Res judicata bars debtor’s fraud, forgery claims

Where the debtor previously claimed that her debt was obtained by fraud and forgery and the district court dismissed her claims in a final judgment, her claims were barred by res judicata.

Background

On June 5, 2017, Esther Mammie Yates filed a voluntarily petition in the bankruptcy court related to her home. She received a discharge in that case in September 2017. On July 29, 2020, debtor moved to re-open the case, alleging that Nationstar Mortgage LLC, acting as an agent of U.S. Bank National Association, had violated the discharge injunction by sending debtor statements for payment between October 2017 and March 2020, and seeking relief for the violation. Debtor also sought to present evidence that U.S. Bank’s debt was void due to fraud and forgery.

The issues before this court are whether the bankruptcy court erred in (1) finding that debtor failed to establish that appellee violated the Sept. 21, 2017, discharge injunction; (2) finding that debtor’s claims were barred, alternatively and independently, by res judicata; (3) finding that debtor failed to show that she suffered any damages; (4) denying debtor’s motion to show authority (and attendant motion to reconsider) and (5) denying debtor’s motion to recuse (and attendant motion to reconsider).

Jurisdiction

Debtor first argues the bankruptcy court lost subject matter jurisdiction because it relied on void judgments in rendering its judgment, appellees committed fraud on the court and the bankruptcy court did not disclose a conflict of interest. Her arguments flow from her allegations that the loan documents were forged and/or fraudulently obtained by appellee.

However, as stated later in this memorandum opinion, because debtor’s fraud and forgery arguments as to the loan documents are barred by res judicata, the court finds no merit to debtor’s claim that such fraud and forgery existed as to cause the bankruptcy court to lose subject matter jurisdiction. Likewise, the court finds no merit to debtor’s claims that the bankruptcy court judge’s declination to recuse himself caused the bankruptcy court to lose subject matter jurisdiction.

Debtor also alleges that the bankruptcy court lacked personal jurisdiction over appellee and that appellee lacked standing because U.S. Bank was “not the secured creditor, ha[d] no in rem rights over [the subject] property, [and] was not represented in the case on appeal.” Debtor produces (and the court can find) no evidence to support this claim.

Res judicata

The three elements of res judicata are: “(1) a final judgment on the merits in a prior suit; (2) an identity of the cause of action in both the earlier and the later suit; and (3) an identity of parties or their privies in the two suits.”

Here, the court’s Jan. 31, 2018, order dismissing all of debtor’s claims in her civil case for failure to state a claim constitutes a final judgment on the merits. Second, the parties in this case are the same as those in the debtor’s civil case. Third, the claims in this case are the same as those in debtor’s civil case. Finally, debtor knew of and litigated her fraud and forgery claims in her civil case. Thus, the bankruptcy court did not err in finding that debtor’s fraud and forgery claims were barred by res judicata.

Remaining arguments

That leaves only whether the bankruptcy court erred in holding that appellee did not violate the 2017 discharge injunction and in denying debtor’s various motions to recuse and show authority. Regarding the 2017 discharge injunction, as appellee’s actions appeared to be a permissible exercise of its in rem rights flowing from a valid lien against the subject property, the bankruptcy court did not err in finding appellee did not violate the discharge injunction.

Because the bankruptcy court correctly ruled that there was no discharge injunction violation, debtor’s arguments about damages or emotional distress allegedly caused by the violation are of no consequence. Nevertheless, the court finds that the bankruptcy court did not err in its findings on those issues.

Next, the court does not find any basis for recusal or that the bankruptcy court judge’s impartiality could reasonably be questioned in this proceeding. Finally, because there is a presumption that when an attorney appears on behalf of a client, he has the authority to do so, the bankruptcy court did not abuse its discretion in denying the debtor’s demand that appellee’s counsel prove his authority to represent appellee.

Affirmed.

Yates v. Nationstar Mortgage LLC, Case No. 1:21-cv-00118, Sept. 13, 2022. EDVA at Alexandria (Giles). VLW 022-3-401. 19 pp.