at 329.6
Because Peterson involved the same set of factual circumstances and parties, there
was a final judgment on the merits, and Welch had a full and fair opportunity to litigate
the matter, res judicata now bars her from asserting all claims that could have been
litigated in the first action. See, e.g, Lovell, 719 F.2d at 1376; Joseph, 636 N.W.2d at
327. Thus, the Court will grant Defendants’ motion to dismiss Welch’s claims.7
6
Even if this argument were not barred by res judicata, it likely would fail. Welch’s
argument, in essence, is that Defendants agreed to and admitted to undertaking subsequent
remedial measures by making a policy change so that foreclosures are made in the name of the
“note owner” after the Jaakola lawsuit was commenced. (See Objection at 4.) However,
evidence of any such measures would not likely be admissible to prove any liability by
Defendants’ for Welch’s claims. See Fed. R. Evid. 407 (barring use of any subsequent remedial
measures that would have made a prior injury or harm less likely to occur in order to prove
liability for negligence and culpable conduct).
7
Even if the Court were to address the merits of Welch’s claims, those claims are nearly
identical to claims that have repeatedly failed in this district, as the court in Peterson observed:
Plaintiffs’ theory has been rejected by every court to consider it, including both
the Eighth Circuit Court of Appeals and the Minnesota Supreme Court.
Plaintiffs’ counsel has brought more than 30 similar lawsuits in this District, all
alleging that defendant lending institutions had no right to foreclose on
mortgages because those lenders purportedly do not hold the original notes.
Every Judge in this District to have ruled on the merits of these cases has
dismissed them. E.g., Olson v. Bank of Am., Civ. No. 11–3710 (D. Minn.
Apr. 20, 2012) (Magnuson, J.); Dunbar v. Wells Fargo Bank, N.A., Civ. No. 11–
3683, 2012 WL 1110161 (D. Minn. Apr. 3, 2012) (Doty, J.); Welk v. GMAC
Mortg., LLC, Civ. No. 11–2676, 2012 WL 1035433 (D. Minn. Mar. 29, 2012)
(Schiltz, J.); Jerde v. JP Morgan Chase, Civ. No. 11–2666 (D. Minn.)
(Magnuson, J.) (Jan. 24, 2012); Murphy v. Aurora Loan Servs., LLC, Civ.
(Footnote continued on next page.)
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ORDER
Based on the foregoing, and all the files, records, and proceedings herein, the
Court OVERRULES Plaintiff’s objections [Docket No. 25] and ADOPTS the Report
and Recommendation of the Magistrate Judge dated November 4, 2013 [Docket No. 23].
Accordingly, IT IS HEREBY ORDERED that Defendants’ motion to dismiss [Docket
No. 10] is GRANTED and Plaintiff’s claims are DISMISSED with prejudice.
LET JUDGMENT BE ENTERED ACCORDINGLY.
DATED: March 18, 2014
at Minneapolis, Minnesota.
____s/
____
JOHN R. TUNHEIM
United States District Judge
____________________________________
(Footnote continued.)
No. 11–2750, 2012 WL 104543 (D. Minn. Jan. 12, 2012) (Montgomery, J.);
Larsen v. Bank of Am., Civ. No. 11–1775, 2011 WL 6065426 (D. Minn. July 21,
2011) (Davis, C.J.); Butler v. Bank of America, N.A., Civ. No. 11–461, 2011 WL
2728321 (D. Minn. July 13, 2011) (Frank, J.).
Peterson, 2012 WL 1971138 at *2 (footnote omitted).
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