UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Mary Hersey McCarthy
v. Civil No. 16-cv-081-LM
Opinion No. 2017 DNH 118
WPB Partners, LLC
O R D E R
Mary Hersey McCarthy originally brought this lawsuit in
state court, alleging eight claims against WPB Partners, LLC
(“WPB”) that arose from WPB’s foreclosure and sale of McCarthy’s
mortgaged property. WPB removed the case to this court and
filed a motion to dismiss five of McCarthy’s eight claims, which
the court granted. See doc. no. 10. McCarthy filed an amended
complaint asserting three claims, and WPB asserted two
counterclaims against McCarthy, alleging that she breached the
promissory note and the mortgage. McCarthy moves for summary
judgment on her claim that WPB breached the mortgage (Count I)
and on WPB’s counterclaims. WPB objects to the motion for
summary judgment.
STANDARD OF REVIEW
A movant is entitled to summary judgment if it “shows that
there is no genuine dispute as to any material fact and [that
it] is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(a). In reviewing the record, the court construes all
facts and reasonable inferences in the light most favorable to
the nonmovant. Kelley v. Corr. Med. Servs., Inc., 707 F.3d 108,
115 (1st Cir. 2013).
BACKGROUND
Through a promissory note dated December 21, 2006,
McCarthy, whose name was then Mary Hersey, borrowed $350,000
from Investment Realty Funding, Inc. and signed a mortgage the
same day to secure the loan. The mortgaged property was
undeveloped land on Mirror Lake in Tuftonboro, New Hampshire.
WPB acquired the note and mortgage in August 2009 after
Investment Realty filed for bankruptcy protection.
Under the terms of the note, the loan of $350,000 was
subject to an interest rate of 16.5%, with monthly payments of
interest for three years. At the end of the three-year period,
the entire balance became due, and the interest rate rose to
19.5%. In the event of late payments, a late charge of 10% of
the amount overdue would be assessed.
2
When the note matured on December 21, 2009, WPB demanded
payment. McCarthy failed to pay, and WPB began foreclosure
proceedings. The foreclosure sale was scheduled for October 22,
2010.
I. Previous Litigation Regarding the Foreclosure
On October 4, 2010, McCarthy filed an action in state court
seeking an accounting from WPB and an ex parte temporary
restraining order to prevent the foreclosure sale. The court
did not enter the temporary restraining order to stop the
foreclosure sale because that order would have expired on
October 20, before the scheduled sale on October 22. Instead,
the court ordered service on WPB and scheduled a hearing for
October 20. Following the hearing, the court ruled that
McCarthy had shown a likelihood of success on her claim that the
lender (Investment Realty) breached the loan agreement and
granted a preliminary injunction to stop the foreclosure sale.
WPB removed the case to federal court on October 25 and
moved to dismiss McCarthy’s claims. See Hersey v. WPB Partners,
LLC, 10-cv-486-LM (D.N.H. 2010). In response to the motion to
dismiss, McCarthy acknowledged that she had not alleged facts
sufficient to support several of her claims, including her
claims for breach of contract, violation of RSA 397-A, or
predatory lending. The court determined that it lacked
3
jurisdiction over the case because the amount in controversy for
McCarthy’s claims seeking injunctive relief and an accounting
did not meet the jurisdictional requirement of 28 U.S.C. §
1332(a). For that reason, on February 9, 2011, the court
remanded the case to state court pursuant to
28 U.S.C. § 1447(c)
and closed the case.
Back in state court, McCarthy moved to amend her complaint,
and WPB moved for leave to file a counterclaim. The state court
granted both motions, allowing McCarthy to add some but not all
of the claims she sought leave to add, and allowing WPB to bring
a counterclaim for breach of contract based on the note. On
April 29, 2011, WPB again removed the case to federal court
because, in light of McCarthy’s amended complaint and its
counterclaim, the amount in controversy exceeded the
jurisdictional requirement of § 1332(a). See Hersey v. WPB
Partners, LLC, 11-cv-207-SM (D.N.H. 2011).1
Once back in federal court, McCarthy requested and was
granted leave to file a second amended complaint, in which she
sought a temporary injunction against the foreclosure sale and
alleged claims for violation of Massachusetts General Laws Ch.
1 Although this was the second time McCarthy’s case had
reached federal court, because the first case was remanded
before there were any substantive filings in that case, the
court will refer to Hersey v. WPB Partners, LLC, 11-cv-207-SM as
“McCarthy I.”
4
255E (Count I); violation of the Massachusetts usury law, ch.
271:49 (Count II); violation of RSA 397-A and the Real Estate
Settlement Procedures Act, 12 U.S.C. § 2601, et seq. (Count
III); and breach of contract based on both the note and mortgage
(Count IV). WPB moved to dismiss the second amended complaint.
On September 6, 2011, while the motion to dismiss was pending,
McCarthy filed a notice that she had filed for bankruptcy relief
under Chapter 13 in the bankruptcy court for the District of New
Hampshire. See In re Mary Hersey McCarthy, 11-13342-JMD (Bankr.
N.H. Apr. 6, 2012) (hereinafter, the “Bankruptcy Action”).
On December 5, 2011, the court in McCarthy I issued an
order acknowledging that under 11 U.S.C. § 362, the case was
automatically stayed in light of the Bankruptcy Action. See
McCarthy I, doc no. 30. The court ordered the bankruptcy trustee
to file a motion for substitution of party or another
appropriate pleading by January 13, 2012, or the claims would be
dismissed for failure to prosecute. On January 18, 2012, after
the bankruptcy trustee had failed to submit a filing within the
time allowed, the McCarthy I court dismissed McCarthy’s claims
for failure to prosecute. See
id., doc. no. 31.
On April 6, 2012, the court in the Bankruptcy Action
granted WPB’s motion for relief from the automatic stay for the
purpose of permitting the case in McCarthy I to proceed. In its
order granting the motion, the bankruptcy court noted that the
5
relief from the stay was “limited to that relief necessary to
resolve the matters raised in that case, including determining
the validity of Movant’s mortgage and the amount, if any due
thereunder.” Bankruptcy Action, doc. no. 93, filed in McCarthy
I, doc. no. 33-1.
On April 10, 2012, WPB moved in McCarthy I to reopen the
case in light of the bankruptcy court’s order granting WPB
relief from the stay. The court in McCarthy I granted the
motion to reopen the case. After first denying McCarthy’s
motion to reinstate her four claims asserted in the second
amended complaint, the court reinstated the claims in light of
the bankruptcy trustee’s decision to abandon the property.
On January 29, 2013, WPB moved to dismiss all of McCarthy’s
claims, and McCarthy objected. The court granted WPB’s motion
as to Counts I, III, and IV, but denied the motion as to Count
II, the usury claim. WPB then filed an answer to McCarthy’s
second amended complaint.
On October 22, 2013, WPB moved for summary judgment on
McCarthy’s remaining usury claim and filed a separate motion for
summary judgment on its counterclaim for breach of contract
based on the note.2 McCarthy objected to both motions.
2 WPB had asserted the counterclaim in state court prior to
removing the case to federal court.
6
On February 11, 2014, the court issued an order that
granted WPB’s motions for summary judgment on both McCarthy’s
usury claim and WPB’s counterclaim for breach of contract. With
respect to the damages due on WPB’s counterclaim, the court
explained as follows:
During the pretrial conference held on February 7,
2014, the court disclosed its intention to grant
defendant’s motions for summary judgment. Following a
discussion with respect to the existence of any
material dispute related to calculating the liquidated
damages amount, the parties agreed that the amount of
$443,443.03, as of September 6, 2011 (a date
contemporaneous with the filing of the bankruptcy
petition) would be appropriate. That amount
represents a calculation decidedly in plaintiff’s
favor, and an amount based in substantial part on
plaintiff’s own expert’s opinion. By agreeing to
entry of judgment in that amount, less than it
reasonably could expect, defendant pragmatically
recognized that the property’s value is substantially
less than the judgment amount, and no useful purpose
would be served by the expenditure of additional time
and resources to arrive at a higher, more accurate,
but unimportant figure.
McCarthy I, doc. no. 64 at 4-5. The court concluded: “Judgment
is entered in favor of defendant on its counterclaim for breach
of contract, and liquidated damages in the amount of $433,433.03
is awarded.”3 Id. at 5.
3 Although the court stated in the body of the summary
judgment order that the liquidated damages were $443,443.03, in
the conclusion the court awarded $433,433.03. Judgment entered
for $433,433.03. Neither party moved to correct the amount in
the judgment, and both parties use the $433,433.03 amount stated
in the judgment.
7
McCarthy appealed, and moved for a stay of the order
awarding damages to WPB pending appeal. The court denied the
motion to stay. The First Circuit Court of Appeals affirmed the
judgment on February 12, 2015, and the mandate issued on March
9, 2015.
On April 3, 2015, the bankruptcy court dismissed the
Bankruptcy Action. On May 12, 2015, WPB moved in McCarthy I for
a post-judgment attachment on all of McCarthy’s property that
would be liable for execution to secure the judgment WPB had
been awarded in the case. In support, WPB explained that it had
conducted a foreclosure sale of McCarthy’s property and that WPB
was the highest bidder on the property in the amount of
$500,000. Despite that recovery, WPB stated that its judgment
was not satisfied because McCarthy owed WPB an additional
amount, $257,486.79, which represented costs and expenses WPB
had incurred as of March 20, 2015, for the foreclosure
proceeding and for interest and attorneys’ fees accruing during
the litigation and after judgment.
The court denied WPB’s motion for an attachment. See
McCarthy I, doc. no. 91. The court explained that judgment had
been entered in WPB’s favor “in a liquidated amount which was
‘less than [defendant] reasonably could expect,’ but which
defendant ‘pragmatically’ accepted or stipulated to
nevertheless, resulting in entry of judgment for that amount.”
8
Id. The court stated that WPB’s theory that the liquidated
damages award was the amount due as of September 6, 2011, was
“entirely incorrect.” Instead, the court explained, the amount
awarded “was the amount due upon filing of the bankruptcy
petition, and the amount defendant’s counsel specifically agreed
to accept as the judgment amount in lieu of proving up damages
at the time summary judgment was entered.” Id. The court
concluded that “[i]t is far too late for counsel or defendant to
reconsider that reasonable choice.” Id. WPB did not seek
clarification of the decision or appeal.
II. The Instant Litigation
On January 12, 2016, McCarthy brought suit against WPB in
state court, alleging eight claims that challenged the
foreclosure sale and seeking to recover the difference between
the judgment amount of $433,433.03 in McCarthy I and the sale
price of the property, $500,000.00. WPB removed the case to
this court, and moved to dismiss five of McCarthy’s eight
claims. The court granted the motion, dismissing McCarthy’s
claims for violation of RSA 358-C, violation of RSA 358-A,
violation of the Fair Debt Collection Practices Act, negligent
misrepresentation, and enhanced compensatory damages (Counts IV
through VIII). WPB then filed its answer and asserted two
counterclaims for breach of contract based on the note and
9
mortgage, seeking interest, costs, and fees in Counterclaim I
and foreclosure costs, real estate taxes, and attorneys’ fees in
Counterclaim II.4 McCarthy moves for summary judgment on her
breach of contract claim (Count I) and WPB’s two counterclaims
for breach of contract.
DISCUSSION
In support of her motion for summary judgment, McCarthy
contends that the judgment for $433,433.03 in McCarthy I
requires judgment as a matter of law on WPB’s two breach of
contract counterclaims and her breach of contract claim. More
specifically, McCarthy asserts, based on the doctrines of res
judicata and collateral estoppel, that the judgment in McCarthy
I established the full amount of damages WPB is entitled to
recover for breach of the “loan instruments,” which bars WPB
from claiming any additional damages for breach of the note and
mortgage. McCarthy also contends that WPB breached the mortgage
by failing to pay her the difference between the prior judgment
4 In its objection to summary judgment, WPB notes that
McCarthy did not file a response to WPB’s answer and
counterclaims in this action. WPB goes on to state: “Assuming
the Court will either overlook this oversight or regard
Plaintiff’s motion, however tardy, as a sufficient response, WPB
will address the substance of Plaintiff’s Motion.” Doc. no. 20
at 11. Because WPB did not move for entry of default and
McCarthy’s motion for summary judgment shows her intent to
defend against the counterclaim, entry of default is not
appropriate at this time. See Fed. R. Civ. P. 55(a).
10
amount and the amount received in the foreclosure sale. WPB
objects, arguing that the prior judgment does not bar its
counterclaims or support judgment in McCarthy’s favor on her
breach of contract claim.
I. Preclusion Standards
The preclusive effect of a judgment issued by a federal
court with diversity jurisdiction is governed by federal common
law. Medina-Padilla v. U.S. Aviation Underwriters, Inc., 815
F.3d 83, 86 (1st Cir. 2016) (citing Semtek Int’l Inc. v.
Lockheed Martin Corp.,
531 U.S. 497, 508 (2001)). “The
appropriate rule under federal common law is ‘the law that would
be applied by state courts in the State in which the federal
diversity court sits’ unless that rule would be ‘incompatible
with federal interests.’”
Id. (quoting Semtek,
531 U.S. at 508-
09). The parties make no argument that New Hampshire’s rules of
claim and issue preclusion are incompatible with federal
interests. See, e.g., Marquis v. JPMorgan Chase Bank, N.A., No.
16-cv-200-JD,
2016 WL 3676195, at *2 (D.N.H. July 6, 2016).
Under New Hampshire law, whether claim or issue preclusion
applies is a question of law. 412 S. Broadway Realty, LLC v.
Wolters, 169 N.H. 304, 313 & 314 (2016). Parties are precluded
by the doctrine of claim preclusion, or res judicata, “from
relitigating matters actually litigated and matters that could
11
have been litigated in the first action if three elements are
met.” Id. at 313. The three elements are: “(1) the parties are
the same or in privity with one another; (2) the same cause of
action was before the court in both instances; and (3) the first
action ended with a final judgment on the merits.” Merriam
Farm, Inc. v. Town of Surry,
168 N.H. 197, 199–200 (2015)
(internal quotation marks omitted).
The doctrine of collateral estoppel, or issue preclusion,
“bars a party to a prior action, or a person in privity with
such party, from relitigating any issue or fact actually
litigated and determined in the prior action.” 412 S. Broadway,
169 N.H. at 314 (internal quotation marks and citation omitted).
Collateral estoppel applies when the following requirements are
met:
(1) the issue subject to estoppel is identical in each
action; (2) the first action resolved the issue
finally on the merits; (3) the party to be estopped
appeared in the first action or was in privity with
someone who did; (4) the party to be estopped had a
full and fair opportunity to litigate the issue; and
(5) the finding at issue was essential to the first
judgment.
Id. (internal quotation marks and citation omitted). There is
no dispute that the parties were the same in the prior action
and in this action.
12
II. Breach of the Note
In its first counterclaim, WPB alleges that McCarthy
breached the terms of both the note and mortgage by failing to
“to pay the interest, costs and fees due under the note and
mortgage.” Doc. no. 17 at ¶ 75. In the second counterclaim,
WPB alleges that McCarthy contracted “to pay foreclosure costs
and reasonable legal charges when such services were utilized
for collecting the debt, realizing upon the security and
defending any action against the holder, Defendant WPB, relating
to the promissory note.” Id. at ¶ 78. WPB alleges that
McCarthy breached the note by failing to pay WPB “the
foreclosure costs, the real estate taxes on the mortgaged
property, and the reasonable legal charges utilized for
collecting the debt, realizing upon the security, and defending
this action brought by Plaintiff.” Id. at ¶ 80.
In McCarthy I, WPB brought a counterclaim for breach of
contract based on the note. In that case, WPB alleged that
McCarthy breached the note by failing to make payments pursuant
to the terms of the note. WPB sought damages for the amount due
and “including interest, costs and attorneys [sic] fees.” WPB
then agreed to liquidated damages on the counterclaim in the
amount of $433,433.03.
As discussed above, after judgment was entered in McCarthy
I awarding WPB $433,433.03 in damages and WPB conducted the
13
foreclosure sale, WPB sought an attachment on McCarthy’s
property for “the balance” of damages due for breach of the
note, in the amount of $257,486.79. Those damages represented
the costs and expenses WPB had incurred as of March 20, 2015,
for the foreclosure proceeding and for interest and attorneys’
fees accruing during the litigation and after judgment. The
court in McCarthy I denied the motion for an attachment because
the liquidated damages awarded in the judgment, $433,433.03,
included all damages that WPB claimed and could have claimed for
breach of the note.
McCarthy contends that the judgment in McCarthy I precludes
WPB’s counterclaims for breach of contract based on the note
here. WPB objects, arguing that it did not intend to agree to
$433,433.03 as the limit of its damages for breach of the note
because some of the damages had not occurred when that amount
was determined and judgment was entered. Instead, WPB urges,
that amount represented damages only from the date of default to
the date McCarthy declared bankruptcy on September 6, 2011, or,
alternatively, the amount owed when judgment was entered on
February 11, 2014.
Contrary to WPB’s interpretation of the judgment in
McCarthy I, the court in that case made it clear that in denying
the motion for a post-judgment attachment the liquidated damages
awarded in the judgment included all damages WPB could seek for
14
breach of the note.5 WPB did not move for reconsideration of the
post-judgment attachment order, did not seek to reopen the case
to clarify the scope of the liquidated damages awarded in the
judgment, and did not appeal the order. Therefore, the judgment
of liquidated damages for breach of contract based on the note
in the prior case precludes the same claim, between the same
parties, for the same damages here.6 WPB’s counterclaims for
breach of the note, seeking damages for interest, costs, and
fees, are precluded by the judgment in the McCarthy I.7
Therefore, McCarthy is entitled to summary judgment on both of
WPB’s counterclaims, to the extent they are based on a theory
that McCarthy is liable for damages for breach of contract based
on the note.
5 Although WPB argues that its former counsel’s recollection
of counsel’s discussions with the court and counsel’s intent in
agreeing to liquidated damages should govern the meaning of the
court’s order, it cites no case or authority of any kind to
support that theory.
6 WPB argues that because it is seeking damages for a
different time period it is alleging a different claim for
breach of the note. As discussed, however, that argument is
based on a misunderstanding of the judgment in McCarthy I.
7 WPB argues that only the order denying the motion for an
attachment in McCarthy I holds that the liquidated damages
covered all damages recoverable for breach of the note and that
the attachment order is not a final judgment that could have
preclusive effect. As such, WPB misunderstands the import of
the attachment order. In the attachment order, Judge McAuliffe
clarified the meaning of the judgment that awarded liquidated
damages. Therefore, it is the judgment, as clarified by the
attachment order, that has preclusive effect.
15
III. Breach of the Mortgage
McCarthy alleges in this case that WPB breached the terms
of the mortgage by failing to pay her the difference between the
amount of the judgment in McCarthy I, $433,433.03, and the
amount paid for the mortgaged property in the foreclosure sale,
$500,000.00. WPB’s first counterclaim alleges that McCarthy
breached the mortgage by failing to pay WPB “the interest, costs
and fees” due under the mortgage.8 The viability of both
McCarthy’s claim and WPB’s counterclaim turns on the preclusive
effect of the judgment in McCarthy I.
In support of her claim that WPB breached the mortgage,
McCarthy relies on the following provision in the mortgage:
The proceeds of the sale [conducted pursuant to the
statutory power of sale] shall be applied in the
following order: (a) to all expenses of the sale,
including, but not limited to, reasonable attorneys’
fees; (b) to all sums secured by this Security
Instrument; and (c) any excess to the person or
persons legally entitled to it.
Doc. no. 20-3 at ¶ 22. McCarthy contends that WPB is barred by
the judgment in McCarthy I from claiming any additional amounts
due under the mortgage and, therefore, that WPB owes her the
difference between the $433,433.03 awarded previously and the
$500,000.00 foreclosure sale price.
8 WPB’s second counterclaim references only the note, and for
that reason, does not state a claim for breach of contract based
on the mortgage.
16
In response, WPB contends that the prior judgment amount of
$433,433.03 provided damages only on its counterclaim in
McCarthy I for breach of the note, not for McCarthy’s breach of
the mortgage. WPB also argues that the judgment was limited to
the amount due either at the time of the bankruptcy filing on
September 6, 2011, or at the time the judgment entered. WPB
contends that the prior judgment, on its counterclaim in
McCarthy I alleging breach of contract based on the note, does
not preclude its first counterclaim here that McCarthy breached
the mortgage by failing to pay WPB “the interest, costs and
fees” due under the mortgage.
In McCarthy I, WPB brought a counterclaim against McCarthy
for breach of contract based on the note, alleging that McCarthy
had not paid the balance owed on the note, which was $383,092.10
as of December 30, 2009. WPB alleged damages to include the
balance due, and interest, costs, and attorneys’ fees. The note
provides that McCarthy agreed to pay “foreclosure costs and
reasonable legal charges when such services are utilized for
collecting the debt, realizing upon the security and defending
any action against [WPB] relating to this Note.” Doc. no. 20-2
at 1.
Because the note and the mortgage are different contracts,
albeit related, a claim for breach of the mortgage is not
necessarily the same claim as breach of the note. See, e.g.,
17
Nationstar Mortg., LLC v. Nelson, 2:14-cv-00507-JDL, 2016 WL
5720710, at *5-7 (D. Me. Oct. 3, 2016); First Union Nat’l Bank
v. Penn Salem Marina, Inc.,
921 A.2d 417, 423 (N.J. 2007).
Although res judicata, or claim preclusion, under New Hampshire
law also applies to claims that were not, but could have been,
raised in the prior action, it is unclear whether WPB could have
brought a claim for breach of contract based on the mortgage in
McCarthy I, as that claim is based solely on seeking damages
incurred in proceeding with the foreclosure.
The court need not determine whether res judicata bars
WPB’s counterclaim for breach of contract based on the mortgage,
however, because issue preclusion, or collateral estoppel, does
apply here. In the prior action, the court determined that WPB
was entitled to $433,433.03 in liquidated damages as
compensation for the amount owed on the note and interest,
attorneys’ fees, and other expenses paid by WPB. Here, WPB
seeks fees, interest, and costs for breach of the mortgage. WPB
also asserts that it is not obligated to pay McCarthy the
difference between $433,433.03 and $500,000.00 because McCarthy
owes the fees, interest, and expenses that have accrued since
September 6, 2011.
The liquidated damages award in McCarthy I, although based
on WPB’s claim of breach of contract based on the note, included
all of the additional damages WPB claims here for breach of the
18
mortgage (i.e., damages arising out of proceeding with the
foreclosure). The damages award was final and was essential to
resolution of the prior case. WPB contends that it did not have
a full and fair opportunity to litigate the damages issue
because some of the damages it now claims had not been incurred
when judgment entered in the prior case. WPB did raise those
damages, however, in its motion for a post-judgment attachment
and the court explained that those damages were included in the
prior judgment. WPB had an opportunity to challenge that
decision in the prior case but elected not to file either a
motion to reconsider or an appeal. WPB cites no authority to
support the court’s jurisdiction to review and overturn a prior
judgment issued in this court.
Therefore, WPB is precluded by the judgment in McCarthy I
from relitigating the amount of damages due for McCarthy’s
breach of the mortgage. WPB is also precluded by the prior
judgment from demanding any additional payments from McCarthy
under the mortgage.
IV. Claims and Counterclaims
Under paragraph 22 of the mortgage, WPB is obligated to pay
McCarthy the difference between $433,433.03, the amount that
McCarthy owed under the security instruments pursuant to the
judgment in McCarthy I, and $500.000.00, the proceeds WPB
19
received from the foreclosure sale of McCarthy’s property. The
judgment in McCarthy I precludes WPB from recovering under the
note or the mortgage any additional fees it incurred in
proceeding with the foreclosure. Therefore, McCarthy is
entitled to summary judgment in her favor on Count I, her claim
that WPB breached the mortgage by failing to pay her the
difference between $433,433.03 and $500.000.00 as required by
paragraph 22 of the mortgage. McCarthy is also entitled to
summary judgment in her favor on WPB’s counterclaims for breach
of contract based on the note and mortgage, Counterclaim I and
Counterclaim II.
CONCLUSION
For the foregoing reasons, plaintiff’s motion for partial
summary judgment (doc. no. 18) is granted. Summary judgment is
entered in plaintiff’s favor on Count I of the amended complaint
(doc. no. 14) and on defendant’s counterclaims, Counterclaim I
and Counterclaim II, in the answer (doc. no. 17).
The claims remaining in the case are plaintiff’s claims for
breach of the duty of due diligence (Count II) and breach of the
duty of good faith (Count III).
SO ORDERED.
__________________________
Landya McCafferty
United States District Judge
June 13, 2017
20
cc: James E. Higgins, Esq.
Paul B. Kleimann, Esq.
Sabin R. Maxwell, Esq.
21
