The opinion of the court was delivered by: TRAGER
Winifred Eubanks mortgaged her home at 40 Willow Street, Freeport, New York to Liberty Mortgage Banking Ltd. ("Liberty") on September 22, 1989. Liberty assigned the fixed-rate mortgage to Federal Home Loan Mortgage Corp. ("Freddie Mac") on the same day. See Exh. A to Compl't.
In November 1992, Freddie Mac commenced foreclosure proceedings against Eubanks. See Exh. 1 to Def. Aff. in Sup. Summ. J. Three years later, Eubanks defaulted in the proceedings and Judgment of Foreclosure and Sale was issued in favor of Freddie Mac. See Exh. 2 to Def. Aff. in Sup. Summ. J. On July 9, 1996, Freddie Mac bought the home at a court-ordered auction. See Exhs. 3 & 4 to Def. Aff. in Sup. Summ. J. On August 27, 1996 Eubanks filed this action pro se, alleging violations of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., in Nassau County Supreme Court. She asks the court to declare that Liberty violated the disclosure provisions of TILA, to declare that damages are available for TILA violations, and to overturn the foreclosure of the state court. See Compl't at 4-5.
On October 1, 1996 Freddie Mac removed the suit to federal court pursuant to 12 U.S.C. § 1452(f) and 28 U.S.C. § 1446 and answered the complaint.
On November 7, Freddie Mac requested leave to move for summary judgment on the ground that the current action is barred by the doctrine of res judicata. The next day, Eubanks, in a letter to the court, urged that summary judgment be denied because her claim is a different controversy than the one litigated in the foreclosure action in state court.
Freddie Mac filed its summary judgment papers in February. Despite two letters from Freddie Mac and one from the court asking Eubanks to respond, plaintiff has not answered.
Freddie Mac argues that the foreclosure and TILA claims arise from the same transaction. See Def. Mem. in Sup. of Summ. J. at 4. However, three of the four circuits that have ruled on the issue have held that the claims arise from separate transactions. See Whigham v. Beneficial Finance Co. of Fayetteville, 599 F.2d 1322, 1323-24 (4th Cir. 1979). Accord, Maddox v. Kentucky Finance Co., 736 F.2d 380, 382-83 (6th Cir. 1984); Valencia v. Anderson Bros., 617 F.2d 1278, 1291 (7th Cir. 1980), rev'd on other grounds, 452 U.S. 205, 68 L. Ed. 2d 783, 101 S. Ct. 2266 (1981). Cf. Plant v. Blazer Financial Svcs., 598 F.2d 1357 (5th Cir. 1979). The Second Circuit implicitly endorsed the logic of Whigham in Adam v. Jacobs, 950 F.2d 89, 92-93 (2d Cir. 1991).
Even if Whigham is the controlling precedent and the foreclosure and TILA claims are deemed separate, that does not end the matter. A district court must accord the grant of foreclosure in the state action the same preclusive effect that it would be given by New York courts. See 28 U.S.C. § 1738; Brooks v. Giuliani, 84 F.3d 1454, 1463 (2d Cir. 1996). New York employs a transactional approach wherein a final decision on the merits bars any future claims based on the same transaction or series of transactions. See Brooks, 84 F.3d at 1463 (citing O'Brien v. City of Syracuse, 54 N.Y.2d 353, 357, 445 N.Y.S.2d 687, 429 N.E.2d 1158 (1981)). This broad rule, however, is usually cited in the context where the plaintiff in the first action brings a second action alleging slightly different facts or evidence or a different cause of action.
New York, however, does not have any compulsory counterclaim rule. Under New York law, "[a] counterclaim may be any cause of action in favor of one or more defendants." N.Y. C.P.L.R. § 3019(a)(emphasis added). Because New York's counterclaim rule is permissive, res judicata generally will not necessarily bar claims that could have been counterclaims in a prior action. See Henry Modell and Co. v. Minister, Elders and Deacons of the Reformed Protestant Dutch Church, 68 N.Y.2d 456, 462 n.2, 510 N.Y.S.2d 63, 502 N.E.2d 978 (N.Y. 1986). Only a defendant who is silent in the first action and then tries to bring a second action that would undermine "the rights or interests established in the first action" is barred under New York's res judicata rule. Id. at 461 (citing Schuylkill Fuel Corp. v. C. Nieberg Realty Corp., 250 N.Y. 304, 165 N.E. 456 (N.Y. 1929)(Cardozo, J.)) New York's res judicata rule thus has a narrower effect on a defendant who then brings her claim in a separate action than it does on the plaintiff who brings successive claims that arise from the same transaction.
New York's statute making all counterclaims permissive is in marked contrast to the federal rule which requires the defendant to "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 . . . ." Fed. R. Civ. P. 13(a). The only permissive or non-compulsory counterclaims under the federal system are those "not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim." Fed. R. Civ. P. 13(b).
The federal counterclaim rule is intended to conserve judicial resources by requiring parties to resolve all claims arising from the same transaction in one suit. See Banco Nacional de Cuba v. Chase Manhattan Bank, 658 F.2d 875, 885 (2d Cir. 1981). New York ensures that its permissive counterclaim rule will not result in inconsistent verdicts, see Henry Modell and Co., 68 N.Y.2d at 461, but also gives greater autonomy to a defendant unwillingly haled into court to ...