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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