One claim survived, but the courts continue to get it wrong. Because the power of sale never accrued, the quiet title claim should not have been dismissed. In any event, the breach of contract claim survived, and the remedy for this breach should be restoring the property back to the borrowers who suffered an illegal foreclosure.
EDWARD M. BAGLEY, et al, Plaintiffs, v. WELLS FARGO BANK, N.A., et al, Defendants.
Civil Action No. 3:12-CV-617
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA, RICHMOND DIVISION
January 29, 2013, Decided
January 29, 2013, Filed
JUDGES: James R. Spencer , United States District Judge.
OPINION BY: James R. Spencer
OPINION
MEMORANDUM OPINION
THIS MATTER is before the Court on a Motion to Dismiss Plaintiffs' Amended Complaint filed by Defendants Wells Fargo Bank, N.A. ("Wells Fargo ") and Equity Trustees, L.L.C. ("Equity Trustees")(collectively the "Defendants") pursuant to Federal Rule of Civil Procedure 12(b)(6)(ECF No. 10). Plaintiffs seek compensatory damages against Defendants and an order quieting title following the foreclosure of their home, as well as a declaratory judgment stating that Plaintiffs are not liable for the foreclosure-related costs. The Court dispenses with oral argument because the facts and legal contentions are adequately presented in the materials presently before the Court, and argument would not aid in the decisional process. E.D. [*2] Va. Loc. Civ. R. 7(J). For the reasons discussed below, the Court GRANTS IN PART and DENIES IN PART Defendants' Motion.
I. BACKGROUND
On October 15, 2008, Plaintiffs Edward and Laura Bagley entered into a home mortgage loan for a residence in Richmond, Virginia. Guaranteed Home Mortgage Company, Inc. ("Guaranteed Home") was the lender and the loan was evidenced by a Note and secured by a Deed of Trust. Guaranteed Home assigned the Note to Defendant Wells Fargo, and Wells Fargo became the Note holder. The Deed of Trust appointed Samuel I. White, P.C. ("White") as trustee.
Plaintiffs assert that the loan was governed by Fair Housing Act ("FHA") regulations promulgated by the Department of Housing and Urban Development ("HUD"), and that the Note and Deed of Trust permitted Defendants to accelerate the Note or proceed with foreclosure only if allowed by FHA regulations. Specifically, Plaintiffs allege that Defendants were subject to regulation 24 C.F.R. § 203.604, which requires the mortgagee to have a face-to-face interview with the mortgagor, or to make a reasonable effort to arrange such a meeting, before three full monthly payments on the loan are unpaid. Plaintiffs further allege that [*3] Defendants were subject to 24 C.F.R. § 203.501, which states that mortgagees "must consider the comparative effects of their elective servicing actions, and must take those appropriate actions which can reasonably be expected to generate the smallest financial loss to the Department [of Housing and Urban Development]." § 203.501. § 203.501 then lists examples of loss mitigation actions which the mortgagee might take. Lastly, Plaintiffs assert that Defendants were subject to 24 C.F.R. § 203.605, 1 which requires that "[b]efore four full monthly installments due on the mortgage have become unpaid, the mortgagee shall evaluate on a monthly basis all of the loss mitigation techniques provided at § 203.501 to determine which is appropriate. Based upon such evaluations, the mortgagee shall take the appropriate loss mitigation action." § 203.605.
FOOTNOTES
1 The Amended Complaint mistakenly cites this regulation as § 203.501.
Plaintiffs fell more than three months behind on their mortgage payments. Plaintiffs claim that Edward Bagley tried to communicate with Wells Fargo in order to resolve the debt, but "was rebuffed by Wells Fargo. " (Am. Compl. ¶ 16.) Plaintiffs also assert that Wells Fargo "refused [*4] to accept any payment for less than an amount sufficient to bring the loan current." (Am. Compl. ¶ 15.) Plaintiffs claim that no creditor, including Wells Fargo, ever held or attempted to arrange a face-to-face meeting with Plaintiffs or "ever considered a deed in lieu of foreclosure as an alternative to foreclosure on the home or fairly considered any forbearance or recasting of the mortgage." (Am. Compl. ¶ 14.)
On March 16, 2011, Plaintiffs allege that Wells Fargo removed White as trustee on the Deed of Trust and appointed Defendant Equity Trustees as substitute trustee. Plaintiffs assert that, on Wells Fargo's instructions, Equity Trustees advertised the home for foreclosure and conducted a foreclosure sale on June 24, 2012, where Wells Fargo made the high bid. Plaintiffs contend that, at the time of the foreclosure sale, Plaintiffs "had approximately $15,000.00 that they were prepared to apply to arrearage on the loan." (Am. Compl. ¶ 23.) On August 11, 2011, Wells Fargo filed an unlawful detainer against Plaintiffs in the General District Court of Henrico County, Virginia and was awarded possession of the home on December 2, 2011. Plaintiffs appealed, and as of the filing of Plaintiffs' [*5] suit, the unlawful detainer matter was pending in the Circuit Court of Henrico County, Virginia.
In Count One, Plaintiffs allege that Defendants breached the terms of the Note and Deed of Trust by failing to comply with FHA regulations. Specifically, Plaintiffs claim that Defendants failed to arrange or attempt to arrange a face-to-face meeting under § 203.604 or to consider loss mitigation actions under § 203.501. Plaintiffs contend that this purported failure to comply with FHA regulations renders Wells Fargo's filing of an unlawful detainer action a further breach of the Note and Deed of Trust. For these reasons, Plaintiffs maintain that the foreclosure sale and trustee's deed are void, or alternatively, voidable. In Count Two, Plaintiffs allege that, as a result of the conduct alleged in Count One, Defendants breached an implied covenant of good faith and fair dealing in the Note and Deed of Trust. In Count Three, Plaintiffs seek a declaratory judgment that they are not responsible for Wells Fargo's foreclosure-related expenses. Plaintiffs claim that they suffered: the loss of title to and quiet enjoyment of their home; legal expenses; damage to their credit history; and substantial [*6] inconvenience. Accordingly, Plaintiffs assert that they have superior title and ask for an order quieting title and compensatory damages in the amount of $60,000.00.
Defendants filed a Motion to Dismiss on August 30, 2012, and Plaintiffs amended their Complaint on September 20, 2012. 2 Defendants filed a Motion to Dismiss the Amended Complaint on October 4, 2012. Defendants argue that the Amended Complaint should be dismissed pursuant to Rule 12(b)(6) on the following grounds: (1) Plaintiffs have failed to state a breach of contract claim for a violation of FHA regulations; (2) Virginia does not recognize an independent cause of action for breach of implied duty of good faith and fair dealing, and even so, the Uniform Commercial Code ("U.C.C.") which does allow for this implied covenant does not apply to home mortgage loans; (3) Plaintiffs are not entitled to a declaratory judgment because the claim is based on speculative action by Wells Fargo; and (4) Plaintiffs have not sufficiently alleged that they have superior title to the home, and are not entitled to a rescission of the foreclosure sale. This motion has been fully briefed and this matter is now ripe for review.
FOOTNOTES
2 In light of [*7] the Motion to dismiss the Amended Complaint, the Court thus DENIES AS MOOT Defendants' Motion to Dismiss Plaintiff's original Complaint (ECF No. 4.)
II. LEGAL STANDARD
A motion to dismiss for failure to state a claim upon which relief can be granted challenges the legal sufficiency of a claim, rather than the facts supporting it. Fed. R. Civ. P. 12(b)(6); Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007); Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). A court ruling on a Rule 12(b)(6) motion must therefore accept all of the factual allegations in the complaint as true, see Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999); Warner v. Buck Creek Nursery, Inc., 149 F. Supp. 2d 246, 254-55 (W.D. Va. 2001), in addition to any provable facts consistent with those allegations, Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 81 L. Ed. 2d 59 (1984), and must view these facts in the light most favorable to the plaintiff. Christopher v. Harbury, 536 U.S. 403, 406, 122 S. Ct. 2179, 153 L. Ed. 2d 413 (2002). The Court may consider the complaint, its attachments, and documents "attached to the motion to dismiss, so long as they are integral to the complaint and authentic." Sec'y of State for Defence v. Trimble Navigation Ltd., 484 F.3d 700, 705 (4th Cir. 2007).
To [*8] survive a motion to dismiss, a complaint must contain factual allegations sufficient to provide the defendant with "notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). Rule 8(a)(2) requires the complaint to allege facts showing that the plaintiff's claim is plausible, and these "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 540 U.S. at 545; see id. at 555 n.3. The Court need not accept legal conclusions that are presented as factual allegations, id. at 555, or "unwarranted inferences, unreasonable conclusions, or arguments," E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000).
III. DISCUSSION
Defendants argue that Count One should be dismissed because Plaintiffs have not sufficiently stated a claim that Defendants failed to comply with FHA regulations, and even so, Plaintiffs have not alleged that they were harmed as a result of the alleged failure to comply with the regulations. Further, Defendants argue that a failure to comply with FHA regulations is an affirmative defense [*9] to foreclosure, but does not create a private cause of action. Defendants argue that Count Two should be dismissed because there is no independent cause of action for breach of an implied duty of good faith and fair dealing in Virginia, and even if Plaintiffs had pled this claim within the context of a breach of contract claim, the U.C.C. does not apply to a creation or transfer of an interest in or lien on real property. In addition, Defendants assert that they were merely exercising their rights under the Deed of Trust by foreclosing on the home, and thus, Plaintiffs cannot establish that Defendants breached an implied covenant of good faith and fair dealing. Defendants argue that Count Three should be dismissed because Plaintiffs' claim for declaratory judgment is based on hypothetical future action by Wells Fargo. Lastly, Defendants challenge Plaintiffs' action to quiet title because Plaintiffs do not claim that they have satisfied their debts under the Note and Deed of Trust. The Court discusses below the sufficiency of each of Plaintiffs' claims.
A. Count One: Breach of Note and Deed of Trust
Under Virginia law, a party alleging breach of contract must establish that the defendant [*10] owed the plaintiff a legally enforceable obligation, the defendant violated that obligation, and the plaintiff suffered injury or damage as a result of the defendant's breach. See Filak v. George, 267 Va. 612, 619, 594 S.E.2d 610 (Va. 2004). Further, "[a] material breach is a failure to do something that is so fundamental to the contract that the failure to perform that obligation defeats an essential purpose of the contract." Countryside Orthopaedics, P.C. v. Peyton, 261 Va. 142, 154, 541 S.E.2d 279 (2001). "The essential purposes of a deed of trust are two-fold: to secure the lender-beneficiary's interest in the parcel it conveys and to protect the borrower from acceleration of the debt and foreclosure on the securing property prior to the fulfillment of the conditions precedent it imposes." Mathews v. PHH Mortgage, 283 Va. 723, 732, 724 S.E.2d 196 (Va. 2012).
Plaintiffs allege that Defendants breached the Deed of Trust by foreclosing on the house without complying with specific FHA regulations. Paragraph 9(d) of the Deed of Trust provides that "[i]n many circumstances regulations issued by the Secretary [of HUD] will limit Lender's rights, in the case of payment defaults, to require immediate payment in full and foreclose [*11] if not paid. This Security Instrument does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary." (Am. Compl. Ex. A. 7.)
Firstly, Plaintiffs argue that Wells Fargo failed to comply with § 203.604, which provides:
The mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid. If default occurs in a repayment plan arranged other than during a personal interview, the mortgagee must have a face-to-face meeting with the mortgagor, or make a reasonable attempt to arrange such a meeting within 30 days after such default and at least 30 days before foreclosure is commenced, or at least 30 days before assignment is requested if the mortgage is insured on Hawaiian home land pursuant to section 247 or Indian land pursuant to section 248 or if assignment is requested under § 203.350(d) for mortgages authorized by section 203(q) of the National Housing Act.
§ 203.604(b). Plaintiffs assert that they "fell more than three months behind on the note while living in the home," (Am. Compl. ¶ 13), and that "no creditor entity had a face-to-face [*12] meeting with the Bagleys or with either of them, or made any attempt to arrange for such face-to-face meeting." (Am. Compl. ¶ 14.) Accordingly, Plaintiffs assert that the foreclosure sale was void, or alternatively, voidable.
Defendants argue that Plaintiffs have not sufficiently stated a claim because Plaintiffs conflate the two situations in which § 203.604 requires a face-to-face meeting: (1) before three full monthly installments are unpaid; or (2) at least 30 days before commencement of foreclosure if default occurs in a repayment plan arranged other than during a personal interview. See Mathews, 283 Va. at 742-43(Kinser, J., concurring). Further, Defendants argue that Plaintiffs do not claim that they were ready, willing, and able to cure the default if they had had the meeting, and thus, Plaintiffs cannot establish that they were damaged by a failure to comply with § 203.604.
Plaintiffs have sufficiently alleged that Defendants violated the Deed of Trust by foreclosing on the home without complying with § 203.604. In Virginia, "a lender must comply with all conditions precedent to foreclosure in a deed of trust even if the borrowers are in arrears." Mathews, 283 Va. at 730; see [*13] also Bayview Loan Servicing, LLC v. Simmons, 275 Va. 114, 654 S.E.2d 898 (2008). Further, the Supreme Court of Virginia held in Mathews v. PHH Mortgage, a case in which the deed of trust also required compliance with FHA regulations, that "the face-to-face meeting requirement [of § 203.604(b)] is a condition precedent to the accrual of the rights of acceleration and foreclosure incorporated into the Deed of Trust." 283 Va. at 736-37. In this case, Plaintiffs clearly allege that they failed to pay their mortgage installments for more than three months, and that the Defendants violated § 203.604 because they never arranged a face-to-face meeting or attempted to do so. (See Am. Compl. ¶¶ 13-14.) Accordingly, by asserting that Defendants failed to comply with § 203.604, Plaintiffs have sufficiently alleged that Defendants failed to satisfy a condition precedent to foreclosing on the home, and thus, have breached the Deed of Trust. 3
FOOTNOTES
3 Defendants also seek to dismiss Count One on the ground that a failure to comply with FHA regulations is an affirmative defense to foreclosure, but does not create a private cause of action. However, while the plaintiffs in Mathews sought a declaratory judgment that their [*14] foreclosure was void rather than compensatory damages, Mathews expressly held that "[b]orrowers may sue to enforce conditions precedent to foreclosure." 283 Va. at 733.
Further, Plaintiffs have sufficiently pled that they were harmed by Defendants' alleged failure to comply with § 203.604, Although Plaintiffs have not alleged that they were ready, willing, and able to fully satisfy the debt if Defendants had arranged the face-to-face meeting required by § 203.604, Plaintiffs would have been able to communicate in person with Wells Fargo representatives about other ways that they could resolve their debt. Instead, Plaintiffs assert that they were unable to meet face-to-face with Wells Fargo representatives about their default and that Edward Bagley was rebuffed when he attempted to communicate with Wells Fargo about the debt. 12 U.S.C. § 1715, which authorizes HUD to implement § 203.604, requires lenders to engage "in loss mitigation actions for the purpose of providing an alternative to foreclosure" when a borrower is in default or facing imminent default. 12 U.S.C. § 1715 (emphasis added); see Mathews, 283 Va. 741 n.6. The face-to-face meeting creates an opportunity for homeowners [*15] in default to avoid foreclosure, 4 thus surely a plaintiff may be harmed if they are denied this opportunity, even if they are not able to pay the full debt at the time of the meeting. Therefore, Plaintiffs have sufficiently stated a claim that Defendants breached the Deed of Trust by failing to comply with § 203.604. The Motion to dismiss this claim is thus DENIED.
FOOTNOTES
4 Seemingly, there would be no reason to hold a face-to-face meeting to discuss the default if the borrowers were prepared to fully cure the debt at that point anyways. For this reason, HUD requires that the face-to-face meetings are conducted by "staff that is adequately trained to discuss the delinquency and the appropriate loss mitigation options." Mathews, 283 Va. at 740.
Secondly, Plaintiffs allege that Defendants violated § 203.501, which provides that:
Mortgagees must consider the comparative effects of their elective servicing actions, and must take those appropriate actions which can reasonably be expected to generate the smallest financial loss to the Department. Such actions include, but are not limited to, deeds in lieu of foreclosure under § 203.357, pre-foreclosure sales under § 203.370, partial claims under § 203.414, [*16] assumptions under § 203.512, special forbearance under §§ 203.471 and 203.614, and recasting of mortgages under § 203.616. HUD may prescribe conditions and requirements for the appropriate use of these loss mitigation actions, concerning such matters as owner-occupancy, extent of previous defaults, prior use of loss mitigation, and evaluation of the mortgagor's income, credit and property.
§ 203.501. Plaintiffs claim that Defendants never considered a deed in lieu of foreclosure or "fairly considered any forbearance or recasting of the mortgage." (Am. Compl. ¶ 14.) Plaintiffs further assert that Edward Bagley was rebuffed by Wells Fargo when he tried to resolve the debt on the loan and that Wells Fargo refused to accept any payment less than the full amount needed to bring the loan current. At the time of the foreclosure sale, Plaintiffs allegedly had $15,000.00 that they were prepared to apply to the arrearage.
Plaintiffs have not sufficiently stated a claim for breach of the Deed of Trust by alleging that Defendants violated § 203.501. § 203.501 requires Defendants to consider the comparative effects of their elective servicing actions, and Plaintiffs have alleged no facts indicating [*17] that Defendants failed to do so. In addition, § 203.501 provides a non-exhaustive list of loss mitigation actions that the mortgagee may consider taking, and Defendants were not required to take any specific action on the list as long as they took any appropriate actions which could reasonably have been expected to most significantly reduce HUD's financial loss. The allegations that Wells Fargo "rebuffed" Edward Bagley or refused to accept payment for less than the amount needed to bring the loan current do not, without more, sufficiently state a claim that Defendants failed to comply with these provisions of § 203.501. Accordingly, Plaintiffs have failed to state a breach of contract claim for failure to comply with § 203.501, and the Court GRANTS the motion with respect to this claim. 5
FOOTNOTES
5 The Amended Complaint also cites § 203.605, which sets forth a duty to mitigate before four full monthly installments have become unpaid and requires the mortgagee to evaluate on a monthly basis the loss mitigation techniques provided in § 203.501 to determine if any are appropriate. However, Plaintiffs do not actually allege that Defendants violated this regulation. Therefore, to the extent that [*18] Plaintiffs seek to state a breach of contract claim for violation of § 203.605, they have failed to do so, and the Court DISMISSES this claim.
B. Count Two: Breach of Implied Covenant of Good Faith and Fair Dealing
Plaintiffs argue that in violating FHA regulations as alleged in Count One, Defendants also violated an implied duty of good faith and fair dealing in the Note and Deed of Trust. Specifically, Plaintiffs contend that "foreclosing on the Bagleys' home after representatives of Wells Fargo refused to communicate with the Bagleys regarding loss mitigation alternatives and failed to comply with FHA regulations incorporated into the Bagleys' note and deed of trust constitutes a breach of the implied duty of good faith and fair dealing." (Pls.' Mem. Opp. Mot. Dismiss 11.) Plaintiffs further argue that Defendants used their discretion to foreclose the home in bad faith by filing an unlawful detainer action when the foreclosure was in violation of Defendants' contractual duties, and by falsely reporting to credit agencies that there had been a foreclosure when the foreclosure was void, or alternatively, voidable. Plaintiffs assert that "[b]ecause the note was a negotiable instrument [*19] under the UCC, and because Va. Code Ann. § 8.1A-304 imposed the duty of good faith and fair dealing on the holder of the note, the deed of trust also carried with it an implied duty of good faith and fair dealing as required by the statute." (Am. Compl. ¶ 43.)
Plaintiffs have not sufficiently stated a claim for breach of an implied covenant of good faith and fair dealing. "Under Virginia law, every contract contains an implied covenant of good faith and fair dealing; however, a breach of those duties only gives rise to a breach of contract claim, not a separate cause of action." Albayero v. Wells Fargo Bank, N.A., 3:11CV201-HEH, 2011 U.S. Dist. LEXIS 114974, at *15(E.D. Va. Oct. 5, 2011)(quoting Frank Brunckhorst Co., L.L.C. v. Coastal Atlantic, Inc., 542 F.Supp.2d 452, 462 (E.D. Va. 2008))(emphasis added). See Charles E. Brauer Co. v. NationsBank of Va., N.A., 251 Va. 28, 466 S.E.2d 382, 385 (Va. 1996)("[T]he failure to act in good faith . . . does not amount to an independent tort.") Even if Plaintiffs had alleged a breach of contract claim stemming from a failure to act in good faith and fair dealing, Virginia law "does not recognize an implied covenant of good faith and fair dealing in contracts [*20] outside of those governed by the Uniform Commercial Code (U.C.C.), and the U.C.C. expressly excludes the transfer of realty from its provisions." Harrison v. US Bank National, 3:12CV224, 2012 U.S. Dist. LEXIS 85735, at *5-6 (E.D. Va. June 20, 2012) (quoting Greenwood Assocs. Inc. v. Crestar Bank, 248 Va. 265, 448 S.E.2d 399 (1994)) (internal quotations omitted); see Va. Code Ann. § 8.9A-109(d)(11). 6 For the above reasons, the Court GRANTS Defendants' Motion to dismiss Count Two.
FOOTNOTES
6 Although the Note is a negotiable instrument governed by the U.C.C., the Deed of Trust is a secured instrument which is not governed by the U.C.C. See Gibson v. Wells Fargo Bank, N.A., 1:10-cv-304, 2011 U.S. Dist. LEXIS 5391, * 8 (E.D. Va. Jan. 19, 2011)("Virginia is a non-judicial foreclosure state in which the law of real property governs deeds of trust")(citing Gen. Elec. Credit Corp. v. Lunsford, 209 Va. 743, 747, 167 S.E.2d 414 (1969)("[T]he note may and does confer one right and the security another. The former is governed by the law [of the] merchant, and the latter by the law of real property...").
C. Count Three: Claim for Declaratory Judgment
Plaintiffs seek a declaratory judgment stating that Plaintiffs are not responsible for [*21] Wells Fargo's foreclosure-related costs and that these costs cannot be added to Plaintiffs' remaining obligations on the home. Plaintiffs maintain that their "rights are in doubt and in peril" and argue that "[t]he competing positions of Wells Fargo and the Bagleys as to who should bear the said foreclosure related expenses establish that a real and actual controversy exists as to the respective rights of the parties to this matter." (Am. Compl. ¶ 52.) While Defendants argue that this claim is based on speculative future action by Wells Fargo to impose on Plaintiffs costs that have already been incurred, Plaintiffs insist that their claim for a declaratory judgment is sufficient because the matter relates to the ongoing controversy between the parties as to whether or not the foreclosure sale was valid, both in this court and in the appeal of the unlawful detainer action.
Plaintiffs have not sufficiently stated a claim for a declaratory judgment. The Declaratory Judgment Act authorizes a federal court to grant declaratory relief when "the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient [*22] immediacy and reality to warrant the issuances of a declaratory judgment." Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S. Ct. 510, 85 L. Ed. 826 (1941). Declaratory relief "is designed to apply prospectively to prevent or mandate reasonably certain, future conduct." Trull v. Smolka, 3:08CV460-HEH, 2008 U.S. Dist. LEXIS 70233, at *24 (E.D. Va. Sept. 18, 2008); see Horvath v. Bank of N.Y., N.A., No. 1:09-CV-1129, 2010 U.S. Dist. LEXIS 19965, at *1 (E.D. Va. Jan. 29, 2010)("Declaratory relief is reserved for forward looking actions and is appropriate if the relief sought will serve a useful purpose in clarifying and settling the legal relations in issue, and will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding")(internal citations omitted).
In this case, there is no reasonably certain future conduct to be prevented or mandated because the foreclosure sale has already occurred, and the issue of which party is responsible for the related costs will be addressed by the underlying contract claim resolving whether the foreclosure sale is void or valid. See Estrella v. Wells Fargo Bank, N.A., 2:11cv414, 2011 U.S. Dist. LEXIS 148778, at *17-18 (E.D. Va. Dec. 28, 2011)(dismissing [*23] an identical claim for declaratory relief by plaintiff homeowners for failure to state a claim when the foreclosure sale had already occurred and plaintiffs sought a declaratory judgment that they were not responsible for the costs associated with the foreclosure sale). For these reasons, the Court GRANTS the Motion to dismiss Count Three.
D. Action to Quiet Title
Based on the conduct alleged in Counts One and Two, Plaintiffs argue that the foreclosure sale and trustee's deed are void or voidable, and thus seek an action to quiet title as a remedy, "either by an order striking the purported trustee's deed from the public land records or by an order appointing a constructive trustee with direction to convey record title to the home to [Plaintiffs], subject to the lien of the deed of trust." (Am. Compl. ¶ 37.) Plaintiffs assert that because of Defendants' alleged conduct, Plaintiffs' "right to title to the home is superior to any other entity, including Wells Fargo, provided however, that their right to title is subject to the lien of the deed of trust." (Am. Compl. ¶ 36.) Defendants argue that Plaintiffs have not sufficiently alleged that they have superior title since Plaintiffs do not [*24] claim that they have fully satisfied their obligations or that the debts have otherwise been canceled or forgiven. Defendants further assert that Plaintiffs' claim for an order quieting title essentially asks for a rescission of the foreclosure sale, and that such an action is improper because equitable relief is only appropriate where the plaintiff alleges that he has no adequate remedy at law. Defendants maintain that Plaintiffs have an adequate remedy at law in this case, namely, their action for damages.
Plaintiffs have failed to sufficiently state a claim for an action to quiet title. In Virginia, "[a]n action for quiet title is based on the premise that a person with good title to certain real or personal property should not be subjected to various future claims against the title." Maine v. Adams, 277 Va. 230, 238, 672 S.E.2d 862 (Va. 2009). In order to assert a claim for quiet title, the plaintiff must plead that he has fully satisfied all legal obligations to the party in interest. See Tapia v. U.S. Bank, 718 F. Supp. 2d 689, 700 (E.D. Va. 2010), aff'd 441 F. App'x 166 (4th Cir. 2011); see also Matanic v. Wells Fargo Bank, N.A., 3:12CV472, 2012 U.S. Dist. LEXIS 134154, * 21-22 (E.D. Va. Sept. 19, 2012)(denying [*25] plaintiff's claim for quiet title because plaintiff admitted owing money on the note and deed of trust). In this case, Plaintiffs do not plead that they have satisfied their obligations under the Note and Deed of Trust and they admit that they owe money on the Note and Deed of Trust. (See Am. Compl. ¶ 50.) Accordingly, Plaintiffs' claim for quiet title fails. Further, because Plaintiffs have not sufficiently stated a claim for an action quieting title, the Court need not address whether or not rescission of the foreclosure sale would be an appropriate means of quieting title.
IV. CONCLUSION
For the above reasons, the Court GRANTS IN PART and DENIES IN PART the Motion to Dismiss the Amended Complaint. The Court DENIES the Motion to Dismiss Plaintiffs' breach of contract claim in Count One for a failure to comply with § 203.604, but GRANTS the Motion with respect to Plaintiffs' claims concerning § 203.501 and §203.605, and DISMISSES the latter two claims. The Court GRANTS the Motion to dismiss Counts Two and three and DISMISSES these claims against Defendants.
Let the Clerk send a copy of this Memorandum Opinion to all counsel of record.
An appropriate order shall issue.
/s/ James R. Spencer
United [*26] States District Judge
ENTERED this 29th day of January 2013.
Thursday, January 31, 2013
Thursday, January 17, 2013
Case illustrating difficulty of challenging Virginia foreclosures at eviction stage
Federal National Mortgage Association v. Stephanie P. Harbin
Docket No.: CL11-4336
CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH, VIRGINIA
March 20, 2012, Decided
OPINION BY: Leslie L. Lilley
OPINION
This summons for unlawful detainer came before the Court on February 15, 2012 on an appeal from General District Court. The Court took this matter under advisement, and Counsel submitted summaries of authorities as requested by the Court.
There are two issues to be addressed by the court: (1) whether the plaintiff has proven the statutory elements of Virginia Code § 8.01-124 et. seq. and, (2) whether the Notice to Vacate provides a basis to sustain Defendant's motion to strike?
I. Facts
Plaintiff, successful bidder and purchaser at foreclosure, filed an unlawful detainer action seeking to have Defendant relinquish possession of the property. Defendant in her Answer to Bill of Particulars averred that the purported foreclosure was void or alternatively voidable, along with the trustee's deed. Further, Defendant alleges that she has the right to occupy the residence and that the home belongs to her. In the hearing before the Court, the parties relied solely upon the pleadings and legal argument. Plaintiff submitted two exhibits into evidence.
Exhibit [*2] one is a Deed of Foreclosure listing Plaintiff as the successful bidder and purchaser of the property located at 5001 Ashforth Court, Virginia Beach, Virginia 23462 pursuant to a foreclosure auction conducted on January 20, 2011. The Deed of Foreclosure recites that default occurred, and that the Deed of Trust provided upon default that the Trustee shall sell the said property at public auction.
Plaintiff's exhibit two is the Notice to Vacate mailed to Defendant at the property address. Defendant admits in her Answer to Bill of Particulars that she received the Notice to Vacate.
Notice to vacate was mailed to the Defendant on February 8, 2011 giving Defendant 5 days to vacate. The summons on unlawful detainer was not issued until February 17th and the Affidavit was subscribed and sworn to by the Plaintiff on February 14th. Defendant alleges that the notice to vacate could not have reached Defendant before February 9th and thus the Summons/Affidavit did not permit the 5 days notice which Defendant alleges was required as a result of the issuance of notice.
II. Discussion and Findings
a. Proof of unlawful detainer
Unlawful detainer actions are governed by Virginia Code § 8.02-124 et. seq. [*3] In this case the unlawful detainer summons was filed in General District Court according to the procedures provided in Virginia Code § 8.01-126. These provisions set the standard for judgment in an unlawful detainer case: "[i]f it appears...that [possession] was unlawfully detained from [plaintiff], the verdict or judgment shall be for the plaintiff for the premises, or such part thereof as may be found to have been so held or detained" (Va. Code § 8.01-128). Lawful possession of property is the only issue to be determined in a claim for unlawful detainer. Cherokee Corp. of Linden, Inc. v. Capital Skiing Corp., 222 Bankr. 281 (Bankr. E.D. Va. 1998), aff'd, 191 F.3d 447 (4th Cir. 1999).
Plaintiff's exhibit one, the Deed of Foreclosure, is prima facie evidence, (see Code of Virginia § 8.01-389) that Plaintiff is entitled to possession of the land in controversy. Additionally, based on a fair reading of the pleadings, Defendant admitted that she maintained possession over the property. Generally, an admission of fact in a pleading is conclusive on the party making it. See Newman v. Light, 152 Va. 760, 770 (Va. 1929); Clark v. Clark, 70 W. Va. 428, 74 S.E. 234 (1912). In Defendant's Answer [*4] to Bill of Particulars she averred that the home belongs to her and stated that she is the rightful owner of the premises. The Defendant admits in paragraph 3 of the Answer to Bill of Particulars that the Notice to Vacate was mailed to her at 5001 Ashforth Court, Virginia Beach, VA 23462, which is the property at issue; and, that she received the notice. These allegations read together make it clear to the Court that Defendant was in possession of the property. Based on the foregoing, the Court finds sufficient evidence to conclude that the Defendant unlawfully detained the premises.
b. Notice to Vacate
A purchaser at a foreclosure auction need not give any notice to vacate to the prior owner of the property. Johnson v. Goldberg, 207 Va. 487, 151 S.E. 2d 368 (1966). Defendant argues that since the Plaintiff gave notice, such notice must comply with the statutory provisions for notice, and that notice here is insufficient. Notably, Defendant cites no authority for this argument.
The Court finds that notice was not required1 under the facts presented and that providing notice did not trigger additional duties upon the Plaintiff in the absence of prejudice to the Defendant. As no prejudice [*5] is cited or alleged the Court finds that the alleged irregularities in the Notice to Vacate, if taken for true, provide no basis upon which to sustain Defendant's motion to strike.
FOOTNOTES
1 Under the facts of this matter, Defendant does not possess the property under the Plaintiff (i.e., as in a landlord-tenant relationship) and no allegation of rent due is presented. See § 55-225.
Conclusion
The Court overrules the Defendant's motions to strike and awards possession of the subject property to Federal National Mortgage Association pursuant to Virginia Code § 8.01-126, et. seq. Mr. Tengco is requested to prepare and circulate the Order for entry referencing the findings of this letter opinion.
/s/ Leslie L. Lilley
Leslie L. Lilley
Tuesday, January 15, 2013
Quiet Title is Possible in Florida Foreclosure Actions
Elizabeth Spencer, Appellant, vs. EMC Mortgage Corporation, Appellee.
No. 3D11-136
COURT OF APPEAL OF FLORIDA, THIRD DISTRICT
97 So. 3d 257; 37 Fla. L. Weekly D 2068
August 29, 2012, Opinion Filed
JUDGES: Before SALTER and FERNANDEZ , JJ., and SCHWARTZ, Senior Judge. FERNANDEZ ., J., concurs.
OPINION BY: SALTER
OPINION
[*258] SALTER , J.
Elizabeth Spencer appeals a final summary judgment of foreclosure entered against her in December 2010 based on defaults in payment which are alleged to have begun in July 1997, over thirteen years earlier. We reverse and remand the case with directions to enter a judgment dismissing the foreclosure case based on the lender's failure to prosecute it, among other procedural and substantive deficiencies.1
FOOTNOTES
1 The parties agreed to stay a foreclosure sale until this appeal could be completed.
Background
Ms. Spencer obtained a residential mortgage loan for $75,600 from United Companies Lending Corporation in August 1993. The contract interest rate was 13.5% per annum. The loan was to be amortized over fifteen years in level monthly payments, with the last payment due September 1, 2008.
United Companies [**2] commenced a first foreclosure proceeding against Ms. Spencer in early 1998. In March 1999, however, United Companies filed a petition under Chapter 11 of the United States Bankruptcy Code. In September 2000, the bankruptcy court approved the sale of a number of mortgage loans, including the mortgage loan to Ms. Spencer, to EMC Mortgage Corporation, the appellee here. In 2001, EMC was substituted for United Companies as the foreclosing plaintiff against Ms. Spencer, but that lawsuit was dismissed for lack of prosecution in November 2002. The file in that initial foreclosure action was later destroyed by the Miami-Dade circuit court clerk's office in accordance with its normal procedure.
Later in November 2002, EMC filed a second foreclosure complaint against Ms. Spencer and various other defendants, alleging that Ms. Spencer failed to make regular monthly payments, "the loan being due for July 1, 1997." In her responsive pleading, Ms. Spencer raised a number of affirmative defenses, including an allegation that the complaint was barred by the statute of limitations. After a substitution of counsel for EMC and various motions, the case languished for thirteen months. The trial court issued [**3] a notice of lack of prosecution (order to show cause why the case should not be dismissed), docketed on March 5, 2009, and it scheduled a hearing for the matter for May 29, 2009. There was no record activity in the case during the sixty-day period following the notice of lack of prosecution.
On May 26, 2009, eighty-two days after the notice of lack of prosecution and only [*259] three days before the scheduled hearing, EMC filed an unsworn response to the order to show cause and a motion for final summary judgment. At the hearing on the lack of prosecution, EMC's counsel advised the court that the order to show cause had been sent to the offices of prior counsel—not EMC's successor counsel—and that he had only learned of the notice two weeks earlier by checking the docket. The trial court denied the motion to dismiss for lack of prosecution after being told by EMC's counsel that the case could not be re-filed because of the statute of limitations.
EMC's motion for final summary judgment asserted that default occurred July 1, 1997, that no payment had been made since then, and that the unpaid principal balance was $67,976.78, with interest "from November 1, 2007, through March 15, 2009," in [**4] the amount of $110,112.08, plus interest at $25.14 per day "for each day after May 31, 2009." The motion indicated that these figures would be set forth in an "Affidavit of Malia Howard" to be filed before the hearing on the motion.
At this point, it is appropriate to do some simple math. The principal balance of $67,976.78 at 13.5% interest (the periodic annual rate on Ms. Spencer's loan) rounds to $25.14 per day, as reflected in the final judgment. But interest at that daily rate from November 1, 2007, through March 15, 2009, a period of only 501 days, is $12,595.14, not $110,112.08.2 And when the promised affidavit was filed by EMC three months later—albeit an affidavit executed by Thomas E. Colatriano rather than Malia Howard—the very same patently incorrect figures were used for the same periods. The Colatriano affidavit also included a statement that "On or about July 1, 1997, Spencer defaulted on the Note and Mortgage, and accordingly, the then title holder to the Note accelerated payment of the entire amount due and owing on the Note and Mortgage."
FOOTNOTES
2 Applying the default interest rate of 18% per annum only reduces the computational error from over $97,000 to over $93,000.
The trial [**5] court granted the motion for final summary judgment in August 2010, and the judgment entered by the court used the interest amount from the affidavit ($110,112.08) but purportedly applicable to the period November 1, 2007, through March 15, 2010, rather than March 15, 2009 (the period of computation in the affidavit). Again that calculation defies simple arithmetic; the total for that longer period at that same daily rate would only be $21,771.24,3 not $110,112.08. With additional interest from March 16, 2010, late charges, "corporate advances," escrow/impound overdraft, recording fees, and attorney's fees and costs, the total final judgment (inclusive of the $67,976.78 principal balance) came to $279,320.49. This appeal followed, and the foreclosure sale has not occurred.
FOOTNOTES
3 Principal of $67,976.78 at 13.5% per annum, $25.14 per day, for 866 days.
Analysis
A. Lack of Prosecution
Florida Rule of Civil Procedure 1.420(e) provides:
HN1Failure to Prosecute. In all actions in which it appears on the face of the record that no activity by filing of pleadings, order of court, or otherwise has occurred for a period of 10 months, and no order staying the action has been issued nor stipulation for stay [**6] approved by the court, any interested person, whether a party to the action or not, the court, or the clerk of the court may serve notice to all parties that no such activity has occurred. If no such record [*260] activity has occurred within the 10 months immediately preceding the service of such notice, and no record activity occurs within the 60 days immediately following the service of such notice, and if no stay was issued or approved prior to the expiration of such 60-day period, the action shall be dismissed by the court on its own motion or on the motion of any interested person, whether a party to the action or not, after reasonable notice to the parties, unless a party shows good cause in writing at least 5 days before the hearing on the motion why the action should remain pending. Mere inaction for a period of less than 1 year shall not be sufficient cause for dismissal for failure to prosecute.
In this case, the record establishes that the case had been inactive for over ten months when the notice of lack of prosecution issued. The record also establishes that there was no record activity in the sixty-day period after the notice went out. Finally, even if EMC's counsel learned [**7] of the prospective dismissal and show cause hearing two weeks before the hearing date as represented to the trial court, EMC did not show good cause in writing at least five days before the hearing why the action should remain pending.
And EMC's brief is more candid. EMC's counsel actually became aware of the notice of lack of prosecution (docketed March 5, 2009) in "late March or April, during a review of the lower court docket." EMC's attorney's fee affidavit and billing records are even more definitive: a March 30, 2009, time entry narrative states "Review and analyze docket re order entered to show cause why case should not be dismissed for lack of prosecution." EMC thus had ample time, over a month, within the sixty-day window allowed for record activity that would defeat dismissal. That fact, without more, takes this case out of the "no notice received" exceptions detailed in Deutsche Bank National Trust Co. v. Basanta, 88 So. 3d 216 (Fla. 3d DCA 2011), and Boosinger v. Davis, 46 So. 3d 152, 154 n.2 (Fla. 2d DCA 2010).
Ms. Spencer is correct that the second foreclosure case should have met the same fate as the first—dismissal for failure to prosecute.
B. Statute of Limitations
Ms. [**8] Spencer is also correct that enforcement of the note and mortgage was likely barred by the five-year statute of limitations, section 95.11(2)(c), Florida Statutes (2002). The complaint alleges that the full unpaid principal amount was due by virtue of a default on July 1, 1997. EMC's officer Mr. Colatriano swore in his affidavit that default occurred on July 1, 1997, and "the then title holder to the Note accelerated payment of the entire amount due and owing on the Note and Mortgage." It appears on the face of the existing record, then, that acceleration likely occurred over five years before this lawsuit was filed in late November 2002. Ms. Spencer raised the statute of limitations as an affirmative defense, and EMC did not demonstrate the absence of a genuine issue of material fact regarding that issue.
But for the dismissal for failure to prosecute, Ms. Spencer would be entitled to a remand for fact-finding regarding the date of acceleration, a date which plainly occurred before the maturity date of the note and mortgage (September 2008). Monte v. Tipton, 612 So. 2d 714, 716 (Fla. 2d DCA 1993). It is difficult to imagine how EMC—which acquired the loan years after default and the [**9] filing of the first foreclosure action—could prevail against Ms. Spencer's testimony on acceleration, since she seems to be the only person who has had any continuous connection to the [*261] loan; but this of course would have been for the trial court to resolve.
C. Facially Incorrect Computations of Indebtedness
But for our determination that the case should have been dismissed in 2009 for lack of prosecution, we would also reverse and remand the final summary judgment because of its patently incorrect computations of Ms. Spencer's alleged indebtedness. If the interest accrual dates were to have commenced in 1997 rather than "November 1, 2007," EMC's motion for final summary judgment and affidavit should have so stated. The final summary judgment compounds the error by coming to the same incorrect interest figure while adding an additional year to the computation period.
Lawyers, no less than clients, need to be handy with a calculator and give attention to detail if they wish to work on mortgage loan cases. In a residential loan setting such as this, someone's home is at stake, and the lien calculation affects redemption rights and bidding at a later sale.
Conclusion
The final summary judgment [**10] is reversed. The order denying the motion to dismiss for failure to prosecute the second, 2002 foreclosure case is reversed and vacated. The case is remanded to the trial court for dismissal and for an award of trial and appellate attorney's fees and costs to Ms. Spencer.4 Ms. Spencer's additional issue regarding the insufficiency of proof of lost, stolen, or destroyed original instruments is moot as a result of our disposition of the other points on appeal.
FOOTNOTES
4 In view of the likelihood that this action is barred by the applicable statute of limitations, a party may question whether any motion for attorney's fees and costs may now be pursued. We conclude that such a motion may proceed based on the analysis in Katz v. Van Der Noord, 546 So. 2d 1047, 1049 (Fla. 1989) (holding that attorney's fees may be recovered under a prevailing party provision even though the contract itself is determined to be unenforceable).
Reversed and remanded, with directions.
FERNANDEZ ., J., concurs.
CONCUR BY: SCHWARTZ
CONCUR
SCHWARTZ, Senior Judge (specially concurring).
Because of the stumbling, bumbling, and general ineptitude of the mortgagee and its representatives, the appellant has managed to remain in the mortgaged premises [**11] without payment for over fifteen years after defaulting in 1997. While it therefore pains me deeply to do so, I concur in the reversal5 of the summary judgment of foreclosure against her. I do so for two reasons:
FOOTNOTES
5 In the first incarnation, this passage read "I feel that I must dissent from the affirmance. . . ." See De Leon v. Great Am. Assurance Co., 78 So. 3d 585, 586 n.1 (Fla. 3d DCA 2011).
I.
I agree that the action should have been dismissed for lack of prosecution under Florida Rule of Civil Procedure 1.420(e). There is no doubt that the plaintiff took none of the steps required to avert dismissal under the rule.6 Its argument that denial of dismissal was appropriate under Deutsche Bank National Trust Co. v. Basanta, 88 So. 3d 216, 36 Fla. L. Weekly D2324b (Fla. 3d DCA 2011), because the notice was not properly "served" on the plaintiff as the rule provides, is, I think, incorrect. It is undisputed that the plaintiff had actual knowledge [*262] of the notice within the sixty-day period and, nevertheless, failed to demonstrate either activity or the good cause for its absence required to avert dismissal. (It is admitted that no such activity or cause was ever demonstrated because they did not exist.) [**12] I read Basanta as involving a situation in which, unlike this one, the plaintiff had no knowledge at all of the order in question. It accordingly does not control here. Therefore, we are required to resolve the issue which was not presented in Basanta, and which was mooted in Boosinger v. Davis, 46 So. 3d 152 (Fla. 2d DCA 2010). ("This case does not involve a situation in which the parties or their attorney had actual notice of the filings within the sixty-day period.") Boosinger, 46 So. 3d at 154 n.2. With the court, I see no reason why the failure to properly serve something on someone who already knows of the document's existence should relieve that individual of the consequences which would inevitably flow from his failure to establish, at any time or in any way, that he was entitled to relief. See Grainger v. Wald, 29 So. 3d 1155 (Fla. 3d DCA 2010) (holding service of notice to creditors upon creditor's personal injury attorney instead of probate attorney was effective insofar as creditor had actual notice of limitations period for filing claim); Dep't of Highway Safety & Motor Vehicles v. Nikollaj, 780 So. 2d 943 (Fla. 5th DCA 2001) (holding actual notice of reason for driver's [**13] license suspension satisfies statutory notice requirement); Phoenix Ins. Co. v. McCormick, 542 So. 2d 1030 (Fla. 2d DCA 1989) (holding insurer's service of written notice of coverage defense substantially complied with statutory notice requirement despite failure to serve notice by registered or certified mail).
FOOTNOTES
6 The present action is the second attempt to foreclose the mortgage. The first case was in fact dismissed for lack of prosecution. (This case demonstrates the exquisite accuracy of the acronym [f]or [l]ack [o]f [p]rosecution.)
II.
Even if this were not so, the summary judgment should not be affirmed. Far from establishing the right to that relief beyond genuine issue on the statute of limitations defense, City of Brooksville v. Hernando County, 424 So. 2d 846 (Fla. 5th DCA 1982); Kitchen v. Kitchen, 404 So. 2d 203 (Fla. 2d DCA 1981), the record contains unrebutted affirmative evidence from the plaintiff's representative that a prior owner of the mortgage had appropriately accelerated it, thus triggering the limitations period under section 95.11(2)(c), Florida Statutes (2012), well more than five years before the commencement of this action. See Greene v. Bursey, 733 So. 2d 1111 (Fla. 4th DCA 1999); [**14] Monte v. Tipton, 612 So. 2d 714 (Fla. 2d DCA 1993); Locke v. State Farm Fire & Cas. Co., 509 So. 2d 1375 (Fla. 1st DCA 1987). If anything, only the appellant was entitled to judgment on this record.
As someone — probably either St. Thomas More or George Costanza — must have said, the law is the law. Notwithstanding the distasteful consequences of applying it in this case, it must be served.
No. 3D11-136
COURT OF APPEAL OF FLORIDA, THIRD DISTRICT
97 So. 3d 257; 37 Fla. L. Weekly D 2068
August 29, 2012, Opinion Filed
JUDGES: Before SALTER and FERNANDEZ , JJ., and SCHWARTZ, Senior Judge. FERNANDEZ ., J., concurs.
OPINION BY: SALTER
OPINION
[*258] SALTER , J.
Elizabeth Spencer appeals a final summary judgment of foreclosure entered against her in December 2010 based on defaults in payment which are alleged to have begun in July 1997, over thirteen years earlier. We reverse and remand the case with directions to enter a judgment dismissing the foreclosure case based on the lender's failure to prosecute it, among other procedural and substantive deficiencies.1
FOOTNOTES
1 The parties agreed to stay a foreclosure sale until this appeal could be completed.
Background
Ms. Spencer obtained a residential mortgage loan for $75,600 from United Companies Lending Corporation in August 1993. The contract interest rate was 13.5% per annum. The loan was to be amortized over fifteen years in level monthly payments, with the last payment due September 1, 2008.
United Companies [**2] commenced a first foreclosure proceeding against Ms. Spencer in early 1998. In March 1999, however, United Companies filed a petition under Chapter 11 of the United States Bankruptcy Code. In September 2000, the bankruptcy court approved the sale of a number of mortgage loans, including the mortgage loan to Ms. Spencer, to EMC Mortgage Corporation, the appellee here. In 2001, EMC was substituted for United Companies as the foreclosing plaintiff against Ms. Spencer, but that lawsuit was dismissed for lack of prosecution in November 2002. The file in that initial foreclosure action was later destroyed by the Miami-Dade circuit court clerk's office in accordance with its normal procedure.
Later in November 2002, EMC filed a second foreclosure complaint against Ms. Spencer and various other defendants, alleging that Ms. Spencer failed to make regular monthly payments, "the loan being due for July 1, 1997." In her responsive pleading, Ms. Spencer raised a number of affirmative defenses, including an allegation that the complaint was barred by the statute of limitations. After a substitution of counsel for EMC and various motions, the case languished for thirteen months. The trial court issued [**3] a notice of lack of prosecution (order to show cause why the case should not be dismissed), docketed on March 5, 2009, and it scheduled a hearing for the matter for May 29, 2009. There was no record activity in the case during the sixty-day period following the notice of lack of prosecution.
On May 26, 2009, eighty-two days after the notice of lack of prosecution and only [*259] three days before the scheduled hearing, EMC filed an unsworn response to the order to show cause and a motion for final summary judgment. At the hearing on the lack of prosecution, EMC's counsel advised the court that the order to show cause had been sent to the offices of prior counsel—not EMC's successor counsel—and that he had only learned of the notice two weeks earlier by checking the docket. The trial court denied the motion to dismiss for lack of prosecution after being told by EMC's counsel that the case could not be re-filed because of the statute of limitations.
EMC's motion for final summary judgment asserted that default occurred July 1, 1997, that no payment had been made since then, and that the unpaid principal balance was $67,976.78, with interest "from November 1, 2007, through March 15, 2009," in [**4] the amount of $110,112.08, plus interest at $25.14 per day "for each day after May 31, 2009." The motion indicated that these figures would be set forth in an "Affidavit of Malia Howard" to be filed before the hearing on the motion.
At this point, it is appropriate to do some simple math. The principal balance of $67,976.78 at 13.5% interest (the periodic annual rate on Ms. Spencer's loan) rounds to $25.14 per day, as reflected in the final judgment. But interest at that daily rate from November 1, 2007, through March 15, 2009, a period of only 501 days, is $12,595.14, not $110,112.08.2 And when the promised affidavit was filed by EMC three months later—albeit an affidavit executed by Thomas E. Colatriano rather than Malia Howard—the very same patently incorrect figures were used for the same periods. The Colatriano affidavit also included a statement that "On or about July 1, 1997, Spencer defaulted on the Note and Mortgage, and accordingly, the then title holder to the Note accelerated payment of the entire amount due and owing on the Note and Mortgage."
FOOTNOTES
2 Applying the default interest rate of 18% per annum only reduces the computational error from over $97,000 to over $93,000.
The trial [**5] court granted the motion for final summary judgment in August 2010, and the judgment entered by the court used the interest amount from the affidavit ($110,112.08) but purportedly applicable to the period November 1, 2007, through March 15, 2010, rather than March 15, 2009 (the period of computation in the affidavit). Again that calculation defies simple arithmetic; the total for that longer period at that same daily rate would only be $21,771.24,3 not $110,112.08. With additional interest from March 16, 2010, late charges, "corporate advances," escrow/impound overdraft, recording fees, and attorney's fees and costs, the total final judgment (inclusive of the $67,976.78 principal balance) came to $279,320.49. This appeal followed, and the foreclosure sale has not occurred.
FOOTNOTES
3 Principal of $67,976.78 at 13.5% per annum, $25.14 per day, for 866 days.
Analysis
A. Lack of Prosecution
Florida Rule of Civil Procedure 1.420(e) provides:
HN1Failure to Prosecute. In all actions in which it appears on the face of the record that no activity by filing of pleadings, order of court, or otherwise has occurred for a period of 10 months, and no order staying the action has been issued nor stipulation for stay [**6] approved by the court, any interested person, whether a party to the action or not, the court, or the clerk of the court may serve notice to all parties that no such activity has occurred. If no such record [*260] activity has occurred within the 10 months immediately preceding the service of such notice, and no record activity occurs within the 60 days immediately following the service of such notice, and if no stay was issued or approved prior to the expiration of such 60-day period, the action shall be dismissed by the court on its own motion or on the motion of any interested person, whether a party to the action or not, after reasonable notice to the parties, unless a party shows good cause in writing at least 5 days before the hearing on the motion why the action should remain pending. Mere inaction for a period of less than 1 year shall not be sufficient cause for dismissal for failure to prosecute.
In this case, the record establishes that the case had been inactive for over ten months when the notice of lack of prosecution issued. The record also establishes that there was no record activity in the sixty-day period after the notice went out. Finally, even if EMC's counsel learned [**7] of the prospective dismissal and show cause hearing two weeks before the hearing date as represented to the trial court, EMC did not show good cause in writing at least five days before the hearing why the action should remain pending.
And EMC's brief is more candid. EMC's counsel actually became aware of the notice of lack of prosecution (docketed March 5, 2009) in "late March or April, during a review of the lower court docket." EMC's attorney's fee affidavit and billing records are even more definitive: a March 30, 2009, time entry narrative states "Review and analyze docket re order entered to show cause why case should not be dismissed for lack of prosecution." EMC thus had ample time, over a month, within the sixty-day window allowed for record activity that would defeat dismissal. That fact, without more, takes this case out of the "no notice received" exceptions detailed in Deutsche Bank National Trust Co. v. Basanta, 88 So. 3d 216 (Fla. 3d DCA 2011), and Boosinger v. Davis, 46 So. 3d 152, 154 n.2 (Fla. 2d DCA 2010).
Ms. Spencer is correct that the second foreclosure case should have met the same fate as the first—dismissal for failure to prosecute.
B. Statute of Limitations
Ms. [**8] Spencer is also correct that enforcement of the note and mortgage was likely barred by the five-year statute of limitations, section 95.11(2)(c), Florida Statutes (2002). The complaint alleges that the full unpaid principal amount was due by virtue of a default on July 1, 1997. EMC's officer Mr. Colatriano swore in his affidavit that default occurred on July 1, 1997, and "the then title holder to the Note accelerated payment of the entire amount due and owing on the Note and Mortgage." It appears on the face of the existing record, then, that acceleration likely occurred over five years before this lawsuit was filed in late November 2002. Ms. Spencer raised the statute of limitations as an affirmative defense, and EMC did not demonstrate the absence of a genuine issue of material fact regarding that issue.
But for the dismissal for failure to prosecute, Ms. Spencer would be entitled to a remand for fact-finding regarding the date of acceleration, a date which plainly occurred before the maturity date of the note and mortgage (September 2008). Monte v. Tipton, 612 So. 2d 714, 716 (Fla. 2d DCA 1993). It is difficult to imagine how EMC—which acquired the loan years after default and the [**9] filing of the first foreclosure action—could prevail against Ms. Spencer's testimony on acceleration, since she seems to be the only person who has had any continuous connection to the [*261] loan; but this of course would have been for the trial court to resolve.
C. Facially Incorrect Computations of Indebtedness
But for our determination that the case should have been dismissed in 2009 for lack of prosecution, we would also reverse and remand the final summary judgment because of its patently incorrect computations of Ms. Spencer's alleged indebtedness. If the interest accrual dates were to have commenced in 1997 rather than "November 1, 2007," EMC's motion for final summary judgment and affidavit should have so stated. The final summary judgment compounds the error by coming to the same incorrect interest figure while adding an additional year to the computation period.
Lawyers, no less than clients, need to be handy with a calculator and give attention to detail if they wish to work on mortgage loan cases. In a residential loan setting such as this, someone's home is at stake, and the lien calculation affects redemption rights and bidding at a later sale.
Conclusion
The final summary judgment [**10] is reversed. The order denying the motion to dismiss for failure to prosecute the second, 2002 foreclosure case is reversed and vacated. The case is remanded to the trial court for dismissal and for an award of trial and appellate attorney's fees and costs to Ms. Spencer.4 Ms. Spencer's additional issue regarding the insufficiency of proof of lost, stolen, or destroyed original instruments is moot as a result of our disposition of the other points on appeal.
FOOTNOTES
4 In view of the likelihood that this action is barred by the applicable statute of limitations, a party may question whether any motion for attorney's fees and costs may now be pursued. We conclude that such a motion may proceed based on the analysis in Katz v. Van Der Noord, 546 So. 2d 1047, 1049 (Fla. 1989) (holding that attorney's fees may be recovered under a prevailing party provision even though the contract itself is determined to be unenforceable).
Reversed and remanded, with directions.
FERNANDEZ ., J., concurs.
CONCUR BY: SCHWARTZ
CONCUR
SCHWARTZ, Senior Judge (specially concurring).
Because of the stumbling, bumbling, and general ineptitude of the mortgagee and its representatives, the appellant has managed to remain in the mortgaged premises [**11] without payment for over fifteen years after defaulting in 1997. While it therefore pains me deeply to do so, I concur in the reversal5 of the summary judgment of foreclosure against her. I do so for two reasons:
FOOTNOTES
5 In the first incarnation, this passage read "I feel that I must dissent from the affirmance. . . ." See De Leon v. Great Am. Assurance Co., 78 So. 3d 585, 586 n.1 (Fla. 3d DCA 2011).
I.
I agree that the action should have been dismissed for lack of prosecution under Florida Rule of Civil Procedure 1.420(e). There is no doubt that the plaintiff took none of the steps required to avert dismissal under the rule.6 Its argument that denial of dismissal was appropriate under Deutsche Bank National Trust Co. v. Basanta, 88 So. 3d 216, 36 Fla. L. Weekly D2324b (Fla. 3d DCA 2011), because the notice was not properly "served" on the plaintiff as the rule provides, is, I think, incorrect. It is undisputed that the plaintiff had actual knowledge [*262] of the notice within the sixty-day period and, nevertheless, failed to demonstrate either activity or the good cause for its absence required to avert dismissal. (It is admitted that no such activity or cause was ever demonstrated because they did not exist.) [**12] I read Basanta as involving a situation in which, unlike this one, the plaintiff had no knowledge at all of the order in question. It accordingly does not control here. Therefore, we are required to resolve the issue which was not presented in Basanta, and which was mooted in Boosinger v. Davis, 46 So. 3d 152 (Fla. 2d DCA 2010). ("This case does not involve a situation in which the parties or their attorney had actual notice of the filings within the sixty-day period.") Boosinger, 46 So. 3d at 154 n.2. With the court, I see no reason why the failure to properly serve something on someone who already knows of the document's existence should relieve that individual of the consequences which would inevitably flow from his failure to establish, at any time or in any way, that he was entitled to relief. See Grainger v. Wald, 29 So. 3d 1155 (Fla. 3d DCA 2010) (holding service of notice to creditors upon creditor's personal injury attorney instead of probate attorney was effective insofar as creditor had actual notice of limitations period for filing claim); Dep't of Highway Safety & Motor Vehicles v. Nikollaj, 780 So. 2d 943 (Fla. 5th DCA 2001) (holding actual notice of reason for driver's [**13] license suspension satisfies statutory notice requirement); Phoenix Ins. Co. v. McCormick, 542 So. 2d 1030 (Fla. 2d DCA 1989) (holding insurer's service of written notice of coverage defense substantially complied with statutory notice requirement despite failure to serve notice by registered or certified mail).
FOOTNOTES
6 The present action is the second attempt to foreclose the mortgage. The first case was in fact dismissed for lack of prosecution. (This case demonstrates the exquisite accuracy of the acronym [f]or [l]ack [o]f [p]rosecution.)
II.
Even if this were not so, the summary judgment should not be affirmed. Far from establishing the right to that relief beyond genuine issue on the statute of limitations defense, City of Brooksville v. Hernando County, 424 So. 2d 846 (Fla. 5th DCA 1982); Kitchen v. Kitchen, 404 So. 2d 203 (Fla. 2d DCA 1981), the record contains unrebutted affirmative evidence from the plaintiff's representative that a prior owner of the mortgage had appropriately accelerated it, thus triggering the limitations period under section 95.11(2)(c), Florida Statutes (2012), well more than five years before the commencement of this action. See Greene v. Bursey, 733 So. 2d 1111 (Fla. 4th DCA 1999); [**14] Monte v. Tipton, 612 So. 2d 714 (Fla. 2d DCA 1993); Locke v. State Farm Fire & Cas. Co., 509 So. 2d 1375 (Fla. 1st DCA 1987). If anything, only the appellant was entitled to judgment on this record.
As someone — probably either St. Thomas More or George Costanza — must have said, the law is the law. Notwithstanding the distasteful consequences of applying it in this case, it must be served.
Monday, January 14, 2013
Another bone thrown to the masses
Settlement Expected on Past Abuses in Home Loans
By JESSICA SILVER-GREENBERG
Published: December 30, 2012
Banking regulators are close to a $10 billion settlement with 14 banks that would end the government’s efforts to hold lenders responsible for foreclosure abuses like faulty paperwork and excessive fees that may have led to evictions, according to people with knowledge of the discussions.
Under the settlement, a significant amount of the money, $3.75 billion, would go to people who have already lost their homes, making it potentially more generous to former homeowners than a broad-reaching pact in February between state attorneys general and five large banks. That set aside $1.5 billion in cash relief for Americans.
Most of the relief in both agreements is meant for people who are struggling to stay in their homes and need the banks to reduce their payments or lower the amount of principal they owe.
The $10 billion pact would be the latest in a series of settlements that regulators and law enforcement officials have reached with banks to hold them accountable for their role in the 2008 financial crisis that sent the housing market into the deepest slump since the Great Depression. As of early 2012, four million Americans had been foreclosed upon since the beginning of 2007, and a huge amount of abandoned homes swamped many states, including California, Florida and Arizona.
Federal agencies like the Securities and Exchange Commission and the Justice Department are continuing to pursue the banks for their packaging and sale of troubled mortgage securities that imploded during the financial crisis.
Housing advocates were largely unaware of the latest rounds of secret talks, which have been occurring for roughly a month. But some have criticized the government for not dealing more harshly with bankers in light of their lax standards for making loans and packaging them as investments, as well as their problems with modifying troubled loans and processing foreclosures.
A deal could be reached by the end of the week between the 14 banks and the nation’s top banking regulators, led by the Office of the Comptroller of the Currency, four people with knowledge of the negotiations said. It was unclear how many current and former homeowners would receive money or when it would be distributed.
Told on Sunday night of the imminent settlement, Lynn Drysdale, a lawyer at Jacksonville Area Legal Aid and a former co-chairwoman of the National Association of Consumer Advocates, said: “It’s certainly a victory for consumers and could help entire neighborhoods. But the devil, as they say, is in the details, and for those people who have had to totally uproot their lives because of eviction it may still not be enough.”
In recent weeks within the upper echelons of the comptroller’s office, pressure was mounting to negotiate a banner settlement with the banks, according to people with knowledge of the matter. The reason was that some within the agency had started to realize that a mandatory review of millions of bank loans was not yielding meaningful examples of the banks’ wrongfully evicting homeowners who were current on their payments or making partial payments, according to the people.
Representative of banking regulators did not return calls for comment on Sunday.
The biggest action against the banks for foreclosure-related abuses has been the $26 billion settlement between the five largest mortgage servicers and the state attorneys general, Justice Department and the Department of Housing and Urban Development after allegations arose in 2010 that bank employees were churning daily through hundreds of documents used in foreclosure proceedings without properly reviewing them for accuracy.
The same banks in that settlement — JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Ally Financial — are included in the current negotiations.
Under the terms of the settlement being negotiated, $6 billion would come from banks to be used for relief for homeowners, including reducing their principal, helping them refinance and donating abandoned homes, the people said.
The proposed settlement would also halt a separate sweeping review of more than four million loan files that the comptroller’s office and the Federal Reserve required the banks undertake as part of a consent order in April 2011.
Under the terms of the order, the 14 banks had to hire independent consultants to pore through the loan records to determine whether the banks illegally charged fees, forced homeowners to take out costly insurance or miscalculated loan payment amounts. Consultants initially estimated that each loan would take about eight hours, at a cost of up to $250 an hour, to go through.
The costs of the reviews have ballooned, though, according to people with knowledge of the reviews, in part because each loan file is taking up to 20 hours to review. Since its inception, the reviews have cost the banks about $1.5 billion, according to those people.
Pressure to reach a settlement with the banks has been building, particularly within the Office of the Comptroller of the Currency, amid widespread frustration that the banks’ mandatory review of loan files was arduous and expensive, and would not yield promised relief to homeowners, according to five former and current banking regulators.
In private meetings with top bank executives, these people said, regulators have admitted that the reviews had gone awry. At one point this month, an official from the comptroller’s office said the agency had “miscalculated” the scope and requirements of the reviews, according to the people with knowledge of the negotiations.
When the settlement discussions heated up this month, some banking executives said they felt they would be vindicated by the regulators. These executives said that they had raised objections to the reviews early on, but those concerns were largely dismissed by regulatory officials, according to the people with knowledge of the negotiations.
Instead, officials from the comptroller’s office, these people said, have used the loan reviews as a negotiating tool, telling banks that they can either sign on to a large settlement or be forced to pay billions over several more years until the consultants finish the reviews.
When regulators approached the banks to broach a settlement this month, they met first with Wells Fargo and proposed that the banks pay $15 billion, according to the people familiar with the discussions. After negotiations, though, the regulators agreed to $10 billion.
Continued here...
Virginia Courts continue to dislike technical defenses in foreclosure cases
Also note that a trust in Virginia cannot sue and be sued; that is done by or against the trustee.
KATHLEEN AND HAROLD BLICK, Plaintiffs, v. SOUNDVIEW HOME LOAN TRUST 2006-WF1, Defendant.
CASE NO. 3:12-cv-00062
UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA, CHARLOTTESVILLE DIVISION
January 10, 2013, Decided
January 10, 2013, Filed
COUNSEL: [*1] Kathleen Blick, Plaintiff, Pro se, Charlottesville, VA.
Harold Blick, Plaintiff, Pro se, Charlottesville, VA.
For Soundview Home Loan Trust 2006-WF1, Defendant: Ethan Geoffrey Ostroff, John Curtis Lynch, Troutman Sanders LLP, Virginia Beach, VA.
For Deutsche Bank National Trust Company, as Trustee for Soundview Home Loan Trust Company 2006-WF1, Trustee: Ethan Geoffrey Ostroff, John Curtis Lynch, Troutman Sanders LLP, Virginia Beach, VA.
JUDGES: NORMAN K. MOON, UNITED STATES DISTRICT JUDGE.
OPINION BY: NORMAN K. MOON
OPINION
MEMORANDUM OPINION
Plaintiffs Kathleen and Harold Blick originally filed this case in Albemarle County Circuit Court on October 11, 2012, against Soundview Home Loan Trust 2006-WF1, as an action to quiet title, essentially alleging that the assignment of their deed of trust was invalid. Deutsche Bank National Trust Company, as Trustee for Soundview Home Loan Trust Company 2006-WF1 ("Deutsche Bank") timely removed the case on November 14, 2012, and filed a motion to dismiss for failure to state a claim the same day. For the following reasons, I will grant Deutsche Bank's motion.
I. Background
This case arises from a residential mortgage foreclosure that was scheduled but has not been executed. Plaintiffs [*2] previously filed in state court a similar complaint related to the same foreclosure against Wells Fargo Bank, N.A.; Deutsche Bank National Trust Company as "Trustee" for Soundview Home Loan Trust 2006-WF1 Asset Backed Certificates, Series 2006-WF1; Equity Trustees, LLC; and Bierman, Geesing, Ward & Wood, LLC. Defendants removed that case to this Court, and I dismissed Plaintiffs' complaint with prejudice on March 27, 2012. Blick v. Wells Fargo Bank, N.A., No. 3:11-cv-00081, 2012 WL 1030137 (W.D. Va. 2012) [hereinafter "Blick I"]. The Fourth Circuit subsequently affirmed on August 14, 2012. Blick v. Wells Fargo Bank, N.A., 474 Fed. App'x 932 (4th Cir. 2012) (per curiam).
In this case, Plaintiffs allege basically the same facts they alleged in Blick I, but they purport to bring their second action against the trust itself rather than against the trustee. They base their claims on the following five "facts": (1) The assignment to the trust "has no standing because there has been no valid enforceable assignment to the trust;" (2) "The [*3] Trust Agreement provides the only manner in which assets may be properly transferred to the trust and any act in contravention of the trust agreement is void;" (3) "The Trust never properly acquired Blicks' mortgage note and deed of trust. Therefore, the Trust cannot cure its fatal standing defect;" (4) The UCC "provides for rescission of negotiation of an instrument;" and (5) "The Law of the Land: The United States Constitution The Fourteenth Amendment—Section 1." Plaintiffs note parenthetically that facts 1, 2, and 3 have "been previously stated," but facts 4 and 5 have "not been previously argued." Deutsche Bank argues that this suit is barred by res judicata and should be dismissed with prejudice on that basis alone. Alternatively, Deutsche Bank argues that Plaintiffs have once again failed to state a claim.
II. Legal Standard
"A motion to dismiss under Rule 12(b)(6) tests the sufficiency of a complaint . . . [I]t does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). A court considering dismissal under Rule 12(b)(6) must take the facts in the light most favorable [*4] to the plaintiff. Schatz v. Rosenberg, 943 F.2d 485, 489 (4th Cir. 1991). Courts are not, however, "bound to accept as true a legal conclusion couched as a factual allegation." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Rather, to survive a motion to dismiss, a complaint must contain enough factual allegations to "state a claim for relief that is plausible on its face." Twombly, 550 U.S. at 570. In evaluating "plausibility," the court may not rely on mere "labels and conclusions" or a plaintiff's "formulaic recitation of a cause of the elements of a cause of action." Id. at 555. Instead, the factual allegations must be enough to raise "a right to relief above the speculative level." Id. Thus, a "claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949.
In order to allow for the development of a potentially meritorious claim, federal courts have an obligation to construe pro se pleadings liberally. See, e.g., Boag v. MacDougall, 454 U.S. 364, 365 (1982) (citation [*5] omitted). Moreover, "[l]iberal construction of the pleadings is particularly appropriate where . . . there is a pro se complaint raising civil rights issues." Smith v. Smith, 589 F.3d 736, 738 (4th Cir. 2009) (quoting Loe v. Armistead, 582 F.2d 1291, 1295 (4th Cir. 1978)). Nevertheless, "[p]rinciples requiring generous construction of pro se complaints are not . . . without limits." Beaudett v. City of Hampton, 775 F.2d 1274, 1278 (4th Cir. 1985).
III. Discussion
When a defendant seeks to dismiss a suit based on res judicata (i.e., claim preclusion) and the original suit was decided by a federal court exercising diversity jurisdiction, the court deciding the preclusion issue must apply the law of the state in which the first federal court sits. See Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001); Q Intern. Courier Inc. v. Smoak, 441 F.3d 214, 218 (4th Cir. 2006). The Blicks' original suit was decided by a federal court sitting in Virginia, so Virginia law applies when deciding whether the new suit is precluded.
Rule 1:6 of the Rules of the Supreme Court of Virginia addresses "Res Judicata Claim Preclusion," and provides that:
A party whose claim for relief arising [*6] from identified conduct, a transaction, or an occurrence, is decided on the merits by a final judgment, shall be forever barred from prosecuting any second or subsequent civil action against the same opposing party or parties on any claim or cause of action that arises from that same conduct, transaction or occurrence, whether or not the legal theory or rights asserted in the second or subsequent action were raised in the prior lawsuit, and regardless of the legal elements or the evidence upon which any claims in the prior proceeding depended, or the particular remedies sought.
While Virginia law previously required that the party seeking to show claim preclusion demonstrate that the later claim required the same evidence and sought the same remedy as the earlier claim, "[b]y promulgating Rule 1:6, the Supreme Court of Virginia has discarded the same-evidence and same-remedy requirements, adopting instead a same 'conduct, transaction, or occurrence' test." Martin-Bangura v. Va. Dept. of Mental Health, 640 F. Supp. 2d 729, 738 (E.D. Va. 2009); see also Ghayyada v. Rector and Visitors of Univ. of Va., No. 3:11-cv-00037, 2011 WL 4024799, at *4 n.5 (W.D. Va. Sept. 12, 2011). Under Rule 1:6, [*7] Defendant must show that: (1) there was a prior claim for relief decided on the merits by a valid and final judgment; (2) the parties are identical or in privity with each other; and (3) the claim made in the later suit arises from the same conduct, transaction, or occurrence as the claim in the first suit.
Blick I clearly constituted a final judgment on the merits. I dismissed with prejudice all of Plaintiff's claims for failure to state a claim, and the Fourth Circuit affirmed. The next issue—the identity of the parties—is somewhat more complicated. Plaintiffs allege that this action is against a new party—the trust itself rather than the trustee. Defendant responds that under Virginia law, a trustee lacks the capacity to sue and be sued. Since a trust is neither an individual nor a corporation, Federal Rule of Civil Procedure 17(b)(3) applies in determining its capacity to sue and be sued. Rule 17(b)(3) provides that the law of the state where the court is located shall determine whether a party has the capacity to sue or be sued. Under Virginia law, "[u]nless a statute expressly provides otherwise, a trust as such cannot sue or be sued; actions must be brought by or against the [*8] trustees." 1-5 Sinclair and Middleditch, Virginia Civil Procedure § 5.10 (5th ed. 2008) (citing Yonce v. Miners Mem. Hosp. Ass'n, 161 F. Supp. 178 (W.D. Va. 1958)).
Deutsche Bank argues that § 8.01-6.3 of the Virginia Code requires that the trustee be substituted as the proper defendant. Section 8.01-6.3 provides:
A. In any action or suit required to be prosecuted or defended by or in the name of a fiduciary, including a personal representative, trustee, conservator, or guardian, the style of the case in regard to the fiduciary shall be substantially in the following form: "(Name of fiduciary), (type of fiduciary relationship), (Name of the subject of the fiduciary relationship).
B. Any pleading filed that does not conform to the requirements of subsection A but otherwise identifies the proper parties shall be amended on the motion of any party or by the court on its own motion. Such amendment relates back to the date of the original pleading.
While Virginia law applies in determining whether a trust has the capacity to be sued, substitution of a party appears to be a matter of procedure that should be governed by federal law under Erie R. Co. v. Tompkins, 304 U.S. 64 (1938). Federal Rule of Civil Procedure 21 [*9] provides that "[o]n motion or on its own, the court may at any time, on just terms, add or drop a party." Because Virginia law does not permit a suit against a trust in the absence of specific statutory authorization, I find that the trust is not the proper defendant in this case, but rather the trustee is. Pursuant to Rule 21, I therefore drop the trust, Soundview Home Loan Trust 2006-WF1, as a party, and add as a party the trustee, Deutsche Bank. As a result, I find that both this case and Blick I were brought against the same party, Deutsche Bank, thus satisfying the res judicata requirement that the later case be brought against the same party as the earlier case.
Even if Virginia law permitted the Blicks to sue the trustee as distinct from the trust, I find that res judicata would still apply because the trust and the trustee are in privity. See Smith v. Ware, 421 S.E.2d 444, 445 (Va. 1992) (noting that res judicata applies to causes of action "which could have been litigated between the same parties and their privies") (emphasis added). Under Virginia law:
There is no single fixed definition of privity for purposes of res judicata. Whether privity exists is determined on a case [*10] by case examination of the relationship and interests of the parties. The touchstone of privity for purposes of res judicata is that a party's interest is so identical with another that representation by one party is representation of the other's legal right.
State Water Control Board v. Smithfield Foods, Inc., 542 S.E.2d 766, 769 (Va. 2001). To establish privity, there must exist some relationship between the parties that would have permitted one to assert the legal rights of the other in the original suit. See Rawlings v. Lopez, 591 S.E.2d 691, 692 (Va. 2004); see also Columbia Gas Transmission, LLC v. David N. Martin Revocable Trust, 833 F. Sup. 2d 552, 558 (E.D. Va. 2011) ("Virginia courts typically find privity when the parties share a contractual relationship, owe some kind of legal duty to each other, or have another legal relationship such as co-ownership."). Privity exists in this case because the whole purpose of a trustee is to represent the interests of the trust. The trustee, a defendant in Blick I, was bound by its fiduciary duty to represent the exact interests of the trust that are at stake in this new suit. As a result, even if the defendants in the two suits were not [*11] identical, they would nevertheless be in privity, which under Virginia law satisfies the identity requirement of res judicata.
The final requirement for applying res judicata is that the claims in the later suit arise from the same "conduct, transaction, or occurrence" as those in the first suit. Defendants note that in both of their cases, the Blicks present their claims as actions to quiet title and seek the same relief—that the Court declare the deed of trust and note void and enjoin foreclosure. Moreover, res judicata bars not only claims that were in fact brought in the earlier suit, but also those that could have been litigated. See Martin-Bangura, 640 F. Supp. 2d at 738 (quoting Ware, 421 S.E.2d at 445).
Plaintiffs contend that they have brought a new cause of action despite explicitly stating in their complaint that they have previously argued three of the five "Facts" that appear to summarize why they believe foreclosure is unlawful. After acknowledging that Virginia's "non-judicial foreclosure laws do not require foreclosing entities to prove their 'standing' or authority to foreclose in a court of law prior to foreclosure," Plaintiffs say that in their new suit they have "allege[d] [*12] superior title over a Trust represented by a Trustee by whom the Plaintiffs allege gross misconduct and dereliction of duty." Plaintiffs further aver that "Plaintiffs' new cause of action can best be stated as: Virginia's non-judicial foreclosure laws are a violation of Blick's Civil Rights as guaranteed under the Fourth and Fourteenth Amendments to the Constitution of the United States." However, even taking Plaintiffs at their word, the two "Facts" that have not been previously argued both rely on the same underlying conduct or transaction as those in their first case—namely, the assignment and securitization of their loan. Regardless of whether these new claims have merit, it appears that they could have been brought in the first case, and thus satisfy Virginia's same transaction requirement for res judicata.
IV. Conclusion
I find that Deutsche Bank has satisfied all of the requirements for res judicata, and I will therefore grant the motion to dismiss. Although Plaintiffs have requested leave to amend, I find that amendment in this case would be futile, both because of the res judicata issues discussed in this opinion and because, as I ruled in Blick I, the substance of the Blicks' [*13] claims lacks any support in the law. Therefore, I will grant Deutsche Bank's request to dismiss this case with prejudice. An appropriate order accompanies this memorandum opinion.
The Clerk of the Court is hereby directed to send a certified copy of this memorandum opinion and the accompanying order to all counsel of record and to Plaintiffs.
Entered this 10th day of January, 2013.
/s/ Norman K. Moon
NORMAN K. MOON
UNITED STATES DISTRICT JUDGE
KATHLEEN AND HAROLD BLICK, Plaintiffs, v. SOUNDVIEW HOME LOAN TRUST 2006-WF1, Defendant.
CASE NO. 3:12-cv-00062
UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA, CHARLOTTESVILLE DIVISION
January 10, 2013, Decided
January 10, 2013, Filed
COUNSEL: [*1] Kathleen Blick, Plaintiff, Pro se, Charlottesville, VA.
Harold Blick, Plaintiff, Pro se, Charlottesville, VA.
For Soundview Home Loan Trust 2006-WF1, Defendant: Ethan Geoffrey Ostroff, John Curtis Lynch, Troutman Sanders LLP, Virginia Beach, VA.
For Deutsche Bank National Trust Company, as Trustee for Soundview Home Loan Trust Company 2006-WF1, Trustee: Ethan Geoffrey Ostroff, John Curtis Lynch, Troutman Sanders LLP, Virginia Beach, VA.
JUDGES: NORMAN K. MOON, UNITED STATES DISTRICT JUDGE.
OPINION BY: NORMAN K. MOON
OPINION
MEMORANDUM OPINION
Plaintiffs Kathleen and Harold Blick originally filed this case in Albemarle County Circuit Court on October 11, 2012, against Soundview Home Loan Trust 2006-WF1, as an action to quiet title, essentially alleging that the assignment of their deed of trust was invalid. Deutsche Bank National Trust Company, as Trustee for Soundview Home Loan Trust Company 2006-WF1 ("Deutsche Bank") timely removed the case on November 14, 2012, and filed a motion to dismiss for failure to state a claim the same day. For the following reasons, I will grant Deutsche Bank's motion.
I. Background
This case arises from a residential mortgage foreclosure that was scheduled but has not been executed. Plaintiffs [*2] previously filed in state court a similar complaint related to the same foreclosure against Wells Fargo Bank, N.A.; Deutsche Bank National Trust Company as "Trustee" for Soundview Home Loan Trust 2006-WF1 Asset Backed Certificates, Series 2006-WF1; Equity Trustees, LLC; and Bierman, Geesing, Ward & Wood, LLC. Defendants removed that case to this Court, and I dismissed Plaintiffs' complaint with prejudice on March 27, 2012. Blick v. Wells Fargo Bank, N.A., No. 3:11-cv-00081, 2012 WL 1030137 (W.D. Va. 2012) [hereinafter "Blick I"]. The Fourth Circuit subsequently affirmed on August 14, 2012. Blick v. Wells Fargo Bank, N.A., 474 Fed. App'x 932 (4th Cir. 2012) (per curiam).
In this case, Plaintiffs allege basically the same facts they alleged in Blick I, but they purport to bring their second action against the trust itself rather than against the trustee. They base their claims on the following five "facts": (1) The assignment to the trust "has no standing because there has been no valid enforceable assignment to the trust;" (2) "The [*3] Trust Agreement provides the only manner in which assets may be properly transferred to the trust and any act in contravention of the trust agreement is void;" (3) "The Trust never properly acquired Blicks' mortgage note and deed of trust. Therefore, the Trust cannot cure its fatal standing defect;" (4) The UCC "provides for rescission of negotiation of an instrument;" and (5) "The Law of the Land: The United States Constitution The Fourteenth Amendment—Section 1." Plaintiffs note parenthetically that facts 1, 2, and 3 have "been previously stated," but facts 4 and 5 have "not been previously argued." Deutsche Bank argues that this suit is barred by res judicata and should be dismissed with prejudice on that basis alone. Alternatively, Deutsche Bank argues that Plaintiffs have once again failed to state a claim.
II. Legal Standard
"A motion to dismiss under Rule 12(b)(6) tests the sufficiency of a complaint . . . [I]t does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). A court considering dismissal under Rule 12(b)(6) must take the facts in the light most favorable [*4] to the plaintiff. Schatz v. Rosenberg, 943 F.2d 485, 489 (4th Cir. 1991). Courts are not, however, "bound to accept as true a legal conclusion couched as a factual allegation." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Rather, to survive a motion to dismiss, a complaint must contain enough factual allegations to "state a claim for relief that is plausible on its face." Twombly, 550 U.S. at 570. In evaluating "plausibility," the court may not rely on mere "labels and conclusions" or a plaintiff's "formulaic recitation of a cause of the elements of a cause of action." Id. at 555. Instead, the factual allegations must be enough to raise "a right to relief above the speculative level." Id. Thus, a "claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949.
In order to allow for the development of a potentially meritorious claim, federal courts have an obligation to construe pro se pleadings liberally. See, e.g., Boag v. MacDougall, 454 U.S. 364, 365 (1982) (citation [*5] omitted). Moreover, "[l]iberal construction of the pleadings is particularly appropriate where . . . there is a pro se complaint raising civil rights issues." Smith v. Smith, 589 F.3d 736, 738 (4th Cir. 2009) (quoting Loe v. Armistead, 582 F.2d 1291, 1295 (4th Cir. 1978)). Nevertheless, "[p]rinciples requiring generous construction of pro se complaints are not . . . without limits." Beaudett v. City of Hampton, 775 F.2d 1274, 1278 (4th Cir. 1985).
III. Discussion
When a defendant seeks to dismiss a suit based on res judicata (i.e., claim preclusion) and the original suit was decided by a federal court exercising diversity jurisdiction, the court deciding the preclusion issue must apply the law of the state in which the first federal court sits. See Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001); Q Intern. Courier Inc. v. Smoak, 441 F.3d 214, 218 (4th Cir. 2006). The Blicks' original suit was decided by a federal court sitting in Virginia, so Virginia law applies when deciding whether the new suit is precluded.
Rule 1:6 of the Rules of the Supreme Court of Virginia addresses "Res Judicata Claim Preclusion," and provides that:
A party whose claim for relief arising [*6] from identified conduct, a transaction, or an occurrence, is decided on the merits by a final judgment, shall be forever barred from prosecuting any second or subsequent civil action against the same opposing party or parties on any claim or cause of action that arises from that same conduct, transaction or occurrence, whether or not the legal theory or rights asserted in the second or subsequent action were raised in the prior lawsuit, and regardless of the legal elements or the evidence upon which any claims in the prior proceeding depended, or the particular remedies sought.
While Virginia law previously required that the party seeking to show claim preclusion demonstrate that the later claim required the same evidence and sought the same remedy as the earlier claim, "[b]y promulgating Rule 1:6, the Supreme Court of Virginia has discarded the same-evidence and same-remedy requirements, adopting instead a same 'conduct, transaction, or occurrence' test." Martin-Bangura v. Va. Dept. of Mental Health, 640 F. Supp. 2d 729, 738 (E.D. Va. 2009); see also Ghayyada v. Rector and Visitors of Univ. of Va., No. 3:11-cv-00037, 2011 WL 4024799, at *4 n.5 (W.D. Va. Sept. 12, 2011). Under Rule 1:6, [*7] Defendant must show that: (1) there was a prior claim for relief decided on the merits by a valid and final judgment; (2) the parties are identical or in privity with each other; and (3) the claim made in the later suit arises from the same conduct, transaction, or occurrence as the claim in the first suit.
Blick I clearly constituted a final judgment on the merits. I dismissed with prejudice all of Plaintiff's claims for failure to state a claim, and the Fourth Circuit affirmed. The next issue—the identity of the parties—is somewhat more complicated. Plaintiffs allege that this action is against a new party—the trust itself rather than the trustee. Defendant responds that under Virginia law, a trustee lacks the capacity to sue and be sued. Since a trust is neither an individual nor a corporation, Federal Rule of Civil Procedure 17(b)(3) applies in determining its capacity to sue and be sued. Rule 17(b)(3) provides that the law of the state where the court is located shall determine whether a party has the capacity to sue or be sued. Under Virginia law, "[u]nless a statute expressly provides otherwise, a trust as such cannot sue or be sued; actions must be brought by or against the [*8] trustees." 1-5 Sinclair and Middleditch, Virginia Civil Procedure § 5.10 (5th ed. 2008) (citing Yonce v. Miners Mem. Hosp. Ass'n, 161 F. Supp. 178 (W.D. Va. 1958)).
Deutsche Bank argues that § 8.01-6.3 of the Virginia Code requires that the trustee be substituted as the proper defendant. Section 8.01-6.3 provides:
A. In any action or suit required to be prosecuted or defended by or in the name of a fiduciary, including a personal representative, trustee, conservator, or guardian, the style of the case in regard to the fiduciary shall be substantially in the following form: "(Name of fiduciary), (type of fiduciary relationship), (Name of the subject of the fiduciary relationship).
B. Any pleading filed that does not conform to the requirements of subsection A but otherwise identifies the proper parties shall be amended on the motion of any party or by the court on its own motion. Such amendment relates back to the date of the original pleading.
While Virginia law applies in determining whether a trust has the capacity to be sued, substitution of a party appears to be a matter of procedure that should be governed by federal law under Erie R. Co. v. Tompkins, 304 U.S. 64 (1938). Federal Rule of Civil Procedure 21 [*9] provides that "[o]n motion or on its own, the court may at any time, on just terms, add or drop a party." Because Virginia law does not permit a suit against a trust in the absence of specific statutory authorization, I find that the trust is not the proper defendant in this case, but rather the trustee is. Pursuant to Rule 21, I therefore drop the trust, Soundview Home Loan Trust 2006-WF1, as a party, and add as a party the trustee, Deutsche Bank. As a result, I find that both this case and Blick I were brought against the same party, Deutsche Bank, thus satisfying the res judicata requirement that the later case be brought against the same party as the earlier case.
Even if Virginia law permitted the Blicks to sue the trustee as distinct from the trust, I find that res judicata would still apply because the trust and the trustee are in privity. See Smith v. Ware, 421 S.E.2d 444, 445 (Va. 1992) (noting that res judicata applies to causes of action "which could have been litigated between the same parties and their privies") (emphasis added). Under Virginia law:
There is no single fixed definition of privity for purposes of res judicata. Whether privity exists is determined on a case [*10] by case examination of the relationship and interests of the parties. The touchstone of privity for purposes of res judicata is that a party's interest is so identical with another that representation by one party is representation of the other's legal right.
State Water Control Board v. Smithfield Foods, Inc., 542 S.E.2d 766, 769 (Va. 2001). To establish privity, there must exist some relationship between the parties that would have permitted one to assert the legal rights of the other in the original suit. See Rawlings v. Lopez, 591 S.E.2d 691, 692 (Va. 2004); see also Columbia Gas Transmission, LLC v. David N. Martin Revocable Trust, 833 F. Sup. 2d 552, 558 (E.D. Va. 2011) ("Virginia courts typically find privity when the parties share a contractual relationship, owe some kind of legal duty to each other, or have another legal relationship such as co-ownership."). Privity exists in this case because the whole purpose of a trustee is to represent the interests of the trust. The trustee, a defendant in Blick I, was bound by its fiduciary duty to represent the exact interests of the trust that are at stake in this new suit. As a result, even if the defendants in the two suits were not [*11] identical, they would nevertheless be in privity, which under Virginia law satisfies the identity requirement of res judicata.
The final requirement for applying res judicata is that the claims in the later suit arise from the same "conduct, transaction, or occurrence" as those in the first suit. Defendants note that in both of their cases, the Blicks present their claims as actions to quiet title and seek the same relief—that the Court declare the deed of trust and note void and enjoin foreclosure. Moreover, res judicata bars not only claims that were in fact brought in the earlier suit, but also those that could have been litigated. See Martin-Bangura, 640 F. Supp. 2d at 738 (quoting Ware, 421 S.E.2d at 445).
Plaintiffs contend that they have brought a new cause of action despite explicitly stating in their complaint that they have previously argued three of the five "Facts" that appear to summarize why they believe foreclosure is unlawful. After acknowledging that Virginia's "non-judicial foreclosure laws do not require foreclosing entities to prove their 'standing' or authority to foreclose in a court of law prior to foreclosure," Plaintiffs say that in their new suit they have "allege[d] [*12] superior title over a Trust represented by a Trustee by whom the Plaintiffs allege gross misconduct and dereliction of duty." Plaintiffs further aver that "Plaintiffs' new cause of action can best be stated as: Virginia's non-judicial foreclosure laws are a violation of Blick's Civil Rights as guaranteed under the Fourth and Fourteenth Amendments to the Constitution of the United States." However, even taking Plaintiffs at their word, the two "Facts" that have not been previously argued both rely on the same underlying conduct or transaction as those in their first case—namely, the assignment and securitization of their loan. Regardless of whether these new claims have merit, it appears that they could have been brought in the first case, and thus satisfy Virginia's same transaction requirement for res judicata.
IV. Conclusion
I find that Deutsche Bank has satisfied all of the requirements for res judicata, and I will therefore grant the motion to dismiss. Although Plaintiffs have requested leave to amend, I find that amendment in this case would be futile, both because of the res judicata issues discussed in this opinion and because, as I ruled in Blick I, the substance of the Blicks' [*13] claims lacks any support in the law. Therefore, I will grant Deutsche Bank's request to dismiss this case with prejudice. An appropriate order accompanies this memorandum opinion.
The Clerk of the Court is hereby directed to send a certified copy of this memorandum opinion and the accompanying order to all counsel of record and to Plaintiffs.
Entered this 10th day of January, 2013.
/s/ Norman K. Moon
NORMAN K. MOON
UNITED STATES DISTRICT JUDGE
Wednesday, January 9, 2013
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