In re Residential Capital, LLC
513 B.R. 446
Bankr. S.D.N.Y.2014Background
- Barry and Cheryl Mack obtained a mortgage in 2006; GMAC Mortgage LLC (GMACM) serviced the loan; Deutsche Bank was trustee of the securitization trust. In 2009 GMACM retained counsel who filed a foreclosure action in Deutsche Bank’s name even though the Macks were current on payments.
- GMACM allegedly told the Macks the foreclosure was a mistake but did not secure dismissal; the Macks sent a Qualified Written Request (QWR) to GMACM on October 26, 2009; GMACM failed to respond within the statutorily required period.
- The Macks filed counterclaims in the Florida foreclosure action; Deutsche Bank’s counsel defaulted, a judgment was entered including RESPA-based emotional-distress damages, but the state court later vacated the RESPA portion and reduced the award; the Macks collected the remaining judgment for slander of title.
- Before the bankruptcy bar date the Macks filed Proof of Claim No. 386 against GMACM seeking over $30 million based largely on the same events; the ResCap Borrower Claims Trust objected and sought expungement.
- The Trust argued res judicata and election-of-remedies barred Mack’s claims (because they were or could have been litigated in the Florida action against Deutsche Bank, GMACM’s privy); Mack argued the QWR-based RESPA claim is a distinct claim that could not properly have been asserted against Deutsche Bank and thus survives.
- The bankruptcy court sustained the objection in part and overruled it in part: it disallowed claims duplicative of the Florida judgment (personal injury, wrongful death, malicious prosecution, IIED, and RESPA based on transfer-notice), but allowed Mack to proceed on a RESPA claim for GMACM’s failure to respond to the October 26, 2009 QWR (and deemed the proof of claim amended to include that claim).
Issues
| Issue | Plaintiff's Argument (Mack) | Defendant's Argument (Trust/GMACM) | Held |
|---|---|---|---|
| Whether res judicata bars Mack’s claims against GMACM arising from the foreclosure and resulting harms | The Florida judgment covered only Deutsche Bank; GMACM was not in privity and is a separate joint tortfeasor, so Mack may pursue distinct claims including emotional/ wrongful-death and malicious prosecution against GMACM | Judgment against Deutsche Bank (GMACM’s privy/agent) precludes relitigation of claims based on the same nucleus of operative facts; allowing suit would permit double recovery | Res judicata bars claims tied to the initiation of the foreclosure and harms already compensated by the Florida judgment (personal injury, wrongful death, malicious prosecution, IIED, and RESPA transfer-notice theory) |
| Whether Mack may assert a RESPA claim in bankruptcy based on GMACM’s failure to respond to the October 26, 2009 QWR | The QWR claim is a separate cause of action that could not properly have been brought against Deutsche Bank (a non-servicer), so res judicata does not bar it | The QWR theory was not in the proof of claim and could have been raised earlier; permitting it now would prejudice the estate and other creditors | The QWR-based RESPA claim is not barred by res judicata; the Court deemed the proof of claim amended to include the QWR claim and overruled the objection as to that portion |
| Whether election of remedies bars the QWR claim | QWR relief is consistent with prior state-court relief; there is no inconsistency that would produce double recovery | A prior judgment should preclude inconsistent subsequent remedies and bar double recovery | Election of remedies does not bar the QWR claim because the Florida court did not resolve or award relief inconsistent with a QWR-based claim against GMACM |
| Whether "actual damages" under RESPA §2605(f) may include non-economic (emotional distress/pain and suffering) damages | RESPA’s term “actual damages” is analogous to FDCPA and should include emotional distress; some circuits and defendants have conceded such damages | RESPA protects informational rights and is not aimed primarily at harms that normally produce emotional distress; Cooper and statutory-context arguments counsel caution | Court concluded emotional-distress damages can be recoverable under §2605(f) in appropriate cases, but Mack faces difficult causation/ proof hurdles given timing of the QWR and the October overdose |
Key Cases Cited
- Burgos v. Hopkins, 14 F.3d 787 (2d Cir. 1994) (res judicata precludes relitigation of issues that were or could have been raised)
- Allen v. McCurry, 449 U.S. 90 (U.S. 1980) (federal courts must give preclusive effect to state-court judgments under full faith and credit)
- In re Enron Creditors Recovery Corp., 370 B.R. 90 (Bankr. S.D.N.Y. 2007) (bar-date and amendment-to-proof-of-claim principles)
- Integrated Res., Inc. v. Ameritrust Co., N.A. (In re Integrated Res., Inc.), 157 B.R. 66 (S.D.N.Y. 1993) (standards for allowing post–bar-date amendments to proofs of claim)
- Mitchell v. Edge, 598 So.2d 125 (Fla. Dist. Ct. App. 1992) (discussing whether judgment against one joint tortfeasor bars suit against another)
- Roberts v. Rockwell Int’l Corp., 462 So.2d 502 (Fla. Dist. Ct. App. 1984) (satisfaction of judgment against one joint tortfeasor may bar subsequent actions against others)
- Houston v. U.S. Bank Home Mortg. Wisconsin Servicing, [citation="505 F. App'x 543"] (6th Cir. 2012) (§2605(f) does not on its face preclude emotional-distress damages; remand for factfinding)
- Catalan v. GMAC Mortg. Corp., 629 F.3d 676 (7th Cir. 2011) (noting concession that RESPA emotional-distress damages are available as actual damages)