     Case: 14-10050      Document: 00512789248         Page: 1    Date Filed: 10/01/2014




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                         United States Court of Appeals
                                                                                  Fifth Circuit

                                                                                FILED
                                    No. 14-10050                          October 1, 2014
                                  Summary Calendar
                                                                           Lyle W. Cayce
                                                                                Clerk
JAMES EDWARD STEVENS; PATRICIA MACRA STEVENS,

                                                 Plaintiffs–Appellants
v.

BANK OF AMERICA, N.A.,

                                                 Defendant–Appellee




                   Appeal from the United States District Court
                        for the Northern District of Texas
                              USDC No. 4:13-CV-779


Before PRADO, OWEN, and GRAVES, Circuit Judges.
PER CURIAM:*
       Plaintiffs–Appellants James and Patricia Stevens appeal the district
court’s dismissal of their quiet-title claim against Bank of America (BOA), in
which they allege that BOA’s mortgage on their home was obtained by fraud.
We affirm.




       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                  No. 14-10050
           I. FACTUAL AND PROCEDURAL BACKGROUND
      In early 2006, the Stevenses obtained a loan secured by a lien on their
home on 1816 Broken Bend Drive, Westlake, Texas 76262 (the Property). After
the financial downturn, the Stevenses defaulted on the loan, and BOA sought
nonjudicial foreclosure on the Property. Before the foreclosure process was
completed, the Stevenses sued BOA and Wells Fargo in Texas state court for
damages and injunctive relief to prevent foreclosure. In this action (the First
Action), the Stevenses claimed BOA obtained the lien through fraud, violations
of the Truth in Lending Act, and predatory lending. BOA removed to federal
court, and the district court ultimately dismissed with prejudice for failure to
state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6). See Stevens
v. Wells Fargo Bank, N.A., No 4:12-CV-594-A, 2012 WL 5951087, at *1 (N.D.
Tex. Nov. 27, 2012).
      After BOA successfully foreclosed on the Property, the Stevenses
brought this quiet-title action against BOA in Texas state court. BOA again
removed to federal court and moved to dismiss the action as barred by res
judicata pursuant to Rule 12(b)(6). In their pro se complaint, the Stevenses
argued that BOA’s interest in the Property was “obtained by wrongful acts of
fraud,    fraudulent      inducement,       concealment       and     fraudulent
misrepresentation.” The district court granted BOA’s motion to dismiss. The
Stevenses timely appealed.
                               II. DISCUSSION
      This is an appeal of a final judgment from the district court, and so this
Court has jurisdiction pursuant to 28 U.S.C. § 1291. Appellants argue that
their quiet-title claim is not barred by res judicata because (1) the first
judgment is not a decision “on the merits” because it was made prior to
discovery and trial; (2) the parties in the two actions are not identical; and (3)


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                                      No. 14-10050
the two cases do not involve the same cause of action. 1 We disagree and affirm
the district court.
       We review de novo the res judicata effect of a prior judgment and a Rule
12(b)(6) dismissal. Bass v. Stryker Corp., 669 F.3d 501 (5th Cir. 2012); Test
Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559, 571 (5th Cir. 2005).
       The doctrine of res judicata “‘prevents the relitigation of a claim or cause
of action that has been finally adjudicated, as well as related matters that, with
the use of diligence, should have been litigated in the prior suit.’” United States
ex rel Laird v. Lockheed Martin Eng’g & Sci. Servs. Co., 336 F.3d 346, 357 (5th
Cir. 2003) (quoting Barr v. Resolution Trust Corp., 837 S.W.2d 627, 628 (Tex.
1992)), abrogated on other grounds by Rockwell Int’l Corp. v. United States, 549
U.S. 457 (2007). 2 A judgment precludes a later claim if three elements are met:
       (1) there was a prior final judgment on the merits by a court of
       competent jurisdiction, (2) identity of the parties or those in privity
       with them exists between the two actions, and (3) the second action
       is based on the same claims as were raised or could have been
       raised in the first action.
Id. (citing Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996)). The
Stevenses argue that the each of these elements is not satisfied. We address
each in turn.



       1 In addition, the Stevenses argue that they have plead sufficient facts to meet the
standards laid out in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). Because we affirm
the district court’s dismissal on res judicata grounds, we do not reach this issue.
       2 This Court applies federal common law to determine “the claim-preclusive effect of

a dismissal by a federal court sitting in diversity.” Semtek Int’l, Inc. v. Lockheed Martin
Corp., 531 U.S. 497, 508 (2001). Under federal common law, we apply “the [preclusion] law
of the forum state unless the state law is incompatible with federal interests.” Am. Home
Assurance Co. v. Chevron, USA, Inc., 400 F.3d 265, 271 n.20 (5th Cir. 2005) (citing Semtek,
531 U.S. at 508). The parties do not address this choice-of-law issue. The Stevenses apply
Texas law and BOA applies federal law. Because we reach the same conclusion regardless of
whether Texas or federal preclusion law applies, we need not decide whether Texas law is
incompatible with federal interests in this case. Compare Laird, 336 F.3d at 357–60
(applying Texas preclusion law), with Test Masters, 428 F.3d at 570–75 (applying federal
preclusion law).
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                                  No. 14-10050
A.    Prior Final Judgment on the Merits
      First, the prior judgment was a “final judgment on the merits by a court
of competent jurisdiction.” Id. The Stevenses do not dispute that the original
district court had jurisdiction; rather, they argue that the first judgment, a
Rule 12(b)(6) dismissal, was not a final decision on the merits because it was
rendered before discovery or trial.
      This argument is unavailing because trial and discovery are not
necessary to a decision on the merits. Generally, a federal court’s dismissal
with prejudice is a final judgment on the merits for res judicata purposes. See
Oreck Direct, LLC v. Dyson, Inc., 560 F.3d 398, 401 (5th Cir. 2009) (citing
Fernandez–Montes v. Allied Pilots Ass’n, 987 F.2d 278, 284 n.8 (5th Cir. 1993)).
It is well established that Rule 12(b)(6) dismissals are made on the merits.
Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 399 n.3 (1981) (citing Angel
v. Bullington, 330 U.S. 183, 190 (1947)). Thus, the first judgment satisfies this
element.
B.    Identity of the Parties
      Second, both the Stevenses and BOA were parties in the First Action.
“In Texas, the identity of parties [element] requires that both parties to the
current litigation be parties to the prior litigation or in privity with parties to
the prior litigation.” Laird, 336 F.3d at 357 (alteration in original) (quoting
Jones v. Sheehan, Young & Culp, P.C., 82 F.3d 1334, 1341 (5th Cir. 1996))
(internal quotation marks omitted). The Stevenses argue that this element is
not met because BOA “was named as a second junior part of [the First Action]
and Wells Fargo Bank . . . was the main Defendant.” The fact that BOA was
not the first-named defendant in the First Action is immaterial. Both the
Stevenses and BOA were parties in the original action, and therefore the
district court correctly found this element to be satisfied.


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                                  No. 14-10050
C.    Same Cause of Action
      Finally, “the second action is based on the same claims as were raised or
could have been raised in the first action.” Laird, 336 F.3d at 357 (citing
Amstadt, 919 S.W.2d at 652).       Texas courts use the transactional test in
determining whether two actions involve the same claim. Id. at 358–59 (citing
Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794, 798 (Tex. 1992)). Under
this test, the first action bars the second if both arise out of the “same nucleus
of operative fact.” Id. at 359 (citing Jones, 82 F.3d at 1342). This is a pragmatic
determination, made by “giving weight to whether the facts alleged are related
in time, space, origin, or motivation, whether the causes of action form a
convenient trial unit, and whether their treatment as a trial unit conforms to
the parties’ expectations or business understanding or usage.” Id. (citing Barr,
837 S.W.2d at 631).
      The Stevenses argue that this case involves a different cause of action
because it is a postforeclosure quiet-title suit, whereas the First Action was
brought prior to foreclosure. Although it is true that the foreclosure process
had not been completed when the Stevenses brought the First Action, both
actions are based on the same operative facts, namely BOA’s allegedly
fraudulent procurement of a lien on the Property. Further, the Stevenses do
not avoid claim preclusion simply because the current suit is styled as a quiet-
title action. See Nguyen v. Bank of Am., N.A., 539 F. App’x 325, 328 (5th Cir.
2013) (per curiam) (“[A]lthough [the appellant] did not assert a quiet-title
action in the prior lawsuits, this claim is based on the ‘same nucleus of
operative facts,’ concerning the foreclosure of the Property, and therefore could
have been previously asserted in the prior lawsuits.”). Thus, we hold that the
current action is based on the same claims as the First Action.
                              III. CONCLUSION
      For the foregoing reasons, we AFFIRM.
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