Green Tree Servicing, LLC v. Cope, Docket: Cum–16–159

• Decision Date: 11 April 2017
• Docket Number: Docket: Cum–16–159
• Citation: 158 A.3d 931
• Parties: GREEN TREE SERVICING, LLC v. Thelma J. COPE et al.
• Court: Maine Supreme Court

158 A.3d 931

GREEN TREE SERVICING, LLC

v.Thelma J. COPE et al.

Docket: Cum–16–159

Supreme Judicial Court of Maine.

Argued: December 14, 2016

Decided: April 11, 2017

Joshua Klein–Golden, Esq. (orally), Clifford & Golden, PA, Lisbon Falls, for appellant Thelma J. Cope

Leonard F. Morley, Jr., Esq., William B. Jordan, Esq., and Corey S. Hadley, Esq. (orally), Shapiro & Morley, LLC, South Portland, for appellee Green Tree Servicing, LLC

Thomas A. Cox, Esq., Portland, for amicus curiae National Consumer Law Center

Panel: ALEXANDER, MEAD, GORMAN, JABAR, and HJELM, JJ.

HJELM, J.

[¶ 1] Green Tree Servicing, LLC, commenced this residential foreclosure action against Thelma J. Cope even though it did not own the mortgage on Cope's property and therefore did not have standing. Shortly before the trial was to be held, Green Tree moved to dismiss its complaint without prejudice for lack of standing. See M.R. Civ. P. 41(a)(2). The Superior Court (Cumberland County, Mills, J. ) dismissed the complaint but ordered that the dismissal was with prejudice as a sanction for Green Tree's pretrial conduct. Green Tree moved for reconsideration, see M.R. Civ. P. 59(e), and the court entered an amended order that dismissed the action without prejudice based on its conclusion that it did not have the authority to impose a dismissal with prejudice, even as a sanction, because Green Tree did not have standing to bring the foreclosure complaint in the first place.

[¶ 2] On this resulting appeal by Cope,¹ we clarify that, when the circumstances warrant, a trial court retains the authority to dismiss a foreclosure complaint with prejudice as a sanction, even when the plaintiff lacks standing. We therefore vacate the judgment and remand for further proceedings.

I. BACKGROUND

[¶ 3] In May 2014, Green Tree Servicing, LLC, filed a complaint against Cope to foreclose on her residential property located in Portland.² Green Tree alleged that Cope had executed a promissory note in favor of First Magnus Financial Corporation in July 2005; that the note was secured by a mortgage in favor of Mortgage Electronic Registration Systems, Inc. (MERS), as "nominee" for First Magnus Financial Corporation; that Green Tree had acquired an interest in the mortgage through a series of assignments beginning with an initial assignment from MERS; that Green Tree possessed the original note endorsed in blank; and that Cope had not made any payments on the note since June 2009.

[¶ 4] After an unsuccessful mediation session held in September 2014, the court issued a scheduling order that established a discovery deadline of March 16, 2015, and a deadline for motions fourteen days after the close of discovery. In late May, the parties were notified that a trial would be held on July 21. On July 1—three months after the court-ordered deadline to file motions—Green Tree moved to amend its complaint to join First Magnus Financial Corporation Liquidating Trust, the successor to the original lender, as a defendant, and to add a claim for a declaratory judgment that would determine the parties' respective interests in the note and mortgage. See M.R. Civ. P. 15(a). These proposed amendments related to Green Tree's deficient interest in the mortgage—a problem that can be traced to an initial assignment by MERS as "nominee" for the original lender, ultimately resulting in Green Tree not having standing to foreclose on the property. See Bank of Am., N.A., v. Greenleaf , 2014 ME 89, ¶¶ 12–17, 96 A.3d 700 (holding that a bank did not have the requisite standing to foreclose on the defendant's property because the bank had acquired the mortgage from MERS, as "nominee" for the original lender, and therefore had only the right to record the mortgage, but no other rights—including the right to seek foreclosure).³ The court denied the motion because it was untimely.

[¶ 5] On July 13, Green Tree filed a motion to dismiss its foreclosure complaint without prejudice pursuant to M.R. Civ. P. 41(a)(2), acknowledging that it lacked standing to proceed with the action. Cope opposed the motion, arguing that the action should be dismissed with prejudice or alternatively that the court should enter a judgment in her favor. At a hearing on Green Tree's motion,⁴ the court ordered Green Tree to submit an affidavit describing its efforts to locate the original lender and remedy the standing defect. Green Tree filed the requested affidavit in August 2015.

[¶ 6] In January 2016, the court issued an order denying Green Tree's motion to dismiss its complaint without prejudice, instead dismissing the complaint with prejudice. In its order, the court identified two bases for that decision. First, the court found that this was the third foreclosure complaint filed against Cope based on the same note and mortgage.⁵ The first complaint had been voluntarily dismissed without prejudice based on a stipulation of the parties to that action pursuant to Rule 41(a)(1), and the second complaint had been dismissed without prejudice by court order on the plaintiff's motion pursuant to Rule 41(a)(2).⁶ The court reasoned that because two foreclosure actions against Cope had been dismissed previously, "[f]airness dictates" that Green Tree should not receive more favorable treatment than it would have been allowed pursuant to Rule 41(a)(1), which provides that "a notice of dismissal operates as an adjudication upon the merits when filed by a plaintiff who has once dismissed in any court ... an action based on or including the same claim."⁷ (Emphasis added.)

[¶ 7] Second—and more significant to this appeal—the court found that Green Tree had known since at least July 2014, when we issued our decision in Greenleaf , that it would not be able to establish standing to foreclose on Cope's mortgage; that Green Tree's efforts to contact the original lender and remedy the standing defect had not been productive and that the "prospects for future success [to cure the standing problem] appear[ed] minimal"; and that Green Tree had nevertheless proceeded with the litigation, which included deposing Cope, who was ninety years old, in March 2015.⁸

[¶ 8] Green Tree filed a timely motion for reconsideration, see M.R. Civ. P. 59(e), arguing that because it lacked standing to pursue this foreclosure action, the court was only authorized to dismiss the complaint without prejudice, based on our recent decisions in U.S. Bank N.A. v. Curit , 2016 ME 17, ¶ 10, 131 A.3d 903, and Bank of New York v. Dyer , 2016 ME 10, ¶ 11, 130 A.3d 966. Cope opposed the motion, arguing that the court was not compelled to enter a dismissal without prejudice. Cope argued alternatively that the court should dismiss the complaint with prejudice as to Green Tree's action for relief on the note, which Green Tree indisputably owned and had standing to enforce, but should dismiss the foreclosure complaint without prejudice "in all other respects."

[¶ 9] The court granted Green Tree's motion for reconsideration in March 2016. The court explained that although it had "intended the dismissal with prejudice to serve as a sanction," our decisions in Curit and Dyer left it with "little discretion to dismiss [a] foreclosure action[ ] with prejudice when the plaintiff lacks standing, even when the plaintiff has engaged in dilatory conduct that warrants a sanction." The court further stated that contrary to Cope's argument, it could not "bifurcate the standing analysis by dismissing the action with prejudice as to only the note." Accordingly, the court entered an amended judgment dismissing Green Tree's complaint without prejudice.

[¶ 10] Cope timely appealed. See 14 M.R.S. § 1851 (2016) ; M.R. App. P. 2.

II. DISCUSSION

[¶ 11] Cope argues that the court erred by granting Green Tree's motion for reconsideration and entering an amended judgment dismissing Green Tree's foreclosure complaint without prejudice. Specifically, Cope contends that the amended judgment was the product of the court's misapprehension of the extent of its discretionary authority to dismiss Green Tree's foreclosure complaint with prejudice as a sanction , regardless of whether Green Tree had standing to bring the action.

[¶ 12] A court's decisions to grant a Rule 59 motion and to dismiss a complaint without prejudice are generally each reviewed for an abuse of discretion. See Dyer , 2016 ME 10, ¶ 6, 130 A.3d 966 (dismissal without prejudice); Wells Fargo Bank, N.A. v. Burek , 2013 ME 87, ¶ 14, 81 A.3d 330 (Rule 59 motion). "Our review for an abuse of discretion involves three questions: (1) whether the court's factual findings are supported by the record according to the clear error standard, (2) whether the court understood the law applicable to the exercise of its discretion, and (3) whether the court's weighing of the applicable facts and choices was within the bounds of reasonableness." Bayview Loan Servicing, LLC v. Bartlett , 2014 ME 37, ¶ 10, 87 A.3d 741 (alteration and quotation marks omitted). The inquiry here implicates the second of these questions, which calls for a determination of the parameters of the court's authority—a matter that we review de novo. SeeU.S. Bank, N.A. v. Tannenbaum , 2015 ME 141, ¶ 4, 126 A.3d 734 ("The trial court's authority to undertake particular action is an issue of law that we examine de novo." (alteration and quotation marks omitted)).

[¶ 13] In several recent decisions, we have stated that when a court dismisses a foreclosure complaint because the putative mortgagee lacks standing, the dismissal must be without prejudice. See Curit , 2016 ME 17, ¶ 10, 131 A.3d 903 ; Dyer , 2016 ME 10, ¶ 11, 130 A.3d 966 ; see also U.S. Bank Trust, N.A. v. Mackenzie , 2016 ME 149, ¶ 11 n.6, 149 A.3d 267 ; Bank of Am., N.A. v. Greenleaf (Greenleaf II) , 2015 ME 127, ¶¶ 8–9, 124 A.3d 1122 ; Homeward Residential, Inc. v. Gregor , 2015 ME 108, ¶ 24, 122 A.3d 947. A dismissal with prejudice, which "operates as an adjudication on the merits," Dyer , 2016 ME 10, ¶ 11, 130 A.3d 966 (alteration and quotation...