Lath v. Pennymac Loan Services, LLC.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Sanjeev Lath
v. 	Case No. 20-cv-1018-JL
PennyMac Loan Services, LLC
REPORT AND RECOMMENDATION
Pro se plaintiff Sanjeev Lath brings state-law claims
relating to defendant PennyMac Loan Services’s foreclosure on a
condominium unit Lath used to own in Manchester, New Hampshire.
PennyMac moves to dismiss (doc. no. 10) the Second Amended
Complaint (doc. no. 8). 1 	For the reasons that follow, it is
recommended that the district judge grant PennyMac’s motion to
dismiss and dismiss the Second Amended Complaint without leave
to amend.
Standard of Review
In considering whether a complaint states a claim upon
which relief can be granted, the court asks whether the
1 Lath entitled the now-operative complaint (doc. no. 8) as
his “First Amended Complaint,” but it is in fact his second
amended complaint and the court refers to it as such. 	See doc.
1 (initial complaint); doc. 1-4 (first amended complaint); doc.
8 (second amended complaint); see also doc. 7 (referring to doc.
1-4 as Lath’s “Amended Complaint”).
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plaintiff has made allegations that are sufficient to render his
entitlement to relief plausible. 	Manning v. Boston Med. Ctr.
Corp., 725 F.3d 34, 43 (1st Cir. 2013). 	The court accepts all
well-pleaded facts as true and draws all reasonable inferences
in the pleading party’s favor. 	Hamann v. Carpenter, 937 F.3d
86, 88 (1st Cir. 2019). 	The court disregards conclusory
allegations that simply parrot the applicable legal standard.
Manning, 725 F.3d at 43.
Background
A. 	Allegations
In his Second Amended Complaint (doc. no. 8), Lath brings
claims for unlawful eviction (Count 1); conversion (Count 2);
breach of contract (Counts 3 and 4); breach of fiduciary duty of
due diligence (Count 5); breach of implied covenant of good
faith and fair dealing (Count 6); and unjust enrichment (Count
7). 	Lath alleges that he owned a condominium unit in a building
in Manchester, New Hampshire. 	PennyMac held a mortgage secured
by the unit. 	Lath defaulted on the mortgage, leading PennyMac
to hold a foreclosure auction for the unit in March 2018. 	After
a buyer backed out because of Lath’s previous litigation,
PennyMac won the auction with a bid of $37,422.36. 	PennyMac
recorded a foreclosure deed for the unit in November 2019.
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Lath made offers to reinstate the mortgage in April and
July 2020, both of which PennyMac rejected. 	PennyMac did not
provide a written eviction notice to Lath, who had stopped
residing at the unit before the foreclosure auction. 	Lath also
left some of his personal belongings in the unit, and he alleges
that PennyMac agreed that he could collect his personal
belongings from the unit on August 28, 2020. 	Lath arrived at
the unit on that day, but no one from PennyMac met him. 	Lath
did not collect his personal belongings. 	PennyMac sold the unit
to a third party on September 4, 2020. 	The sale amount was for
$113,500.
B. 	Prior Suit
In October 2018, prior to bringing this suit, Lath filed a
similar action in this court. 	Lath v. PennyMac Loan Servs. LLC
(“PennyMac I”), No. 18-cv-928-PB. 	In that action, Lath alleged
various improprieties relating to the March 2018 foreclosure
auction. 	The court ultimately ruled in PennyMac’s favor on all
of Lath’s claims and entered judgment against him. 	Lath
appealed the judgment, and the case remains pending before the
First Circuit. 	See PennyMac I, doc. 70.
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Discussion
PennyMac moves to dismiss the Second Amended Complaint. 	It
argues that the claims within the Second Amended Complaint are
barred, in different extents, by the doctrines of claim and
issue preclusion and that there are no claims stated upon which
relief can be granted. 	Lath objects to dismissal. 	PennyMac
filed a reply, and Lath filed a surreply.
A. 	Counts 1, 5, and 6
PennyMac contends that Counts 1, 5, and 6, which raise
claims about the March 2018 foreclosure auction that was at
issue in PennyMac I are barred by the doctrine of claim
preclusion. 	Under the federal standard, 2 “[c]laim preclusion
generally refers to the effect of a prior judgment in
foreclosing successive litigation of the very same claim,
whether or not relitigation of the claim raises the same issues
as the earlier suit.” 	New Hampshire v. Maine, 532 U.S. 742, 748
(2001). 	For claim preclusion to apply, there must have been a
final judgment on the merits in a previous suit and a new suit
2 PennyMac seeks claim preclusion based on the final
judgment in PennyMac I, which is a federal judgment. 	The
preclusive effect of a federal judgment is determined by federal
common law. 	Robb Evans & Assocs., LLC v. United States, 850
F.3d 24, 32 (1st Cir. 2017).
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with sufficient identity between the causes of action and the
parties. 	Silva v. City of New Bedford, 660 F.3d 76, 78 (1st
Cir. 2011). 	“A ‘cause of action’ in this context includes ‘all
rights of the plaintiff to remedies against the defendant with
respect to all or any part of the transaction, or series of
connected transactions, out of which the action arose.’”
Airframe Sys., Inc. v. Raytheon Co., 601 F.3d 9, 15 (1st Cir.
2010) (quoting United States v. Cunan, 156 F.3d 110, 114 (1st
Cir. 1998)). 	The critical question is whether “the causes of
action arise out of a common nucleus of operative facts.” 	Id.
All three elements of claim preclusion are met as to Counts
1, 5, and 6. 	A final judgment was entered in PennyMac I, and
the parties in this case and in PennyMac I are identical. 3 	The
causes of action at issue are also the same as to the claims
raised in Counts 1, 5, and 6. 	These claims arise, in their
entirety, from the same nucleus of operative facts at issue in
PennyMac I, namely, Lath’s default on his mortgage and
PennyMac’s subsequent sale and purchase of the condominium unit
at the March 2018 foreclosure auction.
Specifically, Count 1 is a claim for unlawful eviction
3 Lath’s appeal of the final judgment in PennyMac I does not
undercut its preclusive effects. 	See, e.g., In re Kane, 254
F.3d 325, 328 (1st Cir. 2001).
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subsequent to the foreclosure auction. 	In PennyMac I, Lath
attempted to file a remarkably similar claim, which the court
found would be futile. 	See PennyMac I, doc. 38 at 5-9 (finding
that Lath’s proposed claim would be futile because “PennyMac is
not Lath’s landlord” so that “Lath cannot bring a claim for
breach of the covenant of quiet enjoyment against it.”). 	Lath
argues that the unlawful eviction claim he asserts in this case
is based on a different legal theory than the claim he attempted
to raise in PennyMac I, but claims arising from the same cause
of action as a prior action but based on different legal
theories are precluded nonetheless. 	See Airframe Sys., 601 F.3d
at 15; Cruz Berrios v. Gonzalez-Rosario, 630 F.3d 7, 13 n.8 (1st
Cir. 2010) (noting that claim preclusion can bar a matter that
was not litigated in the prior action). 	Because Count 1 arises
from the same facts as the claims brought in PennyMac I, it is
recommended that the district judge dismiss Count 1.
Counts 5 and 6 are also barred by the final judgment in
PennyMac I. 	In Count 5, Lath alleges that PennyMac breached its
duty to exert every reasonable effort to obtain a fair and
reasonable price for the unit prior to or during the March 2018
foreclosure sale. 	Similarly, in Count 6, Lath alleges that
PennyMac breached the implied covenant of good faith and fair
dealing within their mortgage agreement by “failing to realize
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approximately $100,000.00 in value of the home during the” March
2018 foreclosure auction. 	Doc. 8 ¶ 79. 	Both claims arise from
the March 2018 foreclosure auction, which was the focal point of
Lath’s allegations in PennyMac I. 	The final judgment in
PennyMac I therefore precludes Lath from pursuing these claims
in this suit. 	See Airframe Sys., 601 F.3d at 15.
For those reasons, it is recommended that the district
judge dismiss Counts 1, 5, and 6.
B. 	Count 2
In Count 2, Lath alleges that PennyMac converted his
personal property by selling the unit to a third party in
September 2020 with some of his personal property still inside.
PennyMac argues that the claim is barred by the final judgment
in PennyMac I and that Lath fails to state a claim upon which
relief can be granted.
“An action for conversion is based on the defendant's
exercise of dominion or control over goods which is inconsistent
with the rights of the person entitled to immediate possession.”
Rinden v. Hicks, 119 N.H. 811, 813 (1979); Pac. & Atl. Shippers,
Inc. v. Shier, 109 N.H. 551, 554 (1969). 	Lath has failed to
plead facts to meet this standard because the issues decided in
PennyMac I dictate a finding that he abandoned the unit and any
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personal property within. 	The court found in PennyMac I that
“[i]t is undisputed that the unit was vacant after July 2017,
when the City prohibited occupancy” and that “[a]t no time did
PennyMac prohibit Lath from removing his belongings from the
unit, and he admittedly made no request to take possession of
the property after the locks were changed.” 	PennyMac I, doc. 68
at 7-8, 11. 	Because of the rules of issue preclusion, Lath
cannot challenge those findings in this subsequent action.
“Under ordinary rules of issue preclusion, an issue
‘actually litigated and determined by a valid and final
judgment,’ if ‘essential’ to the judgment, binds the same
parties in any subsequent action, ‘whether on the same or a
different claim.’” 	Kane, 254 F.3d at 328 (quoting Restatement
(Second) of Judgments (1982) § 27). 	“The purpose of [the] issue
preclusion doctrine is to prevent a party from relitigating an
issue where there has been a full and fair litigation . . . .”
Id. at 329.
Those elements are met as to the court’s findings in
PennyMac I that Lath abandoned the unit and that he did not make
any attempt to retrieve his belongings prior to or within any
reasonable time period after the foreclosure sale. 	Lath’s
belated attempt to retrieve his personal property in August 2020
does not undo the earlier abandonment of it. 	Because Lath
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abandoned the property, Lath fails to state a claim for
conversion. 	See Rinden, 119 N.H. at 813-14 (“There is no
conversion when a plaintiff has abandoned, or apparently
abandoned, his property before a defendant takes possession of
it.”). 	Accordingly, it is recommended that the district judge
dismiss Count 2.
C. 	Count 3
In Count 3, Lath alleges that PennyMac breached its
mortgage agreement with him by failing to provide him with
surplus funds from the September 2020 sale of the unit from
PennyMac to the third party for $113,500.00. 	PennyMac argues
that Lath does not have any right under the mortgage agreement
to receive income from the September 2020 sale.
“A breach of contract occurs when there is a failure
without legal excuse to perform any promise which forms the
whole or part of a contract.” Audette v. Cummings, 165 N.H. 763,
767 (2013). 	Once a foreclosure sale is complete, the
mortgagor’s interest in the foreclosed-on property is
extinguished. 	E.g., Murray v. Bank of N.Y. Mellon, No. 15-CV-
475-SM, 2016 WL 1171014, at *2 (D.N.H. March 23, 2016). 	Lath
has failed to allege non-conclusory facts from which it can be
reasonably inferred that PennyMac breached the mortgage contract
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by selling the property to the third party without providing him
the value of the sale over the amount he had owed on the
mortgage prior to the foreclosure auction. 	Here, the
foreclosure sale occurred in March 2018 and the foreclosure deed
was recorded on November 22, 2019. 	The mortgage agreement,
which Lath attached to his Amended Complaint, 4 does not provide
for payments to Lath based on sales of the property subsequent
to foreclosure.
Although Lath may have been entitled to surplus proceeds
from the March 2018 foreclosure sale, there were none. 	PennyMac
I at 15-16 (“[T]here is no genuine dispute of material fact
concerning the existence of a surplus from the foreclosure sale
. . . .”). 5 	And, after the foreclosure sale, Lath’s interest in
the property was extinguished. 	Lath is not entitled to any
proceeds from the sale of a property in which he held no
interest at the time of the sale. 	For those reasons, Count 3
should be dismissed.
D. 	Count 4
4 Doc. no. 8-3.
5 For the same reasons as discussed above with respect to
his conversion claim, Lath is precluded from contesting the core
findings of PennyMac I, which include the finding that there
were no surplus funds from the foreclosure sale.
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For similar reasons, Lath’s claim in Count 4 that PennyMac
breached the mortgage agreement by failing to permit him to
reinstate the mortgage after the foreclosure sale fails.
Specifically, in Count 4, Lath alleges that he offered PennyMac
$37,422.16 to pay off the outstanding balance of the mortgage in
April 2020. 	PennyMac argues that the claim should be dismissed
because Lath did not have any right to reinstate the mortgage
after the foreclosure sale completed.
The mortgage agreement does not provide Lath with the
ability to reinstate the mortgage after foreclosure proceedings
have completed. 	Rather, it merely provides that the right to
reinstatement continues “even after foreclosure proceedings are
instituted.” 	Doc. 8-3 at 5, ¶ 10. 	Once a foreclosure sale has
occurred, however, the contract requires PennyMac to deliver
“indefeasible” title to the buyer with the mortgagor’s right of
reinstatement or redemption extinguished. 	See id. at 6, ¶ 18.
In this case, foreclosure proceedings not only began, but
completed, extinguishing Lath’s right to reinstate or redeem the
mortgage. 	The foreclosure sale occurred in March 2018 and the
foreclosure deed was recorded in November 2019. 	Lath did not
make his first offer for reinstatement or redemption until April
2020, well after his rights under the mortgage contract were
extinguished by the foreclosure sale. 	Therefore, Count 4 should
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be dismissed. 6
E. 	Count 7
Lastly, in Count 7, Lath alleges that PennyMac was unjustly
enriched when it sold the unit at a foreclosure auction to
itself for an amount that did not allow him any surplus proceeds
and then subsequently sold the unit to a third party for a
larger amount. 	PennyMac argues that unjust enrichment is
unavailable as a remedy under the circumstances of this case and
that the claim is precluded under the doctrine of claim
preclusion.
Unjust enrichment is unavailable as a remedy when a valid
contract covers the subject matter at issue. 	Axenics, Inc. v.
Turner Constr. Co., 164 N.H. 659, 669 (2013). 	As already
6 Consistent with the mortgage contract’s terms, Lath also
lost any statutory right of redemption that he may have had
under New Hampshire law once the foreclosure proceedings
completed. 	See RSA 479:18 (“All lands conveyed in mortgage may
be redeemed by the mortgagor, after the condition thereof is
broken, by the payment of all demands and the performance of all
things secured by the mortgage and the payment of all damages
and costs sustained and incurred by reason of the nonperformance
of its condition, or by a legal tender thereof, before
foreclosure.”); Barrows v. Boles, 141 N.H. 382, 393 (1996) (“The
mortgagor does not have a right of redemption after foreclosure.
. . . 	[The debtor] possessed neither a legal nor an equitable
interest in the property once the auctioneer's hammer fell and
the memorandum of sale was signed.”).
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discussed as to Count 3, the mortgage agreement covers the
circumstances in which Lath would have been entitled to surplus
proceeds from a foreclosure auction. 	Because the issue is
covered by a valid contract, unjust enrichment is unavailable.
See id.
Moreover, the court found in PennyMac I that “the
undisputed evidence shows that there was no surplus from the
foreclosure sale.” 	PennyMac I, at 12-14. 	And, as discussed
above, the final judgment in PennyMac I precludes Lath from
asserting claims arising from alleged misconduct during the
March 2018 foreclosure sale. 	See Airframe Sys., 601 F.3d at 15.
Therefore, to the extent Lath alleges that PennyMac was unjustly
enriched because it contrived to reduce the sale price at the
foreclosure sale thereby preventing him from receiving surplus
proceeds, such a claim is barred by the final judgment in
PennyMac I, in which Lath failed to establish that misconduct
occurred. 	For those reasons, the court should dismiss Count 7
of Lath’s Amended Complaint.
Conclusion
For the foregoing reasons, it is recommended that the
district judge grant PennyMac’s motion to dismiss (doc. no. 10)
and dismiss Lath’s Second Amended Complaint (doc. no. 8).
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Furthermore, given the fundamental nature of the defects in
Lath’s claims, as discussed above, there are no circumstances in
which the defects can be cured. 	Accordingly, it is recommended
the district judge dismiss the complaint without leave to amend.
Any objections to this Report and Recommendation must be
filed within fourteen days of receipt of this notice. 	See Fed.
R. Civ. P. 72(b)(2). 	The fourteen-day period may be extended
upon motion. 	Failure to file specific written objections to the
Report and Recommendation within the specified time waives the
right to appeal the district court’s order. 	See Santos-Santos
v. Torres-Centeno, 842 F.3d 163, 168 (1st Cir. 2016); Fed. R.
Civ. P. 72(b)(2).
__________________________
Andrea K. Johnstone
United States Magistrate Judge
February 2, 2021
cc: 	Sanjeev Lath, pro se
Kevin P. Polansky, Esq.
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