In re Jacobs

In re: MICHAEL JACQUES JACOBS, f/d/b/a Michael Jacques Jacobs Photojournalism, Debtor.

No. 19-12591-j11

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW MEXICO

February 4, 2021

MEMORANDUM OPINION

THIS MATTER is before the Court on the Motion for Issue/Claim Preclusion ("Motion") filed by DLJ Mortgage Capital, Inc. ("DLJ Mortgage"). See Doc. 94. DLJ Mortgage asserts under the Rooker-Feldman doctrine and the doctrines of claim preclusion and issue preclusion that Debtor is precluded from challenging DLJ Mortgage's standing to seek stay relief by relitigating certain issues previously litigated and decided in state court. Debtor opposes the Motion on a variety of grounds.¹ For the reasons explained below, the Court determines that issue preclusion prevents Debtor from relitigating whether DLJ Mortgage has standing to seek relief from the automatic stay in this bankruptcy case. Accordingly, the Court will grant the Motion.

FACTS

Debtor Michael Jacques Jacobs filed a voluntary petition under chapter 11 of the Bankruptcy Code on November 13, 2019. See Doc. 1. Debtor listed in his bankruptcy schedules an interest in real property located at 800 Calle Divina NE, Albuquerque, New Mexico (the "Property"). Before Debtor filed this bankruptcy case, DLJ Mortgage filed a complaint for inrem foreclosure of the Property in the Second Judicial District Court, State of New Mexico, County of Bernalillo, styled DLJ Mortgage Capital, Inc. v. Ruby Handler Jacobs a/k/a Ruby Jacobs, Michael Jacobs, et al., Case No. D-2020-CV-2012-09237 (the "State Court Action"). Selene Finance, LP was later added as a plaintiff in the State Court Action. Following a trial on the merits in the State Court Action, the state court entered detailed Findings of Fact and Conclusions of Law on July 13, 2017. See Motion, Exhibit 2.² The Findings of Fact and Conclusions of Law include the following fact findings:

The right to enforce the Note was acquired by Plaintiff DLJ Mortgage Capital, Inc. On September 21, 2011, the loan was acquired by Plaintiff DLJ Mortgage Capital, Inc. from U.S. Bank as Trustee for Maiden Trust. Exhibit 2-fact finding ¶ 50.

On January 31, 2012, the Flow Subservicing Agreement (the "Agreement") was entered into between Selene Finance LP, as Servicer, and DLJ Mortgage Capital, Inc. as Company, and Selene CS Participation, LLC as Participant. Exhibit 2-fact finding ¶ 54.

The Agreement provides that Selene Finance LP as servicer was authorized to prosecute foreclosures in its name as servicer on behalf of both DLJ [Mortgage Capital, Inc.] and Selene CS Participation, and an accompanying Limited Power of Attorney authorizing Selene Finance LP, as an agent for DLK [sic] and Selene CS, to effect legal process of foreclosure for DLJ [Mortgage Capital, Inc.] and Selene CS Participation was executed to that effect. Exhibit 2-fact finding ¶ 55.

DLJ [Mortgage Capital, Inc.] and Selene CS Participation own the asset [referring to the note ("Note") and the mortgage ("Mortgage") encumbering the Property] together in its entirely [sic] with each holding a 50% beneficial interest." Exhibit 2-fact finding ¶ 56.

The Mortgage transfer to DLJ Mortgage Capital, Inc. was immortalized through the Assignment of Mortgage dated April 19, 2013 and recorded on May 3, 2011 as Document No. 2011041902 in the records of Bernalillo County. Exhibit 2-fact finding ¶ 59.

The Findings of Fact and Conclusions of Law include the following conclusions of law:

Though the original Note was lost, the Court heard testimony and admitted Exhibits, which establish that Plaintiff has standing to bring the foreclosure suit as a purchaser of the right to enforce the subject loan. Exhibit 2-conclusion of law ¶ 3.

Plaintiffs are declared to be the holders of a first priority lien on the property described in the mortgage, to which the interests of all Defendants herein and all persons claiming under Defendants are subordinate and inferior and said interests should be foreclosed. Exhibit 2-conclusion of law ¶ 7.

After entry of the Findings of Fact and Conclusions of Law, the state court entered a "Final Judgment on the Merits as a Result on the Trial on August 31, 2016, Stipulated In Rem Foreclosure Judgment as to Defendant, Jonathan Gitlen, in his Capacity as Personal Representative of the Estate of Howard Gitlen, Deceased, Default Foreclosure Judgment, and Order for Foreclosure Sale" ("State Court Judgment") in the State Court Action on June 5, 2018. Motion-Exhibit 1. The State Court Judgment incorporated the Findings of Fact and Conclusions of Law by reference. Motion-Exhibit 1, p. 2. The State Court Judgment determined that "Plaintiffs are the real parties in interest with regard to the subject Note and under the Uniform Commercial Code, as adopted in New Mexico, is [sic] entitled to enforce said Note and foreclosure [sic] the Mortgage based upon the default of payments on the Note." Motion-Exhibit 1, ¶ C.

On April 4, 2020, DLJ Mortgage filed in this bankruptcy case a Motion for Relief from the Automatic Stay and for the Abandonment of Property; Motion for in rem Relief Pursuant to 362(d)(4) by DLJ Mortgage Capital, Inc. ("Motion for Relief from Stay"-Doc. 27). Debtor objected to the Motion for Relief from Stay on April 27, 2020. See Doc. 33. The Court set a final hearing on the Motion for Relief from Stay on August 27, 2020, and fixed a discovery completion deadline of July 31, 2020. See Order Resulting from Preliminary Hearing Held May 20, 2020-Doc. 39. Debtor failed to timely complete discovery and to file expert reports andwitness lists, and filed motions to extend time to respond to discovery served by DLJ Mortgage and to extend the discovery period, extend the time to file expert reports and witness lists, and to accept witness and exhibit lists filed out of time. See Doc. 62 and Doc. 70. DLJ Mortgage filed a counter-motion seeking to compel Debtor to attend a deposition and to compel Debtor to provide access to the interior of the Property for inspection. See Doc. 73. The parties agreed to continue the final hearing on the Moton for Relief from Stay until after the court decided the pending motions. See Doc. 79.

On September 16, 2020, the Court held a hearing on Debtor's motions and DLJ Mortgage's motion to compel. Among other things, the Court ruled that Debtor's late filed witness and exhibit lists would be deemed timely filed, ruled on the motion to compel, and set a continued scheduling conference on the Motion for Relief from Stay on September 30, 2020. See Doc. 88.

At the continued scheduling conference, held September 30, 2020, DLJ Mortgage asserted that its standing to file the Motion for Relief from Stay had been established by the State Court Judgment. The Court fixed deadlines for DLJ Mortgage to file a motion and for Debtor to file a response regarding that issue. See Order Resulting from Preliminary Hearing and Scheduling Conference held September 30, 2020 ("9/30/20 Scheduling Order")-Doc. 93. At the September 30, 2020 scheduling conference, Debtor did not ask to take discovery regarding whether DLJ Mortgage's standing has been established by the State Court Action. On October 21, 2020, DLJ Mortgage timely filed the Motion with supporting authorities alleging that the State Court Judgment barred Debtor from challenging DLJ's Mortgage under Rooker-Feldman, claim preclusion and issue preclusion. See Doc. 94. Debtor timely filed an objection onNovember 15, 2020. See Doc. 98. Debtor did not ask the Court for permission to take additional discovery on the issues raised in the Motion either before or after Debtor filed the objection.

DISCUSSION

DLJ Mortgage asserts that Rooker-Feldman doctrine, claim preclusion, and issue preclusion bar Debtor from relitigating whether DLJ Mortgage has standing to enforce the Note and Mortgage.³

I. Threshold Issues Raised in Debtor's Objections

Debtor raises the following arguments in opposition to the Motion asking the Court to deny the Motion without reaching the merits of whether the Rooker-Feldman doctrine, claim preclusion, or issue preclusion establish DLJ Mortgage's standing to seek stay relief: 1) DLJ Mortgage's preclusion arguments are untimely; 2) DLJ Mortgage has not filed a proof of claim in this bankruptcy case, so it is not a party in interest; and 3) DLJ Mortgage is not entitled to seek relief from the automatic stay because at most it only holds a 50% interest in the underlying Note, and the alleged co-owner has not joined in the Motion for Relief from Stay. The Court will address these threshold issues before examining DLJ Mortgage's Rooker-Feldman, claim preclusion, and issue preclusion arguments.

A. Timeliness of DLJ Mortgage's Preclusion Arguments

Debtor asserts that DLJ Mortgage waived its preclusion arguments because it failed to timely assert them. Debtor complains further that he could have addressed such arguments through discovery had DLJ Mortgage timely asserted its issue preclusion arguments and questions the timing of the Motion which DLJ Mortgage filed after it filed the Motion for Relief from Stay.

Debtor raised the issue of DLJ Mortgage's standing at a preliminary hearing on the Motion for Relief from Stay held on May 20, 2020.⁴ DLJ Mortgage would have no reason to raise its preclusion arguments until after Debtor challenged its standing to file the Motion for Relief from Stay. Following that hearing, the Court issued a scheduling order which fixed a discovery completion deadline of July 31, 2020. See Order Resulting from Preliminary Hearing Held May 20, 2020-Doc. 39. The Court did not hold the final hearing on the Motion for Relief from Stay originally scheduled for August 27, 2020 for several reasons.⁵ Instead, the Court held a continued preliminary hearing and scheduling conference on September 30, 2020. At that hearing, the Court suggested that if DLJ Mortgage intended rely on documents filed in the State Court Action to establish its standing to file the Motion for Relief from Stay, DLJ Mortgage should file...