Twenty Eleven, LLC v. Botelho

• Decision Date: 04 December 2015
• Docket Number: No. 2014–10–Appeal.,2014–10–Appeal.
• Citation: 127 A.3d 897
• Parties: TWENTY ELEVEN, LLC v. Michael J. BOTELHO et al.
• Court: Rhode Island Supreme Court

127 A.3d 897

TWENTY ELEVEN, LLC

v.Michael J. BOTELHO et al.

No. 2014–10–Appeal.

Supreme Court of Rhode Island.

Dec. 4, 2015.

Frank A. Lombardi, Esq., Mary–Joy A. Howes, Esg., for Plaintiff.

Peter F. Carr, III, Esq., for Defendant.

Present: SUTTELL, C.J., GOLDBERG, FLAHERTY, ROBINSON, and INDEGLIA, JJ.

OPINION

Justice INDEGLIA, for the Court.

The plaintiff, Twenty Eleven, LLC (plaintiff or Twenty Eleven), purchased a condominium unit at a condominium association lien foreclosure sale in August 2011. On April 18, 2013, the plaintiff filed suit in Superior Court seeking to quiet title to the unit in its name and also seeking declaratory and injunctive relief to prevent a foreclosure by the prior owner's first mortgage holder, the defendant, PNC Bank, National Association (defendant or PNC).¹ The plaintiff now appeals from the Superior Court's dismissal of its complaint pursuant to Rule 12(b)(6) of the Superior Court Rules of Civil Procedure. On appeal, the plaintiff asks us to address the novel question of whether a condominium foreclosure sale conducted pursuant to the Rhode Island Condominium Act, G.L. 1956 chapter 36.1 of title 34 (the act) extinguishes a prior-recorded first mortgage on the unit following the mortgagee's failure to exercise the right of redemption provided for in § 34–36.1–3.21(c). After careful review of the record and of the parties' written submissions and oral arguments, we answer that question in the affirmative. Thus, we reverse the Superior Court's dismissal of the plaintiff's complaint and remand this case for further proceedings.

IFacts and Travel

The relevant facts pertaining to this appeal are fairly straightforward and largely undisputed. On or about December 15, 2004, Michael J. Botelho (Botelho) purchased a condominium unit, Unit 905, in the Lockwood at Warwick Condominium development located at 3524 West Shore Road, Warwick, Rhode Island (the property). On the same day, Botelho also executed a promissory note in favor of First Franklin Financial Corp., d/b/a FFFC, Inc. (FFFC), in the amount of $114,400. The note was secured by a first mortgage on the property. Some time later, Botelho became delinquent on his condominium assessment fees. On July 19, 2011, the Lockwood at Warwick Condominium Association (the association) sold the property at a lien foreclosure sale due to the outstanding condominium assessment obligation owed by Botelho. A statutory condominium lien foreclosure deed conveying title to the property in exchange for payment in the amount of $21,000 was conveyed by the association to plaintiff on August 25, 2011.

Coincidentally, Botelho had also fallen behind on his first-mortgage payments, which had been assigned to defendant. On January 18, 2013, plaintiff was notified by letter from defendant's attorney that the property was to be sold at a mortgage foreclosure sale on March 14, 2013. The mortgage foreclosure sale was ultimately rescheduled; but, in the meantime, plaintiff instituted the present action on April 18, 2013, seeking to quiet title to the property in its name and also seeking a declaratory judgment that defendant had no further interest in the property. It also sought an injunction permanently enjoining defendant from foreclosing on the property.² In addition to opposing plaintiff's motion for injunctive relief, defendant filed a motion to dismiss plaintiff's complaint pursuant to Rule 12(b)(6).

According to plaintiff, the act provides that the association's lien for outstanding condominium assessments held a priority position over defendant's first mortgage. Thus, when the association foreclosed on that lien, defendant's mortgage was extinguished, subject only to its right to redeem within thirty days in accordance with § 34–36.1–3.21(c) of the act. Because defendant failed to redeem within the thirty-day period, plaintiff posits that it obtained title to the property free and clear of defendant's mortgage.

In a bench decision, the hearing justice disagreed, and instead determined that plaintiff took title to the property subject to defendant's mortgage, finding that "nothing in the plain and unambiguous language of the statute * * * would extinguish a first mortgagee's priority position with respect to a subsequent condominium lien foreclosure deed." Moreover, the hearing justice stated that "[n]othing in [the right to redemption] indicates that a first mortgage is extinguished absent timely redemption by the mortgagee. In fact, the word extinguish does not appear in the statute * * *." As such, the hearing justice found that defendant's mortgage survived the association's lien foreclosure sale and that plaintiff took the property subject to its mortgage.

On August 28, 2013, the hearing justice entered an order granting defendant's motion to dismiss pursuant to Rule 12(b)(6).³ The plaintiff filed a timely appeal to this Court.

IIStandard of Review

"The solitary purpose of a Rule 12(b)(6) ‘motion to dismiss is to test the sufficiency of the complaint.’ " Tarzia v. State, 44 A.3d 1245, 1251 (R.I.2012) (quoting Narragansett Electric Co. v. Minardi, 21 A.3d 274, 277 (R.I.2011) ). "[A] Rule 12(b)(6) motion to dismiss should be granted only ‘when it is clear beyond a reasonable doubt that the plaintiff would not be entitled to relief from the defendant under any set of facts that could be proven in support of the plaintiff's claim.’ " Chhun v. Mortgage Electronic Registration Systems, Inc., 84 A.3d 419, 421–22 (R.I.2014) (quoting Palazzo v. Alves, 944 A.2d 144, 149–50 (R.I.2008) ). "In undertaking this review, we are ‘confined to the four corners of the complaint and must assume all allegations are true, resolving any doubts in [the] plaintiff's favor.’ " Id. at 422 (quoting Minardi, 21 A.3d at 278 ).

Furthermore, "we review questions of statutory interpretation de novo. " State v. Whiting, 115 A.3d 956, 958 (R.I.2015) (quoting State v. Morris, 92 A.3d 920, 924 (R.I.2014) ). We must keep in mind that "our ultimate goal is to give effect to the purpose of the act as intended by the Legislature." Id. (quoting State v. Oster, 922 A.2d 151, 160 (R.I.2007) ). To that end, "[i]t is well settled that ‘the plain statutory language’ is ‘the best indicator’ of the General Assembly's intent." Zambarano v. Retirement Board of the Employees' Retirement System of Rhode Island, 61 A.3d 432, 436 (R.I.2013) (quoting McCain v. Town of North Providence, 41 A.3d 239, 243 (R.I.2012) ). We are also mindful that "statutes should not be construed to achieve meaningless or absurd results." Ryan v. City of Providence, 11 A.3d 68, 71 (R.I.2011) (quoting Berthiaume v. School Committee of Woonsocket, 121 R.I. 243, 247, 397 A.2d 889, 892 (1979) ). We must "consider the entire statute as a whole; individual sections must be considered in the context of the entire statutory scheme, not as if each section were independent of all other sections." Id. (quoting Sorenson v. Colibri Corp., 650 A.2d 125, 128 (R.I.1994) ).

IIIDiscussion

In 1982, the Legislature enacted chapter 36.1 of title 34 (P.L. 1982, ch. 329, § 2), the Rhode Island Condominium Act. "The act essentially incorporated the language contained in the Uniform Condominium Act [UCA] and was made applicable to any condominium created in Rhode Island after July 1, 1982." America Condominium Association, Inc. v. IDC, Inc., 844 A.2d 117, 127 (R.I.2004) (citing § 34–36.1–1.02(a)(1)), decision clarified on reargument sub nom., America Condominium Association, Inc. v. IDC, Inc., 870 A.2d 434 (R.I.2005). It is undisputed that, since the condominium in this case was built in 1985, the act applies.⁴

A. The "Super–Priority" Lien

Section 34–36.1–3.16 of the act, titled "Lien for assessments," is the statutory provision directly at issue in this case. Section 34–36.1–3.16(a) provides that "[t]he association has a lien on a unit for any assessment levied against that unit or fines imposed against its unit owner from the time the assessment or fine becomes due." Section 34–36.1–3.16(b) goes on to establish the priority of the association's lien as compared to other encumbrances on the unit. It provides as follows:

"(1) A lien under this section is prior to all other liens and encumbrances on a unit except:

"(i) Liens and encumbrances recorded before the recordation of the declaration and not subordinated to the declaration,

"(ii) A first mortgage or deed of trust on the unit recorded before the date on which the assessment sought to be enforced became delinquent, and

"(iii) Liens for real estate taxes and other governmental assessments or charges against the unit." (Emphasis added.)

Based on this statutory language, it would appear that a first mortgage recorded "before the date on which the assessment sought to be enforced becomes delinquent," like defendant's mortgage here, is senior to a condominium association's assessment lien. The statute, however, does not stop there. Section 34–36.1–3.16(b)(2) further provides:

"The lien is also prior to any mortgage or deed of trust described in subdivision (b)(1)(ii) of this section to the extent of the common expense assessments based on the periodic budget adopted by the [condominium] association * * * which would have become due in the absence of acceleration during the six (6) months immediately preceding the foreclosure of the interest of the unit owner including any costs and reasonable attorney's fees not to exceed two thousand five hundred dollars ($2,500), incurred in the collection of any delinquent assessment or other charges by legal proceedings or otherwise and all costs of foreclosure held pursuant to section 34–36.1–3.21, including, but not limited to, publication, advertising and auctioneer costs, said foreclosure costs not to exceed five thousand dollars ($5,000) (for a total aggregate of attorney's fees and costs of seven thousand five hundred dollars ($7,500))."

It is this portion of the lien that is colloquially referred to as a "super-priority" lien. See 7912 Limbwood Court Trust v. Wells Fargo Bank,...