In Re Bailey , Case No. 07-16126 (Bankr.S.D.Ohio 8/19/2008), Case No. 07-16126
| Decision Date | 19 August 2008 |
| Docket Number | Case No. 07-16126,Adversary No. 08-1027 |
| Parties | In Re Walter K. Bailey Roberta K. Bailey, Chapter 7, Debtor. Walter K. Bailey Roberta K. Bailey Plaintiff v. Countrywide Home Loans, Inc. Defendant. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio |
In this adversary proceeding, debtors in the Chapter 7 bankruptcy case bring suit against defendant, Countrywide Home Loans, Inc. The Complaint in the proceeding is entitled Complaint Pursuant to the Truth in Lending Act 15 U.S.C.§ 1601, The Home Ownership and Equity Protection Act, 15 U.S.C.§ 1639 (a)(b) and 12 C.F.R. § 226.32(c), and the Ohio Consumer Sales Practices ACT, O.R.C.§ 1345 et. seq. Defendant has timely filed a Motion to Dismiss the Complaint. It is this motion which is now before the Court.
Plaintiffs do not dispute that prior to the commencement of their Chapter 7 bankruptcy case, December 11, 2007, defendant sued plaintiffs for foreclosure of their residence in the Scioto County, Ohio Court of Common Pleas. Plaintiffs filed no response, and defendant took a default judgment on October 2, 2007. A Sheriff's sale was scheduled for December 12, 2007. Plaintiffs filed their Chapter 7 petition on December 11, 2007 to forestall the foreclosure sale.
It is defendant's position on its Motion to Dismiss that the claims of the Complaint constitute compulsory counterclaims in the foreclosure action. That being so, says defendant, litigation of the matters raised in the present Complaint are barred by res judicata. Plaintiffs respond to the motion by asserting that the matters for which relief is sought in the present Complaint are not compulsory counterclaims, but are permissive counterclaims.
In dealing with the question of res judicata of an Ohio state court judgment in the Bankruptcy Court, one must look to the effect that another Ohio state court would give to the first judgment. In re Calvert, 105 F.3d 315 (6th Cir., 1997). In Ohio a subsequent state court will give preclusive effect to a prior Ohio judgment which settled the question in the second litigation. In re Dawson, 338 B.R. 756, 763 (Bankr. N.D. Ohio, 2006). It follows, therefore, that the decree of foreclosure in the Scioto County court is binding upon this court, and this court must apply Ohio law as would the Scioto County Court.
An Ohio state court must apply Ohio Rule of Civil Procedure 13(A) which, in pertinent part, provides:
A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.1
Defendant cites Rettig Enterprises v. Koehler (1994), 68 Ohio St.3d 274,626 N.E.2d 99, for this reference. Based on that Rule defendant states that (1) the claim must have existed at the time the initial complaint (the foreclosure complaint) was served, and (2) the claim must have arisen from the same transaction or occurrence that is the subject matter of the claim here of plaintiffs.
From the filings by the parties it appears that there is no question that the claims raised in the Complaint here existed at the time of the initiation of the foreclosure suit in the Ohio court. The issue presented by the parties is whether the claims arose from the same transaction or occurrence that was the subject of the original state court action.
It is not disputed that plaintiffs on or about February 22, 2005, obtained a loan from Mortgage Electronic Registration Systems, Inc., as nominee for defendant. This transaction was secured by a lien against the property located at 1163 Kittle Road Wheelersburg, Ohio. The foreclosure action in the state court was brought because of the failure by plaintiffs to perform their obligations under the note and mortgage.
The three statutory offenses for which plaintiffs here seek relief in their Complaint all are based on allegedly inappropriate actions by defenda...
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