Federal National Mortgage Association v. Cory Thompson

2018 WI 57

SUPREME COURT OF WISCONSIN
CASE NO.: 2016AP1496
COMPLETE TITLE: Federal National Mortgage Association,
Plaintiff-Respondent,
v.
Cory Thompson,
Defendant-Appellant,
Unknown Spouse of Cory Thompson,
Defendant.

ON CERTIFICATION FROM THE COURT OF APPEALS

OPINION FILED: May 24, 2018
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: February 19, 2018

SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Dane
JUDGE: Amy Smith

JUSTICES:
CONCURRED:
DISSENTED:
NOT PARTICIPATING:

ATTORNEYS:

For the defendant-appellant, there were briefs and an oral
argument by Christopher Stroebel and Stroebel Law, LLC, Madison.

For the plaintiff-respondent, there was a brief and an oral
argument by Thomas C. Dill and BP Peterman Law Group, LLC,
Brookfield.
 2018 WI 57
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2016AP1496
(L.C. No. 2014CV3377)

STATE OF WISCONSIN : IN SUPREME COURT

Federal National Mortgage Association,

Plaintiff-Respondent,

v.
FILED
Cory Thompson,
MAY 24, 2018
Defendant-Appellant,
Sheila T. Reiff
Unknown Spouse of Cory Thompson, Clerk of Supreme Court

Defendant.

APPEAL from an order of the Circuit Court for Dane County.

Affirmed.

¶1 SHIRLEY S. ABRAHAMSON, J. This appeal comes before

the court on certification by the court of appeals.1 Cory

Thompson, the debtor defendant, appeals an order of the Dane

County Circuit Court, Amy Smith, Judge, granting Federal

1
Fed. Nat'l Mortg. Ass'n v. Thompson, No. 2016AP1496,
unpublished certification (Wis. Ct. App. June 29, 2017).
 No. 2016AP1496

National Mortgage Association a foreclosure judgment and a

monetary judgment of $152,355.98, plus any amounts held in

escrow, interest after August 16, 2012, and costs incurred by

Federal National Mortgage Association.2

¶2 The issue certified is as follows: Where a

foreclosure action brought on a borrower's default on a note has

been dismissed, is the lender barred by claim preclusion from

bringing a second foreclosure action on the borrower's

continuing default on the same note?

¶3 Essentially, we must answer the following question:

When a foreclosure action brought on the borrower's default on

the note has been dismissed with prejudice,3 and the lender had

not validly accelerated payment of the amount due under the

note, does claim preclusion bar the lender from bringing a

second foreclosure action based upon the borrower's continuing

default on the same note?

¶4 We conclude that when a lender does not validly

accelerate payment of the amount due under the note and a
foreclosure action brought on the borrower's default on an

installment payment under the note has been dismissed with

prejudice, claim preclusion does not bar the lender from

2
Federal National Mortgage Association replaced Bank of
America as the plaintiff in the instant case in December 2015.
3
For a summary of the facts and decision in the previous
action in 2010, see BAC Home Loans Servicing LP v. Thompson, No.
2013AP210, unpublished slip op. (Wis. Ct. App. Dec. 19, 2013).

2
 No. 2016AP1496

bringing a subsequent foreclosure action based upon the

borrower's continuing default on the same note.

¶5 For an earlier action to bar a subsequent action under

the doctrine of claim preclusion, there must be, among other

elements, "an identity of causes of action in the two suits[.]"

N. States Power Co. v Bugher, 189 Wis. 2d 541, 551, 525

N.W.2d 723 (1995).

¶6 There is no identity of causes of action in the

instant case and in the earlier lawsuit. The matters that were

litigated or might have been litigated in the earlier lawsuit

are not the same as those in the instant case. A different set

of operative facts predicated upon separate and distinct

defaults on the note is alleged in each lawsuit.

¶7 Upon dismissal of the first lawsuit, the parties

continued the same contractual relationship with the same

continuing obligations they had before the commencement of the

first lawsuit. The borrower's default resulting from the

borrower's failure to make an installment payment due after
dismissal of the first lawsuit was not and could not have been

litigated in the first lawsuit. Thus, the failure of the

borrower to pay an installment after the termination of the

first lawsuit created a new set of operative facts upon which

the lender could base a subsequent foreclosure action.

¶8 After the first lawsuit, the lender gave new notice of

intent to accelerate payment. The second lawsuit alleged a

different date of default than was alleged in the first lawsuit.
These constitute new facts giving rise to a new and subsequent
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default and a different transaction from that presented in the

first foreclosure action.

¶9 Additionally, the parties raised and addressed the

issues of whether the circuit court erred at trial by admitting

a copy of the promissory note into evidence and whether Federal

National Mortgage Association proved that it had possession of

the original wet-ink promissory note.4

¶10 We conclude that these additional issues are governed

by our decision in Deutsche Bank National Trust Co. v. Wuensch,

2018 WI 35, ___ Wis. 2d ___, ___ N.W.2d ___.

¶11 Accordingly, we affirm the order of the circuit court.

I

¶12 The facts are undisputed for purposes of this review.

¶13 In November 2004, Cory Thompson executed a promissory

note payable to America's Wholesale Lender for $162,800.00,

secured by a mortgage on real property. The note was endorsed

in blank by America's Wholesale Lender. The note contained an

acceleration clause stating that the holder of the note may
require Thompson to pay the full amount of unpaid principal plus

interest immediately under the following conditions:

4
When this court grants direct review upon certification,
it acquires jurisdiction over all issues, not merely the issues
certified or the issue for which the court accepts the
certification. Wis. Const. art. VII, § 3(3); Wis. Stat.
§§ 808.05(2), 809.61; State v. Stoehr, 134 Wis. 2d 66, 70, 396
N.W.2d 177 (1986).

4
 No. 2016AP1496

(1) Thompson must have defaulted by failing to make a

monthly payment on the date that it was due;

(2) the holder of the note must have sent written notice

to Thompson stating that it may accelerate the

payments under the note if Thompson fails to cure the

default by a given date; and

(3) the amount of time in which Thompson is afforded the

opportunity to cure his default must not be less than

30 days after the date on which the notice is mailed

or otherwise delivered to Thompson.

¶14 In November 2010, BAC Home Loans Servicing, LP,

(formerly Countrywide Home Loans Servicing, LP) filed a lawsuit

against Thompson. The complaint alleged that Thompson failed to

make required payments on the note as of April 2009. In its

complaint, BAC Home Loans purported to accelerate the debt,

which made the principal balance of $153,202.53 immediately

payable in full. BAC Home Loans sought a money judgment in the

full amount owed under the note and sought to foreclose on the
property securing the note.

¶15 At a court trial held on August 16, 2012, the circuit

court determined that BAC Home Loans failed to present

sufficient evidence to prevail in its foreclosure action and

dismissed the lawsuit with prejudice. The circuit court

reasoned that BAC Home Loans failed to present evidence of the

original notice of intent to accelerate full payment and failed

to present evidence that BAC Home Loans was in possession of the

5
 No. 2016AP1496

original wet-ink note (i.e., that BAC Home Loans was the holder

of the note with the right to enforce the note).

¶16 In March 2014, Bank of America, N.A., (the entity

servicing Thompson's loan beginning in 2011), sent Thompson a

notice of intent to accelerate payment of the note. The notice

of intent to accelerate payment informed Thompson of the amount

due to cure his default ($89,586.63), when payment was due (on

or before May 4, 2014), and where to remit payment. Thompson

did not cure his default on or before May 4, 2014.

¶17 In December 2014, Bank of America filed a complaint

initiating the instant lawsuit. The complaint alleged that

Thompson had failed to make payments on the note as of September

2009 and that because Bank of America had accelerated the debt,

the principal balance of $152,355.98 was immediately payable in

full.

¶18 Thompson moved to dismiss the December 2014 lawsuit,

arguing that it was barred by the doctrine of claim preclusion.

¶19 The circuit court reasoned that the 2010 lawsuit and
the instant 2014 lawsuit involved the same parties, the same

note and mortgage, the same "essential" allegations of default,

and the same remedy. According to the circuit court, the only

difference between the 2010 and 2014 lawsuits was the different

default period. The 2010 lawsuit was based on a default as of

April 2009, and the 2014 lawsuit was based on a default as of

September 2009.

¶20 The circuit court concluded that claim preclusion
barred the portion of Bank of America's default claim that was
6
 No. 2016AP1496

alleged to have occurred between April 2009 and August 16, 2012,

the date of the trial in the 2010 lawsuit. The circuit court

further concluded that any default claim alleged to have

occurred after August 16, 2012, "remain[ed] viable."

¶21 The circuit court explained that applying claim

preclusion to any default alleged to have occurred after

judgment was entered in the 2010 lawsuit would "be analogous to

parties in a contract litigating to conclusion one contract

violation, and then being forever barred from litigating

subsequent contract violations. Surely, the policies behind

claim or issue preclusion do not contemplate such a result."

¶22 Accordingly, Bank of America amended its complaint to

allege a date of default occurring after the trial in the 2010

lawsuit. The amended complaint alleged that Thompson had failed

to make payments on the note as of September 2012 and that on

acceleration of the debt due, Thompson owed a principal balance

of $152,141.69.

¶23 A court trial was held on May 12, 2016. Prior to
calling any witnesses, Federal National moved to admit into

evidence a purported copy of the note. Counsel for Federal

National presented the copy of the note, along with a document

purporting to be the original wet-ink note. Thompson objected,

stating that he was unable to tell whether the purported

original wet-ink note was in fact the original wet-ink note or

whether either document was identical to the original document

that he signed in November 2004.

7
 No. 2016AP1496

¶24 The circuit court visually compared the copy of the

note with the document that Federal National's counsel presented

to the court as the original wet-ink note. The circuit court

observed that the document presented by counsel as the original

note appeared to be the original wet-ink note. The circuit

court admitted the copy of the original wet-ink note based on

the court's visual comparison of the original and copy and

because the circuit court viewed the copy as self-

authenticating.

¶25 The circuit court granted Federal National a monetary

judgment of $152,355.98——plus any amounts held in escrow, costs,

and interest after August 16, 2012——along with a judgment of

foreclosure to satisfy the monetary judgment. Thompson

appealed.

¶26 The court of appeals certified the issue as follows:

Where a foreclosure action brought on a borrower's default on a

note has been dismissed, is the lender barred by claim

preclusion from bringing a second foreclosure action on the
borrower's continuing default on the same note?

II

¶27 We begin by setting forth the standard of review

applicable to the certified issue.

¶28 The certified issue involves the application of the

doctrine of claim preclusion to undisputed facts. "The question

of whether claim preclusion applies under a given factual

scenario is a question of law that this court reviews de novo."
N. States Power Co., 189 Wis. 2d at 551 (citing DePratt v. West
8
 No. 2016AP1496

Bend Mut. Ins. Co., 113 Wis. 2d 306, 310, 334 N.W.2d 883

(1983)).

III

¶29 We address whether the doctrine of claim preclusion

applies to the undisputed facts in the instant action.

¶30 Under the doctrine of claim preclusion, "a final

judgment is conclusive in all subsequent actions between the

same parties [or their privies] as to all matters which were

litigated or which might have been litigated in the former

proceedings." N. States Power Co., 189 Wis. 2d at 550 (brackets

in original); Lindas v. Oday, 183 Wis. 2d 547, 558, 515

N.W.2d 458 (1994); DePratt, 113 Wis. 2d at 310. "Claim

preclusion thus provides an effective and useful means to

establish and fix the rights of individuals, to relieve parties

of the cost and vexation of multiple lawsuits, to conserve

judicial resources, to prevent inconsistent decisions, and to

encourage reliance on adjudication." Kruckenberg v. Harvey,

2005 WI 43, ¶20, 279 Wis. 2d 520, 694 N.W.2d 879.5
¶31 Three elements must be present for an earlier action

to bar a subsequent action: "(1) an identity between the

parties or their privies in the prior and present suits; (2) an

identity between the causes of action in the two suits; and, (3)

a final judgment on the merits in a court of competent

5
For further discussion of the public policies underlying
the doctrine of claim preclusion, see Kruckenberg v. Harvey,
2005 WI 43, ¶¶19-22, 279 Wis. 2d 520, 694 N.W.2d 879, and
accompanying footnotes.

9
 No. 2016AP1496

jurisdiction." N. States Power Co., 189 Wis. 2d at 551;

DePratt, 113 Wis. 2d at 311.

¶32 The parties do not dispute, and we agree, that only

the second factor of claim preclusion, that is, identity between

causes of action in the two lawsuits, is at issue in the present

case.

¶33 In determining whether there is identity between

causes of action for purposes of applying claim preclusion,

Wisconsin courts apply the "transactional approach" as described

in Restatement (Second) of Judgements. Kruckenberg, 279

Wis. 2d 520, ¶25; N. States Power Co., 189 Wis. 2d at 553-54;

DePratt, 113 Wis. 2d at 311-12.

¶34 The Restatement explains that the transactional

approach views a claim in factual terms and coterminous with the

transaction, rather than in terms of legal theories:

The present trend is to see a claim in factual terms
and to make it coterminous with the transaction
regardless of the number of substantive theories, or
variant forms of relief flowing from those theories,
that may be available to the plaintiff; regardless of
the number of primary rights that may have been
invaded; and regardless of the variations in the
evidence needed to support the theories or rights.
The transaction is the basis of the litigative unit or
entity which may not be split.
Restatement (Second) of Judgments § 24 cmt. a (1982); DePratt,

113 Wis. 2d at 311.

¶35 Section 24(2) of the Restatement (Second) of Judgments

describes the "transactional approach" in terms of the facts as
follows:

10
 No. 2016AP1496

What factual grouping constitutes a "transaction", and
what groupings constitute a "series", are to be
determined pragmatically, giving weight to such
considerations as whether the facts are related in
time, space, origin, or motivation, whether they form
a convenient trial unit, and whether their treatment
as a unit conforms to the parties' expectations or
business understanding or usage.
Restatement (Second) of Judgments § 24(2) (1982); N. States

Power Co., 189 Wis. 2d at 553-54.

¶36 "The transactional approach to claim preclusion

reflects 'the expectation that parties who are given the

capacity to present their "entire controversies" shall in fact

do so.'" Kruckenberg, 279 Wis. 2d 520, ¶27 (quoting the

Restatement (Second) of Judgments § 24 cmt. a (1982)). In other

words, "[t]he concept of a transaction connotes a common nucleus

of operative facts." Kruckenberg, 279 Wis. 2d 520, ¶26.

¶37 Whether a common nucleus of operative facts is

involved in the two actions at issue is determined pragmatically

by "look[ing] to see if the claim asserted in the second action

should have been presented for decision in the earlier action,

taking into account practical considerations relating mainly to

trial convenience and fairness." Kruckenberg, 279 Wis. 2d 520,

¶27 (quoting Robert C. Casad & Kevin M. Clermont, Res Judicata:

A Handbook on its Theory, Doctrine, and Practice 66 (2001)).

¶38 The 2010 lawsuit and the instant case do not share "a

common nucleus of operative facts." Each lawsuit relates to a

set of operative facts that occurred at a different time. In

the 2010 lawsuit, the claim asserted was that Thompson had
defaulted on the note as of April 2009. In the instant case,

11
 No. 2016AP1496

the amended complaint6 asserts that Thompson defaulted on the

note as of September 2012 (i.e., after judgment was entered in

the 2010 lawsuit).

¶39 Thompson's brief assumes that an identity of claims

exists between the 2010 lawsuit and the claims in the instant

case because the same total amount, namely the entire balance on

the note, was the remedy sought in both lawsuits. This

assumption rests on another assumption, namely that an effective

acceleration of payments occurred in the 2010 lawsuit. Thompson

conceded at oral argument, however, that payment of the note was

not effectively accelerated in the 2010 lawsuit.

¶40 Nevertheless, Thompson continues to assert that the

instant case is barred by claim preclusion. In support of his

claim preclusion argument, Thompson relies on Johnson v. Samson

Construction Corp., 704 A.2d 866 (Me. 1997), and U.S. Bank

National Ass'n v. Gullotta, 899 N.E.2d 987 (Ohio 2008).7

¶41 In each of these cases, in ruling that the lender was

forever barred from placing the entire balance of the note at
issue once again in a second proceeding, the state supreme court

assumed that full payment of the note had been validly

6
The operative allegations in the instant case are in the
amended complaint filed by Bank of America on August 14, 2015.
7
The certification memorandum filed by the court of appeals
explains that state courts have taken varied approaches to the
question of the application of the doctrine of claim preclusion
to a subsequent foreclosure action after a prior foreclosure
action is dismissed.

12
 No. 2016AP1496

accelerated and the entire balance of the note was the subject

of the first lawsuit, which was dismissed with prejudice.

¶42 The Maine Supreme Court summarized its reasoning in

Johnson that a lawsuit based on default of an accelerated debt

barred a second lawsuit on the debt as follows:

The promissory note between Johnson and Samson
required 240 equal monthly payments of principal and
interest. However, the note's acceleration clause
provided that "[i]f any default be made in any payment
under this Note, and if such default is not made good
within thirty (30) days after written notice of same,
the entire unpaid principal and accrued interest shall
become immediately due and payable without further
demand." Johnson's first cause of action alleged that
Samson "defaulted on its obligations to the Plaintiff
under the Note" and demanded payment of the entire
unpaid principal balance. This suit was an action for
the accelerated debt. Once Johnson triggered the
acceleration clause of the note and the entire debt
became due, the contract became indivisible. The
obligations to pay each installment merged into one
obligation to pay the entire balance on the note.
Johnson, 704 A.2d 866, ¶8.

¶43 The Ohio Supreme Court also relied on a purportedly

valid acceleration of the balance due on default in reaching its

decision that a subsequent lawsuit on the note was barred. It

explained in Gullotta the distinction between the consequences

for a second lawsuit of an initial action for recovery of an

installment payment and of an initial action for recovery of the

entire debt as follows:

The key here is that the whole note became due upon
Gullotta's breach, not just the installment he missed.
There is a distinction between an action for recovery
of installment payments under an installment note
where the entire principal is accelerated, and an

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 No. 2016AP1496

action to recover for nonpayment under an installment
note where only the amount of the principal to date,
and no future amount, is sought. The general rule
that each missed payment in an installment loan gives
rise to a separate cause of action does not hold true
when there is an acceleration clause in the loan
agreement[.]
Gullotta, 899 N.E.2d 987, ¶29.

¶44 Neither Thompson's arguments nor these cases upon

which Thompson relies are persuasive in deciding the instant

case in Thompson's favor. Why? Because in the instant case,

unlike in the cases described above, no valid acceleration of

the debt occurred in the 2010 lawsuit.

¶45 Generally, and in the instant case, there cannot be a

valid acceleration of the debt without a default by the

borrower. That is, the borrower's default is a condition

precedent to the lender's right to accelerate the debt.

¶46 After a lawsuit based on the debtor's failure to make

one or more payments is dismissed with prejudice but payment of

the note was not validly accelerated because it was never proved

that the borrower was actually in default, the parties are

simply placed back into the position they held before the

commencement of the lawsuit, with the same continuing

obligations. See, e.g., Singleton v. Greymar Assocs., 882

So. 2d 1004 (Fla. 2004); Afolabi v. Atlantic Mortg. & Invest.

Corp., 849 N.E.2d 1170 (Ind. App. 2006).

¶47 In the instant case, when the 2010 lawsuit against

Thompson was dismissed with prejudice, it had the legal effect

of conclusively establishing that Thompson was not in default
for having missed installment payments due on the note up until

14
 No. 2016AP1496

the date of trial in the 2010 lawsuit (i.e., August 16, 2012).

Thus, because it was never proved in the 2010 lawsuit that

Thompson was in default, the entire balance of the note was

never validly accelerated. In such circumstances, the parties

are placed back into the position they held before the

commencement of the lawsuit. Thompson was obligated to continue

making installment payments after the dismissal of the 2010

lawsuit, and claim preclusion does not prevent Federal National

from suing Thompson for failing to make those payments.8

¶48 Accordingly, we conclude that the instant lawsuit

alleging a default as of September 2012 is not barred by the

doctrine of claim preclusion.

¶49 In the instant case, the debt was not validly

accelerated in the 2010 lawsuit. Claim preclusion should not

bar the mortgagee from challenging a subsequent default payment

solely because the mortgagee failed to prove in a prior action

an earlier alleged default. Preventing a mortgagee from suing

to collect a subsequent default even after the earlier claimed
default could not be established would essentially insulate the

mortgagor from future mortgage foreclosure actions on the note

merely because the mortgagor prevailed in the first action.

8
We note that the 2010 lawsuit was dismissed with prejudice
based on insufficient evidence. We do not address the
application of claim preclusion to a situation in which the
prior lawsuit was dismissed due to a defect in substantive
enforceability of the note.

15
 No. 2016AP1496

¶50 The subject of the instant case is an alleged default

in September 2012. In the prior lawsuit between the parties,

the default was alleged to have occurred in April 2009. The

instant lawsuit arises out of a different set of operative facts

than those addressed in the prior lawsuit. The default alleged

in the instant case could not have been litigated in the prior

lawsuit. There is no identity of claims between the instant

lawsuit and the prior lawsuit. Accordingly, we conclude that

the instant lawsuit alleging a default as of September 2012 is

not barred by the doctrine of claim preclusion.

IV

¶51 Before we end this opinion, we briefly address the

following two additional issues the parties raised:

(1) whether the circuit court erred at trial by admitting

a copy of the note into evidence; and

(2) whether Federal National proved that it had possession

of the original wet-ink note.

¶52 These two issues are presented in and are governed by
our decision in Deutsche Bank National Trust Co. v. Wuensch,

2018 WI 35, ___ Wis. 2d ___, ___ N.W.2d ___. With respect to

these two issues, the facts of the instant case are

substantially the same in all material respects to the facts

presented in Deutsche Bank.

¶53 In Deutsche Bank, we concluded that a promissory note

endorsed in blank constitutes self-authenticating commercial

paper that may be enforced by the holder of the note. Deutsche
Bank, ___ Wis. 2d ___, ¶¶23-24. We further concluded that the
16
 No. 2016AP1496

circuit court did not err by admitting into evidence a copy of

the promissory note that was endorsed in blank, noting that the

copy of the note was compared side-by-side to the original and

that generally speaking, a duplicate of a document is admissible

to the same extent as the original. Deutsche Bank, ___

Wis. 2d ___, ¶23.

¶54 We also concluded that because Deutsche Bank's counsel

physically possessed the original note on his client's behalf at

trial, Deutsche Bank proved that it had possession of the

original promissory note and could bring the lawsuit. Deutsche

Bank, ___ Wis. 2d ___, ¶24.

¶55 In the instant case, counsel presented the original

wet-ink note to the circuit court along with a copy of the note.

The circuit court in the instant case, sitting as the finder of

fact, determined that the purported original appeared to be the

original wet-ink note. Upon comparing the original wet-ink note

to the copy of the note, the circuit court admitted the copy

into evidence.
¶56 Consistent with our decision in Deutsche Bank, we

conclude that Federal National proved that it possessed the

original wet-ink note, that it could bring the lawsuit, and that

the circuit court did not err in admitting a copy of the

original wet-ink note at trial.

V

¶57 As to the certified issue, we conclude that when a

lender does not validly accelerate payment of the amount due
under the note and a foreclosure action brought on the
17
 No. 2016AP1496

borrower's default on an installment payment under the note has

been dismissed with prejudice, claim preclusion does not bar the

lender from bringing a subsequent foreclosure action based upon

the borrower's continuing default on the same note.

¶58 As to the additional issues raised by the parties, we

conclude that Federal National proved that it possessed the

original wet-ink note, that it could bring the lawsuit, and that

the circuit court did not err in admitting a copy of the

original wet-ink note at trial.

By the Court.—The order of the circuit court is affirmed.

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1