Doherty v. Fed. Nat'l Mortg. Ass'n, & CitiMortgage, Inc.

• Decision Date: 04 March 2014
• Docket Number: No. DA 13–0436.,DA 13–0436.
• Citation: 319 P.3d 1279,374 Mont. 151
• Court: Montana Supreme Court
• Parties: Erin DOHERTY, Plaintiff and Appellant, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, and Citimortgage, Inc., Does 1–50, and All Persons Claiming Interest in the Real Property Herein Described or Any Part Thereof, Defendants and Appellees.

374 Mont. 151

319 P.3d 1279

Erin DOHERTY, Plaintiff and Appellant,

v.FEDERAL NATIONAL MORTGAGE ASSOCIATION, and Citimortgage, Inc., Does 1–50, and All Persons Claiming Interest in the Real Property Herein Described or Any Part Thereof, Defendants and Appellees.

No. DA 13–0436.

Supreme Court of Montana.

Submitted on Briefs Feb. 5, 2014.

Decided March 4, 2014.

For Appellant: Quentin M. Rhoades, Francesca di Stefano, Sullivan, Tabaracci & Rhoades, P.C., Missoula, Montana.

For Appellees: Mark C. Sherer; Mackoff Kelloff Law Firm, P.C., Dickinson, North Dakota.

Chief Justice MIKE McGRATH delivered the Opinion of the Court.

¶ 1 Erin Doherty appeals from an Order of the Fourth Judicial District Court, Missoula County, granting summary judgment in favor of defendants Federal National Mortgage Association and CitiMortgage, Inc. We affirm.

¶ 2 We restate the following issues for review:

¶ 3 Issue One: Whether the District Court abused its discretion by declining to impose sanctions against defendants for discovery violations pursuant to M.R. Civ. P. 37(c).

¶ 4 Issue Two: Whether the clause requiring Doherty to give written notice of her intent to exercise the conditional refinancing option was an unenforceable contract of adhesion or violates the Montana Consumer Protection Act.

PROCEDURAL AND FACTUAL BACKGROUND

¶ 5 On January 26, 2004, Doherty borrowed $153,200.00 from ABN AMRO MortgageGroup, Inc. for the purchase of a home. She executed a promissory note secured by a deed of trust, naming ABN AMRO as the note holder and beneficiary. The promissory note required Doherty to make monthly payments of $787.66 from March 1, 2004, until the maturity date of February 1, 2011. The remaining principal was due in a balloon payment on that date. The first paragraph of the promissory note informed Doherty that the lender had no obligation to refinance the loan at the time of maturity. The note also contained a paragraph titled “GIVING OF NOTICES,” which required any notices to the lender to be sent by first-class mail. Doherty initialed each page of the note before signing.

¶ 6 Doherty also executed a balloon note addendum and balloon rider providing a conditional right to refinance at the time of maturity. The option allowed Doherty to obtain a new loan with a maturity date of February 1, 2034, if certain conditions were met. The option could be exercised only if Doherty remained the owner of the property, was current on her monthly payments, and made a written request to the note holder no later than 45 days before the balloon payment was due. These conditions were stated in both the addendum and rider. Doherty initialed each page of the addendum and rider and signed both documents.

¶ 7 On September 1, 2007, ABN AMRO merged with CitiMortgage. Consequently, CitiMortgage became the holder of Doherty's note. Between 2008 and 2011, Doherty contacted CitiMortgage at least three times regarding the servicing of her loan. On October 4, 2010, CitiMortgage mailed Doherty notice that her balloon payment was due on February 1, 2011. The notice informed Doherty she could either make the payment in full before that date or exercise her conditional refinancing option, referred to as a “reset.” On the first page of the notice, in bold print, was stated:

IMPORTANT NOTE: IF YOU FAIL TO NOTIFY U.S. IN WRITING OF YOUR ELECTION TO EXERCISE THE RESET OPTION BY 12/17/10, YOU WILL LOSE THE RESET OPTION AND ALL AMOUNTS YOU OWE ON YOUR MORTGAGE WILL BE DUE AND PAYABLE ON 02/01/11.

Included with the notice was a “Borrower's Intention/Request Statement” form to be completed by Doherty and returned to CitiMortgage by the deadline of December 17, 2010. Doherty “mislaid” the form. She called CitiMortgage on December 9, 2010, to request a new form and tell them she intended to exercise the reset option. Doherty did not receive a second form. She did not send written notice to CitiMortgage of her intent to exercise the reset option. She did not make the balloon payment when it came due.

¶ 8 The property was foreclosed by trustee's sale on October 7, 2011. CitiMortgage purchased the property at the trustee's sale. The notice of trustee's sale, affidavit of mailing, and trustee's deed all identified CitiMortgage as “Successor in Interest to ABN AMRO Mortgage Group, Inc.” Doherty did not contest the trustee's sale. CitiMortgage later conveyed the property by grant deed to FNMA.

¶ 9 Doherty filed a complaint on March 13, 2012, seeking damages under the Montana Consumer Protection Act and a judgment quieting title in her name. Discovery was ordered July 11, 2012, to be completed by February 20, 2013. On February 19, 2013, the day before discovery was to close, FNMA and CitiMortgage moved for summary judgment. Attached to the motion was an affidavit by Cindy Swan, business operations analyst with CitiMortgage, in which she stated CitiMortgage had become the holder of the note through its merger with ABN AMRO.

¶ 10 Doherty moved for partial summary judgment on March 20, 2013, on the grounds that no evidence of the transfer of the note from ABN AMRO to CitiMortgage had been produced in discovery. A hearing on the summary judgment motions was set for May 14, 2013. On May 2, 2013, Doherty moved to strike the paragraph of Swan's affidavit in which she referred to the merger. In response to this motion, on May 13, 2013, FNMA and CitiMortgage filed another affidavit by Swan and attached a copy of the certificate of merger between ABN AMRO and CitiMortgage. Doherty argued FNMA and CitiMortgage were not permitted to use the evidence, because it had not been produced in response to Doherty's discovery requests.

¶ 11 The District Court granted summary judgment in favor of FNMA and CitiMortgage on May 24, 2013. The District Court concluded that the production of the certificate of merger had been “untimely ... but in no way prejudicial to Doherty.” The District Court found the requirement of written notice had been clear and straightforward, and noted that Doherty, a licensed realtor who had purchased several rental properties in the past, should not have been surprised by the terms of her contract. This appeal followed.

STANDARD OF REVIEW

¶ 12 We review a district court's grant of summary judgment de novo, applying the same criteria as the district court. McCulley v. Am. Land Title Co., 2013 MT 89, ¶ 11, 369 Mont. 433, 300 P.3d 679. Summary judgment is proper where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. McCulley, ¶ 11. We review a district court's decision regarding the imposition of sanctions for alleged discovery abuse to determine whether the district court abused its discretion. Richardson v. State, 2006 MT 43, ¶ 21, 331 Mont. 231, 130 P.3d 634.

DISCUSSION

¶ 13 Issue One: Whether the District Court abused its discretion by declining to impose sanctions against defendants for discovery violations pursuant to M.R. Civ. P. 37(c).

¶ 14 Doherty argues that Swan's affidavit and the certificate of merger should have been excluded due to the failure of FNMA and CitiMortgage to list Swan as a witness and produce the certificate of merger during discovery. Doherty claims the District Court did not find the failure substantially justified or harmless, and therefore, exclusion of the evidence was mandatory.

¶ 15 The Montana Rules of Civil Procedure were significantly revised effective October 1, 2011. Apropos here, our existing Rule 37 was superseded and replaced by a new rule that comported with the provisions of Fed.R.Civ.P. 37. The new rule requires that if a party fails to provide information that has been requested in discovery, “the party is not allowed to use that information” in support of its claims, “unless the failure was substantially justified or is harmless.” M.R. Civ. P. 37(c)(1). On motion, the court may impose a lesser sanction such as attorney's fees. M.R. Civ. P. 37(c)(1). If the court does not find the failure substantially justified or harmless, and if there is no motion for alternative sanctions, the information must be excluded. M.R. Civ. P. 37(c)(1); accordFed.R.Civ.P. 37(c)(1); Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir.2001) (describing Fed.R.Civ.P. 37(c)(1) as self-executing and automatic); Olson v. Mont. Rail Link, Inc., 227 F.R.D. 550, 552 (D.Mont.2005) (noting exceptions to automatic sanctions under Fed.R.Civ.P. 37(c)(1) if failure is substantially justified or harmless). This Court has not yet had an opportunity to interpret the newly enacted M.R. Civ. P. 37(c)(1).

¶ 16 Here, the District Court made the required finding that the untimely disclosure was harmless when it concluded that the timing was “in no way prejudicial to Doherty.” Doherty had contacted CitiMortgage multiple times since 2008 regarding the servicing of her loan. The notice of trustee's sale, affidavit of...