The bankruptcy court in (Bkrtcy.S.D.Fla. 2006)(Isicoff, J.) held that the doctrine of res judicata did not bar the involved Truth in Lending Act ("TILA") claim. In this case, the debtor filed a bankruptcy case under chapter 13 to stop a foreclosure sale pursuant to a judgment of foreclosure. The debtor sent a letter to rescind and arguing that his right to rescind was extended as mortgagee did not provide him with the required TILA disclosures 15 U.S.C. section 1601 et seq., and Reg. Z and did not comply with HOPEA which is subsection of TILA.
The court held that in determining the res judicata effect of state court judgment, one looks to law of the state. It noted that Florida res judicata law bar any future action if there is an identity in both cases of 1. the things sued for, 2. the causes of action, 3. the identity of the parties, and 4. the identity of capacity of the parties. Res judicata bar not only issues that were raised but precludes consideration of issues that could have been raised but were not. The court reviewed that the principal test in determining whether causes of action are the same is whether the primary right and duty are the same in each case
The court noted that in this case the issue was whether the substance of the debtor's TILA was subject to res judicata based on the prior foreclosure judgment. The court further noted that the debtor's TILA claim not a compulsiary counter-claim to a foreclosure action. The court found that the language of TILA is permissive not mandatory and that it can be asserted as original action or as a defense/counterclaim. The court did not find a Florida state court case directly on point. The court held that all of the claims, except those relating to the non-HOEPA disclosures, would not be barred by res judicata.
The court held that even if the state court judgment technically would meet the requirements for res judicata, it would decline on basis of equity to grant motion for summary judgment for defendant. Hartnett v. Mustelier, 330 B.R. 823 (Bankr.S.D.Fla. 2005)(based on equitable principals court declines to give collateral estoppel effect to a default judgment). The court found that Florida law recognizes a manifest injustice exception to res judicata and collateral estoppel, especially involving a pro se litigant.