Banco Santander De Puerto Rico v. Lopez-Stubbe

United States Court of Appeals
For the First Circuit

No. 02-9008

IN RE: COLONIAL MORTGAGE BANKERS CORP.,
Debtor.

____________________

BANCO SANTANDER DE PUERTO RICO,
Plaintiff, Appellant,

v.

HANS LOPEZ-STUBBE, TRUSTEE, AND WASHINGTON MUTUAL BANK,
Defendants, Appellees.

APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
OF THE FIRST CIRCUIT

Before

Selya, Circuit Judge,
Coffin, Senior Circuit Judge,
and Lipez, Circuit Judge.

Wanda Luna Martinez, with whom Montañez & Alicea Law Offices
was on brief, for appellant.
Iván R. Fernández-Vallejo, with whom Goldman Antonetti &
Cordova, P.S.C., Jorge Souss, and Rodriguez & Fernández were on
brief, for appellees.

March 26, 2003
 SELYA, Circuit Judge. This is the latest chapter in a

seemingly endless bankruptcy litigation. We previously adjudicated

the underlying dispute, involving rights to a substantial bank

account standing in the name of the debtor, in favor of the trustee

in bankruptcy. See Crefisa Inc. v. Washington Mut. Bank, 186 F.3d

46 (1st Cir. 1999). The appellant attempts an end run around that

ruling. Because our prior adjudication precludes the appellant's

claim, we affirm the dismissal of its complaint.

I.

Background

Our earlier decision limns the full historical

relationship, both procedural and factual, that is needed to put

this proceeding into perspective. See id. at 47-49. Rather than

retrace our steps, we include here only the bare minimum that is

necessary to frame the issues on appeal. We draw our account from

the brute facts that appear on the face of the complaint, the

supporting documentation referenced therein, and matters

susceptible to judicial notice.

On April 4, 2000, Banco Santander de Puerto Rico

(Santander) filed a complaint in the federal district court

requesting the court to order Washington Mutual Bank to turn over

funds deposited in a certain "Golden Passbook" account. The

complaint alleged that, on November 26, 1986, Caguas Federal

Savings Bank loaned Milton Rua, president of Colonial Mortgage

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Bankers Corp., $500,000; that Rua signed a promissory note (the

Note) in that amount and simultaneously pledged the Golden Passbook

account to secure payment of the Note; and that Rua used the loan

proceeds to fund the Golden Passbook account. The complaint then

cited, and incorporated by reference, earlier litigation involving

these funds, namely, Civil Action No. 87-1874, in the United States

District Court for the District of Puerto Rico.

In that regard, the complaint alleged that Bowery Savings

Bank (predecessor in interest to Washington Mutual) sued Rua,

Colonial, and Caguas Federal in the same month that Colonial sought

the protection of the bankruptcy court, alleging various

defalcations in connection with a mortgage loan servicing

agreement. The complaint proceeded to cite, and incorporated by

reference, a bankruptcy case (Bankr. No. 87-03026) in which the

bankruptcy court had ordered Caguas Federal to turn over the funds

held in the Golden Passbook account to the trustee in bankruptcy

(Hans López-Stubbe). Caguas Federal had complied with the turnover

order, delivering a check for $557,720.86 (principal plus accrued

interest) to the trustee on or about November 1, 1989.

The Resolution Trust Corporation (RTC) was appointed as

the receiver of Caguas Federal in August of 1999. According to the

complaint in the instant case, the RTC thereafter "sold and

assigned to [Santander] the assets that it acquired from Caguas .

. . , which included Rua's loan with its collateral," and Santander

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then sold to Crefisa "all the assets that it acquired from RTC,

including the loan granted to . . . Rua with its collateral."

Crefisa proceeded to bring an action to recover the monies on

deposit in the Golden Passbook account, but lost because, in the

words of the complaint, "[i]t was determined that the collateral

was not transferred with the loan, and that Crefisa did not have

standing to claim the monies." The complaint alleges that Crefisa

thereupon transferred the loan back to Santander, "which has the

collateral, so that Santander may claim the monies."

The defendants, López-Stubbe and Washington Mutual, asked

the bankruptcy court to take judicial notice of the prior

proceedings involving the Golden Passbook account, see Fed. R.

Evid. 201, and simultaneously moved for dismissal of the complaint

on res judicata grounds. They argued that the earlier proceeding

brought by Crefisa precluded Santander's current claim. The

bankruptcy court agreed and granted the motion. Banco Santander de

P.R. v. López-Stubbe (In re Colonial Mtge. Bankers Corp.), Ch. 7

Case No. B87-03026(ESL), Adv. No. 00-0026, slip op. at 6 (Bankr.

D.P.R. July 10, 2001). Santander appealed. The Bankruptcy

Appellate Panel rejected the appeal. Banco Santander de P.R. v.

López-Stubbe (In re Colonial Mtge. Bankers Corp.), No. 01-073, slip

op. at 26-27 (B.A.P. 1st Cir. Aug. 16, 2002). Santander now

appeals to this court.

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 II.

Analysis

A.

Legal Principles Governing Appellate Review

The jurisprudence of Rule 12(b)(6) is applicable to

motions to dismiss in bankruptcy cases. See Fed. R. Bankr. P.

7012(b) (incorporating by reference Fed. R. Civ. P. 12(b)(6)); see

also Lawrence Nat'l Bank v. Edmonds, 924 F.2d 176, 180 (10th Cir.

1991); In re Metrobility Optical Sys., Inc., 279 B.R. 37, 40

(Bankr. D.N.H. June 5, 2002). Thus, we review a dismissal of an

action for failure to state a claim de novo, adhering to the same

criteria that bound the lower courts. See Arruda v. Sears, Roebuck

& Co., 310 F.3d 13, 18 (1st Cir. 2002); Garrett v. Tandy Corp., 295

F.3d 94, 97 (1st Cir. 2002). In that process, we assume the truth

of all well-pleaded facts and indulge all reasonable inferences

that fit the plaintiff's stated theory of liability. Rogan v.

Menino, 175 F.3d 75, 77 (1st Cir. 1999); Aulson v. Blanchard, 83

F.3d 1, 3 (1st Cir. 1996). We are not bound, however, to credit

"bald assertions, unsupportable conclusions, and opprobrious

epithets" woven into the fabric of the complaint. Chongris v. Bd.

of Appeals, 811 F.2d 36, 37 (1st Cir. 1987) (citation and internal

quotation marks omitted). We can affirm the allowance of a motion

to dismiss only if the plaintiff's factual averments hold out no

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hope of recovery on any theory adumbrated in its complaint. Rogan,

175 F.3d at 77.

These principles require us to consider not only the

complaint but also matters fairly incorporated within it and

matters susceptible to judicial notice. Cruz v. Melecio, 204 F.3d

14, 21 (1st Cir. 2000); Beddall v. State St. Bank & Trust Co., 137

F.3d 12, 16-17 (1st Cir. 1998); Lovelace v. Software Spectrum Inc.,

78 F.3d 1015, 1017-18 (5th Cir. 1996). The first part of this rule

is consistent with the axiom that a writing is the best evidence of

its contents. See, e.g., Beddall, 137 F.3d at 16-17. The second

part of this rule is consistent with the hoary tenet that a court

"may look to matters of public record in deciding a Rule 12(b)(6)

motion." Boateng v. Interamerican Univ., 210 F.3d 56, 60 (1st Cir.

2000).

Despite these familiar principles, the appellant

challenges the bankruptcy court's decision to go outside the

margins of the complaint proper in weighing the res judicata

defense. That is an affirmative defense, the appellant says, and

should be left to proof at summary judgment or at trial. As a

theoretical matter, this challenge is baseless. In an appropriate

case, an affirmative defense may be adjudicated on a motion to

dismiss for failure to state a claim. See, e.g., Blackstone Realty

LLC v. FDIC, 244 F.3d 193, 197 (1st Cir. 2001); LaChapelle v.

Berkshire Life Ins. Co., 142 F.3d 507, 509 (1st Cir. 1998); Kale v.

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Combined Ins. Co., 924 F.2d 1161, 1165 (1st Cir. 1991). The

affirmative defense of res judicata is no exception. See, e.g.,

Boateng, 210 F.3d at 60; Kale, 924 F.2d at 1165. Even without a

motion, "a court on notice that it has previously decided an issue

may dismiss the action sua sponte, consistent with the res judicata

policy of avoiding judicial waste." Bezanson v. Bayside Enterps.,

Inc., 922 F.2d 895, 904 (1st Cir. 1990).

The conclusion that an action can be dismissed on the

basis of an affirmative defense, such as res judicata, does not end

our inquiry. Such a dismissal only can occur in an appropriate

case. Two conditions must be met. The first condition is that the

facts that establish the defense must be definitively ascertainable

from the allegations of the complaint, the documents (if any)

incorporated therein, matters of public record, and other matters

of which the court may take judicial notice. The second condition

is that the facts so gleaned must conclusively establish the

affirmative defense. See Blackstone Realty, 244 F.3d at 197;

LaChapelle, 142 F.3d at 509.

B.

Applying the Principles

Against this backdrop, we turn to the validity of the

affirmative defense in this case. The question we must answer is

whether, applying the rules enumerated above, Santander's claim is

barred by the doctrine of res judicata.

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 Federal law determines whether an earlier judgment,

rendered in a federal court, bars the maintenance of a subsequent

federal court action. Mass. Sch. of Law at Andover, Inc. v. Am.

Bar Ass'n, 142 F.3d 26, 37 (1st Cir. 1998). Under federal law, "a

final judgment on the merits of an action precludes the parties or

their privies from relitigating issues that were or could have been

raised in that action." Allen v. McCurry, 449 U.S. 90, 94 (1980).

Thus, the elements of a res judicata defense are (1) a final

judgment on the merits in an earlier proceeding, (2) sufficient

identicality between the causes of action asserted in the earlier

and later suits, and (3) sufficient identicality between the

parties in the two actions. Gonzalez v. Banco Cent. Corp., 27 F.3d

751, 755 (1st Cir. 1994).

In this instance, the face of the complaint acknowledges

the existence of an earlier adversary proceeding. That proceeding

resulted in a judgment on the merits in favor of the defendants

(appellees here). See Crefisa, 186 F.3d at 48-49. This court

ultimately affirmed the bankruptcy court's disposition. Id. at 52.

Since that decision constitutes a final judgment for purposes of

res judicata, see Perez v. Volvo Car Corp., 247 F.3d 303, 309 n.4

(1st Cir. 2001) (regarding judgment from appellate court as "final

for res judicata purposes," notwithstanding ongoing proceedings);

R.I. Hosp. Trust Nat'l Bank v. Bogosian, 11 F.3d 1092, 1095-96 (1st

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Cir. 1993) (similar), the first element of the res judicata defense

is satisfied.

The identicality of the claims asserted in the two

actions cannot seriously be questioned. We described the cause of

action proffered in Crefisa in the following terms:

On October 6, 1991, Crefisa brought an
adversary proceeding in the Colonial
bankruptcy case asserting a security interest
in the Golden Passbook account; the claim was
based on the pledge of the Golden Passbook
account that Rua had made to Caguas on
November 28, 1986, to secure his promissory
note. Since the funds in the Golden Passbook
account had been turned over to the trustee
pursuant to the bankruptcy court's earlier
order, the relief sought by Crefisa was an
order from the bankruptcy court requiring the
trustee to transfer the proceeds to Crefisa.

186 F.3d at 48. The substance of the cause of action that

Santander asserts is materially identical. The only difference is

the identity of the party seeking relief. Thus, the second element

of the res judicata defense is satisfied.

We now turn to the third element of the defense. The

defendants are the same in both cases. The plaintiffs, however,

are nominally different. The question thus reduces to whether the

plaintiffs, though not identical, are sufficiently in privity to

satisfy this element. Gonzalez, 27 F.3d at 757-58.

The historical record strongly suggests that this query

should be answered in the affirmative. Crefisa and Santander were

treated as a single entity throughout the earlier litigation, and

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neither of them disputed that characterization. See Crefisa, 186

F.3d at 48 (concluding from the record that Crefisa "is apparently

a wholly owned subsidiary of Banco Santander"); see also In re

Colonial Mtge. Bankers Corp., Civ. No. 95-1614, 1998 WL 638341, at

*6-*7 (D.P.R. Sept. 11, 1998) (using the party designations

"Santander/Crefisa," "Crefisa," and "Santander" interchangeably and

pervasively). We have heretofore considered such imbricated

corporate relationships sufficient to establish privity for

purposes of claim preclusion. See Aunyx Corp. v. Canon U.S.A.,

Inc., 978 F.2d 3, 7 (1st Cir. 1992). Thus, the third element of

the res judicata defense is satisfied.

From what we already have written, it appears as if all

three elements of the res judicata defense are extant here (and

therefore, that the bankruptcy court appropriately dismissed the

complaint under Rule 12(b)(6)). In an effort to convince us

otherwise, Santander makes five counter-arguments. None of them

need occupy us for long.

First, Santander maintains that the Crefisa decision did

not reach the merits, but, rather, turned on an issue of standing.

Although Santander makes this assertion in its complaint, we are

not bound by it. After all, this characterization is not a factual

allegation deserving of indulgence under Rule 12(b)(6). See

Chongris, 811 F.2d at 37. Instead, it is a legal conclusion — and

one that has no basis in the law. We explain briefly.

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 In Crefisa, we summarized the bankruptcy court's

rationale, noting that the court applied the substantive law of

Puerto Rico in its disposition of the case. 186 F.3d at 48-49. We

then examined the district court's reasons for reversing the

bankruptcy court's holding. Id. at 49. Having set the stage, we

proceeded to analyze Puerto Rico law and apply it to the discerned

facts. That exercise resulted in a reversal of the district

court's ruling and the concomitant reinstatement of the bankruptcy

court's judgment. Id. at 52. At each and every step of this

pavane, the relevant judicial rulings were merits-based. A

conclusory allegation that the rulings implicated standing does not

change their fundamental character any more than calling a sow's

ear a silk purse makes a credible fashion statement. A party

cannot misconstrue legal precedent and then allege that

misconstruction as a "fact" in order to deflect the preclusive

effect of a prior adjudication. Cf. Kale, 924 F.2d at 1168

("Whenever a litigant decides to enter the court system to seek

justice, he must play by the rules.").

Santander's next challenge also is built upon a porous

foundation. It interprets our opinion in Crefisa as turning on

which party held the rights to the collateral that had been

tendered to secure the Note. On that reading, it posits that its

reacquisition of the Note alters the nature of the claim asserted

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here (and, therefore, renders the claims asserted in the two

actions different).

This is little more than wishful thinking. Our earlier

decision did not turn on the passing of the rights to the

collateral from party to party but on the effect of an attempted

assertion of those rights as against third parties. Crefisa, 186

F.3d at 51. Cognizant that the Note had been endorsed by RTC to

Santander and then to Crefisa, we assumed that those endorsements

automatically transferred the security interest in the collateral.

Id. at 51-52. We nonetheless determined that, under the law of

Puerto Rico, such transfers had no effect against a third party

(such as the trustee in bankruptcy) unless and until certain

formalities had been accomplished. Id. at 51. "So far as the

record show[ed], this ha[d] never occurred." Id. (emphasis

supplied). We made no distinction between the transfer from RTC to

Santander and the subsequent transfer from Santander to its

corporate relative (Crefisa). Consequently, the new fact alleged

in Santander's complaint does not meaningfully differentiate its

present claim from the one previously adjudicated in Crefisa.

Santander also maintains that the "identicality of

parties" element is not satisfied here. In this regard, it

asseverates that the bankruptcy court's determination that

Santander and Crefisa were in privity was no more than an

unsubstantiated ipse dixit. It says now — although it did not

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allege in its complaint — that Crefisa is not a subsidiary of Banco

Santander de Puerto Rico, but, rather, a subsidiary of that

company's parent corporation, Banco Santander de España. This

asseveration lacks force.

As a procedural matter, Santander and Crefisa were

treated as peas in a pod throughout the earlier litigation. See,

e.g., In re Colonial Mtge. Bankers Corp., supra, 1998 WL 638341, at

*6-*7 (treating Santander and Crefisa as one party without

eliciting any objection). Inasmuch as that position was taken the

first time around, Santander cannot disown Crefisa at this late

date. Beddall, 137 F.3d at 23 ("We generally will not permit

litigants to assert contradictory positions at different stages of

a lawsuit in order to advance their interests."); Patriot Cinemas,

Inc. v. Gen. Cinema Corp., 834 F.2d 208, 212 (1st Cir. 1987)

(adopting the view that "[j]udicial estoppel should be employed

when a litigant is playing fast and loose with the courts, and when

intentional self-contradiction is being used as a means of

obtaining unfair advantage in a forum provided for suitors seeking

justice") (internal citations and quotation marks omitted).1

1
In an effort to turn the tables, Santander invokes the
judicial estoppel doctrine offensively (rather than defensively).
In this regard, it argues that the appellees should be estopped
from disputing that standing was the pivotal issue in Crefisa
because, in that case, the same parties filed a "Motion to Dismiss
and/or for Summary Judgment based on lack of standing." In re
Colonial Mtge. Bankers Corp., supra, 1998 WL 638341, at *1. This
argument gains no ground. As we have explained, Santander's
complaint puts courts on notice of prior proceedings relevant to

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 If more were needed — and we doubt that it is — the

distinction that Santander tries to draw makes no substantive

difference for purposes of this appeal. The district court

adjudicating the earlier claims specifically observed that the Note

"was endorsed to the order of Banco Santander P.R. by RTC as

Caguas' receiver and delivered to said bank as a result of the . .

. Agreement between RTC and Santander/Crefisa." In re Colonial

Mtge. Bankers Corp., supra, 1998 WL 638341, at *6 (emphasis

supplied). Thus, we can only conclude that Banco Santander de

Puerto Rico was a party to the specific transaction at issue in our

earlier Crefisa decision.

In all events, Santander and Crefisa, even on Santander's

current version of the corporate interrelationship, are sister

corporations under the control of a common parent. On any view of

the record, these sister corporations share a common economic

interest in attempting to satisfy a single debt, represented by the

Note, by establishing a security interest in the Golden Passbook

account and wresting the funds from the steely grip of the trustee

in bankruptcy. Within this context, the corporate

interrelationship among the parties gave Crefisa adequate incentive

to litigate this common interest. No more is exigible to establish

the issues therein. We have determined, apart from any arguments
made by the appellees, that those proceedings bar Santander's
present action. Thus, whether the appellees should be barred from
asserting the res judicata defense makes no difference in this
appeal. See Bezanson, 922 F.2d at 904.

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privity for purposes of the res judicata defense. See Aunyx Corp.,

978 F.2d at 4, 7 (finding party identicality of technically

separate but related corporations when they shared a common

interest); see also Iannochino v. Rodolakis, 242 F.3d 36, 45-46

(1st Cir. 2001) (finding privity when one former law partner was

the "de facto representative" of the other anent a common economic

interest). Any other result would invite endless varieties of

manipulation and reward "tactical maneuvering designed unfairly to

exploit technical nonparty status." Gonzalez, 27 F.3d at 761.

Fourth, Santander charges that the bankruptcy court erred

in failing to convert the appellees' motion to dismiss into a

motion for summary judgment. Had the court done so, Santander

suggests, it could have introduced the RTC-Santander asset purchase

agreement to support its claim.

This argument is flawed in at least two respects. For

one thing, matters of public record are fair game in adjudicating

Rule 12(b)(6) motions, and a court's reference to such matters does

not convert a motion to dismiss into a motion for summary judgment.

Boateng, 210 F.3d at 60. For another thing, any attempt to

introduce the asset purchase agreement would have been futile.

After a party has litigated and lost, the doctrine of res judicata

precludes any attempt on its part, the second time around, to

supplement the evidentiary record. See McCurry, 449 U.S. at 94;

Mass. Sch. of Law, 142 F.3d at 39.

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 Finally, Santander — grasping at straws — cites dictum in

Crefisa outlining a theory under which that case's holding might

not apply to a bankruptcy trustee. See Crefisa, 186 F.3d at 52.

Santander takes that language as an invitation for it to relitigate

the result of the earlier case. No such invitation was extended.

We specifically noted in the earlier case that Crefisa

failed to make the argument that we called a possible "escape

hatch." Id. Crefisa thus forfeited the right to press that

argument. See Teamsters, Chauffeurs, Warehousemen, and Helpers

Union v. Superline Transp. Co., 953 F.2d 17, 21 (1st Cir. 1992).

Because res judicata bars not only those theories that were

actually litigated in the earlier action but also those theories

that could have been litigated therein, see McCurry, 449 U.S. at

94; Mass. Sch. of Law, 142 F.3d at 39, the invitation to bring this

argument before us in a future case clearly was not intended for

any party in privity with Crefisa. Santander is such a party.

III.

Conclusion

We need go no further. Motions to dismiss are in order

when a plaintiff has failed to state a claim upon which relief can

be granted. This vehicle may be employed when the complaint, the

documents incorporated by reference in it, matters of public

record, and other matters susceptible to judicial notice coalesce

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to show beyond doubt that an action is barred, under the doctrine

of res judicata, by a prior adjudication.

This is such a case. The complaint makes it abundantly

clear that Santander, acting through its privy and corporate

relative, had a full and fair opportunity to litigate its claim.

It did so and lost. Having had one bite of the cherry, Santander

is not entitled to another. As the lower courts properly held, its

action is easy prey for the res judicata defense.

Affirmed.

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