Brown v. Newrez LLC

Judith V Brown, Plaintiff, v. NEWREZ LLC, et al., Defendants.

No. CV-19-02889-PHX-DWL

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

October 22, 2019

ORDER

In May 2012, Plaintiff Judith Brown stopped making payments on the nearly $1 million mortgage on her home in Paradise Valley, Arizona. Since then, Brown has filed a series of lawsuits and bankruptcy proceedings in an attempt to stave off foreclosure. This is the latest such lawsuit. Now pending before the Court are motions to dismiss filed by Defendants Bank of America (Doc. 9) and Newrez LLC (doing business as Shellpoint) (Doc. 13), as well as Brown's motion to amend her complaint (Doc. 25). As explained below, the Court will grant the motions to dismiss, deny the motion to amend, and terminate this action.¹

BACKGROUND

The facts as alleged in the complaint, and as established though the exhibits attached to the complaint, Shellpoint's unopposed request for judicial notice (Doc. 14), andShellpoint's unopposed supplemental request for judicial notice (Doc. 27),² are as follows.

I. Brown's Lawsuits And Bankruptcy Proceedings

In May 2004, Brown borrowed $999,999 to refinance her home in Paradise Valley, Arizona. (Doc. 1-1 at 4-14; Doc. 14-1 at 3-4 ¶ 8, 38-41.)

In May 2012, Brown filed a petition for Chapter 11 bankruptcy. (Doc. 14-1 at 9 ¶ 33; Doc. 14-2 at 19-20.) Around this time, Brown stopped making her monthly mortgage payments. (Doc. 14-2 at 59; Doc. 14-3 at 11.)

In April or May 2016 (after Brown's Chapter 11 plan had been confirmed), Brown received a letter from Shellpoint stating that she was in default and that foreclosure proceedings would be initiated in 30 days. (Doc. 14-1 at 10 ¶¶ 39, 42.)

In June 2016, Brown filed a lawsuit in Maricopa County Superior Court asking that the court "quiet title on the home and order that any and all lien(s) held by the defendant(s) be released." (Doc. 27-1 at 1.)

In November 2016, after the case was removed to federal court, Brown stipulated to the dismissal of the case without prejudice. (Doc. 27-1 at 16.)

In March 2017, Brown received a notice of trustee's sale of her home. (Doc. 1-1 at 2-3; Doc. 14-1 12 ¶ 50.) The sale was originally scheduled for June 29, 2017 but was then rescheduled.

On August 17, 2018, Brown filed a lawsuit against Shellpoint and certain other defendants in Maricopa County Superior Court and also sought a temporary restraining order ("TRO") to prevent those defendants from pursuing a trustee's sale. (Doc. 14-3 at 20.)

In October 2018, following an evidentiary hearing, the trial court denied the TRO request. (Id.) Specifically, the court found that "[a]ll of Plaintiff's claims for relief appear to be based upon the argument that somehow, despite not making any payments on her mortgage since 2012, and eight years into a 30-year mortgage, she is now absolved from making any future payments and may continue to retain possession of her residence." (Doc. 8 at 3, citation omitted.)

In November 2018, Brown filed a first amended complaint in the state-court action, arguing that a complex chain of transfers resulted in none of the defendants in that case (including Shellpoint) having the power to foreclose on her home. (Doc. 14-1 at 20 ¶¶ 109-110; Doc. 14-1 at 32.)

On January 2, 2019, Brown filed another TRO request in the state-court action. (Doc. 14-3 at 20-21.)

On January 7, 2019, the trial court denied the second TRO request. (Id.)

On April 2, 2019, the trial court issued an order dismissing Brown's first amended complaint "with prejudice." (Doc. 14-3 at 10-18.)

On May 7, 2019, Brown filed this lawsuit (which is summarized in more detail in Part II below) and also sought a TRO from this Court. (Doc. 1.)

On May 8, 2019, this Court denied Brown's TRO request. (Doc. 8.)

On May 9, 2019, Brown filed a petition for Chapter 13 bankruptcy. (Doc. 27-1 at 17-24.)

II. The Current Lawsuit

The complaint, which Brown filed pro se, alleges that, throughout the course of the state-court litigation, Brown exchanged text messages with a person who identified himself as "Winston Wallace." (Doc. 1 at 3 ¶ 4; Doc. 1-1 at 25-43 [text message chain].) The complaint alleges that an unspecified person gave Wallace's name to Brown as "a recommendation for a point of contact to [Shellpoint] for help in obtaining a loan modification of some sort, or in the alternative, negotiate an extension of payments while she was attempting to . . . bring the loan current on her house." (Doc 1 at 3 ¶ 4.) Thecomplaint further alleges that Brown, while operating under the assumption that Wallace was a representative or agent of Shellpoint, made multiple payments to Wallace over the span of 18 months, ultimately amounting to $20,000. (Doc. 1 at 3 ¶¶ 4-7.) Finally, the complaint alleges that the money Brown sent to Wallace was never applied toward Brown's loan balance; instead, "Defendants . . . apparently decided to take the proceeds for themselves into their personal bank accounts." (Id. at 1.)

Based on these allegations, the complaint asserts two causes of action: (1) a claim for "negligent misrepresentation," premised on the theory that "Defendant . . . failed to disclose the material fact that those payments [to Wallace] were actually not going to the lender in any capacity" and that "lenders [sic] agents intercepted these payments . . . for their own personal use" (id. at 4); and (2) a claim for "consumer fraud," premised on the theory that "Defendants made misrepresentations that they were collecting on behalf of the lender and concealed the material fact that they intended to keep her money" (id. at 5).

On May 29, 2019, Bank of America filed a Rule 12(b)(6) motion, arguing that none of Brown's allegations have anything to do with Bank of America. (Doc. 9.)

On June 6, 2019, Shellpoint filed a motion to dismiss, arguing that Brown's claims are barred by claim preclusion, fail to state a claim under Rule 12(b)(6), and are insufficiently pleaded under Rule 9(b). (Doc. 13.) After both motions had been filed, and now with the assistance of counsel, Brown filed responses to both motions as well as a motion to amend her complaint. (Docs. 20, 21, 22, 25.) Both Bank of America and Shellpoint oppose the motion to amend. (Docs. 28, 29.)

ANALYSIS

I. Shellpoint's Motion to Dismiss

Shellpoint raises three arguments in its motion to dismiss. First, Shellpoint argues that Brown's claims in this case are barred by claim preclusion because they could have been brought in her state-court action. (Doc. 13 at 5.) Second, Shellpoint argues the complaint relies on conclusory allegations, fails to allege sufficient facts to support either cause of action, and is insufficient under Iqbal and Twombly. (Id. at 4-5, 8-9.) And third,Shellpoint argues that the complaint contains fraud-based claims that are insufficiently pleaded under Rule 9(b). (Doc. 13 at 7-8.) As explained below, the Court disagrees with the first argument but agrees with the second, and thus does not reach the third.

A. Claim Preclusion

"Claim preclusion, often referred to as res judicata, bars any subsequent suit on claims that were raised or could have been raised in a prior action." Cell Therapeutics, Inc. v. Lash Grp., Inc., 586 F.3d 1204, 1212 (9th Cir. 2009). "Under the doctrine of claim preclusion, a final judgment forecloses 'successive litigation of the very same claim, whether or not relitigation of the claim raises the same issues as the earlier suit.'" Olivas-Motta v. Whitaker, 910 F.3d 1271, 1279 (9th Cir. 2018) (citation omitted). Similarly, claim preclusion "bars all grounds for recovery which could have been asserted, whether they were or not, in a prior suit between the same parties on the same cause of action." Clark v. Bear Stearns & Co., 966 F.2d 1318, 1320 (9th Cir. 1992). "Claim preclusion 'applies when there is (1) an identity of claims; (2) a final judgment on the merits; and (3) identity or privity between the parties.'" Cell Therapeutics, 586 F.3d at 1212 (citation omitted).

The second and third elements are clearly met here. Shellpoint was a defendant in Brown's state-court litigation and that action was dismissed with prejudice, which is equivalent to a final judgment on the merits. Airfreight Exp. Ltd. v. Evergreen, 158 P.3d 232, 237 (Ariz. Ct. App. 2007). See also Ariz. R. Civ. P. 41(b). All that remains is whether there is an identity of claims.

Although Shellpoint focuses on the "same transactional nucleus of fact" test for identity of claims, this Court must apply "the res judicata rule of the jurisdiction that heard the initial case." Howard v. City of Coos Bay, 871 F.3d 1032, 1039-40 & n.2 (9th Cir. 2017). That means Arizona law applies, and in Arizona the test for identity of claims remains the "same evidence" test articulated in the Restatement (First) of Judgments § 61. Lawrence T. v. Ariz. Dept. of Child Safety, 438 P.3d 259, 265 (Ariz. Ct. App. 2019). See also Five Points Hotel Partnership v. Pinsonneault, 835 F. Supp. 2d 753, 760 (D. Ariz. 2011) ("To determine the preclusive effect of a state court judgment, the Court looks tostate law. . . . Arizona uses the 'same evidence' test for determining whether an action is the same cause of action for res judicata purposes.") (citations omitted). Arizona's "rather restrictive" test for same evidence is "[i]f no additional evidence is needed to prevail in the second action than that needed in the first, then the second action is barred." Phoenix Newspapers, Inc. v. Ariz. Dept. of Corrections, 934 P.2d 801, 804 (Ariz. Ct. App. 1997). This "narrow" approach to claim preclusion allows a second claim to proceed if there is a "new theory in [the] second action, supported by some additional facts." Id. at 805.

Here, Brown has presented both a new theory and some new facts. Brown's state-court litigation focused on a sequence of sales of her loan to various entities and her ultimate theory in that case was that, as a result of those sales, no one with the authority to order a trustee's sale could be identified....