NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 16a0320n.06
Case No. 15-6352
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
Jun 10, 2016
BILL M. CHAPMAN; LISA M. CHAPMAN, ) DEBORAH S. HUNT, Clerk
)
Plaintiffs-Appellants, )
) ON APPEAL FROM THE UNITED
v. ) STATES DISTRICT COURT FOR
) THE MIDDLE DISTRICT OF
JPMORGAN CHASE BANK, N.A.; ) TENNESSEE
SPECIALIZED LOAN SERVICING, LLC, )
)
Defendants-Appellees. )
)
BEFORE: MOORE, SUTTON, and DONALD, Circuit Judges.
SUTTON, Circuit Judge. Bill and Lisa Chapman claim that their creditors failed to make
certain disclosures in the course of lending them money to buy a house, precluding the creditors
from later foreclosing on the property when the Chapmans failed to make the requisite loan
payments. The district court dismissed their complaint, and we affirm.
The Chapmans obtained a “refinance loan” from Regions Bank in 2006, secured by their
home in Brentwood, Tennessee. R. 14 at 2. They defaulted, and in 2012 they sued JPMorgan
Chase Bank, along with several other entities that had past or present interests in the loan, in an
effort to prevent foreclosure. See Chapman v. JP Morgan Chase Bank, 621 F. App’x 307, 307–
08 (6th Cir. 2015) (per curiam). The Chapmans alleged that the defendants violated the deed of
trust and the Fair Debt Collection Practices Act in enforcing the loan agreement. They also
Case No. 15-6352
Chapman v. JPMorgan Chase Bank
claimed that the defendants illegitimately transferred the deed of trust, making it impossible to
identify “the true holder of the [p]romissory [n]ote.” R. 19-1 at 6. That meant that none of the
defendants had authority to foreclose on the home, and the Chapmans sought declaratory,
injunctive, and quiet-title relief to that effect. The district court granted summary judgment to
the defendants on all of the Chapmans’ claims, and we affirmed. Chapman v. JP Morgan Chase
Bank, No. 3-12-0623, 2013 WL 5375284, at *2–3 (M.D. Tenn. Sept. 25, 2013); see Chapman,
621 F. App’x at 308.
After our decision, the Chapmans wrote a letter to JPMorgan and several other entities,
asserting their right to rescind the loan. See 15 U.S.C. § 1635(a); 12 C.F.R. § 226.23. They did
so on the ground that, at the time of closing, Regions Bank held itself out as the lender even
though another entity funded the loan. They also alleged that Regions failed to make disclosures
required by federal law. Despite the Chapmans’ effort to rescind the loan, JPMorgan foreclosed
on the property in June 2015.
Today’s case concerns a second lawsuit by the Chapmans, this one against JPMorgan and
Specialized Loan Servicing (the latter of which serviced the loan), and it is premised on the
Chapmans’ efforts to rescind the loan. The first count seeks damages based on the defendants’
failure to provide them, at the time of closing, with notice of their right to rescind. See 15 U.S.C.
§ 1635(a); 12 C.F.R. § 226.23(b). The remaining counts seek to enforce their rescission right
and to void the foreclosure. The district court dismissed their complaint on claim preclusion
grounds, Chapman v. J.P. Morgan Chase Bank, N.A., No. 3:15-cv-693, 2015 WL 7455559, at
*3–5 (M.D. Tenn. Nov. 23, 2015), and the Chapmans appealed. Whether the district court
properly dismissed the Chapmans’ claims is a question of law, which we review afresh. Hensley
Mfg., Inc. v. ProPride, Inc., 579 F.3d 603, 608–09 (6th Cir. 2009).
2
Case No. 15-6352
Chapman v. JPMorgan Chase Bank
Claim Preclusion. We agree with the district court that claim preclusion bars the
plaintiff’s claim for failure to provide notice of the right to rescind the loan. Claim preclusion
bars a second lawsuit when (1) the first lawsuit ends in “a final judgment on the merits,” (2) both
suits involve “the same parties or their privies,” (3) an issue in the second suit “should have been
raised in the first,” and (4) both suits “ar[o]se from the same transaction.” Wheeler v. Dayton
Police Dep’t, 807 F.3d 764, 766 (6th Cir. 2015) (quotations omitted). All four requirements are
present here.
First, the Chapmans’ previous federal lawsuit ended in “a final judgment on the
merits”—a grant of summary judgment to the defendants, which we affirmed. See Chapman,
621 F. App’x at 308; Chapman, 2013 WL 5375284, at *2–3.
Second, the earlier lawsuit and this one involved “the same parties or their privies.” The
Chapmans filed both lawsuits, and the two defendants in this lawsuit (or their privies) were
involved in the first one. The Chapmans named JPMorgan Chase Bank a defendant both times,
and Specialized Loan Servicing took over servicing duties from either JPMorgan Chase Bank or
Chase Home Finance, LLC, both of which were defendants in the prior lawsuit. See Chapman,
2013 WL 5375284, at *1 n.1, *2. That means Specialized Loan Servicing is the successor in
interest to a defendant in the earlier action, which means it is in privity with that defendant for
claim preclusion purposes. See Sanders Confectionery Prods., Inc. v. Heller Fin., Inc., 973 F.2d
474, 481 (6th Cir. 1992).
Third, the Chapmans could have, and “should have,” brought their claims for failure to
provide notice in their earlier lawsuit. The alleged statutory violation occurred in 2006, long
before the Chapmans brought their 2012 lawsuit. Nothing prevented the Chapmans from
incorporating their lack-of-notice claims in the previous complaint. Likewise, the district court,
3
Case No. 15-6352
Chapman v. JPMorgan Chase Bank
which already investigated the circumstances that gave rise to the loan agreement, readily could
have resolved allegations about the disclosure obligations that arose during the formation of that
agreement. See Chapman, 2013 WL 5375284, at *2.
Fourth, both lawsuits “ar[o]se from the same transaction”—the loan agreement between
the Chapmans and Regions Bank. The Chapmans’ first complaint alleged that the defendants
violated the deed of trust executed as part of this agreement and sought to prevent the
enforcement of any contractual rights under the loan agreement. Their current complaint alleges
that the defendants failed to comply with statutory notice requirements, which come into play
whenever a creditor participates “[i]n a transaction subject to rescission.” 12 C.F.R.
§ 226.23(b)(1); see 15 U.S.C. § 1635(a). The transaction that gave rise to the disclosure
requirements at issue here is the same transaction whose validity was challenged in the first
complaint. See R.G. Fin. Corp. v. Vergara-Nuñez, 446 F.3d 178, 181–85 (1st Cir. 2006)
(applying Puerto Rico claim preclusion law); cf. Albano v. Norwest Fin. Haw., Inc., 244 F.3d
1061, 1064 (9th Cir. 2001) (applying Hawaii claim preclusion law). Yes, it is true, actions to
enforce a debt are not “logically related” to lack-of-disclosure claims, meaning the former are
not compulsory counterclaims in a lawsuit involving the latter. See Maddox v. Ky. Fin. Co., 736
F.2d 380, 382–84 (6th Cir. 1984). But the Chapmans’ previous lawsuit was not an action to
enforce a debt; it alleged breach of the deed of trust and violations of the Fair Debt Collection
Practices Act, and it directly attacked the validity of the loan agreement at issue in today’s case.
That sort of factual and transactional overlap, lacking in Maddox, justifies invoking claim
preclusion to bar the Chapmans’ claims. 736 F.2d at 383; see also Sanders, 973 F.2d at 484–85.
The Chapmans resist this conclusion in three ways. They note that JPMorgan “was
named in a different capacity” in the earlier lawsuit, eliminating the possibility that the same
4
Case No. 15-6352
Chapman v. JPMorgan Chase Bank
parties (or their privies) appeared in both actions. Appellants’ Br. 30. “The rule of differing
capacities,” we realize, “generally operates to allow a subsequent individual capacity suit against
a governmental official even where a prior suit alleged an official capacity claim against the
same official.” Mitchell v. Chapman, 343 F.3d 811, 823 (6th Cir. 2003). But that doctrine has
no relevance here. JPMorgan is not “a government[] official,” and the Chapmans, perhaps more
importantly, offer no explanation of how they sued the corporation in two meaningfully different
“capacities.” Id.
The Chapmans add that they could not have brought their lack-of-notice claims in the
first lawsuit, because they did not know “the name of the true lender” until 2015. Appellants’
Br. 31. Their theory is that, although Regions Bank falsely held itself out as the creditor at the
time of closing, another entity was funding the loan and the Chapmans could not bring a lawsuit
until they knew that entity’s identity. That is incorrect. The Chapmans knew enough at the time
of their first complaint to bring claims against JPMorgan, along with Specialized Loan
Servicing’s predecessor in interest, and they knew about the factual basis of any statutory
violations, which occurred in 2006. That is all they needed to know to raise their failure-to-
disclose claim against these defendants and their privies. Any alleged confusion about the “true”
creditor thus was self-imposed and thus carries no weight.
The Chapmans next contend that claim preclusion will result in injustice because it will
prevent them from vindicating their statutory right to receive full disclosure about this credit
transaction. But every application of claim preclusion (or any other procedural bar for that
matter) prevents claimants from vindicating their rights, and the Chapmans do not identify any
particular injustice that will befall them if we invoke “accepted principles of res judicata.”
Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 401 (1981).
5
Case No. 15-6352
Chapman v. JPMorgan Chase Bank
Timeliness. The district court held that claim preclusion disposed of the Chapmans’ other
claims as well, but we take a different path in rejecting these claims. The Chapmans’ remaining
causes of action all rest on a single allegation—that they rescinded the loan, which, they say,
means that JPMorgan and Specialized Loan Servicing had no authority to foreclose on their
home.
Any potential “[r]ight of rescission” comes from the Truth in Lending Act’s buyer’s
remorse provision. 15 U.S.C. § 1635; see 12 C.F.R. § 226.23. It says that borrowers “shall have
the right to rescind [certain consumer credit] transaction[s] until midnight of the third business
day following the consummation of the transaction or the delivery of [various required
disclosures], whichever is later.” 15 U.S.C. § 1635(a); see 12 C.F.R. § 226.23(a)(3); see also
Barrett v. JP Morgan Chase Bank, N.A., 445 F.3d 874, 877–79 (6th Cir. 2006). Even if the
creditor never delivers the necessary disclosures, the rescission right “expire[s] three years after
the date of consummation of the transaction or upon the sale of the property, whichever occurs
first.” 15 U.S.C. § 1635(f); see 12 C.F.R. § 226.23(a)(3). This provision goes beyond the
standard statute of limitations, extinguishing not only the plaintiffs’ ability to bring a lawsuit but
also their “underlying right” to rescind the transaction. Beach v. Ocwen Fed. Bank, 523 U.S.
410, 417 (1998).
The three-year time limit governs the Chapmans’ claims. They allege that the creditors
never made some of the necessary disclosures. And the Chapmans consummated their loan
agreement with Regions Bank in 2006, which means their right to rescind expired in 2009, well
before they tried to exercise it in 2015. Absent a valid rescission, the Chapmans’ challenge to
this foreclosure and the remaining claims in their complaint necessarily fail.
6
Case No. 15-6352
Chapman v. JPMorgan Chase Bank
Acknowledging that their right to rescind the underlying transaction expired several years
ago, they claim that the relevant transaction—the loan agreement—was not “consummat[ed]”
until 2015, when they became aware of their “true” creditor’s identity. Appellants’ Br. 23, 25.
“‘[C]onsummation,’” however, “occurs when a borrower signs the loan documents and becomes
obligated to pay,” United States v. Petroff-Kline, 557 F.3d 285, 296 (6th Cir. 2009), as the
federal regulations governing the Truth in Lending Act confirm, see 12 C.F.R. § 226.2(a)(13).
That happened in 2006, when the Chapmans “sign[ed] the loan documents and bec[a]me[]
obligated to pay” back the loaned money (plus interest) to Regions Bank. Petroff-Kline, 557
F.3d at 296. Even if some amorphous “true creditor” lurked in the background of this
transaction, that did not change the Chapmans’ obligations to Regions under the 2006 agreement,
which means it did not change the date of that agreement’s consummation.
Any other interpretation would flout the Truth in Lending Act’s requirement that
creditors make the necessary “disclosures before consummation of the transaction.” 12 C.F.R.
§ 226.17(b). Those disclosures are useful only to the extent they give consumers information
about the agreement they are about to sign, and they would serve little purpose if the creditor did
not have to make them until years after loan obligations arose in the first place. The Chapmans
confirm the point when they criticize Regions Bank for not making some of the required
disclosures in 2006—something the lender would not have been obligated to do until 2015 if the
Chapmans’ interpretation were correct.
Caselaw, contrary to the Chapmans’ argument, does not alter this conclusion. Jackson v.
Grant held that a loan agreement was not consummated because “[t]he Deed of Trust and the
Promissory Note signed by [the plaintiff] le[ft] the name of the beneficiary/lender blank.” 890
F.2d 118, 121 (9th Cir. 1989). That meant “[n]o one . . . had agreed to extend credit to [the
7
Case No. 15-6352
Chapman v. JPMorgan Chase Bank
plaintiff] as of” the date the documents were signed, so she had no obligation to make payments
on the loan. Id. Regions Bank by contrast agreed to extend credit to the Chapmans in 2006,
creating an obligation to make payments on their loan. Jackson has nothing useful to say in this
setting.
So too of Jesinoski v. Countrywide Home Loans, Inc. 135 S. Ct. 790 (2015). It held that
borrowers exercise their right to rescind as soon as they give notice to the creditor, even if they
have not yet brought a lawsuit to enforce the rescission. Id. at 792. This reasoning does not
mean, as the Chapmans claim, that creditors must accept the validity of a rescission as soon as
they receive notice of it; creditors still may ask a court not to enforce an invalid rescission, as
today’s defendants do. Nor does Jesinoski exempt borrowers from the statutory requirements for
making a valid rescission in the first place. They still must provide the proper form of notice, see
15 U.S.C. § 1635(a); 12 C.F.R. § 226.15(a)(2), and they still must exercise their rights within the
statutory time frame, see 15 U.S.C. § 1635(a), (f); 12 C.F.R. § 226.15(a)(3). Because the
Chapmans did not comply with these time limits, we decline to enforce their right to rescind.
The Chapmans insist that the defendants lack “standing” to challenge the rescission.
Reply Br. 6–10. But they cannot be referring to standing in the Article III sense, which requires
plaintiffs, as “[t]he party invoking federal jurisdiction,” to show an injury in fact caused by the
challenged conduct and redressable through the relief sought. Lujan v. Defenders of Wildlife,
504 U.S. 555, 560–61 (1992). They must instead mean that, because they rescinded the
transaction, the defendants no longer have any right to assert an interest in the loan. But because
the premise of this argument is wrong, as shown, so too is its conclusion. The Chapmans tried to
rescind the loan, but because their effort was untimely they were not successful. And even if
8
Case No. 15-6352
Chapman v. JPMorgan Chase Bank
their rescission had been valid, that would not mean the defendants lacked “standing” to
challenge that rescission; it would just mean the defendants’ arguments lacked merit.
We recognize that claim preclusion and time limitation arguments are affirmative
defenses, and such defenses typically are not invoked at the motion-to-dismiss stage. Estate of
Barney v. PNC Bank, Nat’l Ass’n, 714 F.3d 920, 926 (6th Cir. 2013). But courts still may grant
such a motion “where the undisputed facts conclusively establish an affirmative defense as a
matter of law.” Hensley Mfg., 579 F.3d at 613. That is today’s case. The Chapmans’ pleadings,
coupled with the records of their earlier lawsuit, “conclusively establish” that claim preclusion
bars their failure-to-disclose claim, and their own allegations “conclusively establish” that their
attempts to rescind were untimely. Id. The defendants briefed these arguments in the district
court and on appeal, and the Chapmans have failed to rebut them. The Chapmans at any rate do
not protest the district court’s decision on this ground.
For these reasons, we affirm.
9