R.G. Financial Corp. v. Vergara-Nuñez

United States Court of Appeals
For the First Circuit

No. 05-1945

R.G. FINANCIAL CORP. ET AL.,

Plaintiffs, Appellees,

v.

PEDRO VERGARA-NUÑEZ ET AL.,

Defendants, Appellants.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Carmen Consuelo Cerezo, U.S. District Judge]

Before

Boudin, Chief Judge,
Torruella and Selya, Circuit Judges.

Juan M. Suárez Cobo, with whom Suárez Cobo Law Offices, PSC
was on brief, for appellants.
Sonia B. Alfaro de la Vega, with whom Quilichini, Oliver &
Medina was on brief, for appellees.

April 21, 2006
 SELYA, Circuit Judge. This controversy began when R&G

Mortgage Corporation obtained a default judgment in the Puerto Rico

Court of First Instance ordering foreclosure of a mortgage on the

principal residence of Pedro Vergara-Nuñez (Vergara). In a later

federal action brought by R&G Mortgage and two affiliated companies

(R-G Premier Bank of Puerto Rico and R.G. Financial Corporation),

Vergara asserted, via a counterclaim, that the three plaintiffs

(collectively, the R-G companies) had violated the federal Truth in

Lending Act (TILA), 15 U.S.C. §§ 1601-1613, 1631-1667f, by failing

to provide timely and accurate disclosures anent certain aspects of

the mortgage loan. Despite the presence of new parties and a new

cause of action, the district court determined that the prior

foreclosure judgment barred Vergara's TILA claim. This appeal

followed.1 Because Vergara cannot surmount the broad sweep of the

res judicata doctrine, we affirm.

I. BACKGROUND

The R-G companies are related business entities. R-G Premier

Bank is a licensed consumer lender and R&G Mortgage is a loan

servicer that principally handles loans in which R-G Premier Bank

is involved. Both firms qualify as "creditors" for TILA purposes.

1
The unknown heirs of Vergara's deceased wife and John Zerbe,
as trustee of Vergara's bankruptcy estate, were named as parties
below, and the trustee appears as a co-appellant before us.
Inasmuch as the trustee's claim is congruent with that of the
debtor, we discuss the case as if Vergara were the only appellant.

-2-
See 15 U.S.C. § 1602(f). R.G. Financial is the corporate parent of

the other two companies.

On February 9, 2001, Vergara and his wife, Maria Viera

Clemente (Viera), borrowed $35,600 from R-G Premier Bank. The loan

constituted a consumer credit transaction governed by the TILA.

See id. § 1602(aa). As security for repayment of the loan, the

couple executed a mortgage on their principal residence in favor of

R-G Premier Bank.

For several months, Vergara and Viera assiduously made the

required mortgage payments. In or around August of 2001, however,

the payments ceased and the loan quickly went into default. As a

result, the loan servicer, R&G Mortgage, filed a collection and

foreclosure action in the Puerto Rico Court of First Instance.

Despite proper notice and service of process, neither Vergara nor

Viera appeared. Consequently, on May 29, 2002, the court entered

a default judgment against them and authorized foreclosure of the

mortgage. This judgment was not appealed and is now final.

Approximately five months later, Viera filed a voluntary

petition in the bankruptcy court seeking protection under Chapter

13. See 11 U.S.C. § 301(a). That filing stayed the execution of

the foreclosure judgment. See id. § 362(a)(2). Within a short

time, however, Viera died and the bankruptcy court dismissed her

petition as moot. That action dissolved the stay. In short order,

-3-
the Court of First Instance scheduled a judicial sale of the

mortgaged premises for September 5, 2003.

On July 15, 2003, Vergara wrote a letter accusing R&G Mortgage

of having failed to make "accurate material disclosures" in the

course of the loan transaction. In particular, he asserted that

the pertinent documentation misstated the finance charge, annual

percentage rate, and total amount financed. Claiming that these

transgressions gave rise to a right of rescission under the TILA,

Vergara purported to exercise that right and demanded that R&G

Mortgage return any money received as a result of the tainted

transaction.

The R-G companies collectively responded by filing suit in the

federal district court. Their complaint sought a declaration that

Vergara's TILA claim was barred by (i) res judicata; (ii) the

statute of limitations; and/or (iii) his failure to tender the

balance of the loan proceeds.

A few days before the date of the planned foreclosure sale,

Vergara filed a voluntary petition in the bankruptcy court seeking

protection under Chapter 7. See 11 U.S.C. § 301(a). That filing

automatically stayed both the district court proceedings and the

scheduled foreclosure sale. See id. § 362(a)(1)-(2). On R&G

Mortgage's application, the bankruptcy court lifted the automatic

stay to allow the district court action to proceed. Its order

-4-
expressly prohibited any involuntary sale of the residence pendente

lite.

With the district court action back on track, Vergara answered

the complaint and filed a counterclaim against the R-G companies.

Largely echoing the accusations contained in his earlier letter,

Vergara ticked off a litany of alleged TILA violations. His

counterclaim referred to R-G Premier Bank as the "subsidiary and/or

assignee" of the other two companies and asserted that, on the

basis of that relationship, all three companies were "responsible

for the acts alleged . . . and [were] liable" for the inaccurate

disclosures. Vergara prayed for rescission of the loan,

disgorgement of the fruits of the transaction, statutory damages,

and attorneys' fees.

After answering the counterclaim, the R-G companies moved for

judgment on the pleadings. They contended that, under the doctrine

of res judicata, the foreclosure judgment not only barred Vergara's

counterclaim but also warranted the declaratory relief sought in

their complaint. Vergara's retort was that because the two actions

lacked perfect identity of causes and parties, the earlier judgment

did not preclude the later assertion of TILA claims or defenses.

The district court rejected Vergara's position. It ruled that

the rudiments of the Puerto Rico preclusion statute were satisfied

and that the foreclosure judgment precluded the assertion of

-5-
Vergara's counterclaim. R-G Fin. Corp. v. Vergara-Nuñez, 381 F.

Supp. 2d 1, 4 (D.P.R. 2005). This timely appeal ensued.

II. DISCUSSION

We begin by limning the applicable standard of review. We

then proceed to consider the district court's res judicata ruling.

Finally, we address Vergara's fallback argument that the statutory

window for asserting his TILA rescission right remains open

notwithstanding a valid judgment of foreclosure.

A. Standard of Review.

Res judicata is an affirmative defense. See Fed. R. Civ. P.

8(c). The applicability vel non of the res judicata defense

presents a question of law engendering de novo review. Pérez-

Guzmán v. Gracia, 346 F.3d 229, 233 (1st Cir. 2003).

In this case, the district court granted judgment on the

pleadings. See Fed. R. Civ. P. 12(c). Rule 12(c) allows a party

to move for judgment on the pleadings at any time "[a]fter the

pleadings are closed but within such time as not to delay the

trial." Id. Because such a motion calls for an assessment of the

merits of the case at an embryonic stage, the court must view the

facts contained in the pleadings in the light most favorable to the

nonmovant and draw all reasonable inferences therefrom to the

nonmovant's behoof. Rivera-Gomez v. de Castro, 843 F.2d 631, 635

(1st Cir. 1988); 5C Charles Alan Wright & Arthur R. Miller, Federal

Practice and Procedure § 1368 (3d ed. 2004). The court may

-6-
supplement the facts contained in the pleadings by considering

documents fairly incorporated therein and facts susceptible to

judicial notice. Cf. In re Colonial Mortg. Bankers Corp., 324 F.3d

12, 15-16 (1st Cir. 2003) (recognizing this principle in the Rule

12(b)(6) context). There is no resolution of contested facts in

connection with a Rule 12(c) motion: a court may enter judgment on

the pleadings only if the properly considered facts conclusively

establish the movant's point. Rivera-Gomez, 843 F.2d at 635.

B. Res Judicata.

The Full Faith and Credit Clause provides that "Full Faith and

Credit shall be given in each State to the public Acts, Records,

and judicial Proceedings of every other State. And the Congress

may by general Laws prescribe the Manner in which such Acts,

Records and Proceedings shall be proved, and the Effect thereof."

U.S. Const. art. IV, § 1. A statute enacted by Congress to

implement this provision states in pertinent part:

The records and judicial proceedings of any court of any
. . . State, Territory or Possession . . . shall have the
same full faith and credit in every court within the
United States and its Territories and Possessions as they
have by law or usage in the courts of such State,
Territory or Possession from which they are taken.

28 U.S.C. § 1738. The plain language of the statute requires a

federal court to give a state-court judgment the same preclusive

effect that judgment would receive under the law of the state in

which it was rendered. See Migra v. Warren City Sch. Dist. Bd. of

Educ., 465 U.S. 75, 81 (1984).

-7-
 Here, we are called upon to determine the preclusive effect of

a judgment entered by the Puerto Rico Court of First Instance.2

Thus, Puerto Rico law supplies the rule of decision. See Pérez-

Guzmán, 346 F.3d at 233-34.

In Puerto Rico, the doctrine of res judicata is a creature of

the Civil Code:

In order that the presumption of res adjudicata may be
valid in another suit, it is necessary that, between the
case decided by the sentence and that in which the same
is invoked, there be the most perfect identity between
the things, causes, and persons of the litigants, and
their capacity as such.

P.R. Laws Ann. tit. 31, § 3343. Although this statute speaks of

"res adjudicata," it encompasses both the doctrine of res judicata

(i.e., claim preclusion) and the doctrine of collateral estoppel

(i.e., issue preclusion), albeit with slightly different

requirements for each. See Baez-Cruz v. Munic. of Comerio, 140

F.3d 24, 29 (1st Cir. 1998).

We previously have explained that a party asserting a res

judicata defense under Puerto Rico law must establish three

elements: (i) the existence of a prior judgment on the merits that

is "final and unappealable"; (ii) a perfect identity of thing or

2
For full faith and credit purposes, Puerto Rico is the
functional equivalent of a state. See Cruz v. Melecio, 204 F.3d
14, 18 n.2 (1st Cir. 2000); Medina v. Chase Manhattan Bank, 737
F.2d 140, 142 (1st Cir. 1984). Thus, we sometimes refer to the
Puerto Rico courts as "state courts" and to Puerto Rico law as
"state law" notwithstanding Puerto Rico's unique commonwealth
status.

-8-
cause between both actions; and (iii) a perfect identity of the

parties and the capacities in which they acted. Boateng v.

InterAm. Univ., Inc., 210 F.3d 56, 61-62 (1st Cir. 2000). Because

Vergara concedes that the judgment of foreclosure is final and

unappealable, we train the lens of our inquiry on the two "perfect

identity" requirements.

1. Perfect Identity: Thing or Cause. Three considerations

must be borne in mind with respect to this requirement. First, the

phrase "perfect identity" cannot be taken literally. See id. at

61. Second, the word "thing" as used in the statute "corresponds

basically to the object or matter over which the action is

exercised." Lausell Marxuach v. Diaz de Yáñez, 3 P.R. Offic.

Trans. 742, 745 (1975). Two actions share an identity of "things"

if a decision in the second action might function to contradict "a

right arisen or arising from, or a right affirmed by [a] prior

decision." A & P Gen. Contractors, Inc. v. Asociación Caná, 10

P.R. Offic. Trans. 984, 998 (1981). Third, the word "cause" as

used in the statute refers to factual cause; actions share this

type of perfect identity when they flow from the same principal

ground or origin. Lausell Marxuach, 3 P.R. Offic. Trans. at 746.

As this trilogy of considerations illustrates, Puerto Rico

essentially follows a transactional res judicata approach similar

to that adhered to in much of the common law system. See Boateng,

210 F.3d at 61-62. Consistent with that approach, Puerto Rico's

-9-
courts have held that res judicata precludes the subsequent

litigation of all claims that either were or could have been

asserted in a prior action. See, e.g., Commonwealth v. Sociedad

Civil Agricola e Industrial, 4 P.R. Offic. Trans. 546, 554 (1975)

(per curiam); Mercado Riera v. Mercado Riera, 100 P.R. 939, 949

(1972).

In this case, the state and federal actions possess the

perfect identity of thing or cause required by the Puerto Rico

statute. The foreclosure suit and Vergara's counterclaim involve

the same object or matter and share a common factual origin; both

actions arise out of the loan transaction, entail a determination

of the validity of that transaction, and call into question the

parties' rights vis-à-vis the loan and the mortgaged premises. It

would be impossible for Vergara to prevail on his claim that the

loan transaction is subject to rescission without flatly

contradicting the state court's affirmation of R&G Mortgage's right

to foreclose on the encumbrance securing that loan. And, finally,

because state courts possess concurrent jurisdiction over TILA

claims, see 15 U.S.C. § 1640(e), Vergara could have asserted his

counterclaim in the foreclosure proceeding. That he inexplicably

failed to do so is beside the point. See Sociedad Civil Agricola,

4 P.R. Offic. Trans. at 554.

Vergara's principal argument to the contrary posits that his

TILA-based rescission claim is of a different genre than the

-10-
foreclosure claim. This emphasis on the divergence of the theories

on which the underlying causes of action are based confuses legal

cause with factual cause. As the Puerto Rico Supreme Court has

explained, "cause" is "the principal ground, the origin of the

actions or exceptions raised and decided, and it must not be

mistaken for the means of proof nor for the legal grounds of the

claims adduced by the parties." Lausell Marxuach, 3 P.R. Offic.

Trans. at 748 (citation and internal quotation marks omitted).

Thus, Puerto Rico's preclusion statute focuses exclusively on

factual cause. See Baez-Cruz, 140 F.3d at 30. It follows

inexorably, as night follows day, that a mere difference in the

legal theories on which two causes of action are grounded does not

destroy the identity of thing or cause that otherwise exists

between two suits arising out of a common nucleus of operative

fact. See Boateng, 210 F.3d at 62.

Vergara's second argument is more nuanced. He asserts that

the Puerto Rico Supreme Court's standard formulation of the perfect

identity of thing or cause requirement only applies in cases in

which the claimant in the second action appeared as the claimant in

the first action. Building on this assertion, he postulates that

the requirement should be construed differently in cases, such as

this one, in which the second-action claimant was a first-action

defendant. In those cases, Vergara's premise runs, an adverse

judgment only precludes the later assertion of claims that were

-11-
compulsory counterclaims in the earlier action; the later assertion

of claims that were either permissive counterclaims or unaccrued at

the time of the first suit would be unaffected.

There is one more piece to this puzzle: to bring his TILA

rescission claim within the safe harbor of this proposed rule,

Vergara cites a skein of federal cases holding that, under Fed. R.

Civ. P. 13(a), a lender's claim for debt against a borrower is not

a compulsory counterclaim in the borrower's TILA action against the

lender. See, e.g., Maddox v. Ky. Fin. Co., 736 F.2d 380, 383 (6th

Cir. 1984); Valencia v. Anderson Bros. Ford, 617 F.2d 1278, 1290-92

(7th Cir. 1980), reversed on other grounds, 452 U.S. 205 (1981);

Whigham v. Beneficial Fin. Co., 599 F.2d 1322, 1323 (4th Cir.

1979). Because the Puerto Rican and federal compulsory

counterclaim rules are identical, compare P.R. Laws Ann. tit. 32,

App. III, R. 11.1 with Fed. R. Civ. P. 13(a), Vergara suggests that

his TILA counterclaim was permissive in the earlier foreclosure

action and, thus, should not be precluded by the judgment in that

action.

This construct cannot withstand scrutiny. The precedents

cited by Vergara do little to resolve whether his TILA counterclaim

was compulsory or permissive vis-à-vis the foreclosure suit. At

least one of our sister circuits has determined that a lender's

debt counterclaim is compulsory, not permissive, in a borrower's

TILA action. See Plant v. Blazer Fin. Servs., Inc., 598 F.2d 1357,

-12-
1363 (5th Cir. 1979). Another circuit has called into question its

earlier holding that a debt counterclaim is permissive rather than

compulsory in those circumstances. See Asset Alloc. & Mgmt. Co. v.

Employers Ins. Co., 892 F.2d 566, 573 (7th Cir. 1990) (questioning

the correctness of the court's earlier holding in Valencia).

At any rate, the case law on which Vergara relies involves the

obverse of the situation presented here; instead of dealing with

the question of whether a federal-law TILA counterclaim is

compulsory in a state-court debt action, those cases all deal with

whether a state-law debt counterclaim is compulsory in a federal-

court TILA action. This distinction is critical because, without

exception, the cases proffered by Vergara involve interpretations

of the federal compulsory counterclaim rule. While the language of

the Puerto Rican compulsory counterclaim rule is virtually

identical, Vergara has not identified a single case in which a

Puerto Rico court has either spoken to the issue or stated how — if

at all — decisions interpreting the federal rule bear on the

analysis of cases involving the Puerto Rican rule.

In the final analysis, we need not determine whether the

Puerto Rico Supreme Court would deem Vergara's TILA counterclaim

compulsory or permissive vis-à-vis the original foreclosure suit.

That court, we think, would ask a somewhat different question. It

has strongly suggested that an adverse judgment precludes the

subsequent assertion of a compulsory counterclaim. See Neca Mortg.

-13-
Corp. v. A & W Developers S.E., 137 P.R. Dec. 860, 866-67 (1995)

(dictum); Worldwide Food Distribs. v. Colón Bermúdez, 133 P.R. Dec.

827, 834-36 (1993) (holding that an eviction judgment against a

lessee barred the lessee's subsequent suit to enforce the option

provision of the lease). Perhaps more importantly, however, under

the transactional approach generally adhered to in Puerto Rico, a

final judgment against the first-action defendant typically

precludes not only the later assertion of compulsory counterclaims

by that party but also that party's later assertion of any other

available counterclaim whose "successful prosecution in the action

would nullify the initial judgment or would impair rights

established in the initial action." Restatement (Second) of

Judgments § 22(2)(b) (1982).

The claim here at issue — Vergara's TILA-based claim for

rescission — plainly runs afoul of this rule. After all, Vergara

cannot successfully prosecute a rescission claim without nullifying

R&G Mortgage's court-sanctioned right to foreclose the mortgage.

Thus, even if Vergara were correct that the perfect identity of

thing or cause requirement is more forgiving in cases in which the

claimant in the second action was the defendant in the first action

— a matter on which we do not opine — we still would conclude that

the preclusory "perfect identity of thing or cause" requirement is

satisfied in this instance.

-14-
 2. Perfect Identity: Parties. The purpose of the perfect

identity of parties requirement is to guarantee that the rights and

obligations of a particular litigant will not be foreclosed without

that litigant's knowledge or opportunity to participate. Futura

Dev. Corp. v. Centex Corp., 761 F.2d 33, 43 (1st Cir. 1985). In

harmony with this purpose, the Puerto Rico res judicata statute

directs that:

[T]here is identity of persons whenever the litigants of
the suit are legal representatives of those who litigated
in the preceding suit, or when they are jointly bound
with them or by the relations established by the
indivisibility of prestations among those having a right
to demand them, or the obligation to satisfy the same.

P.R. Laws Ann. tit. 31, § 3343. This is a privity requirement, and

the Puerto Rico Supreme Court has taken a "pragmatic stand" on its

construction. Puerto Rican Independence Party v. Commonwealth

Elections Comm'n, 20 P.R. Offic. Trans. 607, 632 (1988).

Vergara does not seriously contend that this requirement poses

a threat to R&G Mortgage's assertion of the res judicata defense.

Nor could he: R&G Mortgage was the plaintiff in the state-court

action, and Vergara concedes that he was properly served as a

defendant in that action. Thus, the perfect identity of parties

requirement is both literally and practically satisfied with

respect to R&G Mortgage.

Vergara suggests that the result is altogether different with

regard to R-G Premier Bank and R.G. Financial. This is so, his

premise runs, because those two organizations are juridical persons

-15-
separate and distinct from R&G Mortgage — juridical persons who did

not participate in the foreclosure action. While the facts on

which Vergara's premise rests are correct, the conclusion that he

seeks to have us draw is not.

The mere fact that R-G Premier Bank and R.G. Financial are

separate corporations who were absent in the foreclosure proceeding

does not render them ineligible for the protection of the

preclusion statute. After all, the Puerto Rico Supreme Court has

held that the joinder of additional defendants in the suit, without

more, does not destroy the perfect identity of parties that is

needed for preclusion. See id. The instant case is a paradigmatic

example of why that is so: Vergara has alleged in his counterclaim

that R-G Premier Bank and R.G. Financial are derivatively

"responsible for the acts" of R&G Mortgage (which the counterclaim

describes as their "subsidiary and/or assignee").

The case law requires us to consider this question

pragmatically. See id. This means, of course, that we cannot

elevate form over substance. Given that mandate, we do not see how

R-G Premier Bank and R.G. Financial can be tied so closely to R&G

Mortgage's actions for purposes of the counterclaim and yet, at the

same time, be considered distinct from R&G Mortgage for purposes of

the res judicata analysis. Vergara simply cannot have it both

ways: either the R-G companies are in privity with one another for

both liability and res judicata purposes, or they are not in

-16-
privity for either purpose. Cf. United States v. Tierney, 760 F.2d

382, 388 (1st Cir. 1985) ("Having one's cake and eating it, too, is

not in fashion in this circuit.").

In a weak attempt to blunt the force of this reasoning,

Vergara invites us to fashion a general rule that mortgage

servicers (such as R&G Mortgage) are not in privity with mortgagees

(such as R-G Premier Bank) for res judicata purposes. In an

endeavor to make this invitation attractive, Vergara cites a

federal statute, the Real Estate Settlement Procedure Act (RESPA),

which defines a mortgage servicer, somewhat circularly, as "the

person responsible for servicing the loan." 12 U.S.C. §

2605(i)(2). RESPA further defines "servicing" as "receiving any

scheduled periodic payments from a borrower pursuant to the terms

of any loan . . . and making the payments of principal and interest

and such other payments with respect to the amounts received from

the borrower as may be required pursuant to the terms of the loan."

Id. § 2605(i)(3). Vergara hypothesizes that because a mortgage

servicer merely acts as a conduit for payment between the mortgagee

and the mortgagor, the servicer ordinarily is not in privity with

the mortgagee.

Vergara has it backwards. Typically, a mortgage servicer acts

as the agent of the mortgagee to effect collection of payments on

the mortgage loan. Thus, it will be a rare case in which those two

parties are not perfectly identical with respect to successive

-17-
suits arising out of a single mortgage transaction. Our prior

cases establish the general rule that where one party acts for or

stands in the place of another in relation to a particular subject

matter, those parties are in privity for purposes of the Puerto

Rico preclusion statute. See, e.g., In re Colonial Mortg. Bankers,

324 F.3d at 17 (holding that a successor corporation was in privity

with its predecessor); Futura Dev., 761 F.2d at 43-44 (holding that

perfect identify existed between a parent corporation, on one hand,

and its subsidiary and agents, on the other hand); Republic Sec.

Corp. v. P.R. Aqueduct & Sewer Auth., 674 F.2d 952, 955-57 (1st

Cir. 1982) (holding that the assignee of a contract was precluded

from litigating a claim that had been asserted by the assignor in

a prior action); cf. Fiumara v. Fireman's Fund Ins. Cos., 746 F.2d

87, 92 (1st Cir. 1984) (concluding under New Hampshire res judicata

law that arson investigators were in privity with the insurance

companies for which, as agents, they had acted).

In this instance, there is no dispute that R&G Mortgage acted

on behalf of R-G Premier Bank (and, indirectly, on behalf of R.G.

Financial) in servicing the mortgage in question and in commencing

the foreclosure action. Consequently, R-G Premier Bank and R.G.

Financial are in privity with R&G Mortgage for res judicata

purposes with respect to the instant action. Clearly then, R-G

Premier Bank and R.G. Financial have a sufficient identify of

-18-
interest with R&G Mortgage to satisfy the privity-of-parties

requirement imposed by Puerto Rico law.

We summarize succinctly. The requirements of res judicata are

satisfied in this case because the state-court judgment against

Vergara is final and unappealable; the state and federal actions

arise out of a common nucleus of operative fact and pertain to a

common subject matter; Vergara cannot successfully prosecute his

rescission claim without contradicting the state court's

affirmation of R&G Mortgage's right to foreclose the mortgage; and

the parties in the federal action are, for all practical purposes,

identical to the parties in the state action. Therefore, the prior

judgment precludes Vergara from asserting his present TILA-based

rescission claim against the R-G companies.

C. The TILA Expiration Provision.

At oral argument, Vergara pointed out that the TILA, in terms,

permits a debtor claiming that the lender omitted certain material

disclosures to assert a right of rescission up to "three years

after the date of consummation of the transaction or [until] the

sale of the property, whichever occurs first." 15 U.S.C. §

1635(f); see Beach v. Ocwen Fed. Bank, 523 U.S. 410, 413 (1998).

Seeking refuge in this provision, Vergara asseverates that even if

his TILA counterclaim otherwise would be barred under Puerto Rico

res judicata law, the window for asserting his TILA rescission

right remains open because neither terminating event — the

-19-
expiration of the three-year period or the sale of the residence —

has occurred. As we explain below, this argument sails wide of the

mark.

Although the statutory language admits of no explicit

exception, at least one other court of appeals has concluded that

events other than the expiration of the three-year period or the

sale of the encumbered property can cut off the debtor's right of

rescission. See Albano v. Norwest Fin. Haw. Inc., 244 F.3d 1061,

1064 (9th Cir. 2001) (obtaining a default judgment of foreclosure

extinguishes the debtor's right of rescission); Hefferman v.

Britton, 882 F.2d 379, 383-384 (9th Cir. 1989) (entering into a

contract to sell the encumbered property terminates the debtor's

right of rescission). We agree with the Ninth Circuit that the

TILA statute "merely sets out the right's maximum life span [and]

does not affect procedural or substantive requirements that might

end its existence even earlier." Albano, 244 F.3d at 1064 n.2. We

hold, therefore, that ordinary preclusion principles continue to

operate in the TILA milieu and that those principles may hasten the

demise of a debtor's TILA-based right of rescission.

This is a result driven not only by precedent but also by

common sense. Fairly read, the TILA contains no hint of a

legislative intent to preempt normally applicable state-law

preclusion rules or otherwise to undercut Congress's general

directive that federal courts should afford state-court judgments

-20-
the same preclusive effect that they would receive in the courts of

the rendering state. See 28 U.S.C. § 1738. We already have

determined that, as a matter of Puerto Rico law, the earlier

foreclosure judgment precluded Vergara's later assertion of a TILA

claim. See supra Part II(B). Accordingly, the entry of this

preclusive judgment extinguished Vergara's TILA right of

rescission. See Albano, 244 F.3d at 1064 (reaching a similar

conclusion when a TILA claim was barred under state preclusion

law).

III. CONCLUSION

We need go no further.3 Because the extant foreclosure

judgment precludes Vergara both from raising his TILA-based

counterclaim in the later federal action and from asserting a TILA-

based right of rescission, the district court's entry of judgment

on the pleadings must stand.

Affirmed.

3
The district court, as an alternative holding, ruled that an
adjudication of the counterclaim would be foreclosed under the so-
called Rooker-Feldman doctrine. See R-G Fin., 381 F. Supp. 2d at
4; see also Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); D.C.
Court of Appeals v. Feldman, 460 U.S. 462 (1983). Because res
judicata principles bar maintenance of the counterclaim, see supra
Part II(B), we do not address the applicability of the Rooker-
Feldman doctrine.

-21-