October 13, 2014
by Louis P. Vitti
Vitti & Vitti & Associates, P.C. – USFN Member (Pennsylvania)
Earlier in 2014, this author submitted a case update regarding Hirsch v. Citimortgage, 2:13-cv-1344. That case dealt with breach of contract and Unfair Trade Practices and Consumer Protection Law (TPCPL) claims, which were dismissed by the court. The court had ruled in favor of Citimortgage; however, it was noted that breach of an implied covenant was not pled properly by the plaintiff. Accordingly, the prior case note cautioned lenders when dealing with borrowers, to be certain to evaluate the actions to be taken in light of reliance and/or good faith and fair dealing. That warning has come to fruition.
In the case of Rearick v. Eldterton State Bank, 2014 PA Super. 157, 2014 WL 3798512 (Pa. Super. July 23, 2014), the superior court reviewed a trial court’s decision. The lower court held that the bank’s preliminary objections, based on res judicata grounds, were valid and that the borrower could not proceed because all causes of action were determined in the foreclosure.
The superior court concluded that Rearick’s claims “are best addressed as permissive counterclaims.” Consequently, it reversed the trial court’s order sustaining the bank’s preliminary objection on the basis of res judicata, with the appellate court stating, “Neither in word nor in substance do Rearick’s claims in the instant action call into question the legal effect of the earlier foreclosure action. They do not contest the foreclosures as such, nor do they directly contest the debt itself … Rather, Rearick seeks damages from [the bank] for alleged misconduct and breaches of implied terms of the parties’ contract(s) and/or other non-contractual obligations, primarily for actions that occurred after the creditor-debtor relationship already had been established.”
The superior court’s ruling, however, did contain one limited caveat: The plaintiff “may not seek damages for [the bank’s] allegedly commercially unreasonable method of liquidating the properties surrendered by the plaintiff in foreclosure. ... that claim was litigated and disposed of in the prior action. … Moreover, were [the plaintiff] to secure damages specifically on that matter, it would undermine the foreclosure judgment: implicit in that judgment was the trial court’s blessing of all matters pertaining to the foreclosure, including [the bank’s] disposition of the properties at issue.”
Ultimately, the superior court affirmed the trial court’s order in part, reversed the order in part, and remanded the case back to the lower court — with the opportunity for the borrower to amend his complaint to include the causes of action deemed permissible by the appellate court.
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