RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 15a0299p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
BRIAN W. BAUMAN; CYNTHIA S. BAUMAN, ┐
Plaintiffs-Appellants, │
│
│ No. 15-3106
v. │
>
│
BANK OF AMERICA, N.A.; HUDSON CITY SAVINGS │
BANK; MORTGAGE ELECTRONIC REGISTRATION │
SYSTEMS, INC., │
Defendants-Appellees. │
┘
Appeal from the United States District Court
for the Southern District of Ohio at Columbus.
No. 2:14-cv-00553—Gregory L. Frost, District Judge.
Decided and Filed: December 23, 2015
Before: COLE, Chief Judge; SUTTON, Circuit Judge; BELL, District Judge.*
_________________
COUNSEL
ON BRIEF: Andrew J. Gerling, Troy J. Doucet, DOUCET & ASSOCIATES, INC., Dublin,
Ohio, for Appellants. Michael Gerst, REED SMITH LLP, Los Angeles, California, Stephanie J.
Peel, REED SMITH LLP, Pittsburgh, Pennsylvania, Amanda L. Holzhauer, James W. Sandy,
MCGLINCHEY STAFFORD, Beachwood, Ohio, for Appellees.
*
The Honorable Robert Holmes Bell, United States District Judge for the Western District of Michigan,
sitting by designation.
1
No. 15-3106 Bauman, et al. v. Bank of America, et al. Page 2
_________________
OPINION
_________________
BELL, District Judge. Did Defendants who failed to bring a debt collection action as a
counterclaim to a Fair Debt Collection Practices Act lawsuit waive their ability to collect on the
debt in the future? That is the question presented in the latest round of litigation between
Plaintiffs-Appellants Brian and Cynthia Bauman and Defendants-Appellees Bank of America,
N.A., Hudson City Savings Bank, and Mortgage Electronic Registration Systems, Inc. The
district court answered no. For the reasons that follow, we agree and affirm.
I.
In August 2004, Brian and Cynthia Bauman purchased property located at 1094 Forsythe
Lane, Galena, Ohio. To finance the purchase, the Baumans obtained a loan for $539,250.00 and
executed a note in favor of Taylor, Bean & Whitaker Mortgage Corp. The note was secured by a
mortgage on the property that listed Defendant Mortgage Electronic Registration Systems, Inc.
(MERS) as the nominee on behalf of Taylor, Bean & Whitaker. In previous litigation involving
the parties, the court found the loan was sold to Hudson City Savings Bank (Hudson) in 2004.
Bank of America’s predecessor, BAC, became the servicer of the loan in November 2008. BAC
merged with Bank of America in 2011.
A. 2010 Foreclosure Action
In July 2010, BAC brought a foreclosure action against the Baumans in state court.
Under Ohio law, a party who seeks to foreclose on a mortgage must generally prove that “it is
the current holder of the note and mortgage.” BAC Home Loan Servicing, L.P. v. Kolenich,
958 N.E.2d 194, 200 (Ohio Ct. App. 2011). At the time of the foreclosure action, Hudson was
the holder of the note. Despite the fact that it was not in possession of the note, BAC falsely
represented that it was and, therefore, that it had standing to file the lawsuit.
In 2011, BAC filed a motion for summary judgment in the foreclosure action. The
Baumans filed a memorandum in opposition, arguing that BAC had not shown it was the holder
No. 15-3106 Bauman, et al. v. Bank of America, et al. Page 3
of the note. The court denied BAC’s motion for summary judgment and BAC voluntarily
dismissed the case.
B. FDCPA Lawsuit
Based on Bank of America’s false representation that it was the holder of the note and its
alleged misrepresentation concerning the availability of a loan modification, the Baumans filed a
complaint in federal court against Bank of America and Hudson alleging violations of the Fair
Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692e(2), 1692e(5), and 1692e(10). The
Baumans argued that Hudson should be held liable for all conduct undertaken by Bank of
America and its predecessors, because Bank of America was servicing the loan on Hudson’s
behalf. Bank of America and Hudson filed a motion for summary judgment.
To prevail on a claim under § 1692e, a plaintiff must establish that: (1) it is a “consumer”
as defined by the FDCPA, (2) the “debt” arose “out of transactions which are ‘primarily for
personal, family or household purposes[,]’” (3) the defendant is a “debt collector” as defined by
the FDCPA, and (4) the defendant violated the prohibitions set forth in § 1692e. Wallace v.
Washington Mut. Bank, F.A., 683 F.3d 323, 326 (6th Cir. 2012) (quoting Whittiker v. Deutsche
Bank Nat’l Trust Co., 605 F. Supp. 2d 914, 926 (N.D. Ohio 2009)). The district court found that
the Baumans did not satisfy the third requirement.
Those “collecting or attempting to collect any debt owed or due or asserted to be owed or
due another to the extent such activity . . . concerns a debt which was not in default at the time it
was obtained by such person[s]” are excluded from the definition of a “debt collector” under the
FDCPA. 15 U.S.C. § 1692a(6)(F)(iii). The district court found that the Baumans were current on
their loan from November 2005 to May 2009. It also found that Hudson and Bank of America
acquired their interests in the debt prior to the date the Baumans defaulted and, therefore, neither
were debt collectors under the FDCPA. Accordingly, the court granted Defendants’ motion for
summary judgment. The court did note that, “[h]ad [Bank of America] not serviced the debt
until after the default, its alleged conduct or misrepresentations could possibly violate the
FDCPA. But, because [Bank of America] is not a debt collector as defined by the FDCPA, it is
not subject to the FDCPA.” Bauman v. Bank of Am., N.A., No. 2:12-cv-933, 2014 WL 1884266,
at *7 (S.D. Ohio May 9, 2014).
No. 15-3106 Bauman, et al. v. Bank of America, et al. Page 4
C. Current Litigation
Although Defendants prevailed in the FDCPA action, they did not bring a foreclosure
action as a counterclaim. Consequently, the Baumans filed a new complaint requesting a
declaration barring Defendants from bringing a future foreclosure action and to quiet title. The
district court held that Defendants were not required to bring a foreclosure action as a
compulsory counterclaim to the FDCPA action and granted Defendants’ motion to dismiss. The
court dismissed the Baumans’ quiet title claim because it was “entirely dependent on their claim
for declaratory relief.”1
We review de novo the district court’s grant of a motion to dismiss. Newberry v.
Silverman, 789 F.3d 636, 640 (6th Cir. 2015).
II.
The Baumans argue that a debt collection (foreclosure) action was a compulsory
counterclaim to their FDCPA lawsuit and, therefore, because Defendants did not bring a
foreclosure action as a counterclaim, they waived their ability to foreclose in the future. Rule
13(a) of the Federal Rules of Civil Procedure provides:
A pleading must state as a counterclaim any claim that—at the time of its
service—the pleader has against an opposing party if the claim: (A) arises out of
the transaction or occurrence that is the subject matter of the opposing party’s
claim; and (B) does not require adding another party over whom the court cannot
acquire jurisdiction.
Fed. R. Civ. P. 13(a)(1). As the foregoing language indicates, “a claim’s compulsory status
depends on whether (1) the claim arises out of the same transaction or occurrence that is the
subject matter of the opposing party’s claim; and (2) the claim is one that the party ‘has’ at the
time that the party is to file his responsive pleading.” Kane v. Magna Mixer Co., 71 F.3d 555,
562 (6th Cir. 1995) (emphasis in original). A “party’s failure to plead a compulsory
counterclaim forever bars that party from raising the claim in another action.” Sanders v. First
Nat’l Bank & Trust Co. in Great Bend, 936 F.2d 273, 277 (6th Cir. 1991) (citing Baker v. Gold
Seal Liquors, Inc., 417 U.S. 467, 469 n.1 (1974)).
1
The Baumans do not contest the viability of the quiet title claim finding on appeal.
No. 15-3106 Bauman, et al. v. Bank of America, et al. Page 5
Thus, to prove that a foreclosure action is a compulsory counterclaim to the FDCPA
action, the Baumans must first show that the two claims “arise” out of the same transaction or
occurrence. Rather than look to whether the original claim and counterclaim literally arise out of
the same transaction or occurrence, we ask, “Is there a logical relationship between the two
claims?” See Maddox v. Ky. Fin. Co., 736 F.2d 380, 382 (6th Cir. 1984). “Under this test, we
determine whether the issues of law and fact raised by the claims are largely the same and
whether substantially the same evidence would support or refute both claims.” Sanders,
936 F.2d at 277 (citing Moore v. New York Cotton Exch., 270 U.S. 593 (1926)) (emphasis
added). A partial overlap in issues of law and fact does not compel a finding that two claims are
logically related. See Peterson v. United Accounts, Inc., 638 F.2d 1134, 1137 (8th Cir. 1981).
This Court has previously held that a counterclaim on the underlying debt in a Truth in
Lending Act (TILA) action is permissive rather than compulsory. See Maddox, 736 F.2d at 383.
In Maddox, the plaintiffs’ TILA claims alleged that the defendant lender used an improper
method to compute refundable interest and failed to adequately disclose the type of security
interest it obtained in the plaintiffs’ personal property. Id. at 381. The lender filed a
counterclaim to collect on the underlying debt. Id. In finding the counterclaim permissive, we
stated:
While the claim and counterclaim do arise out of the same transaction within the
literal terms of Rule 13(a), we do not believe that they are logically related in such
a way as to make the counterclaim compulsory. The claim and counterclaim will
present entirely different legal, factual, and evidentiary questions. It is not clear
that the interests of judicial economy and efficiency would be served in the least
by requiring that the two claims be heard together.
Id. at 383. We relied on the Fourth Circuit’s reasoning in Whigham v. Beneficial Finance Co. of
Fayetteville, Inc., 599 F.2d 1322 (4th Cir. 1979), which also held a counterclaim on the
underlying debt is not logically related to a TILA claim. That court noted that debt collection
and TILA claims raise “significantly different” issues of fact and law, and that the evidence
required to prove each claim also differed. Id. at 1323-24. In determining that the two claims
were not logically related, the court stated:
The lender’s counterclaim alleges simply that the borrower has defaulted on a
private loan contract governed by state law. The borrower’s federal claim
No. 15-3106 Bauman, et al. v. Bank of America, et al. Page 6
involves the same loan, but it does not arise from the obligations created by the
contractual transaction. Instead, the claim invokes a statutory penalty designed to
enforce federal policy against inadequate disclosure by lenders.
Id. at 1324.
Although we have not squarely addressed whether a counterclaim to collect the
underlying debt is compulsory in a FDCPA action, the framework in Maddox, Whigham, and
Sanders is instructive, and supports a finding that Defendants were not required to bring a debt
collection action as a counterclaim in the Baumans’ FDCPA lawsuit.
First, the Baumans’ FDCPA claim raises different issues of law from those that a
foreclosure action would present. Like the debt-collection action in Whigham, a foreclosure
action alleges “that the borrower has defaulted on a private loan contract governed by state law.”
599 F.2d at 1324; see also Kolenich, 958 N.E.2d at 200 (stating that Ohio foreclosure law
generally requires a defendant to “establish execution and delivery of the note and mortgage;
valid recording of the mortgage; it is the current holder of the note and mortgage; default; and
the amount owed”). A FDCPA action, on the other hand, requires interpretation of federal
statutory law and regulations designed to “eliminate abusive debt collection practices by debt
collectors.” 15 U.S.C. § 1692(e).
Second, while there may be some overlap, the issues of fact presented by the Baumans’
FDCPA claims and a foreclosure action are not “largely the same.” Tellingly, the district court’s
FDCPA ruling turned on one key factual issue: whether Defendants acquired their interest in the
property before the Baumans defaulted. The district court could have decided the FDCPA action
knowing this fact alone. In a foreclosure action, however, whether the Defendants obtained their
interest in the debt prior to the date the Baumans defaulted would be irrelevant. A lender must
show only that it is the holder of the note and mortgage at the time it seeks to foreclose.
See BAC Home Loans Servicing, LP v. McFerren, 6 N.E.3d 51, 55 (Ohio Ct. App. 2013).
Further, a foreclosure action requires a lender to prove that the debtor is in default and to
prove the amount that the debtor owes. Kolenich, 958 N.E.2d at 200. A FDCPA claim, however,
does not focus on the validity of the debt, but instead on the “use of unfair methods to collect it.”
Peterson, 638 F.2d at 1136 (holding that a claim on the underlying debt is not a compulsory
No. 15-3106 Bauman, et al. v. Bank of America, et al. Page 7
counterclaim to a FDCPA action); see also Baker v. G.C. Servs. Corp., 677 F.2d 775, 777
(9th Cir. 1982) (“[A] debtor has standing to complain of violations of the [FDCPA], regardless
of whether a valid debt exists.”). Indeed, the Baumans’ FDCPA claim does not contest their debt
obligation, but rather focuses on who attempted to collect the debt and the manner in which they
attempted to do so.
Third, the same policy reasons that compelled this Court to find that a counterclaim on
the underlying debt in a TILA action is permissive support a similar holding here. A contrary
finding would prevent many FDCPA defendants who fail to bring foreclosure actions as a
counterclaim from later bringing the actions in state court. “Such a rule could systematically
usurp these state law debt claims from adjudication by the state courts.” Maddox, 736 F.2d at
383. Such a rule would also require lenders to initiate foreclosure proceedings as a counterclaim
when they otherwise may not have done so, frustrating the purposes of the FDCPA by creating
for debtors a disincentive to sue. See id. at 383 n.1 (“Lenders do not . . . always accelerate the
loan for minor defaults. Yet, if the counterclaim is compulsory, they would be required to do so
if sued.”).
III.
Next, the Baumans argue that the district court analyzed their complaint under an
“impermissible legal standard.” The Baumans first contend that in order to draw all reasonable
inferences in their favor, the district court was required to closely analyze “all the issues litigated
in the FDCPA action, and not just . . . review . . . the documents attached to the Baumans’
complaint.” We disagree. In this action, the Baumans attached to their complaint both the
district court’s opinion and their complaint in the FDCPA matter. These documents provided the
district court with an adequate basis to determine that the issues of fact and law presented in the
FDCPA action are not “largely the same” as those required to support a foreclosure claim.
The Baumans also argue that if the district court did in fact review other documents from
the FDCPA action, doing so was also improper, because the court failed to provide the parties
with the required notice that it was treating a motion to dismiss as a motion for summary
judgment. There is no evidence that the district court’s opinion relied on documents outside of
the pleadings.
No. 15-3106 Bauman, et al. v. Bank of America, et al. Page 8
Accordingly, the Court finds that the district court’s review of the Complaint and
documents attached thereto was not improper.
IV.
For the reasons stated, the district court’s decision granting Defendants’ motion to
dismiss is AFFIRMED.