HERNANDEZ AMADOR et al v. BANCO SANTANDER DE PUERTO RICO et al

OCR transcription for search; preserved printed pages are authoritative

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 1 of 14

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

2

° IN RE: : CASE NO. 01-06388

‘ JOSE HERNANDEZ AMADOR;

5 ELSA COCA MIR CORREA, : CHAPTER 13

6 Debtors

7 WOSE HERNANDEZ, AMADOR:

g [ELSA COCA MIR CORREA, : ADVERSARY NO. 07-00334

9 Plaintiffs :
10 |¥S:
a pans SANTANDER PUERTO RICO
12 Defendant
13
14

OPINION AND ORDER

. This adversary proceeding is before the court upon the motion to dismiss filed by Banco
"7 Santander Puerto Rico (the “Defendant”) on September 3, 2008 (Docket No. 13) alleging that this
13 action is barred by the doctrine of res judicata (claim preclusion) and, alternatively, by the lack of
19 joinder of an indispensable party. José Hernandez. Amador and his wife Elsa Coca Mir Correa (the
30 “Plaintiffs”) filed an opposition to the motion to dismiss on October 10, 2008 (Docket No. 38). For
3 the reasons set forth below the motion to dismiss is denied.
39 Facts and Procedural Background
33 . Plaintiffs Jose Francisco Hernandez Amador and Elsa Coca Mir Correa filed a bankruptcy
3A petition under Chapter 13 of the Bankruptcy Code on June 1, 2001. Banco Santander was scheduled
35 as an unsecured creditor and included in the master address list. Banco Santander was duly notified
36 of the filing of the bankruptcy case. The 341 meeting of the creditors was held on June 13, 2001.
7 On July 17, 2001, Banco Santander filed a proof of claim.' Debtors’ chapter 13 plan was

28 |.

AUTHEN
U.S. GOVA
INFOR

' The claims register shows that Banco Santander de Puerto Rico filed an unsecured claim
in the amount of $20, 238.79, claim number 17-1.

ICATED

NMENT

ATION
GPO

B&B WwW b>

Oo co “I GH A

10
U1
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 2 of 14

confirmed on January 24, 2002, and completed on August 15, 2006. * The discharge order was
entered on March 26, 2007, and the case was closed on the same date.

On December 7, 2007, Plaintiffs filed an adversary proceeding against NCO Financial
Systems of Puerto Rico, et als (Adversary Number 07-00335). Inthe complaint Plaintiffs allege that
NCO violated the automatic stay under the provisions of the Bankruptcy Code, 11 U.S.C. § 362 (a),
and the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692c (a)(2) and 1692(f)(1), (*“FDCPA”).
The Plaintiffs contend that NCO willfully violated the automatic stay on two separate occasions. The
first instance occurred on or about October 23, 2006 when a representative of NCO tried to collect
on the pre-petition debt via telephone with the Plaintiffs’ attorney. The second occasion was
sometime in February 2007 when Plaintiffs received a written demand for payment of such debt from
NCO. Plaintiffs also allege that Banco Santander continued to collect on the pre-petition debt after
the bankruptcy filing, and that Banco Santander, sometime during the pendency of the case, sold,
transferred or assigned Plaintiffs’ pre-petition debt to NCO. On June 26, 2008, the Plaintiffs and NCO
filed a Joint Stipulation of Voluntary Withdrawal of Complaint (Docket No. 21) pursuant to Rule
7041 of Bankruptcy Procedure, dismissing the case against NCO with prejudice. No further details
of the settlement were provided by the parties.

On December 7, 2007, Plaintiffs filed the present adversary proceeding alleging that
Defendant willfully violated the automatic stay provisions of the Bankruptcy Code, 11 U.S.C. §362
(a), by continuing collection efforts of pre-petition debts against them, notwithstanding that Banco
Santander knew of their bankruptcy filing. Plaintiffs allege that following the debtors filing of the
bankruptcy petition, the pre-petition defaulted debt to Banco Santander was sold, transferred or
assigned to NCO. The complaint against Defendant also includes several allegations which state that
NCO Financial Systems of Puerto Rico (“NCO”) also violated the automatic stay provisions of the
the Bankruptcy Code. However, other than as seller and buyer of this debt, the complaint does not

suggest any other nexus between the Defendant and NCO.

* The bankruptcy case docket shows that the chapter 13 trustee filed a final report on
February 2, 2007 informing that the Debtors had completed their chapter 13 plan. The trustee’s
report discloses payments to Banco Santander de Puerto Rico.

2

lao

So SS “EP ON Wn

10
I
12
13
14
15
16
17
18
19
20
21

22

23
24
25
26
27
28

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 3 of 14

On September 3, 2008 Defendant filed a “Motion to Dismiss and Memorandum of Law in
Support Thereof” (Docket No. 13) alleging that Plaintiffs’ action is barred by the doctrine of res
judicata, which guards against claim-splitting. Defendant alleges that both of Plaintiffs’ complaints
are based upon the same set of facts, that Plaintiffs’ right of action is in its nature entire and
indivisible and, thus, may not be split up into several causes of action and sued piecemeal (Motion
to Dismiss, p. 5). Defendant also argues that the dismissal with prejudice in the adversary proceeding
against NCO bars the complaint against Defendant because it stems from the same transaction and
set of facts (Motion to Dismiss, p. 5). Defendant argues that the elements for a claim to be preluded,
as established in Porn v. National Grange Mutual Ins. Co., 93 F. 3d 31, 34 (1* Cir . 1996), were met;
that is, a final judgment on the merits in an earlier action, sufficient identity between the causes of
action asserted in both suits, and sufficient identity between the parties in the two suits. In the
alternative, Defendant argues that this adversary proceeding should be dismissed under Fed. R. Civ.
P. 19¢b) for failure to join an indispensable party (NCO) in this proceeding.

In their opposition Plaintiffs’ argue that the doctrine of res judicata is not applicable as one
of its three components was not satisfied, namely, a final judgment on the merits was not entered in
the adversary proceeding against NCO. Plaintiffs do not discuss in their opposition whether the other
two components of the three prong test necessary to establish claim preclusion were met by the
Defendant. Plaintiffs’ position is that a voluntary dismissal achieved by means of a joint stipulation
with prejudice does not constitute a final judgment on the merits.

Subsequently, Defendant filed a Motion Requesting Leave to File Reply to Opposition to
Motion to Dismiss and Submitting Tendered Reply Subject to the Court’s Leave to File the Same
(Docket No. 22). In this motion Defendant reasserts its position that a voluntary dismissal by means
ofa joint stipulation is an adjudication on the merits for claim preclusion purposes.

Applicable Law and Analysis
Standard for Granting a Motion to Dismiss
Motions to dismiss are governed by Federal Rule of Civil Procedure 12(b)(6), which provides

that a defense of “failure to state a claim upon which relief can be granted” to a claim for relief may

3

Oo SS “S HO CT Be | Ne

NS NM NH NH OY NY NR NR eS RS SS i SE eS
eo YD A A FSF WH LY § OD CO Se ~S DH A FB WH WN | OS

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 4 of 14

be presented by motion before the filing of a responsive pleading.

For purposes of a motion to dismiss, “(1) the complaint is construed in the light most
favorable to the plaintiff, (2) its factual allegations are taken as true, and (3) all reasonable inferences
that can be drawn from the pleading are drawn in favor of the pleader.” Wright & Miller Federal
Practice and Procedure: Civil 3d § 1357 at 417, citing Viera Marcang v. Ramirez Sanchez, 224 F.
Supp. 2d 397 (D.P.R. 2002). See also, Correa Martinez v. Arrillaga-Belendez, 903 F.2d 49, 51 (1*

Cir. 1990). The plaintiffmust set forth “factual allegations, either direct or inferential, regarding each
material element necessary to sustain recovery under some actionable theory.” Id., citing Gooley v.

Mobil Oil Corp., 851 F.2d 513, 514 (1" Cir. 1988). Sec also, LaChapelle v. Berkshire Life Insurance

Company, 142 F.3d 507, 508 (1* Cir. 1998) (In considering a motion to dismiss under Rule 12(b)(6),
the court must “determine whether the complaint, so read, limns facts sufficient to justify recovery
on any cognizable theory.”)

“f A] complaint should not be dismissed for failure to state a claim unless it appears beyond
doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to

relief.” Federal Practice and Procedure §1357 at 571, quoting Conley v. Gibson, 355 U.S. 41, 78 S.Ct.

99, 2 L.Ed.2d 80 (1957); see also, Inre Diamond, 346 F.3d 224 (1* Cir. 2003); Leopoldo Fontanillas,

Inc. v. Luis Ayala Colon Sucesores, Inc., 283 F. Supp.2d 579 (D.P.R. 2003); Eastern Food Services,

Inc. v. Pontifical Catholic University of Puerto Rico Service Association, Inc., 222 F. Supp.2d 131,

134 (D.P.R. 2002). Therefore, “the question on a motion to dismiss under Rule 12(b)(6) is whether
in the light most favorable to the plaintiff, and with every doubt resolved in the pleader’s behalf, the
complaint states any legally cognizable claim for relief.” Id. at 640. “Because a dismissal terminates
an action at the earliest stages of the litigation, without a developed factual basis for decision, the
court must carefully balance the rule of simplified civil pleading against the need for something more
than conclusory allegations. Washington Legal Foundation v. Massachusetts Bar Foundation, 993 F.
2d 962, 971 (1* Cir. 1993). The court will not accept unsupported conclusions or interpretations of
the law. Id.

The Doctrine of Res Judicata

“Res judicata makes a valid final judgment conclusive on the parties... and prevents

4

& WwW bb

SO CO “bln

10
WW
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 5 of 14

relitigation of all matters that were or could have been adjudicated in the action. This doctrine is
sometimes known as “merger and bar,” nomenclature that emphasizes the doctrine’s role in guarding

against claim splitting.” Andrew Robinson Int'l, Inc. v. Hartford Fire Insurance Co., 547 F.3d 48, 32

(1* Cir. 2008) (citations omitted). Issues surrounding the application of the doctrine or res judicata
may arise because of the exercise of concurrent jurisdiction by state and federal courts over similar

claims based upon similar facts and involving the same parties. Suarez Cestero v. Pagan Rosa, 198

F. Supp. 52 73, 84 (D.P.R. 2002). “The doctrine of res judicata, now called claim preclusion,
forecloses litigation of all matters which have been litigated or might have been litigated in an earlier
case. The rule of collateral estoppel, now termed issue preclusion, precludes re-litigation of issues

actually adjudicated.” Id., citing 18 Charles Alan Wright, Arthur R. Miller and Edward H. Cooper,

Federal Practice and Procedure: Jurisdiction, § 4402, 4404 (1981).

In this case, both the allegedly precluding suit and the allegedly precluded suit were filed in |
federal courts. Thus, federal law governs the res judicata effect of the first judgment. Mass. School
of Law at Andover v. American Bar Assoc., 142 F. 3d 26, 37 (1* Cir. 1998) (citation omitted). A three
prong test is used to determine whether res judicata precludes litigation of a party’s claims, to wit,
(1) a final judgment on the merits in an earlier suit, (2) sufficient identicality between the causes of
action asserted in the earlier and later suits, and (3) sufficient identicality between the parties in the

two suits. Perez v. Volvo Car Corporation, 247 F. 3d 303, 311, (1* Cir. 2001); Gonzalez v. Banco

Cent. Corp., 27 F. 3d 751, 755 (1* Cir. 1994), Apparel Art Int’l, Inc. v. Amertex Enters. Ltd., 48 F.

3d 576, 583 (1* Cir. 1995); Porn v. National Grange Mutual Ins. Co., 93 F. 3d at 34.

‘The first prong of the test needed to satisfy claim preclusion under the res judicata doctrine
is whether a final judgment on the merits was obtained in the adversary proceeding against NCO. The
adversary proceeding against NCO culminated with a Joint Stipulation of Voluntary Withdrawal of
Complaint filed on June 26, 2008 pursuant to Rule 7041 of the Bankruptcy Procedure, dismissing the
NCO case with prejudice. The issue presented before this Court is whether a Joint Stipulation of
Voluntary Withdrawal with prejudice constitutes a final judgment on the merits.

Our analysis starts by stating that, “the principle that a judgment be on the merits before it can

be the basis for claim preclusion was established long ago. Modern opinions continue to refer to the

5

& ww bk

oO A SN HO

10
i
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 6 of 14

principle. However, the term is misleading, because many dispositions short of trial are considered
‘on the merits’ for claim preclusion purposes even though the validity of some or all of the theories
of liability, claims for relief, and defenses of the parties may remain undetermined.” Moore’s Federal
Practice Civil §131.30 (3)(a).

A voluntary dismissal with prejudice is ordinarily deemed a final judgment that satisfies the
res judicata criterion. See United States v. Cunan, 156 F. 3d 110 (1* Cir. 1998); Langton v. Hogan,
71 F. 3d 930, 935 (1" Cir. 1995). Also, a voluntary dismissal under Fed. R. Civ. P. 41(a) by which
the parties intend to put and end to their claims by means of a joint stipulation with prejudice is
considered to be ajudgment on the merits for claim preclusion purposes and is an exercise of judicial
power having a presumption of validity. Moore’s Federal Practice Civil §131.30 (3)(c)(ii). Thus, the
voluntary dismissal by way of a joint stipulation with prejudice under Rule 7041(a)(1)(A)Gi) of the
Bankruptcy Procedures which is analogous to Fed. R. Civ. P. 41(a){1)(A)Gi1) is considered an
adjudication on the merits for claim preclusion purposes. Furthermore, the dismissal of an action with
prejudice pursuant to a settlement agreement constitutes a final judgment on the parties and precludes
parties from reasserting the same claim in a subsequent action. See Union of Operating Eng’rs v.
Karr, 994 F. 2d 1426, 1429 (9" Cir. 1993); In re Dominelli, 820 F. 2d 313, 316-317 (9" Cir. 1987);
Astron Indus. Assocs, Inc. v. Chrysler Motors Corp., 405 F. 2d 958 (5" Cir. 1968).

The Plaintiffs in their “Opposition to Motion to Dismiss” cite the case of American Cvanamid

Company v. Capuano, 381 F. 3d 6 (1 Cir. 2004) to sustain their argument that, “this type of dismissal

cannot be used as the bases of res judicata since no issues or facts were resolved nor any question of
law. Therefore, it is not a ruling on the merits” (Opposition to Motion to Dismiss, p. 3). In American
Cyanamid Company v. Capuano the specific issue before the United States Court of Appeals for the
First Circuit, and which is relevant to the case at hand, is whether under the doctrine of res judicata,
Rohm and Haas Company (“R&H”) was precluded from seeking contribution against Capuano.
American Cyanamid dealt with an action under the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”) §§ 101-405, as amended by the Superfund
Amendments and Reauthorization Act of 1986 (“SARA”), 42 ULS.C. 8§ 9601-9675 brought by R&H

whose hazardous waste was deposited at the Picillo site against a group of people who were involved

6

Oo CO “TH A Be WH NR

NS Sw BO BO BO BND ORD ORD ORD wm mmm nee
oO ~] oN wn ss Go bo — oS Oo. oO wl an ea) & ee) bo Cl oS

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 7 of 14

with the site. American Cyanamid Company v. Capuano, 381 F. 3d at 9. R&H had entered into

multiple settlement agreements and dismissal agreements which were approved by the district court
in which the parties which entered these agreements also sued in the King Industries case. American
Cyanamid v. Capuano, 381 F. 3d at 16. Some of these settlement agreements included dismissals with
prejudice. Capuano’s position was that the dismissals with prejudice were judgments on the merits
and thus are barred by the doctrine of res judicata. However, the court established that, “a dismissal
with prejudice contained in a consent decree is ‘not a ruling on the merits... [that] applies fo others

under the law of claim preclusion. American Cyanamid Company v. Capuano, 381 F. 3d at 17

quoting Langton v. Hogan, 71 F. 3d 930, 935 (1* Cir. 1995). The First Circuit held that the claims
asserted by R&H against the Capuanos do not have a res judicata effect because (1) the Capuanos
were not defendants in the King Industries case and were not parties to any of the settlement
agreements, meaning that there is no identicality between the parties in the two suits; (2) at the time
of the King Industries lawsuit, R&H could not pursue a claim against the Capuanos because the
groundwater remediation had not yet occurred and the Capuanos had contribution immunity for
claims relating to the soil remediation, meaning that there was no sufficient identicality between the
cause of action asserted in the earlier-and later suit; and (3) the “two dismissal rule” under Fed. R.
Civ. P. 41(a)(1) is not applicable because the defendants are not the same nor were they in privity

with the defendants in King Industries. See American Cyvanamid Company v. Capuano, 381 F. 3d

at 17. The First Circuit held that the res judicata doctrine does not apply to the claim presented by
R&H for the reasons stated above, however, the decision does not conclude that a voluntary dismissal
by joint stipulation with prejudice under Fed. R. Civ. P. 41(a)(1)(A)Gii) is not an adjudication on the
merits for claim preclusion purposes. |

In light of the above discussion regarding the first prong of the claim preclusion test, this court
finds that a voluntary dismissal by joint stipulation with prejudice is a judgment on the merits.

The First Circuit has adopted the “transactional” approach to determine whether causes of

action are sufficiently related to support a res judicata defense. Massachussetts Sch. of Law at

Andover, Inc. v. American Bar Ass’n., 142 F. 3d 26, 38 (1* Cir. 1998); Porn _v. National Grange
Mutual Ins. Co., 93 F.3d at 34 citing Manego v. Orleans Bd. of Trade, 773 F. 2d 1, 5 (1* Cir. 1985),

7

Oo Cc ~F AH He S&F Ww BO He

Nm NWN KN WN WB NH KN RD BRR RRR OR ee OR
eo ss DH Mw FSF We NM SE Se Oo CoO HS KH A SO UU UL lL

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 8 of 14

cert. denied, 475 U.S. 1084, 89 L. Ed. 2d 722, 106 S. Ct, 1466 (1986); Aunyx Corporation v. Canon

U.S.A., Inc., 978 F. 2d 3, 11 (1* Cir. 1992); Gonzalez v. Banco Cent. Corp., 27 F. 3d at 755. Under

this approach, a valid and final judgment in the first action will extinguish subsequent claims “ “with
respect to all or any part of the transaction, or series of connected transactions, out of which the action

339

arose.” Porn v. National Grange Mutual Ins. Co., 93 F.3d at 34 quoting Restatement of the Law,
Second, Judgments §24 (1982)). The court determines the factual grouping which constitutes a
“transaction” pragmatically, giving weight to such factors as “ whether the facts are related in time,
space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment

as a unit conforms to the parties’ expectations.” Porn v. National Grange Mutual Ins. Co., 93 F.3d

at 34 citing Restatement §24; Aunyx Corporation v. Canon U.S.A.. Inc., 978 F. 2d at 7 (1* Cir.
1992). However, these factors are suggestive and are not intended to be exhaustive, nor is any one
factor determinative. Porn v. National Grange Mutual Ins. Co., 93 F.3d at 34. Therefore, we must
analyze whether the facts underlying the violation of the automatic stay in the NCO and Banco
Santander adversary proceedings are related in time, space, origin or motivation, and whether, they
arise out of the same transaction, seek redress for essentially the same basic wrong, and rest on the
same or a substantially.similar factual basis. Porn v. National Grange Mutual Ins. Co., 93 F. 3d at 34
citing Kale v Combined Ins. Co, of Am., 924 F. 2d 1161, 1166(1st Cir.), cert. denied, 502 U.S. 816,
116 L. Ed. 2d 44, 112 S. Ct. 69 (1991).

The facts underlying the two different complaints stem from different transactions or
occurrences, which are not sufficiently identical and that involve the violation of the automatic stay
by different parties which are not related to one another. Both claims seek redress for the violations
of the automatic stay. However, the adversary proceeding against NCO also alleges violations to the
FDCPA, 15 U.S.C. §§ 1692, et seq.

The claim in the adversary proceeding against NCO is derived from NCO’s violation of the
automatic stay. NCO’s actions do not stem from the same common nucleus of operative facts as the
alleged violation of the automatic stay by Banco Santander. The violations of the automatic stay
allegedly caused by these two different entities (NCO and Banco Santander) are separate and

independent and do not stem from the same transaction. The complaint against Banco Santander

8

Oo CO ~~ WwW vA fF WW bt

10
i
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 9 of 14

pleads in various instances that Banco Santander violated the provisions of the automatic stay by
continued collection efforts to collect the pre-petition balance from the Plaintiffs (paragraphs 20,21,
40, and 41 of complaint). This complaint also incorporates in its factual allegations specific instances
in which NCO violated the automatic stay (paragraphs 23 and 25 of complaint). The complaint
against NCO pleads specific instances in which NCO by itself or through its representatives violated
the automatic stay (paragraphs 24 and 26 of complaint).

Furthermore, these facts do not form a convenient trial unit to the extent the witnesses or proof
needed in the second action do not overlap substantially with the witnesses or proof relevant to the

first as the claims alleged in the complaints stem from different transactions. See Porn v. National

Grange Mutual Ins, Co., 93 F.3d at 36 citing Restatement §24. This inquiry focuses upon what would
happen at trial. Iannochino v. Rodolakis, 242 F. 3d 36, 47 (1* Cir. 2001) citing Restatement (Second)
of Judgments §24 cmt. b (1982).

Finally, as to the parties’ expectations, we are guided by the principle that, where “two claims
arose in the same time frame out of similar facts, one would reasonably expect them to be brought

together.” Iannochino v. Rodolakis, 242 F. 3d at 48 citing Porn v. National Grange Mutual Ins, Co.,

93 F.3d at 37. In the present case, the two claims arose at different times and from different facts or
transactions, thus one would expect the claims to be brought separately under different cases.

In summary, applying the transactional test to this adversary proceeding, the court concludes
that the two lawsuits involve different causes of action which stem from different transactions which
occurred at different times.

The third requirement for claim preclusion requires sufficient identicality between the parties

in the two suits. A prior judgment obtained on a lawsuit bars a subsequent action on the same claim

only between the same parties or their privies. Moore’s Federal Practice Civil $131.40 (1). The
Supreme Court established that, “[i]t is a principle of general application in Anglo-American
jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not
designated as a party or to which he has not been made a party by service or process.” Hansberry y.
Lee, 311 U.S. 32, 40, 61 S. Ct. 115, 85 L. Ed. 22 (1940). The Hansberry principle establishes that

preclusion may not be used in an action by or against a person who was not a party in a prior

9

Bm Ww bo

Oo fC “I Go lA

10
i
12
13
14
15
16
17
18
19
20
21

22 |

23
24
25
26
27
28

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered: 03/12/09 14:33:32 Desc: Main
Document Page 10 of 14

adjudication. Id. However, the term “parties” in light of the requirement of identicality between the
parties for claim preclusion purposes refers to parties in interest, meaning those parties whose interest
are so closely related that a judgment against one should preclude all. Moore’s Federal Practice Civil
§131.40 (3)(a) quoting Latham vy. Wells Fargo Bank. N.A., 896 F. 2d. 979, 983 (5™ Cir. 1990).
Traditionally, courts have referred to a “party” as a party of record and referred to nonparties who are
subject to the preclusive effect of the judgment as being in “privity” with a party. See Richards v.
Jefferson County, 517 U.S. 110, 129-130, 103 S. Ct. 1761, 135 L. Ed. 2d 76, 84 (1996). Given that

there is no specific rule or test for determining privity the same is identified by specific relationships
between parties and nonparties that may preclude nonparties. Moore’s Federal Practice Civil $131.40
(3)(a) quoting the Restatement (Second) of Judgments Ch.1 intro. 13-14.

Generally to justify claim preclusion, a nonparty will be considered in privity, or sufficiently
close to a party in the prior suit in three situations: (1) a nonparty who has succeeded to a party’s
interest in property is bound by any prior judgments against that party, (2) a nonparty who controlled
the original suit will be bound by the resulting judgment, and (3) federal courts will bind a nonparty

whose interests were represented adequately by a party in the original suit. Ford Gas Co. v. Wanda

Petroleum Co., 833 F. 2d 1172, 1174 (5" Cir. 1987), Freeman v. Lester Coggins Trucking. Inc. ,771

F. 2d 860,864 (5" Cir. 1985) quoting Southwest Airlines Co. v. Texas International Airlines, 546 F.
2d 84,95 (5" Cir.). Privity will not exist if either a preexisting legal relationship or identity of interests
is missing from the equation. Moore’s Federal Practice Civil §131.40 (3)(a).

Defendant in its Motion to Dismiss argues that there is a close relationship or privity of interest
between the assignor Santander and the assignee NCO’. Defendant cites the case of In Re El San Juan
Hotel Corporation, 84 1 F.2d 6 (1* Cir. 1988), to sustain its position that the requirement of sufficient
identicality of the parties is met because there is a close relationship or privity of interest between

Defendant and NCO. In In Re El San Juan Hotel Corporation, one of the issues before the court was

whether nonmutual claim preclusion was appropriate, meaning whether a party not involved in the

3 In the motion to dismiss Banco Santander refers to the assignee as UCB in one instance.
We have construed this as a misstatement; because all other related documents identify the
assignee as NCO.

10

oO 8 ~T HW Wve —} Ww to

10
i
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 11 of 14

earlier action may deflect the lawsuit because he should have been, but was not, included in the earlier
suit. In Re El San Juan Hotel Corporation, 841 F. 2d at 10. To support its holding, the First Circuit
incorporates the rationale that, “[o]ther courts have concluded that a version of claim preclusion is
appropriate in these circumstances if the new defendants have a close and significant relationship with
the original defendants, such as when the new defendants were named as conspirators in the first
proceeding but were not joined in the action.” In Re El San Juan Hotel Corporation, 841 F. 2d at 11,
citing Gamboez v. Yelenesics, 468 F. 2d 837, 841 (3% Cir. 1972). Preclusion is appropriate “only if
the new party can show good reasons why he should have been joined in the first action and the old
party cannot show any good reasons to justify a second chance.” In Re El San Juan Hotel Corporation,
841 F. 2d at 11 citing 18 Wright & Miller §4464, at 589. In this particular case, the court concluded
that, “with regard to these allegedly joint harms, it is evident that Cuprill [trustee’s counsel] as the co-

perpetrator, shared a significant relationship with Rodriguez [trustee].” In Re El San Juan Hotel

Corporation, 841 F. 2d at 11. The court held that the defendants were co-perpetrators of the harming

act, and shared a significant relationship, thus the claim preclusion factor of identicality of the parties
was satisfied. However, in the present case the complaint simply does not allege that Defendant and
INCO were co-perpetrators of the violation of the automatic stay nor that they shared a significant
relationship. Furthermore, Defendant fails to establish how these two different entities are closely
related other than as the assignor and the assignee.

In this case, the Plaintiffs are the same in both adversary proceedings but the defendants are
different. The next question to be answered is whether the defendants, though not identical, are
sufficiently in privity to satisfy this element. According to the pleadings in this adversary proceeding,
the only relationship that exists between Defendant and NCO is that ofa business relationship in which
Defendant allegedly sold, transferred or assigned to NCO Plaintiffs’ defaulted debt (paragraph #22 of

complaint). This type of business relationship does not construe privity between these two separate

entities since they are not under common control or share a common economic interest in attempting
to satisfy Plaintiff's debt. This court finds that there is no identicality between Defendant and NCO

since they are separate and unrelated corporations that do not share a common economic interest.

11

co Se SS 4 OHO Oe Se OHS ONS

MS NS BR NO BR BRO RD RD BRD OH OR a a es ee
So s BH tw FF WY KH KF GS OO CO HN ON SB

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 12 of 14

Failure to Join an Indispensable Party
In the alternative, Defendant has presented to the court the position that this adversary
proceeding be dismissed under Fed. R. Civ. P. 19(b)for fatlure to jon NCO. Fed. R. Civ. P. 19 states

in part the following:

“(a) Persons Required to Be Joined if Feasible.
(1) Required Party. A person who is subject to service of process and whose joinder
will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person’s absence, the court cannot accord complete relief among
existing parties; or

(B) that person claims an interest relating to the subject of the action and is
so situated that disposing of the action in the person’s absence may:
(i) as a practical matter impair or impede the person’s ability to
protect the interest; or
(it) leave an existing party subject to a substantial risk of
incurring double, multiple, or otherwise inconsistent
obligations because of the interest.
(2) Joinder by Court Order. If a person has not been joined as required, the court
must order that the person be made a party. A person who refuses to join as a plaintiff
may be made either a defendant or, in a proper case, an involuntary plaintiff.
(3) Venue. If a joined party objects to venue and the joinder would make venue
improper, the court must dismiss that party.
(b) When Joinder Is Not Feasible. If a person who is required to be joined is feasible cannot
be joined, the court must determine whether, in equity and good conscience, the action should
proceed among the existing parties or should be dismissed.” Fed. R. Civ. P. 19.

Before analyzing whether Fed. R. Civ. P. 19(b) applies to this case, the court must first determine
whether the joinder of NCO as described in Fed. R. Civ. P. 19(a) is desirable but not feasible. See

Wright & Miller Federal Practice and Procedure: Civil 3d_§1608 at 91. A necessary precursor to a
decision under Fed. R. Civ. P. 19(b) is a decision under Fed. R. Civ. P. 19(a). See United States v. San

Juan Bay Marina, 239 F. 3d 400, 405 (1 Cir. 2001). “Rule 19(b), which governs indispensable parties,
works in two steps. Step one requires the district court the district court to decide whether a person fits

the definition of those who should “be joined if feasible” under Rule 19{a).” Pujol v. Shearson

American Express, 877 F. 2d 132, 134 (1* Cir. 1989) referring to Provident Tradesmens Bank v.

Patterson, 390 U.S. 102, 118, 19 L. Ed. 2d 936, 88 S. Ct. 733 (1968). “Tf the person 1s a “necessary”
party (i.e., fits the definition of 19(a)), but joinder is not feasible, the court must take step two. It must

decide, using four ‘factors,’ whether ‘in equity and good conscience the action should proceed among

the parties before it, or should be dismissed.” Pujoi v. Shearson American Express, 877 F. 2d at 134.

12

Oo CO “SS Dw SF WD NH =

NB NM BR BO OR RD ND ORDO ee ee ee
So ~) HN A F&F Ww NHN SF DBT BO 6 SS NH A Se He Bh US

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 13 of 14

The first step is to determine whether NCO is a necessary party under Fed. R. Civ. P. 19(a).
Necessary parties are those, “who ought to be made parties, in order that the court may act on that rule
which requires it to decide on, and finally determine the entire controversy, and do complete justice,

by adjusting all the rights involved in it.” Shields v. Barrow, 58 U.S. 130, 139 15 L. Ed. 158 (1855).

“Thus, when applying Rule 19(a), a court essentially will decide whether considerations of efficiency

and fairness, growing out of the particular circumstances of the case, require that a particular person

be joined as a party.” Pujol v. ShearsonAmerican Express, Inc., 877 F. 2d at 134. Despite the fact
that Fed. R. Civ. P. 19(a) no longer contains the word “necessary,” the term has been retained by the
courts as a convenient shorthand for the Rule 19(a) determination. Picciotto v. Continental Casualty

Company, 512 F.3d 9, 16 (1* Cir. 2008) referring to Janney Montgomery Scott, Inc. v. Shepard Niles.

Inc., 11 F.3d, 399, 404 n.4 (3 Cir. 1993) (citing Provident Tradesmen Bank & Trust Co. v. Patterson,

390 U.S. at 116 n. 12), A party only has to satisfy one of the three criteria of Fed. R. Civ. P. 19(a) to
be deemed necessary. Picciotto v. Continental Casualty Company, 512 F. 3d at 16.

In this case, the analysis of Fed. R. Civ. P. £9(a) consists in determining whether NCO’s
absence from this adversary proceeding would “impair or impede” Defendant’s “ability to protect its
interest” or if the case would leave Defendant subject to multiple obligations. See Picciotto_v.
Continental Casualty Company, 512 F. 3d at 16. If Defendant fails to satisfy this test, it is not even
a“Rule 19(a) person” who should be joined “if feasible,” let alone a Rule (1 9(b) “indispensable party.”
See Pujol v. Shearson American Express, Inc., 877 F. 2d at 135. This court finds that NCO is not an
indispensable party to this adversary proceeding because, as previously discussed, the violations of the
automatic stay allegedly committed by NCO and Banco Santander are independent and separate,
meaning that they stem from a different nucleus of operative facts. Furthermore, it has not been
established that there is privity or any type of relationship between Defendant and NCO, except as
seller and buyer of debt obligations. This court finds that Defendant did not establish the
indispensability of NCO as a necessary party. NCO’s absence in this adversary proceeding does not
impair or impede in any manner Defendant’s ability to protect its interest in this lawsuit.

Since this court has determined that NCO is not a necessary party under Fed. R. Civ. P. 19(a)
we find it unnecessary to proceed to the second part of the analysis, that is of Fed. R. Civ. P. 19(b).

13

re

|e > > OO re
So N OW Ww & WwW NH KH DD OO CoO ON RN OULU le UG

WD 3 J] a un > WwW i)

Case:07-00334-ESL Doc#:23 Filed:03/10/09 Entered:03/12/09 14:33:32 Desc: Main
Document Page 14 of 14

Conclusion
For the reasons stated above, this court concludes that the three prong test of the res judicata
doctrine for claim preclusion is not met and thus Plaintiffs are not barred from ensuing their claim
against Defendant. The court also holds that NCO is not an indispensable party to this adversary
proceeding and Fed. Rule Civ. P. 19 is inapplicable and thus this court finds no reason to dismiss said

adversary proceeding.

In view of the foregoing, Defendant’s motion to dismiss is hereby DENIED.
SO ORDERED.
In San Juan, Puerto Rico, this le 6 day of March 2009.

ULS. Bankiuptey Sade

14