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Court of Appeals Bars Bank of San Francisco from “Relitigating” Securities Claim against Countrywide – Glass & Goldberg | Financing, Property & Bankruptcy Law
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Court of Appeals Bars Bank of San Francisco from “Relitigating” Securities Claim against Countrywide

In the American justice system, the principle of “res judicata” refers to the effect of barring subsequent litigation that a previous “final judgment” against the same party may have. Under the doctrine of res judicata, all claims based on the same cause of action must be decided in a single suit; if not brought initially, they may not be raised at a later date. The purpose of the doctrine is to promote efficiency in the administration of justice and also to ensure that litigated disputes do not continue ad infinitum.

Last year in the case of Federal Home Loan Bank of San Francisco v. Countrywide Financial Corp., 214 Cal. App. 4th 1520, 154 Cal. Rptr. 3d 873 (2013) the First District of the Court of Appeals of California affirmed the dismissal of the San Francisco bank’s case against Countrywide Financial for a claim that addressed the same injury and conduct which was the subject of a prior suit brought by the same plaintiff which it had voluntarily dismissed on its own. In May 2010, the Federal Home Loan Bank of San Francisco (the “Bank”) sued Countrywide Financial, Countrywide Securities, and CWALT among other banks for various violations of securities fraud laws relating to alleged misrepresentations made in prospectuses or other securities marketing documents seeking to sell certificates for mortgage-backed securities. Subsequently, it maintained the suit (the “Credit Suisse action” named after the other bank involved) against several of the defendants but after receiving an adverse initial ruling on a claim against Countrywide Financial, the Bank dismissed with prejudice its Securities Act of 1933 claims in the Credit Suisse action, including its Section 15 claim against Countrywide Financial. When a plaintiff dismisses a case with prejudice, that particular case cannot be refiled at a later date.

However, the Bank did file a new civil action against Countrywide Financial for security fraud but citing a different statute as the basis for the lawsuit. That trial court dismissed the case on the ground that the doctrine of res judicata prevented re-litigation of the same essential claims against Countrywide Financial. In its affirmance, the Court of Appeals noted that “Res judicata bars a cause of action that was or could have been litigated in a prior proceeding if “(1) the present action is on the same cause of action as the prior proceeding; (2) the prior proceeding resulted in a final judgment on the merits; and (3) the parties in the present action or parties in privity with them were parties to the prior proceeding.”

The Court of Appeals determined that all three elements required by this doctrine were present. The dismissal with prejudice constituted a “final judgment on the merits”. The fact the Credit Suisse action was still pending against other defendants did not change that fact. As noted above, the citation of different statutory bases for their claims did not mean the new action constituted a different cause of action. In both cases, the Bank sought to redress the same injury it sustained for the same wrong committed by Countrywide Financial and 2 other defendants related to that now-defunct institution.

As a result, the Bank has lost its chance to recover from Countrywide Financial (and/or its successor, Bank of America) because of the manner in which it handled the litigation it commenced.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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