Deutsche Bank Nat'l Trust Co. v. Watts

• Decision Date: 23 June 2017
• Docket Number: No. 2015-329,2015-329
• Citation: 2017 VT 57
• Court: Vermont Supreme Court
• Parties: Deutsche Bank National Trust Company, as Trustee v. Skip Watts and Paris Watts

2017 VT 57

Deutsche Bank National Trust Company, as Trustee v. Skip Watts and Paris Watts

No. 2015-329

Supreme Court of Vermont

March Term, 2017

June 23, 2017

NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: JUD.Reporter@vermont.gov or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.

On Appeal from Superior Court, Rutland Unit, Civil Division

William D. Cohen, J. (motions for summary judgment); Cortland Corsones (final judgment)

Jennifer L. Maynard and Douglas A. Giron of Shechtman Halperin Savage, LLP, Pawtucket, Rhode Island, for Plaintiff-Appellee.

Julie Carp, Vermont Legal Aid, Inc., Rutland, for Defendants-Appellants.

PRESENT: Reiber, C.J., Dooley, Skoglund, Robinson and Eaton, JJ.

¶ 1. DOOLEY, J. Defendant borrowers, Skip Watts and Paris Watts, appeal the trial court's summary judgment decision in favor of plaintiff lender, Deutsche Bank National Trust Company, in this mortgage foreclosure action. They assert that the trial court erred by finding that a dismissal with prejudice under Vermont Rule of Civil Procedure 41(b) is not an adjudication on the merits given preclusive effect in a foreclosure action. Lender argues in response that earlier decisions of this Court that gave preclusive effect to the dismissal of foreclosure actions should be applied only prospectively and not to this case. We reverse and dismiss lender's action.

¶ 2. The relevant facts are undisputed. Borrowers executed an adjustable rate promissory note for $185,000 with NovaStar Mortgage, Inc., in 2006. NovaStar Mortgage, Inc., assigned the note to lender. To secure the promissory note, borrowers executed a real property mortgage with the Mortgage Electronic Registration Systems, Inc., (MERS), as nominee for NovaStar Mortgage, Inc. MERS then assigned the mortgage to lender.

¶ 3. Borrowers did not make the monthly payment due on December 1, 2008, and thereby defaulted on their obligations under the note and mortgage. Lender accelerated payments due on the promissory note, requiring immediate payment of the entire amount due including outstanding principal, interest, fees, property taxes, and insurance premiums. Almost a full year after borrowers' 2008 default, lender filed a complaint in the superior court initiating a foreclosure action against borrowers. The December 2008 default was the basis for this cause of action, and lender sought judgment for the entire amount due on the note, including the principal and all interest on the note, all sums expended, and attorney's fees and costs. It also sought foreclosure of the mortgage and a deficiency judgment for the net amount owed on the note after the sale of the mortgaged property. Lender filed an Affidavit of Completion of Service by Publication on February 8, 2010. This was lender's last filing in the case. Borrowers did not file an answer to the complaint.

¶ 4. There was no further action in the case for over a year. The trial court issued a Notice of Potential Dismissal on April 22, 2011, stating that the "matter [was] eligible for dismissal pursuant to V.R.C.P. 41(b)(1)(ii) and [might] be dismissed on the Court's motion on May 6, 2011 unless good cause [was] shown for its continuance."^* Lender filed nothing in response to theNotice, and the court dismissed the action on July 1, 2011, based on lender's failure to prosecute its claim. Following this dismissal, borrowers and their loan servicer unsuccessfully attempted to find a solution that would allow borrowers to resume payments.

¶ 5. Lender filed the action currently before the Court in 2013, again filing a complaint that alleged borrowers defaulted on their promissory note in December of 2008. This second complaint, like the complaint filed in 2009, sought a judgment for the entire outstanding principal, interest, insurance payments, taxes, and attorney's fees, as well as foreclosure of the mortgage and a deficiency judgment. Borrowers answered that the 2013 action was precluded under the principle of res judicata. Each party moved for summary judgment, and each repeated the claims in its initial filings. Lender pointed to borrowers' 2008 default and sought foreclosure and the full payment requested in its complaint, while borrowers argued that the 2011 dismissal of lender's prior action for collection on the note and foreclosure of the mortgage acted as an adjudication on the merits and, therefore, res judicata barred a second action based on the same default. The trial court granted lender's motion, applying equitable principles to find that the 2011 dismissal was not a preclusive adjudication on the merits but that lender was entitled to recover interest only if it was due after the date of lender's first, 2009, complaint against borrowers.

¶ 6. Borrowers filed a timely appeal. This Court placed their appeal on waiting status and stayed all deadlines pending decisions in Deutsche Bank v. Pinette, 2016 VT 71, ___ Vt. ___, 149 A.3d 479, and Cenlar FSB v. Malenfant, 2016 VT 93, ___ Vt. ___, 151 A.3d 778. Following the issuance of these decisions, lender dropped from its brief any argument that the trial court decision could be affirmed if the decisions applied to cases in progress when they were issued.

¶ 7. We review summary judgment rulings de novo, using the same standard as the trial court. Robertson v. Mylan Labs., Inc., 2004 VT 15, ¶ 15, 176 Vt. 356, 848 A.2d 210. Summary judgment is proper when there are no genuine issues of material fact and a party is entitled to judgment as a matter of law. V.R.C.P. 56(a). In determining whether genuine issues of materialfact exist, we accept as true any allegations made in opposition to the summary judgment motion if they are supported by affidavits or other evidentiary materials. The nonmoving party receives the benefit of all reasonable doubts and inferences. Robertson, 2004 VT 15, ¶ 15.

¶ 8. Because our rulings in Pinette and Malenfant are dispositive here, we begin by outlining these two cases. Pinette presented facts similar to the present case. There, the borrower executed a promissory note for $54,400 secured by a mortgage of real property. The note and mortgage were held by the lender. After the borrower defaulted on payments, the lender filed a complaint for judgment on the promissory note, mortgage foreclosure, and a deficiency judgment. Pinette, 2016 VT 71, ¶ 2. The superior court dismissed the action without prejudice after the borrower failed to enter an appearance or file an answer and the lender failed to seek a default judgment as directed by the court. Id. ¶ 4. The lender then filed a second action against the borrower, using an identical complaint. Again, the borrower failed to answer and the superior court directed the lender to file a motion for default judgment. The lender failed to do so, and the court dismissed the action without specifying whether the decision was with or without prejudice. Id. ¶ 5.

¶ 9. After the borrower failed to make further payments, the lender filed a third identical complaint to which the borrower, appearing pro se, filed an answer and moved to dismiss on the basis of claim preclusion. The superior court granted the motion to dismiss, finding that this third action was barred by the dismissal of the second action with prejudice. Id. ¶ 6. The lender subsequently appealed, and this Court held that in mortgage foreclosure actions, the effect of an involuntary dismissal for failure to prosecute operates as an adjudication on the merits, barring a mortgagee's subsequent foreclosure claims based on the same default. Id. ¶ 8.

¶ 10. In Malenfant, we affirmed our decision in Pinette, holding that foreclosing entities must give borrowers notice and an opportunity to reinstate loans prior to pursuing subsequent foreclosure actions based on new defaults. Malenfant, 2016 VT 93, ¶¶ 39-40.

¶ 11. Borrowers argue that the trial court decision in this case must be reversed, and the 2013 complaint dismissed, under Pinette and Malenfant. In response, lender asks us to rule that our decisions in Pinette and Malenfant should apply here according to the rule of selective prospectivity and following the three-factor test laid out in Chevron Oil Co. v. Huson, 404 U.S. 97 (1971). Under this rule, courts apply a new rule in the case in which it is pronounced, but return to the old rule with respect to all other cases arising on facts that predate the new rule's pronouncement. See id. at 105-07. Lender notes that we adopted the Chevron Oil rule in Solomon v. Atlantis Development, Inc., 145 Vt. 70, 483 A.2d 253 (1984), and argues that application of the Chevron Oil rule requires us to conclude that lender's 2013 action was not precluded under the Pinette and Malenfant holdings because the underlying facts here transpired before we announced the holdings in those cases.

¶ 12. In rejecting lender's position, we first emphasize that Chevron Oil is a forty-six-year-old decision that is no longer good law. In Chevron Oil, the U.S. Supreme Court established three factors for determining the effect of a decision on civil cases in progress, but not finally concluded, when the decision is issued. 404 U.S. at 106-07. For purposes of analysis, we will define the issue in that case as whether the new decision would be applied only prospectively.

¶ 13. For a first factor, the Court in Chevron Oil stated that a decision could apply prospectively only when it established a new principle of law. The decision should, therefore, either overrule an existing rule of law or resolve an issue of first impression such that the resolution was not clearly foreshadowed by legal trends. Id. at 106. Second, courts must weigh the merits and demerits in each case by looking to the history of the rule at issue,...