Michael C. Dillon v. Select Portfolio Servicing

United States Court of Appeals
For the First Circuit
No. 09-1469
MICHAEL C. DILLON,
Plaintiff, Appellant,
JENNIFER KRESGE,
Plaintiff,
v.
SELECT PORTFOLIO SERVICING ET AL.,
Defendants, Appellees,
PMI GROUP, INC.,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Joseph N. Laplante, U.S. District Judge]
Before
Lynch, Chief Judge,
Boudin and Howard, Circuit Judges.
Kevin Demko, with whom Richard H. Frankel was on brief, for
appellant.
William P. Breen, Jr., with whom Dorothy A. Davis and Eckert
Seamans Cherin & Mellott, LLC were on brief, for appellees.
January 13, 2011

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LYNCH, Chief Judge. In a New Hampshire state court
action, Michael Dillon received an injunction against Select
Portfolio Servicing (SPS) and associated entities that had engaged
in illegal practices in seeking to foreclose upon his home
mortgage. SPS and its associates did not obey the terms of the
state court's order, and Dillon successfully moved for contempt and
received relief.
In this later litigation, begun in a new lawsuit in New
Hampshire state court and removed to federal court, Dillon alleges
continued legal violations arising from the same facts by the same
defendants as in the first suit but now seeks to add damages claims
under new theories. The district court granted summary judgment to
the defendants, holding that res judicata precludes this action.
Applying New Hampshire law, we affirm.
I.
In March 2001, Dillon borrowed $100,300 from a division
of Superior Bank, securing the debt with a mortgage on his home in
Manchester, New Hampshire. Dillon made monthly mortgage payments
to Superior Bank from May 2001 until July 2001 without incident.
He made his August 2001 payment late, but included the required 5%
late fee with the payment. Dillon sent his September and October
2001 payments to Superior Bank. On October 1, 2001, Superior Bank
transferred the mortgage's servicing rights to SPS, then known as

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For ease of exposition, we refer to this entity as "SPS" 1
throughout the opinion.
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Fairbanks Capital Corporation. A series of disputes ensued 1
between Dillon and SPS, which led to both the preceding state court
lawsuit and this lawsuit.
These disputes began immediately after the transfer.
Neither SPS nor Superior Bank informed Dillon of the transfer until
after the deadline for the October 2001 payment, but SPS
nonetheless assessed late fees on the September and October 2001
payments Dillon initially sent to Superior Bank. SPS also secured
an insurance policy on Dillon's home and began charging him
premiums even though Dillon had provided proof of pre-existing
insurance in accordance with the mortgage agreement. Beginning in
January 2002, moreover, SPS began assessing fees, in varying and
sometimes undisclosed amounts, in excess of the fees provided in
the loan.
Dillon contested these actions in communications with SPS
representatives, but his efforts were rebuffed. On January 28,
2002, Dillon made his January mortgage payment along with what he
considered the appropriate 5% late fee. Dillon made a single
payment in April 2002 for his February, March, and April monthly
payments, along with 5% late fees for the February and March
payments. He did not pay the additional fees that SPS demanded
accompany these payments. SPS accepted the payments, as well as

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Dillon's monthly payment for May 2002, but it refused to accept
Dillon's payments thereafter. In a June 2002 letter, SPS notified
Dillon that it intended to accelerate the balance of the loan and
foreclose on his mortgage.
In the months before this June 2002 letter, Dillon
alleges, representatives from SPS called his home and cell phone
"almost continuously during the day and evening," saying that there
was a pending foreclosure action against him. Shortly before he
received the notice of pending foreclosure, Dillon filed a formal
complaint with the New Hampshire Banking Department. Initially,
the Banking Department persuaded SPS not to act on its intent to
foreclose on Dillon's mortgage given the payment dispute. On
December 23, 2003, however, SPS notified Dillon through its counsel
that his home would be sold at a foreclosure auction on January 26,
2004.
During the course of these disputes, SPS and its legal
counsel, Harmon Law Offices (Harmon), were subject to separate
class action lawsuits concerning their loan servicing and debt
collection practices. Dillon opted out of the lawsuit against
Harmon on October 28, 2003. He did not opt out of the lawsuit
against SPS, however, until shortly before the final approval of a
settlement on May 13, 2004. A preliminary settlement agreement,
reached on November 14, 2003, barred class members from bringing
any claims against SPS and affiliated parties except for those

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asserted in an effort to defeat any pending foreclosure action.
Dillon concedes that he was subject to the terms of this
preliminary agreement until he opted out of the class.
In January 2004, shortly after he received the
foreclosure notice, Dillon filed the petition in New Hampshire
Superior Court we referred to earlier, seeking an injunction
against foreclosure and other remedies. In his petition, Dillon
alleged that SPS had engaged in predatory, harassing, and wrongful
conduct. He alleged that (1) SPS was engaged in ongoing improper
accounting practices and had wrongfully assessed late fees,
misapplied payments, and misreported his balance, (2) SPS
representatives had harassed him in combative and incessant phone
calls, (3) the pending foreclosure action had prompted the paying
tenants in his home to vacate the premises, leaving him with no
source of income, and (4) SPS had failed to take reasonable steps
to ensure that a reasonable price would be obtained at the planned
mortgage sale.
The petition requested that the Superior Court enjoin the
foreclosure sale, order the defendants to provide Dillon with an
accounting of his arrearage and an opportunity to cure and
reinstate the mortgage, and order "such other and further relief"
as it "deem[ed] equitable and just." The petition named as
defendants Fairbanks Capital Corporation, LaSalle National Bank
Association, Merrill Lynch Mortgage Capital Investors, and Harmon.

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Fairbanks Capital Corporation, as noted previously, is the former
name of SPS. The Superior Court issued a temporary restraining
order and, after a hearing, a preliminary injunction against
actions in furtherance of the foreclosure sale.
Before proceeding to a bench trial, the Superior Court
dismissed all claims against Harmon. The entity conducting the
foreclosure sale on behalf of SPS, Harmon had sent Dillon multiple
letters scheduling and rescheduling the foreclosure sale, including
after the Superior Court's issuance of the temporary restraining
order. The Superior Court held that Dillon no longer possessed any
substantive claims against Harmon, as the preliminary injunction
issued by the court precluded Harmon from taking further action
against Dillon until after the resolution of the lawsuit.
On July 1, 2005, the Superior Court entered a permanent
injunction against the remaining defendants. The court found that
there was "no doubt that [SPS's] sleight of accounting resulted in
improper assessments against plaintiff that, in turn, resulted in
the 'default' and the acceleration of the mortgage." Dillon v.
Fairbanks Capital Corp., No. 04-E-25, slip op. at 2 (N.H. Super.
Ct. July 1, 2005). It found that Dillon's conduct "was not
contributory, as he should never have been placed in default to
begin with." Id. The defendants, the court held, "created a
predatory scheme of penalties generating the default, contrary to
the documents signed by the parties." Id.

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The permanent injunction included three requirements.
First, it enjoined the defendants from "pursuing any foreclosure of
plaintiff's property based on the default declared in June 2002."
Id. at 4. Second, it enjoined the defendants to "allow plaintiff
an opportunity to reinstate the loan by resuming payments without
penalties as of August 1, 2005." Id. Third, it enjoined the
defendants to "send a separate accounting to plaintiff, again
without penalties, of the amounts it has paid for force placed
insurance from March, 2002 through the present and for taxes paid
on the property." Id. The court stated that "[a]ll other requests
by the parties are denied, as they have not been pleaded." Id.
Shortly thereafter, Dillon returned to the Superior Court
seeking an order of contempt or, in the alternative, a
clarification of the court's prior order. On August 25, 2006, the
Superior Court found SPS in contempt of its order of July 1, 2005.
It held that SPS had (1) failed to provide Dillon with an
opportunity to reinstate his loan because it had not provided him
with accurate billing statements, (2) continued to assess late fees
and charges for alleged missed payments, and (3) failed to clarify
its reclassification of past payments between interest and
principal and thus presumably violated the court's order that it
allow Dillon to reinstate his loan without penalty. In the
contempt order, the court reiterated the requirements of the
preliminary injunction granted on July 1, 2005.

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The prior action named "LaSalle National Bank 2
Association" rather than "LaSalle Bank National Association" and
"Merrill Lynch Mortgage Capital Investors" rather than "Merrill
Lynch Mortgage Capital, Inc." and "Merrill Lynch Mortgage
Investors." Dillon does not contest that these different
identifications of the same parties are immaterial.
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In December 2006, Dillon and his fiancee Jennifer Kresge
filed this subsequent action in New Hampshire Superior Court, which
was removed to federal court on the basis of diversity. The
complaint named as defendants SPS, Harmon, Merrill Lynch Mortgage
Investors, Merrill Lynch Mortgage Capital, LaSalle Bank National
Association, and PMI Group, Inc. Dillon does not dispute that
these are the same defendants he named in his initial action, with
the exception of the addition of PMI Group, Inc. The complaint 2
listed twenty-four counts, including violations of the Fair Debt
Collection Practices Act, 15 U.S.C. § 1692 et seq., and the
Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.
§ 1961 et seq. It also enumerated state statutory and common-law
claims including breach of contract, negligence, infliction of
emotional distress, fraud, misrepresentation, defamation, unfair
and deceptive commercial practices, unfair collection practices,
interference with advantageous relations, conspiracy, and avoidance
of note.
The district court dismissed all claims against PMI
Group, Inc., all claims brought by Kresge for lack of standing, and
a few claims Dillon conceded should be dismissed, including his

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avoidance of note claim. See Dillon v. Select Portfolio Servicing,
Inc., No. 07-0070, 2009 WL 242912, at *1 & n.1 (D.N.H. Feb. 2,
2009). It later granted summary judgment on the remaining claims
on the ground that they were precluded by res judicata. Id. at *1.
Dillon timely appealed the district court's grant of summary
judgment.
II.
We review a district court's grant of summary judgment on
res judicata grounds de novo, accepting as true all well-pleaded
facts and drawing all reasonable inferences in favor of the party
opposing summary judgment. Sutliffe v. Epping Sch. Dist., 584 F.3d
314, 325 (1st Cir. 2009). The burden of establishing the
affirmative defense of res judicata rests on the defendants. SBT
Holdings, LLC v. Town of Westminster, 547 F.3d 28, 36 (1st Cir.
2008).
Under federal law, a state court judgment receives the
same preclusive effect as it would receive under the law of the
state in which it was rendered. Sutliffe, 584 F.3d at 326. New
Hampshire's law of res judicata bars re-litigation of matters
actually decided and matters that could have been litigated in an
earlier action when three conditions are met. Id. at 327. First,
the parties in both actions must be the same or in privity with one
another. Id. Second, the same cause of action must be before the

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court in both instances. Id. Third, the first cause of action
must have resulted in a final judgment on the merits. Id.
Dillon's claims on appeal only concern the second of
these three conditions--the same cause of action condition. He
makes three arguments. First, Dillon argues that he could not have
brought his present claims in the first action because he was then
subject to the preliminary settlement in the class action against
SPS. Second, Dillon argues that his present claims arose after he
filed the first action and thus constitute a separate cause of
action. Third, Dillon argues that he could not have raised his
avoidance of note claim during the first action because the
defendants had falsely represented during that action that they
owned the note. The record does not support these arguments.
A. Class Settlement Claim
Dillon's first argument fails because it has been waived.
In his complaint, Dillon did not argue that the preliminary
settlement of the class action against SPS prevented him from
bringing his present claims in the first action. He first raised
this argument in a motion for reconsideration of the district
court's grant of summary judgment. When a party makes an argument
for the first time in a motion for reconsideration, the argument is
not preserved for appeal. Loguidice v. Metro. Life Ins. Co., 336
F.3d 1, 7 (1st Cir. 2003). At any rate, Dillon does not dispute
that he had enough time to add legal claims for damages between the

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time of his withdrawal from the SPS plaintiff class and the hearing
in the first action. He argues only that doing so would have
risked frustrating the court.
B. Separate Cause of Action Argument
Dillon's second argument requires more analysis. Under
New Hampshire law, two causes of action are the same for res
judicata purposes when they arise from the same factual
transaction. Sutliffe, 584 F.3d at 327. A second suit that
contains additional factual allegations does not necessarily arise
from a different factual transaction under New Hampshire law. Id.
Claims arise from the same transaction if "[n]o material fact is
alleged in action No. 1 that was not alleged in action No. 2." Id.
(alterations in original) (quoting Patterson v. Patterson, 306 F.3d
1156, 1159-60 (1st Cir. 2002)). A plaintiff's desire to present
new grounds or theories of a case in a subsequent action is not
relevant to this transactional analysis. See id.
As we noted in Sutliffe, the New Hampshire Supreme Court
has repeatedly defined res judicata with reference to the
Restatement (Second) of Judgments § 24. Id. at 327 n.7. That
Section states that a factual transaction "connotes a natural
grouping or common nucleus of operative facts." Restatement
(Second) of Judgments § 24 cmt. b (1982). It states further that
"[a]mong the factors relevant to a determination whether the facts
. . . constitute a single claim are their relatedness in time,

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space, origin, or motivation, and whether, taken together, they
form a convenient unit for trial purposes." Id. Under New
Hampshire law, a factual transaction may include events that occur
after the initiation of a lawsuit. See Sutliffe, 584 F.3d at 328
(citing cases).
Dillon has not raised a material fact in this action that
he did not allege in the prior action. In his state court
complaint, Dillon alleged that the defendants engaged in a range of
wrongful conduct culminating in their effort to foreclose upon his
mortgage. That conduct included, Dillon alleged, improper
accounting practices, wrongful assessment of fees, misapplication
of payments, inaccurate mortgage statements, and harassing
telephone calls. In his federal court complaint, Dillon
accompanied these same allegations with the assertion that the
defendants continued engaging in this improper behavior. Dillon
alleges that SPS continued to harass him after the Superior Court
initially granted his application for a temporary restraining order
and continued to provide inaccurate statements, assess improper
penalties, misapply payments, and improperly report the foreclosure
to Dillon's credit report after the Superior Court issued a
permanent injunction.
Like the new factual allegations at issue in Sutliffe,
the new factual allegations at issue here reflect a continuation of
the wrongful conduct alleged in the state court action. Dillon

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raised most of these new factual allegations in his motion for
contempt in the state court action. In that motion, Dillon alleged
that the defendants provided inaccurate statements, assessed
improper penalties, misapplied fees, and improperly reported the
foreclosure to Dillon's credit report in violation of the court's
permanent injunction. These claims arise from the same pattern of
behavior Dillon challenged in his state court complaint. Dillon's
contempt motion could have but did not mention the alleged
harassment that occurred after the Superior Court granted his
motion for a temporary restraining order. Nevertheless, that
allegation also falls within the pattern of conduct Dillon alleged
in his state court complaint.
To his credit, Dillon acknowledged before the district
court that he could have brought the claims in the present action
in his state court action. He explained that he did not bring the
additional claims because of strategic concerns and his shifting
theory of the claims available to him in his case. He did not
argue before the district court, or before this court, that any of
the new factual allegations were materially different from those he
had previously alleged. As the district court held, "The surest
indication that this case asserts the same 'cause of action' as its
state-law antecedent is Dillon's exclusive reliance on the Superior
Court's findings and rulings on his claims there as sufficient
proof of each of his claims here." Dillon, 2009 WL 242912, at *5.

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In an effort to avoid this conclusion, Dillon argues that
under New Hampshire law, res judicata does not preclude a second
action for damages when the first action sought injunctive relief.
New Hampshire courts have rejected this argument, which is
inconsistent with New Hampshire's well-established law on the
second res judicata condition. See E. Marine Const. Corp. v. First
S. Leasing, Ltd., 525 A.2d 709, 713-14 (N.H. 1987) (holding that
where an initial suit sounded in equity and a second suit sought
legal relief, res judicata bars the second action when both suits
derive from the same factual transaction).
Dillon nonetheless invokes New Hampshire and federal
cases that have allowed claims for damages in a second action after
the plaintiff received injunctive relief in a first action
involving different transactions. His citations to these cases are
inapposite and ignore that under New Hampshire preclusion law, the
analysis goes to the scope of the transaction at issue in the first
action, not the forms of relief sought. The cases Dillon cites
each involve different transactions and do not turn on the type of
relief sought. See, e.g., Grossman v. Murray, 681 A.2d 90, 94
(N.H. 1996) (holding that claims were not precluded because they
arose after an initial bankruptcy proceeding and could not have
been raised in that proceeding under bankruptcy rules).
Dillon raises three additional arguments, all for the
first time on appeal. Because these arguments were not raised

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before the district court, they are waived. See In re New Motor
Vehicles Canadian Exp. Antitrust Litig., 533 F.3d 1, 6 (1st Cir.
2008). At any rate, each argument fails.
First, Dillon argues that Sutliffe misapplied New
Hampshire law in holding that a factual transaction may include
conduct that postdates the complaint in the first action. He
relies on two New Hampshire Supreme Court decisions, Schwartz v.
State Department of Revenue Administration, 606 A.2d 806 (N.H.
1992) and In re Alfred P., 495 A.2d 1264 (N.H. 1985). These
decisions each concern discrete acts that postdated a complaint;
they do not establish a transactional barrier when a plaintiff
files a complaint. See Schwartz, 606 A.2d at 809 (finding that
each time an illegal tax is imposed, a new cause of action arises);
In re Alfred P., 495 A.2d at 1265-66 (finding that an action for
involuntary commitment was not precluded by res judicata because
the second action involved different specific acts).
Second, Dillon seeks to distinguish Sutliffe by arguing
that unlike the plaintiffs in that case, he did not introduce the
post-complaint evidence during the first action. As an initial
matter, this claim misstates the facts in Sutliffe. We made clear
that "[a]lmost" all--but not all--of the post-complaint evidence in
that case had been presented to the state court. See Sutliffe, 584
F.3d at 328-29. Even if Dillon had described the facts in Sutliffe
correctly, his assertion would still be irrelevant. The issue here

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is whether Dillon raises a fact beyond the factual transaction that
he pleaded in the state action, not whether he raises a fact beyond
the particular instances identified in the state action.
Third, Dillon argues that the factual allegations that
postdate the state court's grant of permanent injunctive relief
must give rise to a new cause of action. Dillon contends that a
contrary rule would have required him to amend his complaint during
the contempt proceeding and thereby transgress the limited scope of
contempt under New Hampshire law. This argument misses the mark.
The only factual allegations Dillon raises that postdate the state
court's grant of permanent injunctive relief concern ongoing
conduct in violation of that injunctive relief, matters which he
raised in the New Hampshire courts. That Dillon then chose not to
raise the new legal theories he now advances for additional relief
does not help his cause. The pattern of factual allegations that
yielded the permanent injunction is the same pattern that prompted
a contempt motion alleging violations of that permanent injunction.
See Restatement (Second) of Judgments § 24 cmt. b.
C. Avoidance of Note Claim
Dillon contends that even if the remainder of his claims
are barred by res judicata, his purported avoidance of note claim
falls under an exception to that doctrine. The Restatement
(Second) of Judgments provides that "a defendant cannot justly
object to being sued on a part or phase of a claim that a plaintiff

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failed to include in an earlier action because of the defendant's
own fraud." Restatement (Second) of Judgments § 26 cmt. j. Dillon
argues that the defendants have misrepresented that SPS owned his
mortgage note. Dillon presents no evidence that SPS does not own
the note, but points to the defendants' ongoing failure to produce
proof of ownership.
This claim fails because it has been waived. Dillon
conceded before the district court that his avoidance of note claim
could not survive the defendants' motion to dismiss under Fed. R.
Civ. P. 12(b)(6). He made no argument before the district court
that this claim, although previously conceded, remained viable.
Nor did Dillon make an argument that this claim, even if it
remained viable, would not be precluded because of his allegation
that SPS committed fraud. Because Dillon made neither of these
arguments before the district court, they are waived on appeal.
See In re New Motor Vehicles, 533 F.3d at 6. At any rate, Dillon
does not explain how he may concede a count and then seek to revive
it to avoid res judicata.
III.
The judgment of the district court is affirmed.

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