R.G. Financial Corp. v. Vergara-Nuñez, 05-1945.

CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)
Writing for the CourtSelya
Citation446 F.3d 178
Decision Date21 April 2006
Docket NumberNo. 05-1945.,05-1945.
PartiesR.G. FINANCIAL CORP. et al., Plaintiffs, Appellees, v. Pedro VERGARA-NUÑEZ et al., Defendants, Appellants.

Page 178

446 F.3d 178
R.G. FINANCIAL CORP. et al., Plaintiffs, Appellees,
Pedro VERGARA-NUÑEZ et al., Defendants, Appellants.
No. 05-1945.
United States Court of Appeals, First Circuit.
Heard March 6, 2006.
Decided April 21, 2006.

Page 179


Page 180

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.

Before BOUDIN, Chief Judge, TORRUELLA and SELYA, Circuit Judges.

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.


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. 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

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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, 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 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

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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 Vergara's counterclaim. R-G Fin. Corp. v. Vergara-Nuñez, 381 F.Supp.2d 1, 4 (D.P.R.2005). This timely appeal ensued.


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 fall-back 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 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, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984).

Here, we are called upon to determine the preclusive effect of a judgment entered by the Puerto Rico Court of First

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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...

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