623 B.R. 825
1st Cir. BAP2021Background
- Kittery Point Partners, LLC (KPP) acquired property subject to an earlier Wells Fargo mortgage; a $600,000 promissory note and mortgage were executed in 2005 in favor of Middlebury Equity Partners (MEP), allegedly to fund payoff of Wells Fargo and a cash advance to KPP. KPP later alleged MEP never advanced funds and Wells Fargo was not paid.
- Bayview purchased the Note and Mortgage from MEP in 2005 and later sought to foreclose after KPP defaulted; KPP entered a 2009 Delinquency Repayment Agreement (DRA) signed by KPP’s manager that: (a) expressly acknowledged the authenticity and validity of the loan documents and indebtedness, (b) released Bayview from any and all claims relating to the loan, and (c) contained a savings clause preserving certain loan-document rights.
- KPP sued in Maine state court (seeking declaratory relief that the Note and Mortgage were invalid for lack of consideration). The superior court granted summary judgment for Bayview holding the DRA’s broad release barred KPP’s challenge; the Law Court affirmed the final judgment.
- KPP filed Chapter 11 and objected to Bayview’s proof of claim (POC), and also brought an adversary complaint seeking disallowance of Bayview’s claim on grounds including failure/lack of consideration and that KPP did not legally exist when the instruments were executed.
- The bankruptcy court consolidated the matters, excluded KPP’s evidence as irrelevant, and held Bayview’s POC was prima facie valid and unrebutted because (1) the DRA’s release barred KPP’s challenges and (2) the state-court final judgment precluded relitigation. The court allowed Bayview’s secured claim (~$1.67M) and entered judgment for Bayview in the adversary proceeding.
Issues
| Issue | Plaintiff's Argument (KPP) | Defendant's Argument (Bayview) | Held |
|---|---|---|---|
| Whether KPP may relitigate in bankruptcy the validity/enforceability of the Note & Mortgage despite the state-court judgment | State-court ruling did not decide amounts advanced/owed; bankruptcy issues arise under federal law and are not barred | State-court final judgment and claim preclusion bar relitigation of the same transaction and claims | Barred: Maine claim preclusion applies; state-court final judgment precludes KPP’s challenges |
| Whether the DRA release precludes KPP’s challenges to the loan documents | The DRA’s savings clause permits KPP to pursue failure-of-consideration claims | The DRA unambiguously acknowledged validity and released “any and all claims,” extinguishing KPP’s right to contest the loan | Release is unambiguous and enforceable; it bars KPP’s claims |
| Whether KPP presented substantial evidence to rebut Bayview’s prima facie proof of claim | Proffered deposition/testimony would show no funds were advanced and Bayview knew it, rebutting the POC | POC complied with Rule 3001; KPP’s evidence was irrelevant and barred by release/preclusion | KPP failed to present substantial evidence equal in force to rebut the POC; exclusion of evidence was not an abuse of discretion |
| Whether exceptions to claim preclusion (Restatement §26(1)(d),(e)) save KPP’s claims | Exceptions apply to allow bankruptcy/federal scheme or claims based on continuing performance not ripe earlier | Exceptions were not raised below and do not apply; issues were litigable in state court | Argument waived on appeal; exceptions not considered; preclusion stands |
Key Cases Cited
- Ritzen Grp., Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582 (U.S. 2020) (finality of orders)
- Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (U.S. 2015) (what constitutes a final order in bankruptcy)
- In re Plourde, 418 B.R. 495 (B.A.P. 1st Cir. 2009) (proof of claim filing and Rule 3001 standards)
- Juniper Dev. Grp. v. Kahn (In re Hemingway Transp., Inc.), 993 F.2d 915 (1st Cir. 1993) (objector must produce substantial evidence to rebut prima facie claim)
- Allegheny Int’l, Inc. v. 954 F.2d 167 (3d Cir. 1992) (evidence equal in force required to overcome prima facie validity)
- Pisnoy v. Ahmed (In re Sonus Networks, Inc.), 499 F.3d 47 (1st Cir. 2007) (state judgments given same preclusive effect in federal court)
- Fed. Nat’l Mortg. Ass’n v. Deschaine, 170 A.3d 230 (Me. 2017) (Maine law on claim preclusion)
- Bank of N.Y. Mellon v. Re/Max Realty One, 91 A.3d 1059 (Me. 2014) (contract interpretation; unambiguous agreements construed by their plain language)