Provident Funding Assocs., L.P. v. Campney

• Decision Date: 22 December 2017
• Docket Number: No. 16–003,16–003
• Citation: 181 A.3d 499
• Parties: PROVIDENT FUNDING ASSOCIATES, L.P. v. Arnold and Peggy CAMPNEY, et al.
• Court: Vermont Supreme Court

181 A.3d 499

PROVIDENT FUNDING ASSOCIATES, L.P.

v.Arnold and Peggy CAMPNEY, et al.

No. 16–003

Supreme Court of Vermont.

January Term, 2017

December 22, 2017

Andrew S. Cannella of Bendett and McHugh, P.C., Farmington, Connecticut, for Plaintiff–Appellant.

John J. Welch, Jr., Rutland, for Defendant–Appellee Joan Campney.

Paul S. Kulig of Kulig Law Offices, P.C., Rutland, for Defendants–Appellees Arnold and Peggy Campney.

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

REIBER, C.J.

¶ 1. Senior mortgagee appeals the trial court's order dismissing junior mortgagee as a defendant from senior mortgagee's fourth foreclosure action against mortgagors. The trial court determined that junior mortgagee was entitled to dismissal as an equitable remedy because senior mortgagee had imposed unnecessary costs on junior mortgagee by repeatedly filing foreclosure actions against defendants and failing to prosecute them to completion. The court's order had the effect of reordering the priority of mortgages, making senior mortgagee's interest second in priority to that of junior mortgagee.¹ We reverse and remand for the court to consider monetary sanctions, such as attorney's fees, as an alternative sanction.²

¶ 2. This is the fourth in a series of foreclosure actions involving a parcel of real property in Clarendon, Vermont. In March 2007, defendants-mortgagors Arnold and Peggy Campney executed a promissory note to E–Loans, Inc. for $310,000, secured by a mortgage on the Clarendon property. The note and mortgage are now held by senior mortgagee Provident Funding Associates, L.P., the plaintiff in this case, pursuant to a special endorsement. Junior mortgagee Joan Campney also held a mortgage on the Clarendon property that was recorded in 2004. She signed a subordination agreement in March 2007 in which she agreed that her mortgage would be inferior in priority to senior mortgagee's mortgage.

¶ 3. Mortgagors failed to make payments called for under the note and mortgage, and senior mortgagee filed a foreclosure action against them in October 2008. Junior mortgagee was also named as a defendant.³ The action was dismissed without prejudice at senior mortgagee's request in January 2009.

¶ 4. In August 2009, senior mortgagee filed another foreclosure action against the same defendants. Senior mortgagee moved for default judgment, but it apparently did not provide proof that it was the holder of the promissory note. In October 2009, the court ordered senior mortgagee to produce an endorsed note to establish its standing to foreclose upon the mortgage. Senior mortgagee did not respond. The court dismissed the action for failure to prosecute in January 2010.

¶ 5. Senior mortgagee filed a third foreclosure action in December 2010. In June 2011, the court sent notice to senior mortgagee that the action would be dismissed because it appeared that the defendants had not been served with the complaint. Senior mortgagee did not respond, and the court dismissed the action in August 2011 due to senior mortgagee's failure to prosecute the case. Senior mortgagee filed a motion to reopen, alleging that it had provided proof of service. The court denied the motion in November 2011 because there were several other irregularities with senior mortgagee's filings and senior mortgagee had failed to respond to the court's warning of dismissal.⁴

¶ 6. Senior mortgagee commenced the present action in January 2012. Junior mortgagee moved to dismiss the case, arguing that the court's previous dismissals operated as an adjudication on the merits under Vermont Rule of Civil Procedure 41(b)(3) and barred further litigation of the same claims.

¶ 7. The trial court granted junior mortgagee's motion in an order issued in June 2012. Although the motion ostensibly sought to dismiss the entire case, the court only addressed whether the dismissal of the third action rendered finality to the interests of junior mortgagee in the present action. The court agreed with senior mortgagee that the present action was a "new claim" because "further defaults have occurred since the [third claim] was filed." The court held that senior mortgagee was not precluded under Rule 41(b) from filing the present action against junior mortgagee, despite the dismissals of the earlier actions.⁵ It based this conclusion on U.S. Bank National Ass'n v. Kimball, in which we held that the dismissal "with prejudice" of a foreclosure suit for lack of standing did not cancel the underlying note or mortgage or preclude subsequent foreclosure proceedings "based on proven delinquency." 2011 VT 81, ¶ 23, 190 Vt. 210, 27 A.3d 1087.⁶

¶ 8. However, the trial court determined that because foreclosure proceedings are equitable in nature, it could use its equitable powers to dismiss junior mortgagee as a defendant.⁷ The trial court concluded that "undisputed facts" supported the equitable remedy of dismissal of senior mortgagee's effort to foreclose junior mortgagee's interest:

[Junior mortgagee] has had to hire an attorney and respond to legal issues in three prior cases brought against her in which [senior mortgagee] was not prepared to proceed, and her attorney was obliged to attend a hearing in the third case at which [senior mortgagee] did not show good cause to reopen after the case was dismissed. In all cases the court was prepared to reach the merits of the case but [senior mortgagee] was not prepared. The third case was dismissed based on [senior mortgagee's] own failure to pursue its case in accordance with the requirements of the Rules of Civil Procedure, even after a Notice of Potential Dismissal from the court. [Junior mortgagee] has incurred the inconvenience of preparing to meet the merits and she has incurred significant expense and inconvenience of hiring an attorney. In the third case in particular, [senior mortgagee], after failing to show standing on two prior occasions, did not even properly serve the defendants as required by the rules, and did not respond on time to the Court's notice of potential dismissal when that was called to [senior mortgagee's] attention.

It therefore found that there was "no good reason to permit [senior mortgagee] to pursue yet another case against" junior mortgagee. It granted junior mortgagee's motion to dismiss, ruling that senior mortgagee was precluded from foreclosing against her interest in the property.

¶ 9. Senior mortgagee sought leave to take an interlocutory appeal, which this Court denied. The case was then stayed for several months because mortgagors filed for bankruptcy. The bankruptcy stay was lifted in September 2013 so that the trial court could resolve the foreclosure action.

¶ 10. Senior mortgagee subsequently moved for summary judgment against mortgagors. Mortgagors responded by moving to dismiss the case in its entirety, arguing that the court lacked jurisdiction over the matter once it dismissed junior mortgagee as a defendant. In the alternative, they asked the court to set lien priorities. Senior mortgagee then filed a motion asking the court to reconsider the June 2012 order, arguing that the court failed to take evidence on junior mortgagee's motion to dismiss and therefore misunderstood the facts surrounding the earlier dismissals. Senior mortgagee claimed that it did not pursue the second foreclosure because it had entered into a loan modification agreement with mortgagors, and that it had properly served defendants in the third action. Senior mortgagee further claimed that there was an insufficient record to support the court's determination that junior mortgagee suffered inconvenience and unnecessary attorney's fees due to the successive actions.

¶ 11. In August 2014, the court denied senior mortgagee's motion to reconsider the June 2012 order and granted its motion for summary judgment against mortgagors. The court concluded that the June 2012 order was proper because it was based on "the accurate historical record." Regarding the second foreclosure action, the court found that senior mortgagee never submitted evidence that it had entered into a loan modification agreement with mortgagors. The court also found that senior mortgagee never demonstrated that it effectuated proper service of its third foreclosure complaint but instead simply ignored the court's notice of intent to dismiss, resulting in dismissal of the action. The trial court observed that senior mortgagee did not raise any of these alleged factual discrepancies in opposing junior mortgagee's motion to dismiss.

¶ 12. The court also denied mortgagors' motion to dismiss. It explained that the June 2012 order effectively reversed the priority of the security interests, making junior mortgagee first in priority. It held that senior mortgagee, as a second-priority lienholder, could continue to foreclose upon mortgagors' interest despite the record of prior foreclosure attempts, because "[g]enerally, dismissals in foreclosure actions are without prejudice" and "[n]one of the previous dismissals here reached the merits of the underlying indebtedness." Because mortgagors and the other remaining defendants had not raised any material disputes of fact, the court granted summary judgment in favor of senior mortgagee. In October 2015, the court issued a judgment and decree of foreclosure of judicial sale, which provided that if the defendants failed to redeem the property, it would be sold within six months after the redemption date or the conclusion of any appeal in this matter.

¶ 13. Senior mortgagee was granted permission by the trial court to appeal the June 2012 and August 2014 orders. See V.R.C.P. 80.1(m). On appeal, senior mortgagee argues that the trial court incorrectly interpreted the law and abused its discretion by dismissing senior mortgagee's claims against junior mortgagee and thereby reordering the lien priorities.

¶ 14. Before considering senior mortgagee's arguments, we note that unlike other recent foreclosure cases before this Court, the preclusive effect of...