Opinion
Civil Action 4:21-cv-0815-TLW-TER
07-23-2024
BRAD R. JOHNSON, Plaintiff, v. PENNYMAC LOAN SERVICES, LLC, STANDARD GUARANTY INSURANCE COMPANY, and ASSURANT, INC, Defendant.
REPORT AND RECOMMENDATION
Thomas E. Rogers, III United States Magistrate Judge
I. INTRODUCTION
Plaintiff, who is proceeding pro se, brings this action alleging claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq., the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., and the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2607, et seq., as well as a state law claim for breach of contract accompanied by fraud. All pretrial proceedings in this case were referred to the undersigned pursuant to the provisions of 28 U.S.C. § 636(b)(1)(A) and (B) and Local Rule 73.02(B)(2)(d), DSC. This Report and Recommendation is entered for review by the District Judge.
II. PROCEDURAL HISTORY
Previously in this action, Defendant PennyMac Loan Services, LLC filed Motion to Dismiss, arguing lack of personal jurisdiction and abstention. Defendants Assurant Inc. and Standard Guaranty Insurance Company filed a Motion to Dismiss arguing res judicata. Both motions were based, at least in part, on the fact that Plaintiff was already litigating the same claims against the same parties in the Forsyth County District Court. Although a ruling had already been entered dismissing Plaintiff's claims in that case, other claims remained pending. In the Report and Recommendation, the undersigned noted that all of the requirements for res judicata to apply to the present case were present except for the finality requirement because other claims remained pending in the Forsyth County District Court. See Report and Recommendation (ECF No. 53) p. 10,n. 2. Applying the Colorado River abstention doctrine, the undersigned recommended denying the res judicata motion as premature and staying the case pending the outcome of the Forsyth County District Court case. The Report and Recommendation was adopted by the District Judge and the case was stayed. Report and Recommendation (ECF No. 53); Order (ECF No. 61).
Subsequent to the stay in this case, PennyMac voluntarily dismissed the remaining claim it had against Plaintiff in the Forsyth County District Court case without prejudice. Plaintiff then filed an appeal of the dismissal of his counterclaims/third-party claims. The North Carolina Court of Appeals affirmed the trial court's dismissal of Plaintiff's counterclaims/third-party claims. See Opinion (ECF No. 66-1). Plaintiff moved for the Court of Appeals to reconsider the panel's opinion en banc. On May 23, 2023, the motion was denied. See Order on Motion for En Banc Rehearing (ECF No. 72-4). Plaintiff then filed a Petition for Discretionary Review with the North Carolina Supreme Court, which was denied on December 13, 2023. See PennyMac Loan Servs., LLC v. Johnson, No. 145P23, 2023 WL 8716463, at *1 ( N.C. Dec. 13, 2023). Plaintiff moved to lift the stay in this case while the Forsyth County District Court case was pending before the North Carolina Supreme Court. On December 21, 2023, the undersigned entered an Order (ECF No. 77) lifting the stay and directing the parties to file supplemental briefs on the res judicata issue.
Set forth in more detail below.
III. FACTS
Plaintiff purchased Lots 16 and 18, Block 186, Section N-6, Long Beach (now Oak Island), North Carolina. Compl. ¶ 6. Lots 16 and 18 were improved with a residence. Compl. ¶ 7. Plaintiff purchased homeowners and flood insurance coverage for the house located on Lots 16 and 18 from Farm Bureau Insurance Company. Compl. ¶ 7. Subsequently, Plaintiff purchased Lots 13, 15 and 17, Block 186, Section N-6, Long Beach (now Oak Island), North Carolina. Compl. ¶ 8. Lots 13, 15 and 17 are vacant lots. Compl. ¶ 9. Plaintiff later combined all Lots (collectively, the Property) for tax and assessment purposes. Compl. ¶ 9. In June 2013, Plaintiff applied for a loan from Weststar Mortgage, Inc., and an appraisal was conducted on the combined Property, including the improved residence. Compl. ¶¶ 10-11. Johnson's loan application was approved (2013 Loan), and a Deed of Trust was recorded. Compl. ¶ 22. The Deed of Trust purports to encumber only Lots 13, 15 and 17, i.e., the vacant lots. Compl. ¶ 20. Later in 2013, the Weststar Mortgage was sold to PennyMac. Comp. ¶ 23.
From the inception of the 2013 Loan until September 20, 2017, first Weststar and then PennyMac created and maintained an escrow account and used the escrowed funds to pay for homeowners and flood insurance coverage for the house. Compl. ¶¶ 10, 26. On September 20, 2017, Plaintiffcalled PennyMac and requested that it discontinue paying for the homeowners and flood insurance because it had a lien on vacant land only. Compl. ¶¶ 10, 26. PennyMac's representative responded that he would look into the situation. Compl. ¶¶ 26. In April of 2018, PennyMac paid to renew the homeowner's insurance. Compl. ¶ 28. Subsequently, PennyMac informed Plaintiff that it would close the escrow account but he was still required to pay for property insurance. Compl. ¶ 29.
In September of 2018 and after, Plaintiff corresponded with PennyMac, who allegedly told him that if he separated Lots 16 and 18 (those on which the house is located) from Lots 13, 15, and 17 (the vacant lots), it would not require him to maintain property insurance coverage on the vacant land, but would continue to require flood insurance. Compl. ¶ 31. On March 22, 2019, Plaintiff separated the vacant lots from Lots 16 and 18. Compl. ¶ 32.
In May and June of 2019, PennyMac sent Plaintiff letters informing him that his homeowners insurance had expired and requested that he purchase homeowners' insurance. Plaintiffstated that he could not purchase homeowner's insurance for vacant land. Compl. ¶¶ 34-35. Therefore, PennyMac purchased lender-placed homeowners' insurance coverage for the home from Defendant SGIC and funded the insurance through the 2013 Loan's escrow account, resulting in an increased monthly payment. Compl. ¶¶ 36-37.
On or about August 20, 2019, Plaintiffwrote a complaint letter regarding PennyMac and SGIC to the North Carolina Commissioner of Banks and the North Carolina Department of Insurance wherein he asserted that the lender placed hazard coverage was improper because PennyMac did not have an insurable interest in the dwelling on which insurance coverage was placed. Compl. ¶ 38. SGIC responded to the complaints by stating that PennyMac is the only party who can address any loan servicing concerns Plaintiff might have, including the issue of insurable interest, and that “[s]hould the loan record be updated to signify that the aforementioned lender placed policy was not necessary, a cancellation will occur and the premium will be refunded to PennyMac (for deposit into [Plaintiff]'s escrow account).” Compl. Ex. 22 (ECF No. 1-22). PennyMac responded with a letter explaining that (i) while the Deed of Trust was prepared with Lots 13, 15 and 17 only in the legal description, Johnson's loan application states that the purpose of the loan was to refinance a then-existing loan encumbering the house on Lots 16 and 18, and (ii) PennyMac had made a title insurance claim to resolve the drafting error in the Deed of Trust's legal description. Compl. Ex. 21 (ECF No. 1-21). In addition, PennyMac also stated that it would not seek payment for homeowners insurance premiums from Plaintiff until the title issue was resolved and that it would remove the insurance premium from Plaintiff's escrow account. Compl. Ex. 21 (ECF No. 1-21).
In January 2020, PennyMac commenced an action in Forsyth County District Court to reform Plaintiff's Deed of Trust to include Lots 13, 15, 16, 17, and 18. Complaint ¶ 44. On February 21, 2020, Plaintiff filed a counterclaim/third party claim against PennyMac, SGIC, and Assurant, asserting violations of the RICO, in particular 18 U.S.C. § 1962(c) & (d), against all defendants, as well as claims for breach of contract and violation of the FDCPA against PennyMac, and removed the entire action to the Middle District of North Carolina. PennyMac Loan Services, LLC. v. Johnson, Case No. 20-cv-175 (M.D.N.C). Thereafter, Plaintiff amended his initial counterclaim. The Middle District of North Carolina remanded the case back to Forsyth County District Court, PennyMac Loan Servs., LLC v. Johnson, 2021 WL 861530, at *7 (M.D. N.C. Mar. 8, 2021), where it was subsequently transferred to the Forsyth County Superior Court.
Defendants moved to dismiss the counterclaims and Plaintiff moved to further amend his counterclaims, to which Defendants objected. On May 24, 2021, the Forsyth County Superior Court denied Plaintiff's motion for leave to amend his counterclaims as futile and dismissed with prejudice Plaintiff's counterclaims. Forsyth County Order (ECF No. 30-1). On March 10, 2022, PennyMac voluntarily dismissed its complaint to reform Plaintiff's Deed of Trust.
Plaintiff then filed an appeal of the dismissal of his counterclaims/third-party claims. The North Carolina Court of Appeals affirmed the trial court's dismissal of Plaintiff's counterclaims/third-party claims. See Opinion (ECF No. 66-1). Plaintiff moved for the Court of Appeals to reconsider the panel's opinion en banc. On May 23, 2023, the motion was denied. See Order on Motion for En Banc Rehearing (ECF No. 72-4). Plaintiff then filed a Petition for Discretionary Review with the North Carolina Supreme Court, which was denied on December 13, 2023. See PennyMac Loan Servs., LLC v. Johnson, No. 145P23, 2023 WL 8716463, at *1 (N.C. Dec. 13, 2023).
IV. DISCUSSION
As noted above, Defendants SGIC and Assurant previously moved to dismiss this case on res judicata grounds. PennyMac's motion did not argue res judicata. Nevertheless, the res judicata defense has already been fully briefed by SGIC, Assurant, and Plaintiff. The court dismissed the motions based on res judicata as premature at that time. However, the undersigned noted in his Report and Recommendation:
All of the requirements for res judicata to apply are present except for the finality requirement. See Du Phan v. Clinard Oil Co., 798 S.E.2d 812 (N.C. Ct. App. 2017) (setting forth the elements necessary to apply res judicata). Although the Forsyth County order dismissing Plaintiff's counterclaims/third-party claims is on the merits and with prejudice, it is not a final judgment for res judicata purposes because the deed reformation portion of the Forsyth County case is still pending. See, e.g., State v. Smith, 221 N.C.App. 246, 2012 WL 1995291, *3 (Ct. App. 2012) (finding that an order granting partial summary judgment did not become a final judgment on the merits for res judicata purposes until all of the remaining claims in the case were voluntarily dismissed); Green v. Dixon, 528 S.E.2d 51, 55 (N.C. Ct. App. 2000), affd 535 S.E.2d 356 (N.C. 2000) (per curiam) (holding that an order granting summary judgment in favor of third-party defendants was a final judgment for res judicata purposes because the other claims in the case had been voluntarily dismissed).
Report and Recommendation p. 10 n. 2. The Forsyth County District Court case has now been closed and appeals denied at all levels of review in the state court. The undersigned allowed the parties to file supplemental briefs on the res judicata issue.
This Court may dismiss claims sua sponte under the doctrine of res judicata if it “is on notice that the issues presented in a suit have been previously decided ....” Roberts v. Thrasher, No. ELH-15-1906, 2015 WL 4485477, at *2 (D. Md. July 20, 2015) (quoting Arizona v. California, 530 U.S. 392, 413 (2000) (internal quotation marks omitted)); see also Eriline Co. S.A. v. Johnson, 440 F.3d 648, 655 (4th Cir. 2006) (quoting Arizona, 530 U.S. at 412-13) (“[T]he affirmative defense of res judicata-which serves not only ‘the defendant's interest in avoiding the burden of twice defending a suit, ‘but also the important judicial interest in avoiding resolution of an issue that the court has already decided-may, in ‘special circumstances,' be raised sua sponte.”)). Sua sponte consideration of res judicata is appropriate in “special circumstances,” Arizona, 530 U.S. at 412, including when “all relevant data and legal records are before the court and the demands of comity, continuity in the law, and essential justice mandate judicial invocation of the principles of res judicata.” Carbonell v. La. Dep' of Health and Human Res., 772 F.2d 185, 189 (5th Cir. 1985).
“Res judicata precludes the assertion of a claim after a judgment on the merits in a prior suit by parties or their privies based on the same cause of action.” Meekins v. United Transp. Union, 946 F.2d 1054, 1057 (4th Cir. 1991). The doctrine, also known as claim preclusion, bars litigation of all claims or defenses that were available to the parties in the previous litigation, regardless of whether they were asserted or determined in the prior proceeding. Id.; see also Noonan v. Stock Bldg. Supply, Inc., 2009 WL 302314, at *1 (D.S.C. Feb. 6, 2009) (explaining distinctions between res judicata and collateral estoppel). The applicable law for purposes of res judicata in federal court is the law of the tribunal in which the prior judgment was entered. See Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984). In North Carolina, application of the res judicata doctrine requires three elements: “First, there must be a final judgment on the merits in an earlier suit; second, the same cause of action must be involved; third, the parties from the earlier suit, or those standing in privity with those parties, must be involved.” Du Phan v. Clinard Oil Co., 798 S.E.2d 812 (N.C. Ct. App. 2017) (citing State ex rel. Tucker v. Frinzi, 474 S.E.2d 127, 128 (N.C. 1996)).
First, the Order from the Forsyth County Superior Court is now final and on the merits. The court held that Plaintiff's RICO claim failed to state a claim pursuant to N.C. R.Civ.P. 12(b)(6) and specifically stated that “all Counterclaims and Third-Party Complaints filed by [Plaintiff] against PennyMac, [SGIC], or Assurant, including but not limited to [Plaintiff's] First Amended Counterclaim, are DISMISSED WITH PREJUDICE.” Forsyth County Order p. 5 (ECF No. 30-1). In North Carolina, “[u]nless the court in its order for dismissal otherwise specifies, a dismissal under this section and any dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction, for improper venue, or for failure to join a necessary party, operates as an adjudication upon the merits.” N.C. Gen Stat, § 1A-1, Rule 41(b); Estate of Means ex rel. Means v. Scott Elec. Co., Inc., 701 S.E.2d 294, 298 (N.C. App. Ct. 2010). Though PennyMac's claim for deed reformation remained pending at the time the Order dismissing Plaintiff's counterclaims was entered, PennyMac subsequently voluntarily dismissed the remaining claim, which made the judgment on Plaintiff's counterclaims/third-party claims final in the trial court. See Green v. Dixon, 528 S.E.2d 51, 55 (N.C. Ct. App. 2000), aff'd 535 S.E.2d 356 (N.C. 2000) (per curiam) (holding that an order granting summary judgment in favor of third-party defendants was a final judgment for res judicata purposes because the other claims in the case had been voluntarily dismissed).
As stated above, Plaintiff appealed the dismissal of his counterclaims/third-party claims at all levels of review with the state court. Plaintiff argues that the judgment is not final because the deadline for him to file an appeal with the United States Supreme Court has not yet run. Plaintiff's Petition for Discretionary Review with the North Carolina Supreme Court was denied on December 13, 2023. Plaintiff filed his Petition with the Supreme Court on May 2, 2024. See Supreme Court Docket Sheet (ECF No. 94-1). Plaintiff argues that a judgment is not final until all appeals have been exhausted or the time for an appeal has run. However, none of the cases cited by Plaintiff go as far as to say that a judgment is not final until a Petition for Writ of Certiorari with the United States Supreme Court has been denied or the time within which to file such a petition has run. See, e.g., Hampton v. North Carolina Pulp Co., 223 N.C. 535,539, 27 S.E.2d 538,541 (N.C. 1943); Thomas M Mcinnis & Associates, Inc. v. Hall, 318 N.C. 421,434,349 S.E.2d 552,560 (N.C. 1986) (“Plaintiff did not appeal the adverse determination and the judgment became final.”); Young v. Young, 21 N.C.App. 424,425,204 S.E.2d 711,712 (1974) (“No appeal having been taken therefrom, the judgment entered ... became and is a final judgment on the merits ... .”); Mixon v. Wells Fargo Home Mortg., 2012 WL 1247202 (W.D. N.C. April 13, 2012) (noting that the plaintiffs failed to file an appeal in finding the action barred by res judicata).
To the contrary, North Carolina courts have held on more than one occasion that a judgment is final following an appeal with the North Carolina Court of Appeals. See ACC Const., Inc. v. SunTrust Mortg., Inc., 239 N.C.App. 252, 262, 769 S.E.2d 200, 207 (2015) (“Here, because SunTrust was previously granted summary judgment against ACC in ACC I and that judgment became final when ACC's appeal was dismissed by this Court, the only essential element of res judicata in question is whether there is an identity of causes of action.”); Doe 1K v. Roman Cath. Diocese of Charlotte, 283 N.C.App. 171, 175, 872 S.E.2d 815, 818 (2022) (holding “there was a final judgment on the 2011 Complaint, as the trial court granted summary judgment and dismissed all Plaintiff's claims with prejudice [and] the trial court's dismissal was subsequently affirmed by this Court”); Adcox v. Clarkson Bros. Const. Co., 241 N.C.App. 178, 182, 773 S.E.2d 511, 514 (2015) (holding “that the November 25, 2008, Order of the North Carolina Industrial Commission and the parties' appeal therefrom to the North Carolina Court of Appeals, represented a final judgment on the merits”). In the present case, the judgment in the Forsyth County case was affirmed on appeal by the North Carolina Court of Appeals and discretionary review was denied by the North Carolina Supreme Court. Thus, the judgment in that case is final.
In addition, Plaintiff alleges the same causes of action against the same parties here as he did in the counterclaims/third-party claims he asserted in the Forsyth County Superior Court case. In the state case, Plaintiff alleged causes of action pursuant to RICO and the FDCPA and for breach of contract accompanied by fraud. He asserted the RICO cause of action against all Defendants and the FDCPA and breach of contract accompanied by fraud causes of action against PennyMac. See First Amended Counterclaim/Third-Party Complaint (ECF No. 23-2). In the present case he asserts causes of action pursuant to RICO, the FDCPA, and RESPA, as well as a state law claim for breach of contract accompanied by fraud. The claims in both cases arise from the same transactions and involve a common nucleus of operative facts. See Lucky Brand Dungarees, Inc. v. Marcel Fashions Grp., Inc., 140 S.Ct. 1589, 1595, 206 L.Ed.2d 893 (2020).
Plaintiff first argues that his initial counterclaim was the operative pleading in the Forsyth County case rather than the First Amended Counterclaim. See Pl. Resp. 30-33 (ECF No. 42). However, the Forsyth County Superior Court expressly determined that the First Amended Counterclaim was the operative pleading, holding, “Johnson could and did file an amended counterclaim as of right prior to the filing of any response by PennyMac, SGIC, or Assurant to his initial counterclaims. Thus, the [First Amended Counterclaim] contains the operative counterclaims and third-party claims in this case.” Forsyth County Order p. 3 (ECF No. 30-1). Plaintiff raised the same argument with the North Carolina Court of Appeals, which affirmed the ruling below. Opinion (ECF No. 66-1). Regardless of Plaintiff's arguments with respect to the validity of his First Amended Counterclaim, it is not within this court's purview to disturb the Forsyth County Superior Court's ruling. See Am. Reliable Ins. Co. v. Stillwell, 336 F.3d 311, 316 (4th Cir. 2003). Plaintiff's argument is without merit.
In addition, though Plaintiff does not dispute that the claims he asserts in this case involve the same counterclaims and third party claims and the same parties as the Forsyth County case, he argues that the present case contains factual allegations that occurred after the filing of the Forsyth County case, that is, post-February 21, 2020. However, Plaintiff attempted to raise the same postFebruary 21, 2020, allegations as well as the RESPA claim in his proposed Second Amended Counterclaim in the Forsyth County case. See Proposed Second Amended Counterclaim (ECF No. 14-5). The Forsyth County Order denied Plaintiff's motion to amend as to the Second Amended Counterclaim, finding that allowing said amendment would be futile because it failed to state a claim and would be subject to dismissal for the same reasons his First Amended Counterclaims were dismissed. Forsyth County Order (ECF No. 30-1). The “denial of a motion to amend [a complaint] based on futility constitutes a final judgment on the merits barring the assertion of those claims in a later action.” Parker Excavating, Inc. v. Highlands at Cullowhee, LLC, No. 1:20-CV-00165-MR, 2021 WL 1176771, at *6 (W.D. N.C. Mar. 29, 2021) (citing Witthohn v. Fed. Ins. Co., 164 Fed.Appx. 395, 397 (4th Cir.2006); see also Russell v. Merrill Lynch, Inc., No. 1:11CV567, 2011 WL 6742506, at *2 (M.D. N.C. Dec. 22, 2011); Barr v. U.S. Marshals Serv., No. CIVA 3:05-1208 CMC-JRM, 2006 WL 2475323, at *5 (D.S.C. Aug. 24, 2006). The Forsyth County court held that the claims raised in Plaintiff's proposed Second Amendment Counterclaim, which included the same post-February 21, 2020 actions by Defendants and the RESPA cause of action raised in the present case, would be subject to dismissal for the same reasons discussed in the Order dismissing Plaintiff's other claims. Thus, the Forsyth County Order denying Plaintiff's motion to amend to add said claims was a final judgment barring Plaintiff from raising those claims in this court.
In his Supplement, Plaintiff argues that the present case raises claims based on conduct that occurred “during the period February 21, 2020, through March 19, 2021.” Pl. Supplement (ECF No. 91) p. 19. However, the Complaint in the present case alleges only conduct that occurred through September 11-16, 2020, which is the same exact conduct alleged in the proposed Second Amended Counterclaim in the Forsyth County case. Compare Complaint (ECF No. 1) ¶ 51 with Proposed Second Amended Counterclaim (ECF No. 14-5) ¶ 52.
Plaintiff appealed this ruling as well, which was upheld by the North Carolina Court of Appeals. See Opinion (ECF No. 66-1).
Finally, Plaintiff attempts to make a public policy argument to avoid the application of res judicata in this case. Plaintiff cites case law holding that a party may collaterally attack a foreignjudgment by establishing that either the court that entered the judgment was without jurisdiction, the judgment was procured through fraud, or the judgment is against public policy. Lang v. Lang, 108 N.C.App. 440, 450, 424 S.E.2d 109, 195 (1993). A collateral attack is one “‘in which a plaintiff is not entitled to the relief demanded in the complaint unless the judgment in another action is adjudicated invalid.'” Thrasher v. Thrasher, 4 N.C.App. 534, 540, 167 S.E.2d 549, 553 (1969) (citation omitted). “A collateral attack on a judicial proceeding is ‘an attempt to avoid, defeat, or evade it, or deny its force and effect, in some incidental proceeding not provided by law for the express purpose of attacking it.'” Regional Acceptance Corp. v. Old Republic Surety Co., 156 N.C.App. 680, 682, 577 S.E.2d 391, 392 (2003) (citation omitted). However, Plaintiff does not argue that the Forsyth County judgment is against public policy, but that the North Carolina Court of Appeals' opinion affirming the judgment is against public policy. Pl. Supp. p. 29 (ECF No. 91). Plaintiff's attempt to avoid the Forsyth County judgment is without merit.
The judgment at issue in Lang was rendered in a German court. Lang, 108 N.C.App. at 442.
In sum, The doctrine of res judicata is based on two policy considerations: (1) that each person have his day in court to completely adjudicate the merits of his claim for relief, and (2) that the courts must demand an end to litigation when a claimant has exercised his right and a court of competent jurisdiction has ruled on the merits of his right.... When a court of competent jurisdiction has reached a decision on facts in issue, neither of the parties are allowed to call that decision into question and have it tried again.
Green, 528 S.E.2d 51, 53 (N.C. Ct. App. 2000) (internal quotations and citations omitted).
Accordingly, because the Forsyth County Order was a final judgment on the merits regarding the same claims and parties as those alleged herein, res judicata applies and Plaintiff's claims in this case are barred by the doctrine of res judicata.
V. CONCLUSION
For the reasons discussed above, it is recommended that this case be dismissed as barred by the doctrine of res judicata.