Hugh Wood

OCGA Sec. 13-6-11 Attorney's Fees Are Generally for A Jury

2011-12-16T21:14:00.000-08:00

In the land of attorney’s fees, the Georgia Supreme Court held that attorney’s fee sought for by a litigant under OCGA § 13-6-11 may not be awarded by the Court, sitting without a jury, IF the issue associated with the OCGA § 13-6-11 attorney’s fees is a pure jury issue. If the issue is a mere bench trial issue (where the trial court may sit as the trier of fact) the Court may rule upon and issue OCGA §13-6-11 attorney’s fees. This provides a significant new defense against challenges for attorney's fees, if the issue is a pure jury fact issue on which fees are sought.
See:

696 S.E.2d 649 (Ga. 2010)
287 Ga. 445
COVINGTON SQUARE ASSOCIATES, LLC
v.
INGLES MARKETS, INC.
No. S10G0459.
Supreme Court of Georgia.
June 28, 2010
Page 650
Michael A. Kessler, Alpharetta, for appellant.
Adam N. Struletz, Atlanta, for appellee.
CARLEY, Presiding Justice.
Covington Square Associates, LLC (Covington) leased space in a
shopping center to Ingles Markets, Inc. (Ingles). After selling the
shopping center in 2004, Covington brought suit against Ingles for
damages allegedly resulting from its failure to pay a portion of the
cost to hire a security guard. In December 2005, Ingles mistakenly
sent a check for its portion of real estate taxes to Covington instead
of the new landlord. Ingles notified Covington of the mistake and
demanded return of the funds. However, Covington retained the funds as
partial payment of the claimed security costs. Ingles then filed this
action for conversion, attorney fees pursuant to OCGA § 13-6-11, and
punitive damages, which was stayed pending the outcome of the other
litigation. That litigation ended when the Court of Appeals affirmed
the grant of Ingles' motion for summary judgment, ruling that the
lease did not require payment of security guard expenses. Covington
Square Assoc. v. Ingles Markets, 283 Ga.App. 307, 641 S.E.2d 266
(2007).
Thereafter, the trial court in the case at bar granted partial summary
judgment in favor of Ingles, ruling that Covington wrongfully asserted
dominion or control over Ingles' property and that Ingles is entitled
to attorney fees and punitive damages, but leaving for trial
determination of the amounts thereof. The trial court based its
attorney fees ruling on the fact that Covington refused to refund the
money despite the outcome of the other litigation and caused Ingles
the unnecessary trouble and expense of bringing suit where no bona
fide controversy existed.
The Court of Appeals affirmed the trial court's rulings as to the
conversion claim and attorney fees, but reversed as to punitive
damages. With respect to attorney fees, the Court of Appeals held that
they can be awarded on summary judgment if the movant is entitled to
them as a matter of law and that, " [a]pplying the any evidence
standard under these circumstances, [cit.] the trial court did not err
in ruling that Ingles was entitled to attorney fees as a matter of
law...." Covington Square Assoc. v. Ingles Markets, 300 Ga.App. 740,
744(2), 686 S.E.2d 359 (2009). Having granted certiorari to review
this holding, we conclude that the language of OCGA § 13-6-11 prevents
a trial court from ever determining that a claimant is entitled to
attorney fees as a matter of law.
[287 Ga. 446] In its entirety, OCGA § 13-6-11 provides as follows:
The expenses of litigation generally shall not be allowed as a part of
the damages; but where the plaintiff has specially pleaded and has
made prayer therefor and where the defendant has acted in bad faith,
has been stubbornly litigious, or has caused the plaintiff unnecessary
trouble and expense, the jury may allow them.
For many years, the Court of Appeals has recognized that " [t]he
intent of the law, as shown by the words, ‘ the jury may allow them,’
is to leave the matter of expenses of litigation to the jury trying
the case. [Cit.]" Taylor v. Estes, 85 Ga.App. 716, 719(2), 70 S.E.2d
82 (1952). See also Hyde v. Gill, 236 Ga.App. 729, 734(3), 513 S.E.2d
278 (1999); American Medical Transport Group v. Glo-An, 235 Ga.App.
464, 467(3), 509 S.E.2d 738 (1998); J.M. Clayton Co. v. Martin, 177
Ga.App. 228, 232(6), 339 S.E.2d 280 (1985); Brannon Enterprises v.
Deaton, 159 Ga.App. 685, 687, 285 S.E.2d 58 (1981); Sapp v. Howe, 79
Ga.App. 1, 3(4), 52 S.E.2d 571 (1949); Patterson & Co. v. Peterson, 15
Ga.App. 680, 684(4), 84 S.E. 163 (1915).
As a result, " ‘ it has long been held ... that in suits where the
expenses of litigation might be recovered as part of the damages, it
is error for the trial court to direct a verdict therefor. The matter
of such expenses is left solely to the jury. (Cits.)’ [Cit.]" Polma,
Inc. v. Coastal Canvas Products Co., 199 Ga.App. 616, 618(7), 405
S.E.2d 531 (1991). See also Tab Sales v. D & D Distrib., 153 Ga.App.
779, 780(2), 266 S.E.2d 558 (1980); Patterson & Co. v. Peterson,
supra. Whether a plaintiff has " met any of the preconditions for an
award of attorney fees and litigation expenses set forth in OCGA § 13
-6-11[is] solely a question for the
Page 651
jury. [Cit.]" City of Atlanta v. Broadnax, 285 Ga.App. 430, 440(6),
646 S.E.2d 279 (2007) (affirming judgment on jury verdict in favor of
defendant). " [S]uch an award under this statute necessitates jury
determination. [Cits.]" Fontaine Condo. Assn. v. Schnacke, 230 Ga.App.
469, 471(3), 496 S.E.2d 553 (1998) (vacating trial court's award of
attorney fees after it denied jury trial thereon).
Consistent with this precedent, the Court of Appeals has correctly
held that, because both the liability for and amount of attorney fees
pursuant to OCGA § 13-6-11 are solely for the jury's determination, a
trial court is not authorized to grant summary judgment in favor of a
claimant therefor. Hyde v. Gill, supra; American Medical Transport
Group v. Glo-An, supra; Page v. HSI Financial Svcs., 218 Ga.App. 283,
286(5), 461 S.E.2d 239 (1995), rev'd on other grounds, Henderson v.
HSI Financial Svcs., 266 Ga. 844, 471 S.E.2d 885 (1996); [287 Ga. 447]
Joseph Camacho Assoc. v. Millard, 169 Ga.App. 937, 939(2), 315 S.E.2d
478 (1984); Fountain v. Burke, 160 Ga.App. 262, 264(3), 287 S.E.2d 39
(1981); Pritchett v. Rainey, 131 Ga.App. 521, 522, 206 S.E.2d 726
(1974).
Ingles argues that the Court of Appeals, citing City of Marietta v.
Holland, 252 Ga. 299, 304(3), 314 S.E.2d 97 (1984), has stated that "
[e]xpenses of litigation under OCGA § 13-6-11 can be awarded on
summary judgment, but the movant must be entitled to them as a matter
of law. [Cit.]" Rivergate Corp. v. BCCP Enterprises, 198 Ga.App. 761
(2), 403 S.E.2d 65 (1991) (reversing summary judgment). See also
Rasmussen v. Nodvin, 174 Ga.App. 203, 205(4), 329 S.E.2d 541 (1985)
(reversing summary judgment). However, the Holland opinion does not
state that litigation expenses under the statute can be awarded on
summary judgment. Instead, this Court examined whether there was any
genuine issue of material fact as part of its determination that the
trial court not only erroneously granted plaintiff's motion for
summary judgment, but also erred in denying summary judgment in favor
of the defendants. Therefore, rather than authorizing summary judgment
for a claimant under OCGA § 13-6-11, Holland is explained by the
proposition that " [o]nly in the rare case where there was absolutely
no evidence to support the award of expenses of litigation would the
trial court be authorized to grant summary adjudication on such
issues." American Medical Transport Group v. Glo-An, supra. See also
Brito v. Gomez Law Group, 289 Ga.App. 625, 628(2), 658 S.E.2d 178
(2008). Other cases relied on by Ingles, as well as statements that
determination of the preconditions in the statute is " generally" for
the jury, are also explained by the simple proposition quoted above
from American Medical Transport Group v. Glo-An, supra. Merlino v.
City of Atlanta, 283 Ga. 186, 191(4), 657 S.E.2d 859 (2008); Tyler v.
Lincoln, 272 Ga. 118, 122(2), 527 S.E.2d 180 (2000); Stargate Software
Intl. v. Rumph, 224 Ga.App. 873, 878(4), 482 S.E.2d 498 (1997);
Webster v. Brown, 213 Ga.App. 845, 846(2), 446 S.E.2d 522 (1994).
Both Ingles and the Court of Appeals relied on D & H Constr. Co. v.
City of Woodstock, 284 Ga.App. 314, 318-319(2), 643 S.E.2d 826 (2007)
and Graves v. Diambrose, 243 Ga.App. 802, 803-804(2), 534 S.E.2d 490
(2000). However, neither decision states that summary judgment can be
granted in favor of a claimant under OCGA § 13-6-11. Furthermore,
contrary to Ingles' argument and the Court of Appeals' opinion here,
it is not at all clear that the trial court in either case granted
summary judgment on the claim for attorney fees. The Court of Appeals'
application of the " ‘ any evidence’ standard of review" in D & H
Constr. Co. v. City of Woodstock, supra at 319(2), 643 S.E.2d 826, as
well as its determination that the trial court " could have properly
found" a statutory basis for attorney fees in [287 Ga. 448] Graves v.
Diambrose, supra at 804(2), 534 S.E.2d 490, was entirely inconsistent
with any such grant of summary judgment. Indeed, we note that, even if
attorney fees could be awarded pursuant to OCGA § 13-6-11 on summary
judgment, the Court of Appeals still erred in this case by utilizing
the " any evidence" standard. " Although the trial court may grant
attorney fees or litigation expenses under OCGA § 13-6-11 where it
sits as the trier of fact, [cit.], it is not a trier of fact on a
motion for summary judgment." Page v. HSI Financial Svcs., supra. See
also Rasmussen v. Nodvin, supra. Compare
Page 652
Artzner v. A & A Exterminators, 242 Ga.App. 766, 773(4), 531 S.E.2d
200 (2000) (where Court of Appeals looked for any evidence showing
that the grant of summary judgment to defendant was error).
Accordingly, the trial court erred by awarding expenses of litigation
pursuant to OCGA § 13-6-11 to Ingles on its motion for summary
judgment. American Medical Transport Group v. Glo-An, supra; Joseph
Camacho Assoc. v. Millard, supra. The judgment of the Court of Appeals
must therefore be reversed to the extent that it affirms the trial
court's grant of summary judgment in favor of Ingles with respect to
its claim for attorney fees. Our holding does not affect the remaining
rulings of the Court of Appeals.
Judgment affirmed in part and reversed in part.
All the Justices concur.
Overruling the 13-6-11 portion of the Court of Appeals Holding in:
686 S.E.2d 359 (Ga.App. 2009)
300 Ga.App. 740
COVINGTON SQUARE ASSOCIATES, LLC
v.
INGLES MARKETS, INC.
No. A09A2145.
Court of Appeals of Georgia.
November 3, 2009
Page 360
Michael A. Kessler, Cumming, for appellant.
Hartman, Simons, Spielman & Wood, Samuel R. Arden, Jill R. Johnson,
Atlanta, for appellee.
MIKELL, Judge.
Ingles Markets, Inc. (" Ingles" ) sued Covington Square Associates,
LLC (" Covington" ), for conversion, unjust enrichment, attorney fees,
and punitive damages arising out of its refusal to return a check
Ingles alleged it paid by mistake. The trial court granted partial
summary judgment to Ingles on its
Page 361
claims for conversion, attorney fees, and punitive damages, ruling
that Covington wrongfully asserted dominion or control over Ingles's
property; that Ingles is entitled to attorney fees and punitive
damages; and that the amounts of those damages are to be determined at
trial. Covington appeals these rulings. For the following reasons, we
affirm the trial court's ruling as to the claims for conversion and
attorney fees, but reverse as to the claim for punitive damages.
Our review of the grant of summary judgment is de novo.[1]
To prevail at summary judgment, the moving party must demonstrate that
there is no genuine issue of material fact and that the undisputed
facts, viewed in the light most favorable to the nonmoving party,
warrant judgment as a matter of law. Where the movant is the
plaintiff, she has the burden of presenting evidence to support her
claim and the burden of piercing the defendant's affirmative
defenses.[2]
So viewed, the record reflects that in 1987, Ingles and a prior owner
of Covington Square Shopping Center in DeKalb County (the " Shopping
Center" ) entered into an agreement for Ingles to lease certain space
in the Shopping Center (the " Lease" ). Under the terms of the Lease,
Ingles paid a portion of the real estate taxes for the Shopping
Center. In 1994, Covington purchased the Shopping Center and became
Ingles's landlord. According to Ron Freeman, Ingles's chief financial
officer, Ingles fully paid all real estate tax charges to [300 Ga.App.
741] Covington during the time it owned the Shopping Center. Ingles
also paid a portion of the cost to hire a security guard for the
Shopping Center.[3] IN 2004, NORTHEAST ENTERPRISES, INC. (" NORTHEAST
ENTERPRISES" ) purchased the Shopping Center from Covington.
On November 15, 2005, Ingles received a real estate tax statement from
Northeast Enterprises for the amount of $32,584.85, to cover 2005
county property taxes. On December 20, 2005, Ingles mistakenly sent a
check in the amount of $32,584.85 to Covington, its former landlord,
rather than Northeast Enterprises. According to Freeman, the check
represented Ingles's payment of its 2005 property taxes for the
Shopping Center.[4] Covington cashed the check, and Ingles had to
issue another check in the amount of $32,584.85 to Northeast
Enterprises to satisfy its property tax obligation. On February 3,
2006, Ingles notified Covington of its mistake and demanded return of
the funds. On February 13, 2006, Covington notified Ingles that it
would retain the funds as partial payment of the unpaid security costs
at issue in the DeKalb litigation.
Ingles filed the instant action on February 24, 2006. The trial court
stayed the case pending the outcome of the appeal in the DeKalb
litigation, and on December 14, 2007, following our ruling in the
DeKalb litigation, Ingles again demanded return of the funds. There is
no evidence in the record that Covington has returned the funds.
1. Covington contends that the trial court erred in granting summary
judgment to Ingles because " [t]he mistaken payment by Ingles amounts
to nothing more than an overpayment under the Lease. Therefore,
Ingles' claim to recover the payment sounds in contract and not in
tort or conversion." Covington does not dispute that Ingles is
entitled to a refund due to the DeKalb litigation,
Page 362
but disputes that there was a conversion. Covington relies on Kline v.
Atlanta Gas Light Co. [5] and Levenson v. Word, [6] to support its
argument.
[300 Ga.App. 742] With regard to Kline, the trial court correctly
distinguished that case because the excess payment was used to pay an
undisputed outstanding debt; [7] here, the alleged outstanding debt
was in dispute, and Covington specifically sued Ingles in the DeKalb
litigation to recover the disputed amount. Levenson is likewise
distinguishable and does not require reversal. In that case, there was
no dispute that the criminal defendant owed the retainer fee to the
defendants, and the plaintiff could not prove that the defendants'
exercise of dominion over the funds was wrongful. [8] Since any
outstanding debt in this case was in dispute at the time Ingles
mistakenly mailed the check to Covington, Kline and Levenson are
inapplicable.
Conversion consists of an unauthorized assumption and exercise of the
right of ownership over personal property belonging to another, in
hostility to his rights; an act of dominion over the personal property
of another inconsistent with his rights; or an unauthorized
appropriation. Any distinct act of dominion wrongfully asserted over
another's property in denial of his right, or inconsistent with it, is
a conversion. It is unnecessary to show that the defendant applied it
to his own use, if he exercised dominion over it in defiance of the
owner's right, or in a manner inconsistent with it.[9]
One way to prove that a defendant has exercised unauthorized dominion
over the property and has thereby converted the property is to present
evidence that " a defendant, who has lawfully come into possession of
the plaintiff's property, unlawfully refuses to return the plaintiff's
property after the plaintiff demands its return." [10] In this case,
Ingles mistakenly mailed to Covington a check intended for its current
landlord to cover its property tax bill. When Ingles realized the
error, it immediately notified Covington of the clerical error,
expressly noted that it had intended to submit the payment to its
current landlord, and demanded return of the check. The elements of
conversion have been satisfied.
We find Covington's arguments on this issue disingenuous. Covington
filed the DeKalb litigation specifically because the " Common Area"
costs for security charges were in dispute and because [300 Ga.App.
743] Ingles refused to pay Covington for these costs. In the face of a
disputed debt embroiled in litigation and an immediate demand letter,
it strains credulity for Covington to argue that it is guilty of
merely failing to refund an overpayment, and not guilty of conversion.
The trial court did not err in ruling that Covington converted the
check.[11]
2. Covington next contends that the trial court erred in granting
summary judgment to Ingles on its claim for attorney fees under OCGA §
13-6-11 because this issue must be resolved by a jury. The trial court
found that " [Ingles] is entitled to [attorney] fees based on
Covington's refusal to refund the money in spite of the outcome of the
DeKalb litigation and causing [Ingles] to bear the unnecessary expense
of bringing suit where no bona fide controversy exists" and ruled that
the amount of attorney fees is to be determined at trial. We affirm
this ruling.
OCGA § 13-6-11 provides that:
Page 363
The expenses of litigation generally shall not be allowed as a part of
the damages; but where the plaintiff has specially pleaded and has
made prayer therefor and where the defendant has acted in bad faith,
has been stubbornly litigious, or has caused the plaintiff unnecessary
trouble and expense, the jury may allow them.
While questions of bad faith, stubborn litigiousness, and unnecessary
trouble and expense are generally for the jury to decide, expenses of
litigation under this Code section can be awarded on summary judgment,
provided the movant is entitled to them as a matter of law.[12] The
amount of the award of attorney fees as damages, however, is to be
determined by a jury.[13]
In D & H Constr. Co., [14] a case very similar to this case, we
affirmed the trial court's grant of summary judgment to the plaintiff
on its claim for attorney fees, where the appellant retained a
duplicate payment to which it had no rightful claim. As in D & H
Constr. Co., the record here reflects that Covington accepted a [300
Ga.App. 744] payment from Ingles that was intended for Ingles's
current landlord and applied it to security costs, knowing that Ingles
disputed the security costs debt; that Covington refused to return the
check even after Ingles informed it of the mistake; and that Ingles
was forced to bring this lawsuit to recover the mistaken payment.
Additionally, as discussed in Division 1, supra, Covington's defense
was unreasonable and incredible. Applying the any evidence standard
under these circumstances,[15] the trial court did not err in ruling
that Ingles was entitled to attorney fees as a matter of law, and we
do the same here.[16] THE TRIAL COURT WAS also authorized to allow a
jury to determine the amount.
3. Covington contends that the trial court erred in granting summary
judgment to Ingles on its claim for punitive damages because this
issue must be resolved by a jury. We agree.
OCGA § 51-12-5.1(b) provides that:
Punitive damages may be awarded only in such tort actions in which it
is proven by clear and convincing evidence that the defendant's
actions showed willful misconduct, malice, fraud, wantonness,
oppression, or that entire want of care which would raise the
presumption of conscious indifference to consequences.
Subsection (d) of that Code section further provides:
(1) In any case in which punitive damages are claimed, the trier of
fact shall first resolve from the evidence produced at trial whether
an award of punitive damages shall be made. This finding shall be made
specially through an appropriate form of verdict, along with the other
required findings. (2) If it is found that punitive damages are to be
awarded, the trial shall immediately be recommenced in order to
receive such evidence as is relevant to a decision regarding what
amount of damages will be sufficient to deter, penalize, or punish the
defendant in light of the circumstances of the case. It shall then be
the duty of the trier of fact to set the amount to be awarded
according to subsection (e), (f), or (g) of this Code section, as
applicable. [17]
This Code section expressly provides that a jury must determine [300
Ga.App. 745] whether a complainant is entitled to punitive damages and
if so, the amount to be awarded. Although a trial court-and the
appellate courts-must consider whether there is any evidence to
support an award of punitive damages, the question of whether to
impose such an award is
Page 364
for the trier of fact.[18] Because we have found no authority and
Ingles cites to none holding that a trial court can grant summary
judgment to a claimant on its claim for punitive damages, we reverse
that portion of the trial court's order granting summary judgment to
Ingles on its claim for punitive damages and affirm the portion of the
order ruling that a jury must determine the amount of punitive
damages.
Judgment affirmed in part and reversed in part.
JOHNSON, P.J., and ELLINGTON, J., concur.
---------
Notes:
[1] Smith v. Gordon, 266 Ga.App. 814(1), 598 S.E.2d 92 (2004).
[2] (Footnotes omitted.) Id.
[3] See Covington Square Assoc. v. Ingles Markets, 283 Ga.App. 307,
641 S.E.2d 266 (2007) (" Covington Square I " or the " DeKalb
litigation" ). This is the second appearance of these parties before
this Court. As explained in Covington Square I, shortly after selling
the Shopping Center in 2004, Covington sought to collect unpaid
portions of security guard costs it billed to Ingles. When Ingles
refused to pay, Covington sued Ingles for breach of contract seeking
damages for unpaid rents under the Lease. Id. at 308, 641 S.E.2d 266.
We affirmed the trial court's grant of summary judgment to Ingles,
ruling that the Lease did not require Ingles to pay security guard
costs. Id. at 311(1), 641 S.E.2d 266.
[4] Although we cannot tell from the poor copy included in the record
on appeal, Freeman avers that the check indicates on its face that it
was for payment of Ingles's 2005 property taxes. In its order, the
trial court also notes that the check indicates on its face that it
was for payment of Ingles's 2005 property taxes.
[5] 246 Ga.App. 172, 538 S.E.2d 93 (2000).
[6] 294 Ga.App. 104, 668 S.E.2d 763 (2008).
[7] Kline, supra at 173-174, 538 S.E.2d 93.
[8] Levenson, supra at 106-107(1), 668 S.E.2d 763.
[9] (Citations and punctuation omitted.) Maryland Cas. Ins. Co. v.
Welchel, 257 Ga. 259, 261(1), 356 S.E.2d 877 (1987).
[10] (Citation and footnote omitted.) Williams v. Nat. Auto Sales, 287
Ga.App. 283, 285(1), 651 S.E.2d 194 (2007).
[11] See, e.g., D & H Constr. Co. v. City of Woodstock, 284 Ga.App.
314, 643 S.E.2d 826 (2007) (summary judgment on conversion claim
proper where evidence showed that plaintiff tendered to defendant
duplicate check; that plaintiff notified defendant of error and
demanded return of the check; and that defendant refused to return the
check); Rivergate Corp. v. BCCP Enterprises, 198 Ga.App. 761(2), 403
S.E.2d 65 (1991).
[12] See D & H Constr. Co., supra at 318-319(2), 643 S.E.2d 826. See
also Graves v. Diambrose, 243 Ga.App. 802, 803(2), 534 S.E.2d 490
(2000).
[13] See American Med. Transport Group v. Glo-An, Inc., 235 Ga.App.
464, 466(3), 509 S.E.2d 738 (1998).
[14] Supra.
[15] MDC Blackshear, LLC v. Littell, 273 Ga. 169, 174(5), 537 S.E.2d
356 (2000) (" [a]n award of fees and expenses [under OCGA § 13-6-11]
must be affirmed if there is any evidence to support it" ) (footnote
omitted).
[16] D & H Constr. Co., supra at 319(2), 643 S.E.2d 826.
[17] OCGA § 51-12-5.1(d)(1) & (2).
[18] Morales v. Webb, 200 Ga.App. 788, 790, 409 S.E.2d 572 (1991);
Petrolane Gas Svc. v. Eusery, 193 Ga.App. 860, 862(1), 389 S.E.2d 355
(1989). See also Wal-Mart Stores v. Forkner, 221 Ga.App. 209, 210, 471
S.E.2d 30 (1996) (following bench trial on damages, trial court
awarded plaintiff punitive damages).
---------
End
Hugh Wood, Esq.
Wood & Meredith, LLP
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Georgia Appellate Standards of Review

2011-11-29T05:24:00.000-08:00

In researching standards for a recent appeal, I was surprised to find that the Georgia Court of Appeals has reorganized its website. Now, the “standard of review,” for each type of claim is clearly stated on its website. While the criminal standards go on for pages, I post below only the civil standards.

Appellant Standards of Review – Georgia:

Selection of jurors. Reviewed for abuse of discretion but trial court is no longer permitted to rehabilitate jurors by using "loaded" questions to justify retaining biased jurors. Walls v. Kim, 250 Ga. App. 259 (549 SE2d 797) (2001).

Discovery rulings. Control over discovery including the imposition of sanctions is reviewed for "clear abuse of discretion." Time Warner Entertainment Co. v. Six Flags Over Georgia, 245 Ga. App. 334, 350 (3) (b) (537 SE2d 397) (2000).

Decision to bifurcate trial. Reviewed for clear and manifest abuse of discretion. Whitley v. Gwinnett County, 221 Ga. App. 18, 19 (2) (470 SE2d 724) (1996).

Evidentiary ruling. Decision to admit or exclude evidence including relevant evidence is reviewed for abuse of discretion. Dept of Transp. v. Mendel, 237 Ga. App. 900, 902 (2) (517 SE2d 365) (1999).

Qualification of witness as expert. Ruling will not be disturbed absent manifest abuse of discretion. Williamson v. Harvey Smith, Inc., 246 Ga. App. 745, 749 (5) (542 SE2d 151) (2000).

Construction of a contract. Reviewed de novo on appeal. Question of law for the trial court unless after the application of the rules of construction, the contract remains ambiguous. Sagon Motorhomes v. Southtrust Bank of Ga., N.A., 225 Ga. App. 348, 349 (484 SE2d 21) (1997).

Denial of motion for mistrial. Reviewed for abuse of discretion. Whitley v. Gwinnett County, 221 Ga. App. 18, 25 (11) (470 SE2d 724) (1996).

Submission of special verdict form to jury. Reviewed for abuse of discretion. Southern Water Technologies v. Kile, 224 Ga. App. 717, 719 (1) (481 SE2d 826) (1997).

Grant of summary judgment. On appeal of a grant of summary judgment, the appellate court must review the evidence de novo to determine whether the trial court erred in concluding that no genuine issue of material fact remains and that the party was entitled to judgment as a matter of law. Rubin v. Cello Corp., 235 Ga. App. 250 (510 SE2d 541) (1998).

Denial of motion for directed verdict. On appeal, the standard of review of the trial court's denial of a motion for directed verdict is the "any evidence" standard. F.A.F. Motor Cars v. Childers, 181 Ga. App. 821 (1) (354 SE2d 6) (1987).

Directed verdict or judgment notwithstanding the verdict. The standard of review of a directed verdict and a judgment n.o.v. is the same: a directed verdict is appropriate only when there is no conflict in the evidence as to any material issue, and the evidence introduced, construed most favorably to the party opposing the motion, demands a particular verdict. St. Paul Mercury Ins. Co. v. Meeks, 270 Ga. 136, 137 (1) (508 SE2d 646) (1998).

Denial of judgment n.o.v. The standard of appellate review for the denial of a motion for judgment n.o.v. is the "any evidence" test. Under this test, the determinative question is not whether the verdict and the judgment of the trial were merely authorized, but whether a contrary judgment was demanded. Signsation, Inc. v. Harper, 218 Ga. App. 141, 142 (2) (460 SE2d 854) (1995).

Motion for directed verdict/motion for new trial. Both as to a motion for directed verdict and motion for new trial based on the general grounds, the proper standard on appellate review is the "any evidence" test. The court construes the evidence most favorably towards the party opposing the motion. Jordan v. Stephens, 221 Ga. App. 8, 10 (2) (470 SE2d 733) (1996).

Jury verdict. After approval of a jury verdict by the trial court, the judgment entered thereon will not be disturbed on appeal if supported by any evidence, in the absence of any material error of law. Horan v. Pirkle, 197 Ga. App. 151, 153 (2) (397 SE2d 734) (1990).

Validity of verdicts. Since there is a presumption in favor of the validity of a verdict, all the evidence and every presumption and inference arising from the evidence must be construed most favorably toward upholding the verdict. Nationwide Mut. Fire Ins. Co. v. Wiley, 220 Ga. App. 442, 443 (2) (469 SE2d 302) (1996).

In the absence of legal error, an appellate court lacks jurisdiction to interfere with a verdict supported by some evidence even when the verdict may be against the preponderance of the evidence. Jeff Goolsby Homes Corp. v. Smith, 168 Ga. App. 218, 219 (1) (308 SE2d 564) (1983).

Motion for new trial. The grant or denial of motion for new trial is a matter within the sound discretion of the trial court and will not be disturbed if there is "any evidence" to authorize the trial court's ruling. Professional Consulting Svcs. of Ga. v. Ibrahim, 206 Ga. App. 663, 665 (1) (426 SE2d 376) (1992).

In reviewing an order on a motion for new trial, appellate courts do not weigh the evidence or give an opinion on where the greater weight of the evidence lies but determine merely whether the record contains sufficient evidence to authorize the trial court's judgment. Milam v. Attaway, 195 Ga. App. 496, 497 (1) (393 SE2d 753) (1990).

Bench trials. The trial court's factual findings will not be set aside unless clearly erroneous, meaning that they will not be disturbed when there is any evidence to sustain them. Sam's Wholesale Club v. Riley, 241 Ga. App. 693 (527 SE2d 293) (1999).

Trial court's findings of fact. Reviewed under clearly erroneous standard. City of McDonough v. Tusk Partners, 268 Ga. 693, 696 (492 SE2d 206) (1997).

Question of law. De novo or independent review on appeal. Since no deference is owed to the trial court's ruling on a legal question, the "plain legal error" standard of review is applied. Suarez v. Halbert, 246 Ga. App. 822, 824 (1) (543 SE2d 733) (2000).

Damage awards. A reviewing court will not interfere with a jury's award of damages unless the amount is so small or so excessive that it justifies an inference of gross mistake or undue bias. Green v. Proffitt, 248 Ga. App. 477, 478 (1) (545 SE2d 623) (2001).

FELA damages. The jury's determination of FELA damages is otherwise inviolate, absent an award so excessive or inadequate as to shock the judicial conscience and raise an irresistible inference that passion, prejudice or another improper cause invaded the trial. Norfolk Southern R. Co. v. Jones, 219 Ga. App. 602, 608 (4) (a) (466 SE2d 260)(1995).

Attorney fees under OCGA § 13-6-11. Reviewed under the any evidence standard. City of Warner Robins v. Holt, 220 Ga. App. 794, 796 (1) (470 SE2d 238) (1996).

Attorney fees under OCGA § 9-15-14. Under subsection (a), reviewed under the any evidence standard. Under subsection (b), reviewed for abuse of discretion. Bankhead v. Moss, 210 Ga. App. 508, 509 (1) (436 SE2d 723) (1993).

Motion to open default. Reviewed for abuse of discretion, meaning that the trial court's ruling will stand unless there is no evidence to support a finding that the statutory grounds set forth in OCGA § 9-11-55 were met. K-Mart Corp. v. Hackett, 237 Ga. App. 127, 128 (1) (514 SE2d 884) (1999).

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
twitter: USALawyer_
Phone: 404-633-4100
Fax: 404-633-0068

How to Determine Whether A Borrower can Stop a Foreclosure based on the Lack of a Proper Assignment

2011-09-28T06:49:00.000-07:00

My firm seems to answer the following question, again and again: Can I (borrower) stop my foreclosure in a Georgia Superior Court (generally, the County in which the house or property is located) by filing some action against the foreclosing lender?

Well that action would be a Motion for a Temporary Restraining Order (OCGA § 9-11-65(b)) [1] or a Motion for a Permanent Injunction -- which must be filed shortly after the TRO, if granted, anyway. TRO’s only last for thirty (30) days by law and then expire.

The first thing we look for is whether the Security Deep upon which the lender if foreclosing is recorded as the last assignment.

For Example: Assume you (borrower) borrowed $250,000.00 from Wells Fargo (original lender) in 2004. Wells Fargo then sold the Note and Security Deed to Bank of New York/Mellon in 2007. Then assume, Bank of New York/Mellon sold the Noted and Security Deed to Bank of America in 2009.

To determine whether you (borrower) have any chance of obtaining a Georgia TRO, examine the last Assignment of Record. I will ignore the Mortgage Electronic Registration System (MERS) in this analysis, since the Georgia Supreme Court has yet to issue an opinion prohibiting nominee assignments by MERS.

To determine whether you (borrower) have any chance of blocking the foreclosure sale on lack of a proper corporate assignment, conduct the following search.

Examine the Notice of Sale that was mailed to you by the lender and determine which lender is publishing the foreclosure. It should read the last lender of record – or, in the above case, Bank of America. If you cannot find it, search on-line for it at:

http://georgiapublicnotice.com

Then you will need to search online for the last filed assignment.

The last filed assignment should be available online at:

          http://gsccca.org

Unfortunately, you will have to pay money to see your own assignment. Unless you have a monthly account with GSCCCA, they will require you to purchase the viewing or printing of it with a credit card (sorry about that).

When on GSCCCA, using the search routine for your county, search to see if the last assignment is of record.   In the above example, it should be something like:   Bank of New York/Mellon to Bank of America. However, it could be MERS to Bank of America.   Also, it could be something strange like Wells Fargo and MERS to Bank of America (with the Bank of New York/Mellon not visible because it went through MERS).   The last assignment needs to be to Bank of America, since that is the lender that is publishing the foreclosure.   [2]

Thus, in the above example is to the Bank of America, you probably will not be able to make out any claims associated with the Assignment.

If however there is no assignment of record and/or the last assignment is to the First National Bank of Willacoochee, you (borrower) may have a shot at stopping the sale. [3]

Thus, if you (borrower) cannot stop the sale based on a faulty assignment or no assignment, you may need to consider looking to stop the sale with a Chapter 13 or Chapter 7 filing in bankruptcy.   A Chapter 7 will, in the long run, require the surrender (or allow the foreclosure of) the property. [4]

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
twitter: USALawyer_
Phone: 404-633-4100
Fax: 404-633-0068

[1]

OCGA § 9-11-65. Injunctions And Restraining Orders

(a) Interlocutory injunction.

(1) Notice. No interlocutory injunction shall be issued without notice to the adverse party.

(2) Consolidation of hearing with trial on merits. Before or after the commencement of the hearing of an application for an interlocutory injunction, the court may order the trial of the action on the merits to be advanced and consolidated with the hearing of the application. Even when this consolidation is not ordered, any evidence received upon an application for an interlocutory injunction which would be admissible upon the trial on the merits shall become a part of the record on the trial and need not be repeated upon the trial. This paragraph shall be construed and applied so as to save any rights of the parties which they may have to trial by jury.

(b) Temporary restraining order; when granted without notice; duration; hearing; application to dissolve or modify. A temporary restraining order may be granted without written or oral notice to the adverse party or his attorney only if:

(1) It clearly appears from specific facts shown by affidavit or by the verified complaint that immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party or his attorney can be heard in opposition; and

(2) The applicant's attorney certifies to the court, in writing, the efforts, if any, which have been made to give the notice and the reasons supporting the party's claim that notice should not be required.

Every temporary restraining order granted without notice shall be endorsed with the date and hour of issuance, shall be filed forthwith in the clerk's office and entered of record, and shall expire by its terms within such time after entry, not to exceed 30 days, as the court fixes, unless the party against whom the order is directed consents that it may be extended for a longer period. In case a temporary restraining order is granted without notice, the motion for an interlocutory injunction shall be set down for hearing at the earliest possible time and shall take precedence over all matters except older matters of the same character; when the motion comes on for hearing, the party who obtained the temporary restraining order shall proceed with the application for an interlocutory injunction; and, if he does not do so, the court shall dissolve the temporary restraining order. On two days' notice to the party who obtained the temporary restraining order without notice or on such shorter notice to that party as the court may prescribe, the adverse party may appear and move its dissolution or modification; and in that event the court shall proceed to hear and determine the motion as expeditiously as the ends of justice require.

(c) Security. As a prerequisite to the issuance of a restraining order or an interlocutory injunction, the court may require the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been enjoined or restrained wrongfully. A surety upon a bond or undertaking under this Code section submits himself to the jurisdiction of the court and irrevocably appoints the clerk of the court as his agent upon whom any papers affecting his liability on the bond or undertaking may be served. His liability may be enforced on motion without the necessity of an independent action. The motion and such notice of the motion as the court prescribes may be served on the clerk of the court, who shall forthwith mail copies to the persons giving the security if their addresses are known.

(d) Form and scope of injunction or restraining order. Every order granting an injunction and every restraining order shall be specific in terms; shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained; and is binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive notice of the order by personal service or otherwise.

(e) When inapplicable. This Code section is not applicable to actions for divorce, alimony, separate maintenance, or custody of children. In such actions, the court may make prohibitive or mandatory orders, with or without notice or bond, and upon such terms and conditions as the court may deem just.

[2]

And for you diehards who persist in the “show me the Note,” challenge and/or look for the assignment of the Note, there is no public database (that is available to the public) to visualize the assignment of the Note. As far as the author is aware (and I invite caselaw from anyone to the contrary – and I will post it) there is no body of law in Georgia that will stop a state foreclosure, based on a mere “show me the Note” challenge to the lender prior to foreclosure.

[3]

But do not be surprised if the lender produces the proper assignment on the Monday before the Tuesday sale. Can the lender do that? Yes.

[4]

And be prepared for the Judge’s first question if you do file something (except in bankruptcy). “Why didn’t you just pay the mortgage?”

How To File An Answer to a Complaint

2011-09-24T22:30:00.000-07:00

“I was served last month with this Complaint thing and I think I need to do something,” or so many telephone conversations have gone over the years.

I am surprised how, out of lack of knowledge, paralysis or just fear, many business owners and individuals just panic when they are formally served with a complaint. They just do nothing.

“When is the answer due?” I will ask.

“Um. Tomorrow, I think.” they will say.

And so it goes.

Then the panic sets in.

If you fail to file a written answer, you will be in default. [1]

So, file an answer. Almost any written answer is better than no answer.

While an answer does take some time to prepare, a Motion to Open a Default is a much more dicey affair. A defendant has to show they were not served, or they were not served properly or there was some legal form of excusable neglect (like they were in the ICU or were dead for awhile). It is an uphill battle to open a default.

Do not rely on this Blog, but instead read your Summons. Generally, in Georgia a defendant has thirty (30) days from the date of service of a Complaint [2] to file a written answer with the Clerk of Court. [3] If you miss the 30 day window, all is not lost. A Defendant may move (as a matter of right – you do not have to ask the Court or Judge) to open default by paying all costs associated with Plaintiff’s filing of the Complaint and filing a Motion to Open Default (which will be granted as a matter of right) pursuant to the Official Code of Georgia (hereinafter the “OCGA”) 9-11-55 [4].

There are certain complaints that may be heard prior to thirty (30) days. Any type of injunction hearing probably will be heard prior to the thirty (30) days. An answer to a Writ of Possession Suit (Eviction) is due within Seven (7) days. And an answer in federal court (this article is not about a federal pleadings) is due within twenty one (21) days of service. [5].

While there is no particular “style,” in which the answer must be prepared (see the OCGA for the vague outline), it must be in writing, it must respond (paragraph by paragraph) to the Complaint and it must be filed with the Clerk prior to the time for Default.

In a Georgia State or Superior Court the below template of an answer may be conformed to your particular needs.

http://www.scribd.com/doc/66234330/Blank-Civil-Answer

While I am reticent to cite to another States Court system, the Judiciary of the State of New Jersey has prepared a rather comprehensive overview for the filing of a civil answer in New Jersey. While the dates for filing an answer and other pleadings differ in New Jersey (for example, you have 35 days and have to pay a fee to file in New Jersey) from Georgia, the document s is a well written overview of how to prepare a general answer.

http://www.judiciary.state.nj.us/prose/10554_ans_cmplt.pdf

Affirmative Defenses.

There are some things that must be included in your answer or they are waived or abandoned. They are things like: accord and satisfaction, arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy, estoppel, failure of consideration, fraud, illegality, injury by fellow servant, laches, license, payment, release, res judicata, statute of frauds, statute of limitations, waiver, and any other matter constituting an avoidance or affirmative defense. Generally, Affirmative Defenses are listed Prior to the response in a paragraph by paragraph format. However, they may be listed anywhere in the answer. [6]

Counterclaims and Cross-claims.

You really should consult an attorney if you feel compelled to assert a counterclaim or cross-claim. I would avoid mentioning the counterclaim, except that if you have a compulsory counterclaim you must file it with your answer or lose it. If the counterclaim arises out of the same set of facts as the complaint, it generally is compulsive and you must file it or lose it. If it is some other set of unrelated facts but still about the same Plaintiff (Hey, he owes me $200,000 on a different piece of real estate) then it is probably a permissive counterclaim and may be filed with the answer or later as a separate complaint. Here is the statute that sets out base meanings for same. [7]

Don’t Argue Your Side of the Story in Your Answer.

An answer is NOT the place to argue your case or argue why your side of the “story,” is the correct side of the story. Simply, admit or deny the claims made by the Plaintiff and sit down. The time for your side of the story (unless you include brief outlines of same in your Affirmative Defenses and/or your Counterclaim) will come later in the lawsuit. You will have plenty of opportunities to tell the Judge and Court how “wrong,” the Plaintiff facts are and how much of error it was for the Plaintiff to sue you.

While this little article may provide a place to start working on an answer, I would encourage the reader to hire counsel or review resources concerning Civil Procedure prior to preparing and filing an answer.

Hugh Wood, Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084

www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
twitter: USALawyer_
Phone: 404-633-4100
Fax: 404-633-0068

ENDNOTES

[1]

This Article is for those who have waited to late to hire an attorney to file the answer or are simply going to file an answer on their own. If you file an answer on your own, the Court will formally refer to you as a Pro Se Defendant. This Article is only about Georgia law. Although any written answer is better than no answer, check your own state's civil procedure prior to filing an answer.

[2]

OCGA § 9-11-8. General Rules Of Pleading

(a) Claims for relief.

(1) "Action for medical malpractice" defined. As used in this Code section, the term "action for medical malpractice" means any claim for damages resulting from the death of or injury to any person arising out of:

(A) Health, medical, dental, or surgical service, diagnosis, prescription, treatment, or care rendered by a person authorized by law to perform such services or by any person acting under the supervision and control of a lawfully authorized person; or

(B) Care or service rendered by any public or private hospital, nursing home, clinic, hospital authority, facility, or institution, or by any officer, agent, or employee thereof acting within the scope of his employment.

(2) Form of complaint, generally; action for malpractice. An original complaint shall contain facts upon which the court's venue depends; and any pleading which sets forth a claim for relief, whether an original claim, counterclaim, a cross-claim, or a third-party claim, shall contain:

(A) A short and plain statement of the claims showing that the pleader is entitled to relief; and

(B) A demand for judgment for the relief to which the pleader deems himself entitled; provided, however, that in actions for medical malpractice, as defined in this Code section, in which a claim for unliquidated damages is made for $10,000.00 or less, the pleadings shall contain a demand for judgment in a sum certain; and, in actions for medical malpractice in which a claim for unliquidated damages is made for a sum exceeding $10,000.00, the demand for judgment shall state that the pleader "demands judgment in excess of $10,000.00," and no further monetary amount shall be stated.

Relief in the alternative or of several different types may be demanded.

(3) Sanctions. If the provisions of subparagraph (B) of paragraph (2) of this subsection are violated, the court in which the action is pending shall, upon a proper motion, strike the improper portion of the demand for judgment and may impose such other sanctions, including disciplinary action against the attorney, found in Code Section 9-11-37 as are appropriate.

(b) Defenses; form of denials. A party shall state in short and plain terms his defenses to each claim asserted and shall admit or deny the averments upon which the adverse party relies. If he is without knowledge or information sufficient to form a belief as to the truth of an averment, he shall so state, and this has the effect of a denial. Denials shall fairly meet the substance of the averments denied. When a pleader intends in good faith to deny only a part or a qualification of an averment, he shall specify so much of it as is true and material and shall deny only the remainder.

Unless the pleader intends in good faith to controvert all the averments of the preceding pleading, he may make his denials as specific denials of designated averments or paragraphs, or he may generally deny all the averments except such designated averments or paragraphs as he expressly admits; but, when he does so intend to controvert all its averments, he may do so by general denial subject to the obligations set forth in Code Section 9-11-11.

(c) Affirmative defenses. In pleading to a preceding pleading, a party shall set forth affirmatively accord and satisfaction, arbitration and award, discharge in bankruptcy, duress, estoppel, failure of consideration, fraud, illegality, injury by fellow servant, laches, license, payment, release, res judicata, statute of frauds, statute of limitations, and waiver. When a party has mistakenly designated a defense as a counterclaim or a counterclaim as a defense, the court on terms, if justice so requires, shall treat the pleadings as if there had been a proper designation.

(d) Effect of failure to deny. Averments in a pleading to which a responsive pleading is required, other than those as to the amount of damage, are admitted when not denied in the responsive pleading.

Averments in a pleading to which no responsive pleading is required or permitted shall be taken as denied or avoided.

(e) Pleading to be concise and direct; alternative statements.

(1) Each averment of a pleading shall be simple, concise, and direct. No technical forms of pleading or motions are required.

(2) A party may set forth two or more statements of a claim or defense alternatively or hypothetically, either in one count or defense or in separate counts or defenses. When two or more statements are made in the alternative and one of them, if made independently, would be sufficient, the pleading is not made insufficient by the insufficiency of one or more of the alternative statements. A party may also state as many separate claims or defenses as he has, regardless of consistency and whether based on legal or on equitable grounds or on both. All statements shall be made subject to the obligations set forth in Code Section 9-11-11.

(f) Construction of pleadings. All pleadings shall be so construed as to do substantial justice.

[3]

OCGA § 9-11-12. Answer, Defenses, And Objections; When And How Presented And Heard; When Defenses Waived

(a) When answer presented. A defendant shall serve his answer within 30 days after the service of the summons and complaint upon him, unless otherwise provided by statute. A cross-claim or counterclaim shall not require an answer, unless one is required by order of the court, and shall automatically stand denied.

(b) How defenses and objections presented. Every defense, in law or fact, to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-party claim, shall be asserted in the responsive pleading thereto if one is required, except that the following defenses may, at the option of the pleader, be made by motion in writing:

(1) Lack of jurisdiction over the subject matter;

(2) Lack of jurisdiction over the person;

(3) Improper venue;

(4) Insufficiency of process;

(5) Insufficiency of service of process;

(6) Failure to state a claim upon which relief can be granted;

(7) Failure to join a party under Code Section 9-11-19.

A motion making any of these defenses shall be made before or at the time of pleading if a further pleading is permitted. No defense or objection is waived by being joined with one or more other defenses or objections in a responsive pleading or motion. If a pleading sets forth a claim for relief to which the adverse party is not required to serve a responsive pleading, he may assert at the trial any defense in law or fact to that claim for relief. If, on a motion to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Code Section 9-11-56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Code Section 9-11-56.

(c) Motion for judgment on the pleadings. After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings. If, on a motion for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Code Section 9-11-56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Code Section 9-11-56.

(d) Preliminary hearings. The defenses specifically enumerated in paragraphs (1) through (7) of subsection (b) of this Code section, whether made in a pleading or by motion, and the motion for judgment mentioned in subsection (c) of this Code section shall be heard and determined before trial on application of any party unless the court orders that the hearing and determination thereof be deferred until the trial.

(e) Motion for more definite statement. If a pleading to which a responsive pleading is permitted is so vague or ambiguous that a party cannot reasonably be required to frame a proper responsive pleading, he shall nevertheless answer or respond to the best of his ability, and he may move for a more definite statement. The motion shall point out the defects complained of and the details desired.

If the motion is granted and the order of the court is not obeyed within 15 days after notice of the order, or within such other time as the court may fix, the court may strike the pleading to which the motion was directed or make such order as it deems just.

(f) Motion to strike. Upon motion made by a party within 30 days after the service of the pleading upon him, or upon the court's own initiative at any time, the court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.

(g) Consolidation of defenses in motion. A party who makes a motion under this Code section may join with it any other motions provided for in this Code section and then available to him. If a party makes a motion under this Code section but omits therefrom any defense or objection then available to him which this Code section permits to be raised by motion, he shall not thereafter make a motion based on the defense or objection so omitted, except a motion as provided in paragraph (2) of subsection (h) of this Code section on any of the grounds there stated.

(h) Waiver or preservation of certain defenses.

(1) A defense of lack of jurisdiction over the person, improper venue, insufficiency of process, or insufficiency of service of process is waived:

(A) If omitted from a motion in the circumstances described in subsection (g) of this Code section; or

(B) If it is neither made by motion under this Code section nor included in a responsive pleading, as originally filed.

(2) A defense of failure to state a claim upon which relief can be granted, a defense of failure to join a party indispensable under Code Section 9-11-19, and an objection of failure to state a legal defense to a claim may be made in any pleading permitted or ordered under subsection (a) of Code Section 9-11-7, or by motion for judgment on the pleadings, or at the trial on the merits.

(3) Whenever it appears, by suggestion of the parties or otherwise, that the court lacks jurisdiction of the subject matter, the court shall dismiss the action.

(i) Officer's defense of service. The officer making service of process and the principal officer in charge of service made by a deputy need not be made a party to any action or motion where the defense or defenses under paragraph (2), (4), or (5) of subsection (b) of this Code section are asserted by motion or by answer. Any party to the action may give notice of the objection to the service, made pursuant to such paragraphs, to the officer making the service and to the principal officer in case of service made by a deputy, and the court shall afford the officer or officers opportunity to defend the service, in which case the decision on the question of service shall be conclusive on the officer and on his principal in case of service by a deputy.

(j)(1)Stay of discovery.If a party files a motion to dismiss before or at the time of filing an answer and pursuant to the provisions of this Code section, discovery shall be stayed for 90 days after the filing of such motion or until the ruling of the court on such motion, whichever is sooner. The court shall decide the motion to dismiss within the 90 days provided in this paragraph.

(2) The discovery period and all discovery deadlines shall be extended for a period equal to the duration of the stay imposed by this subsection.

(3) The court may upon its own motion or upon motion of a party terminate or modify the stay imposed by this subsection but shall not extend such stay.

(4) If a motion to dismiss raises defenses set forth in paragraph (2), (3), (5), or (7) of subsection (b) of this Code section or if any party needs discovery in order to identify persons who may be joined as parties, limited discovery needed to respond to such defenses or identify such persons shall be permitted until the court rules on such motion.

(5) The provisions of this subsection shall not modify or affect the provisions of paragraph (2) of subsection (f) of Code Section 9-11-23 or any other power of the court to stay discovery.

[4]

OCGA § 9-11-55. Default Judgment

(a) When case in default; opening as matter of right; judgment. If in any case an answer has not been filed within the time required by this chapter, the case shall automatically become in default unless the time for filing the answer has been extended as provided by law.

The default may be opened as a matter of right by the filing of such defenses within 15 days of the day of default, upon the payment of costs. If the case is still in default after the expiration of the period of 15 days, the plaintiff at any time thereafter shall be entitled to verdict and judgment by default, in open court or in chambers, as if every item and paragraph of the complaint or other original pleading were supported by proper evidence, without the intervention of a jury, unless the action is one ex delicto or involves unliquidated damages, in which event the plaintiff shall be required to introduce evidence and establish the amount of damages before the court without a jury, with the right of the defendant to introduce evidence as to damages and the right of either to move for a new trial in respect of such damages; provided, however, in the event a defendant, though in default, has placed damages in issue by filing a pleading raising such issue, either party shall be entitled, upon demand, to a jury trial of the issue as to damages.

An action based upon open account shall not be considered one for unliquidated damages within the meaning of this Code section.

[5]

Federal Rule of Civil Procedure 12

Rule 12. Defenses and Objections: When and How Presented; Motion for

Judgment on the Pleadings; Consolidating Motions; Waiving Defenses;

Pretrial Hearing

(a) Time to Serve a Responsive Pleading.

(1) In General.

Unless another time is specified by this rule or a federal statute, the time for serving a responsive pleading is as follows:

(A) A defendant must serve an answer: (i) within 21 days after being served with the summons and complaint;

(ii) if it has timely waived service under Rule 4(d), within 60 days after the request for a waiver was sent, or within 90 days after it was sent to the defendant outside any judicial district of the United States.

(B) A party must serve an answer to a counterclaim or crossclaim within 21 days after being served with the pleading that states the counterclaim or crossclaim.

(C) A party must serve a reply to an answer within 21 days after being served with an order to reply, unless the order specifies a different time.

[6]

Affirmative Defenses

Examples

* civil law

o accord and satisfaction

o assumption of risk (when the plaintiff knowingly entered into a dangerous situation)

o authority

o consent

o defense of property

o estoppel

o contract specification

o contractual provision (when the defendant's liability for causing the plaintiff's injuries had been waived in the contract; however, these provisions are typically unconscionable in many situations.)

o contributory negligence (when the plaintiff's actions contributed to his own injury)

o fair use

o laches (similar to statute of limitation)

o merger doctrine

o repossession

o statute of frauds

o statute of limitations (too much time has elapsed between the tort and the complaint)

o waiver

* criminal law

o insanity defense

o necessity

o duress

o self defense

o statute of limitation

o truth

& & &

A defendant offers an affirmative defense when responding to a plaintiff's claim in common law jurisdictions, or, more familiarly, in criminal law. Essentially, the defendant affirms that the condition is occurring or has occurred but offers a defense that bars, or prevents, the plaintiff's claim. An affirmative defense is known, alternatively, as a justification, or an excuse, defense.[1] Consequently, affirmative defenses limit or excuse a defendant's criminal culpability or civil liability.

A clear illustration of an affirmative defense is self defense.[2] In its simplest form, a criminal defendant may be exonerated if he can demonstrate that he had an honest and reasonable belief that another's use of force was unlawful and that the defendant's conduct was necessary to protect himself.

"Mistake of fact" is not an affirmative defense: it does not require proof but it does introduce doubt. In mistake-of-fact defenses, the defendant asserts that his mistaken belief prevents the establishment, beyond a reasonable doubt, of the required mens rea. It can be used with other defenses such as self defense. Self defense would still be available even if the defendant mistakenly believes that he was in imminent danger of harmful or offensive bodily contact.

Among the most controversial affirmative defenses is the insanity defense,[3] whereby a criminal defendant seeks to be excused from criminal liability on the ground that a mental illness, at the time of the alleged crime, prevented him from understanding the wrongful nature of his actions.

Most affirmative defenses must be pled in a timely manner by a defendant in order for the court to consider them, or else they are considered waived by the defendant's failure to assert them. The classic unwaivable affirmative defense is lack of subject-matter jurisdiction. The issue of timely assertion is often the subject of contentious litigation.

Because an affirmative defense requires an assertion of facts beyond those claimed by the plaintiff, generally the party who offers an affirmative defense bears the burden of proof.[4] The standard of proof is typically lower than beyond a reasonable doubt. It can either be proved by clear and convincing evidence or by a preponderance of the evidence. In some cases or jurisdictions, however, the defense must only be asserted, and the prosecution has the burden to prove beyond a reasonable doubt that the defense is not applicable.[citation needed]

Rule 8 of the Federal Rules of Civil Procedure governs the assertion of affirmative defenses in civil cases that are filed in the United States district courts. Rule 8(c) specifically enumerates the following defenses: "accord and satisfaction, arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy, estoppel, failure of consideration, fraud, illegality, injury by fellow servant, laches, license, payment, release, res judicata, statute of frauds, statute of limitations, waiver, and any other matter constituting an avoidance or affirmative defense."

Rule 11 of the Federal Rules of Civil Procedure requires that affirmative defenses be based on "knowledge, information, and belief, formed after an inquiry reasonable under the circumstances," and cannot consist of a laundry list of all known affirmative defenses.[5]

An affirmative defense can be different from a negating defense. A negating defense is one which tends to negate an essential element of the state's case. An example might be a mistake of fact claim in a prosecution for intentional drug possession, where the defendant asserted that he or she mistakenly believed that the object possessed was an innocent substance like oregano. Because this defense simply shows that an essential element of the offense is not present, the defendant does not have any burden of persuasion with regards to a negating defense. At most the defendant has the burden of producing sufficient evidence to raise the issue

[7]

OCGA § 9-11-13. Counterclaim And Cross-claim

(a) Compulsory counterclaims. A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction. But the pleader need not state the claim if (1) at the time the action was commenced the claim was the subject of another pending action, or (2) the opposing party brought an action upon his claim by attachment or other process by which the court did not acquire jurisdiction to render a personal judgment on that claim, and the pleader is not stating any counterclaim under this Code section, or (3) the claim is not within the jurisdiction of the court.

(b) Permissive counterclaims. A pleading may state as a counterclaim any claim against an opposing party not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim. But any such permissive counterclaim shall be separated for the purposes of trial, unless the parties otherwise agree.

(c) Counterclaim exceeding opposing claim. A counterclaim may or may not diminish or defeat the recovery sought by the opposing party. It may claim relief exceeding in amount or different in kind from that sought in the pleading of the opposing party.

(d) Counterclaim against the state. This Code section shall not be construed to enlarge beyond the limits fixed by law the right to assert counterclaims or to claim credits against the state or an officer or agency thereof.

(e) Counterclaim maturing or acquired after pleading. A claim which either matured or was acquired by the pleader after serving his pleading may, with the permission of the court, be presented as a counterclaim by supplemental pleading.

(f) Omitted counterclaim. When a pleader fails to set up a counterclaim through oversight, inadvertence, or excusable neglect, or when justice requires, he may by leave of court set up the counterclaim by amendment.

(g) Cross-claim against coparty. A pleading may state as a cross-claim any claim by one party against a coparty arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein or relating to any property that is the subject matter of the original action. The cross-claim may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.

(h) Additional parties may be brought in. When the presence of parties other than those to the original action is required for the granting of complete relief in the determination of a counterclaim or cross-claim, the court shall order them to be brought in as defendants as provided in this chapter, if jurisdiction of them can be obtained.

(i) Separate trials; separate judgments. If the court orders separate trials as provided in subsection (b) of Code Section 9-11-42 judgment on a counterclaim or cross-claim may be rendered in accordance with the terms of subsection (b) of Code Section 9-11-54 when the court has jurisdiction to do so, even if the claims of the opposing party have been dismissed or otherwise disposed of.

END

&&&&

Form Answer Below:

_______________________________________________________________

IN THE _____________ [1] COURT OF ___________ [2] COUNTY

STATE OF GEORGIA

_____________________, [3]

Plaintiff, CIVIL ACTION

FILE NO.

________________ [5]

vs.

_____________________, [4]

Defendant.

________________________________

DEFENDANT(S) ANSWER, and

AFFIRMATIVE DEFENSES [6]

COMES NOW, ___________________[3], Defendant herein and hereby Answers, Responds, Replies and interposes Affirmative Defenses in response to Plaintiff’s Complaint filed in the _____________[1] Court of _____________[2] County, Georgia.

Defendant shows the Court as follows:

FIRST DEFENSE

Plaintiff’s Complaint against _____________[4] fails to state a claim upon which relief may be granted and therefore, same should be dismissed.

SECOND DEFENSE

Plaintiff asserts [___] [7] insufficiency of process and/or [___] insufficiency of service of process, pursuant to OCGA § 9-11-4.

THIRD DEFENSE

To the extent as may be shown through discovery or pleadings in this action, _____________[3] raises all affirmative defenses as set forth in OCGA § 9‑11‑8(c), to the extent each on is checked: [___] accord and satisfaction, [___] duress, [___] estoppel, [___] promissory estoppel, [___] payment, [___] set-off, [___] failure of consideration, [___] fraud, [___] illegality, [___] laches, [___] payment, [___] release, [___] res judicata, [___] statute of frauds, [___] statute of limitations, and [___] waiver.

__________ DEFENSE

By way of response to the specific allegations contained in Plaintiff’s Complaint against _____________[4] and subject to all of the defenses set forth herein, _____________ [4] shows to this Court as follows:

COMPLAINT

This Defendant is without sufficient knowledge or information to admit or deny this averment therefore this averment stands Denied.

JURISDICTION AND VENUE

This Defendant is without sufficient knowledge or information to admit or deny this averment therefore this averment stands Denied.

10.

This Defendant is without sufficient knowledge or information to admit or deny this averment therefore this averment stands Denied.

Any paragraph of the Complaint not specifically admitted is hereby denied.

WHEREFORE, Defendant, with regard to Plaintiff’s Complaint, prays that this Court:

1) Deny all relief that Plaintiff prays for in its Complaint; and,

2) That Plaintiff’s Complaint be dismissed with all costs of this action cast upon the Plaintiff.

This _____ day of __________________, 20___.

Respectfully submitted,

_x______________________

_____________,

Pro Se

___________________

Address and Phone Number

of Defendant

_______________________________________________________________

IN THE _____________ [1] COURT OF ___________ [2] COUNTY

STATE OF GEORGIA

_____________________, [3]

Plaintiff, CIVIL ACTION

FILE NO.

________________ [5]

vs.

_____________________, [4]

Defendant.

________________________________

CERTIFICATE OF SERVICE OF

_____________’S ANSWER, and

AFFIRMATIVE DEFENSES

I hereby certify that I have served a copy of:

_____________’S ANSWER, and

AFFIRMATIVE DEFENSES

on the Plaintiff by placing a true and correct copy of same in the United States Mail, First Class, postage prepaid, addressed to the Defendants as follows:

[Name and Address of Plaintiff’s Attorney, or, if none –Plaintiff]

This _____ day of __________________, 20___.

Respectfully submitted,

_x______________________

_____________,

Pro Se

___________________

Address and Phone Number

of Defendant

_______________________________________________________________

FORM NOTES

[1]

In Georgia, this will be either the SUPERIOR, or STATE or MAGISTRATE Court.

[2]
In Georgia, this will be one of the 159 Counties. For example, Fulton, DeKalb, Cobb, Gwinnett, Chatham, Muscogee, Bibb, etc.

[3]

Name of the Plaintiff who/that filed the suit.

[4]

Name of the Defendant(s), who/that have been sued.

[5]

This Number will be on the Complaint and Summons. It needs to be written or typed onto your Answer prior to filing.

[6]

An Answer is mandatory. Affirmative Defenses are not mandatory; however, if they are not raised in the initial answer they are waived. Additionally, if Defendant(s) chooses to file a Counterclaim, it should be listed (additionally) in this header. If you file a Counterclaim, you must ask for a Jury Trial at the time you file your Counterclaim or it is waived. Plaintiff may have already petitioned for one in the main Complaint.

[7]

Any box such as [___] indicates that Defendants should check any that apply. Or, if it retyped (which it should be), list only the Affirmative Defenses that apply.

Can A Lender Assign A Mortgage After The Advertisement Is Published?

2011-09-07T09:52:00.000-07:00

Georgia is a non-judicial foreclosure state that requires strict performance with the notice requirements for a courthouse steps foreclosure sale. Can a lender after it starts the advertising process assign the debt to another lender, record the assignment and proceed to the stairs to foreclose? Well, in Georgia, we really don't know.

In this rarified world of "who owns the debt on the date of sale," the assignments of secured debt prior to foreclosure (and even immediately prior to sale) are not uncommon.

An assignment of a Security Deed after the advertisement runs in Georgia seems to set up three (3) potential problems with a foreclosure sale.

1. The post in time assignment and recording of same creates inaccurate information concerning the defined lender in the advertisement;

2. The post in time assignment and recording of same creates a potential argument by the borrower to later assert that the sale by different lender "chilled the bidding," as a matter of fact; and,

3. The post in time assignment and recording of same sets up a factual challenge to the foreclosure under the new OCGA § 44-14-162.2 "contact the lender" requirements.

With regard to challenges 1 and 2 stated above, the Georgia Court of Appeals recently reversed the grant of a summary judgment to a lender who assigned its security deed and debt AFTER the advertisement on the foreclosure had run. In returning the case to the trial court, the Georgia Court of Appeals focused on the possible factual errors associated with the assignment and recording of the transfer of the security deed AFTER the advertisement had run in the legal organ.

While it is a heavily fact-based analysis, the Georgia Court of Appeals wrote:

The dispositive question is whether the secured creditor exercised the power of sale 'fairly and in good faith.' [Citations omitted.] The May 19 and May 30 advertisements contained inaccurate information regarding the foreclosing party. But other evidence shows that interested persons had at least constructive notice of the proper party prior to sale. So the record does not demonstrate that, as a matter of law, the bidding was chilled or the sale was unfair; and the trial court erred in setting aside the foreclosure sale on summary judgment.

We cannot agree with the secured creditor, however, that it was entitled to summary judgment regarding the validity of the foreclosure sale. As noted above, the secured creditor did not file the assignment document until four days before the sale. Moreover, it has pointed to no evidence conclusively showing that, as a matter of law, the misinformation in the advertisement did not impact the bidding or that the sale was otherwise conducted fairly and in good faith. Simply put, questions or facts remain as to the sale's validity. Accordingly, we reversed [the summary judgment granted to lender in the lower court]. "Amirfazli v. Vatacs Group, Inc., et al., Georgia Court of Appeals, Case Nos. A11A1165; A11A1166; MC051; and, MC052. (July 21, 2011).

The Scribd document of Amirfazli may be found at:

http://www.scribd.com/doc/64135785/AmirfazlivVATACSGroupIncGACOA07212011

With regard to the third (3) issue listed above, it may be that a post assignment and recordation of an assignment runs afoul of the publishing requirements associated with OCGA § 44-14-162.2. Generally, the new advertising notices contain statements including the name, address and telephone number of the individual or entity who shall "have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor … " OCGA § 44-14-162.2(a). If and in the event a Security Deed and Note is assigned after the advertisement runs, it is almost a certainty (but it is possible that the same servicer will service both lenders) that the listing of the individual or entity given legal authority to negotiate the debt has changed. Thus, the stated person to modify the loan would now be different from the assigned and recorded entity post end time to the advertisement. This change in the advertising data may set up a fatal error associated with the non-judicial foreclosure.

While most borrowers simply have no resources to challenge these issues (and we long ago quit representing borrowers on any type of contingency arrangement) if any lenders are taken to task on post end-time assignments, borrowers may have new factual arguments under the Amirfazli, supra, case and may be able to assert that the information required under OCGA § 44-14-162.2(a), is factually wrong.

Additionally, if a lender attempts to proceed to a deficiency judgment claim (albeit it would be rare in an assignment case immediately prior to sale), a borrower would have a good defense to a post OCGA § 44-14-161 confirmation action. This new defense to confirmation would exist because the information listed and published with the foreclosure would be at variance with the strict requirements of the publication of foreclosure.

The above interesting thoughts and ideas arose from a conversation with the ever creative and “out of the box” thinking attorney Rick Alembik, Decatur, Georgia.

Hugh Wood

Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
twitter: USALawyer_
Phone: 404-633-4100
Fax: 404-633-0068

Federal Appellate Court Sanctions Lender's Attorney for Inaccurate Foreclosure Information

2011-08-30T23:36:00.000-07:00

The United States Court of Appeals for the 3^rd Circuit upheld a Bankruptcy Court’s imposition of Rule 11 [actually R. Bank. P. 9011] sanctions against high-volume lenders attorneys who filed pleadings in Bankruptcy Court with no review of the accuracy of the information listed in the pleadings. It sanctions the attorneys, in part, because the attorneys had no real ability to determine the accuracy of the information in the pleadings.

The law firm sanctioned and it signatory managing attorney represented lender HSBC. Lender forwarded all data to the law firm via a third party vendor LPS. The information conduit owned and run by vendor LPS was known as NewTrak. The computer system (NewTrak) funneled information on borrowers, in this case debtors in bankruptcy, concerning their arrearages and their default – which would lead to a Lift the Stay Motion and Foreclosure by the HSBC.

When the Bankruptcy Court became concerned that the lender’s filings were significantly inaccurate (and in fairness, the debtor’s information was inaccurate) the bankruptcy court scheduled a hearing requiring the lender law firm to show how it arrived at the information in the HSBC pleadings. The associate for the law firm appeared and indicated the he could not even reach a human being at HSBC despite numerous attempts and he had no further information other than the NewTrak data.

When the lender firm could not substantiate the HSBC information, the bankruptcy court scheduled a Rule 9011 [similar to Rule 11] hearing to determine whether to sanction the firm and the attorneys. When the attorneys presented no further information from HSBC at the sanctions hearing, other than the information received from NewTrak which was inaccurate, the Court sanctioned the law firm and attorneys for failing to conduct even a minimal investigation prior to filing factual pleadings with the Court. The Court was particularly concerned with the fact that once HSBC loaded inaccurate information into the computer pipeline there became no easy way for anyone (actually there was no way) to confirm or deny the accuracy of the information. Thereafter, the Court found that each level beyond the loading of the information – including the attorneys – either denied actual knowledge of the factual basis of the information or simply blamed the inaccuracies on the technology of the information pipeline. The Court was particularly concerning that no human being at the law firm interfaced with the lender, HSBC.

The District Court reversed the Bankruptcy Court; however, the 3^rd Circuit reversed the District Court and reinstated the Rule 11 sanctions against the law firm and managing attorney. HSBC was sanctioned and failed to appeal.

The Scribd to the case is listed below and the text of the opinion is listed in the footnotes.

Scribd:

http://www.scribd.com/doc/63633990/Taylor-v-Deangelis-United-States-Court-of-Appeals-for-the-3rd-Circuit-No-10-2154-March-22-2011

Hugh Wood

Atlanta, GA

Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084

www.woodandmeredith.com

hwood@woodandmeredith.com
www.hughwood.blogspot.com
twitter: USALawyer_
Phone: 404-633-4100
Fax: 404-633-0068

EndNotes

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 10-2154

In re: NILES C. TAYLOR; ANGELA J. TAYLOR,

Debtors

ROBERTA A. DEANGELIS, Acting United States Trustee,

Appellant

On Appeal from the District Court

for the Eastern District of Pennsylvania

(No. 09-cv-02479, 07-cv-15385 (bankruptcy))

District Judge: Honorable John P. Fullam

Argued March 22, 2011

Before: FUENTES, SMITH and VAN ANTWERPEN,

Circuit Judges

(Opinion Filed: August 24, 2011)

Frederic J. Baker, Esq.

Robert J. Schneider, Esq.

George M. Conway, Esq.

United States Department of Justice Office of the United States Trustee 833 Chestnut St., Suite 500

Philadelphia, PA 19107

Ramona Elliott, Esq.

P. Matthew Sutko, Es.q

John P. Sheahan, Esq. (argued)

United States Department of Justice

Executive Office for United States Trustees

20 Massachusetts Ave. NW, Suite 8100

Washington, DC 20530

Attorneys for Appellant

Jonathan J. Bart, Esq. (argued)

Wilentz Goldman & Spitzer, P.A.

Two Penn Center Plaza, Suite 910

Philadelphia, PA 19102

Attorney for Appellees

OPINION

Fuentes, Circuit Judge

The United States Trustee, Region 3 (“Trustee”),5HJLRQ ^ ^ ^ ^ 37UXVW1= appeals the reversal by the District Court of sanctions

originally imposed in the bankruptcy court on attorneys Mark

J. Udren and Lorraine Doyle, the Udren Law Firm, and HSBC for violations of Federal Rule of Bankruptcy Procedure 9011. For the reasons given below, we will reverse the District Court and affirm the bankruptcy court^s¶V ^ imposition of sanctions with respect to Lorraine Doyle, the Udren Law Firm, and HSBC.1 However, we will affirm the District Court^ s reversal of the bankruptcy court^s sanctions with respect to Mark J. Udren.

A. Background

This case is an unfortunate example of the ways in which overreliance on computerized processes in a high-volume practice, as well as a failure on the part of clients and lawyers alike to take responsibility for accurate knowledge of a case, can lead to attorney misconduct before a court. It arises from the bankruptcy proceeding of Mr. and Ms. Niles C. and Angela J. Taylor. The Taylors filed for a Chapter 13 bankruptcy in September 2007. In the Taylors^ bankruptcy petition, they listed the bank HSBC, which held the mortgage on their house, as a creditor. In turn, HSBC filed a proof of claim in October 2007 with the bankruptcy court.

We are primarily concerned with two pleadings that HSBC^s attorneys filed in the bankruptcy court²(1) the request for relief from the automatic stay which would have permitted HSBC to pursue foreclosure proceedings despite the Taylors^ bankruptcy filing and (2) the response to the

1 Although HSBC was sanctioned by the bankruptcy court, it did not participate in this appeal.

Taylors^ objection to HSBC^ s proof of+ claim. W e ar e also1 ^ FODLP concerned with the attorneys^ conduct in court in connection FRXUW ^ LQ ^ FR with those pleadings. We draw our facts from the findings of

the bankruptcy court.

1. The proof of claim (Moss Codilis law firm)

To preserve its interest in a debtor^s estate in aDWH ^ LQ ^ D

personal bankruptcy case, a creditor must file with the court a proof of claim, which includes a statement of the claim and of its amount and supporting documentation. Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440, 447 (2004); Fed. R. Bank. P. 3001; Official Bankruptcy Form 10. In October 2007, HSBC filed such a proof of claim with respect to the Taylors^ mortgage. To do so, it used the law firm Moss Codilis.2 Moss retrieved the information on which the claim

was based from HSBC ^s computerized mortgage servicing PRUWJDJH ^ VHUYLFLQ database. No employee of HSBC reviewed the claim before filing.

This proof of claim contained several errors: the amount of the Taylors^ monthly payment was incorrectly stated, the wrong mortgage note was attached, and the value

2 Moss Codilis is not involved in the present appeal. However, it is worth noting that the firm has come under serious judicial criticism for its lax practices in bankruptcy

proceedings. “In total, 3[th e court knows] of 23 instances in ^ NQRZV@ ^ RI ^ ^ ^ ^ L which [Moss Codilis] has violated [court rules] in this District alone.” Ini re Greco, 405 B.R. 393, 394 (Bankr. S.D. Fla. 2009); see also In re Waring, 401 B.R. 906 (Bankr. N.D. Ohio 2009).

of the home was understated by about $100,000. It is not

clear whether the errors originated in HSBC^s database or LQ ^ +6%&¶V ^ GDWDE whether they were introduced in Moss Codilis^s filing.3LQJ

2. The motion for relief from stay

At the time of the bankruptcy proceeding, the Taylors were also involved in a payment dispute with HSBC. HSBC believed the Taylors^ home to be in a flood zone and had

obtained “forced insurance” for the property, the cost of^ SURSHUW\^ ^ WKH ^ which (approximately $180/month) it passed on to the Taylors. The Taylors disputed HSBC^s position and continued to pay their regular mortgage payment, without the additional insurance costs.4 HSBC failed to acknowledge that the Taylors were making their regular payments and instead treated each payment as a partial payment, so that, in its records, the Taylors were becoming more delinquent each month.

Ordinarily, the filing of a bankruptcy petition imposes an automatic stay on all debt collection activities, including

foreclosures. McCartney v. Integra ,Nat’l Bank North, 106P/oDQN^ IRUWK

F.3d 506, 509 (3d Cir. 1997). However, pursuant to 11 U.S.C. § 362(d)(1), a secured creditor may file for relief from the stay “for cause, including the lack of adequate protection of an interest in property” of the creditor, in order to permit it to commence or continue foreclosure proceedings. Because

3 HSBC ultimately corrected these errors in an amended court filing.

4 This dispute has now been resolved in favor of the Taylors. (App. 199.)

of the Taylors^ withheld insurance payments, HSBC^s records ^ ^ +6%&¶V ^ UHFRUGV indicated that they were delinquent. Thus, in January 2008,

HSBC retained the Udren Firm to seek relief from the stay.

Mr. Udren is the only partner of the Udren Firm; Ms. Doyle, who appeared for the Udren Firm in the Taylors^ case,¶ is a managing attorney at the firm, with twenty-seven years of experience. HSBC does not deign to communicate directly with the firms it employs in its high-volume foreclosure work; rather, it uses a computerized system called NewTrak (provided by a third party, LPS) to assign individual firms discrete assignments and provide the limited data the system deems relevant to each assignment.5 The firms are selected and the instructions generated without any direct human involvement. The firms so chosen generally do not have the capacity to check the data (such as the amount of mortgage payment or time in arrears) provided to them by NewTrak and are not expected to communicate with other firms that may have done related work on the matter. Although it is technically possible for a firm hired through NewTrak to contact HSBC to discuss the matter on which it has been retained, it is clear from the record that this was discouraged

5 LPS is also not involved in the present appeal, as the bankruptcy court found that it had not engaged in wrongdoing in this case. However, both the accuracy of its data and the ethics of its practices have been repeatedly called into question elsewhere. See, e.g., In re Wilson, 2011 WL 1337240 at *9 (Bankr. E.D.La. Apr. 7, 2011) (imposing

sanctions after finding that LPS had issued “sham”/ affidavits ^ LVVXHG ^ 3VKDP' ^ DI and perpetrated fraud on the court); In re Thorne, 2011 WL 2470114 (Bankr. N.D. Miss. June 16, 2011); In re Doble, 2011 WL 1465559 (Bankr. S.D. Cal. Apr. 14, 2011).

and that some attorneys, including at least one Udren Firm attorney, did not believe it to be permitted.

In the Taylors^ case, NewTrak provided the Udren Firm with only the loan number, the T aylors^ name and address, payment amounts, late fees, and amounts past due. It did not provide any correspondence with the Taylors concerning the flood insurance dispute.

In January 2008, Doyle filed the motion for relief from the stay. This motion was prepared by non-attorney employees of the Udren Firm, relying exclusively on the information provided by NewTrak. The motion said that the debtor “has failed to discharge arrearages on said mortgage or has failed to make the current monthly payments on said

mortgage since” the filing of theI bankruptcy petition. (App.XSWF\^ SHWLWLRQ C 65. ) I t identified “the failure t o3 make . . . post-petition ^ PDNH monthly payments” as stretching from November 1,f 2007 to1 January 15, 2008, with an “amount per month” of $1455 (a RI F] ^ ^ ^ ^ ^ monthly payment higher than that identified on the proof of claim filed earlier in the case by the Moss firm) and a total in arrears of $4367. (App. 66.) (It did note a “suspenseHQVH^ balance” of $1 040, which it subtracted from the ultimate total sought from the Taylors, but with no further explanation.) It stated that the Taylors had “inconsequential or no equity” inU ^ QR ^ HTXLW\' ^ LQ ^ the property.6 Id. The motion never mentioned the flood insurance dispute.

6 The U. S. Trustee now points out that the motion also claimed that the Taylors were not making payments to other creditors under their bankruptcy plan and argues that this claim was false as well. Since the bankruptcy court did not

Doyle did nothing to verify the information in the

motion for relief from stay besides check it against “screenJDLQVW ^ 3VFUHHQ ^ prints” of the NewTrak information. She did not even access^ 6KH ^ GLG ^ QRW ^ HYJ NewTrak herself. In effect, she simply proofread the document. It does not appear that NewTrak provided the Udren Firm with any information concerning the Taylors^RUV¶ ^ equity in their home, so Doyle could not have verified her statement in the motion concerning the lack of equity in any way, even against a “screen print.”3VFUHHQ^SULQW

At the same time as it filed for relief from the stay, the Udren Firm also served the Taylors with a set of requests for admission (pursuant to Federal Rule of Bankruptcy Procedure 7036, incorporating Federal Rule of Civil Procedure 36) (“ RFAs” ). The RFAs sought formal and binding admissions that the Taylors had made no mortgage payments from November 2007 to January 2008 and that they had no equity in their home.

In February 2008, the Taylors filed a response to the motion for relief from stay, denying that they had failed to make payments and attaching copies of six checks tendered to HSBC during the relevant period. Four of them had already been cashed by HSBC.7

make any findings with respect to this issue, we will not consider it.

7 It is not clear from the briefing whether the last two checks, for February and March 2008, had actually been submitted to HSBC at the time the motion was filed; appellees deny that they were. However, appellees do not dispute that checks for

3. The claim objection and the response to the claim objection

In March 2008, the Taylors also filed an objection to

HSBC^s proof of claim. The objection stated that HSBC had ^ VWDWHG ^ WKDW ^ + misstated the payment due on the mortgage and pointed out the dispute over the flood insurance. However, the Taylors did not respond to HSBC^s RFAs. Unless a party responds properly to a request for admission within 30 days, the “matter is [deemed] admitted.” Fed. R. Civ. P. 36(a)(3).

In the same month, Doyle filed a response to the objection to the proof of claim. The response did not discuss

the flood insurance issue at all. However, i t stated that “[a]l l^ +RZHYHU ^ ^ LW ^ VW figures contained in the proof of claim accurately reflect actual sums expended . . . by Mortgagee . . . and/or charges to which Mortgagee is contractually entitled and which the Debtors are contractually obligated to pay.”^ (App. 91.) This WR^ SD\^ ' ^ ^

was indisputably incorrect, because the proof of claim listed an inaccurate monthly mortgage payment (which was also a different figure from the payment listed in Doyle^s ownZQ motion for relief from stay).

4. The claim hearings

In May 2008, the bankruptcy court held a hearing on both the motion for relief and the claim objection. HSBC was represented at the hearing by a junior associate at the Udren Firm, Mr. Fitzgibbon. At that hearing, Fitzgibbon ultimately

October and November 2007 and January 2008 had been cashed.

admitted that, at the time the motion for relief from the stay was filed, HSBC had received a mortgage payment for November 2007, even though both the motion for stay and the

response to th e Taylo rs^ objection to the proof of claim statedVR ^ WKH ^ SUR otherwise.8 Despite this, Fitzgibbon urged the court to grant the relief from stay, because the Taylors had not responded to

HSBC^s RFAs (which included the “admission” that 3th erPLVVLRQ' ^ WKDW ^ Taylors had not made payments from November 2007 to January 2008). It appears from the record that Fitzgibbon initially sought to have the RFAs admitted as evidence even though he knew they contained falsehoods. (App. 101-102.)9

8 Appellees concede that, by the time the May hearing was held, HSBC had received all of the relevant checks.

9 Appellees now claim that “[i]t is clear from th e record, that Mr. Fitzgibbon honestly disclosed to the Court that these checks had just been received by [the] Udren [Firm] and that

the only issue was that o f flood insurance.” (App^ee Br. 16.)VXUDQF1HIH M ^ However, this disclosure did not occur until after Fitzgibbon had attempted to enter the RFAs, which made contrary

claims, as evidence, lan d debto r^s counsel raised the issue. AsDLVHG ^ WKH ^ LVVXH the bankruptcy court described it, “[Fitzgibbon] first argued that I should rule in HSBC^s favor . . . On probing b y the court, he acknowledged that as of the date of the continued hearing, he had learned that [the Taylors] had made every payment.” (App. 196, emphasis added.) In a Rule 9011/11 proceeding such as the present one, one would expect the challenged parties to be scrupulously careful in their representations to the court.

The bankruptcy court denied the request to enter the

RFAs as evidence, noting that the firm “closed their eyes to ^ WKHLU ^ H\HV ^ WR the fact that there was evidence that . . . conflicted with the very admissions that they asked me [to deem admitted]. They . . . had that evidence [that the assertions in its motion were not accurate] in [their] possession and [they] went ahead like [they] never saw it.” (App. 108-109.) The court noted:

Maybe they have somebody there churning out

these motions that doesn^t talk to the peopleW ^ WDON ^ WR ^ WKH ^ SHR that²you know, you never see the records, do you? Somebody sends it to you that sent it from somebody else.

(App. 109. )^ “ I really find this motion to be in questionable7 W good faith,” the court concluded. (App. 112.)

After the hearing, the bankruptcy court directed the Udren Firm to obtain an accounting from HSBC of the Taylors^ prepetition payments so that the arrearage on the mortgage could be determined correctly. At the next hearing, in June 2008, Fitzgibbon stated that he could not obtain an accounting from HSBC, though he had repeatedly placed requests via NewTrak. He told the court that he was literally unable to contact HSBC²his firm^s client²directly to verify information which his firm had already represented to the court that it believed to be true.

At the end of the June 2008 hearing, the court told Fitzgibbon: “I^m 3issuing an order to show cause on your firm, too, for filing these things . . . without having any knowledge.

And filing answers . . . without any^ knowledge.” (App. 1 19.)\^ NQRZOHGJH ^ ' ^ ^ ^ $ Thereafter, the court entered an order sua sponte dated June

9, 2008, directing Fitzgibbon, Doyle, Udren, and others to appear and give testimony concerning the possibility of sanctions.

5. The sanctions hearings

The order stated that the purpose of the hearing

included “to investigate the practices employed in this case byLFHV ^ HPSOR\HG ^ LQ ^ V HSBC and its attorneys and agents and consider whether sanctions should issue against HSBC, its attorneys and agents.” (App 96-98.) Among those practices were “pressingZHUH ^ 3SUHVVLQJ ^

a relief motion on admissions that were known to be untrue, and signing and filing pleadings without knowledge or

inquiry regarding the matters pled therein.” Id. The order WKHUHLQ ^ ' ^ ^

noted that “[t]he details are identified on the record of theHQWLILHG ^ RQ ^ WKH [ hearings which are incorporated herein.” Id. In orderingJHLQ ^ ' ^ ^ Doyle to appear, the order noted that “the motion for relief,KDW^ 3WKH^ PRWLRQ the admissions and the reply to the objection were prepared over D oyle^s name and signature.” Id. However, this order was no t formally identified as “an order to show cause.” ^ RUGHU ^ WR^ VKRZ ^ FDX'

The bankruptcy court held four hearings over several days, making in-depth inquiries into the communications between HSBC and its lawyers in this case, as well as the general capabilities and limitations of a system like NewTrak. Ultimately, it found that the following had violated Rule 9011: Fitzgibbon, for pressing the motion for relief based on claims he knew to be untrue; Doyle, for failing to make reasonable inquiry concerning the representations she made in the motion for relief from stay and the response to the claim objection; Udren and the Udren Firm itself, for the conduct of its attorneys; and HSBC, for practices which caused the failure to adhere to Rule 9011.

Because of his inexperience, the court did not sanction Fitzgibbon. However, it required Doyle to take 3 CLE credits in professional responsibility; Udren himself to be trained in the use of NewTrak and to spend a day observing his employees handling NewTrak; and both Doyle and Udren to

conduct a training session for the firm^s relevant lawyers in^ ILUPTV ^ UHOHYDQW [ the requirements of Rule 9011 and procedures for escalating inquiries on NewTrak. The court also required HSBC to send a copy of its opinion to all the law firms it uses in bankruptcy proceedings, along with a letter explaining that direct contact with HSBC concerning matters relating to H SBC^s case wasWR^ +6%&¶V ^ FDVH ^ permissible.10

B. The District Court’s DecisionW¶V ^'HFLVLRQ

Udren, Doyle, and the Udren Firm (but not HSBC) appealed the sanctions order to the District Court, which

ultimately overturned the order. The District Court^s decisionHFLVLRQ ^ was based on three considerations: that the confusion in the case was attributable at least as much to the actions of

10 Taylor^s counsel was also Zultimately sanctioned andWHO\^ VDQFWLRQH removed from the case. Counsel did not perform competently, as is evidenced by the Taylors^ failure to contest HSBC^s RFAs. Sh e also made a number of inaccurate statements in her representations to the court. However, it is clear that her conduct did not induce the misrepresentations by HSBC or its attorneys. As the bankruptcy court correctly noted, “the process employed by a mortgagee and its counselWJDJHH must be fair and transparent without regard to the quality of

debtor^s counsel since many debtors are unrepresented and ^ DUH ^ XQUHSUHVHQ cannot rely on counsel to protect them.” (App. 214.)HFW ^ WKHP ^ ' ^ ^ ^

Taylor^s counsel as to Doyle, Udren, and the Udren Firm; thatDQG ^ WKH ^ 8GUHQ ^ )L the bankruptcy court seemed more concerned with “sending aGLQJ ^ D ^ message” 'to the bar concerning the use of computerized systems than with the conduct in the particular case; and that, since Udren himself did not sign any of the filings containing misrepresentations, he could not be sanctioned under Rule 9011. Although HSBC had not appealed, the District Court overturned the order with respect to HSBC, as well.

The United States trustee then appealed the District Court^s decision to this court.11

II.

Rule 9011 of the Federal Rules of Bankruptcy Procedure, the equivalent of Rule 11 of the Federal Rules of Civil Procedure, requires that parties making representations

to the court certify that “the allegations and other factualOHJDWLRQV ^ DQG ^ contentions have evidentiary support or, if specifically so

identified, are likely to have evidentiary support.” Fed. R.HQWLDU\^ VXSSRUW Bank. P. 901 1(b)(3). 12 A party must reach this conclusion based on “inquiry3 reasonable under the circumstances.” Fed.PVWDQFHV ^ '

R. Bank. P. 9011(b). The concern of Rule 9011 is not the truth or falsity of the representation in itself, but rather whether the party making the representation reasonably

11 The bankruptcy court had jurisdiction under 28 U.S.C. § 157(a). The District Court had jurisdiction under 28 U.S.C. § 158(a)(1), except as discussed below. We have jurisdiction under 28 U.S.C. § 158(d).

12 “[C]ases decided pursuant to [Fed. R. Civ. P. 11 ] apply to Rule 9011.” In re Gioioso, 979 F.2d 956, 960 (3d Cir. 1992).

believed it at the time to have evidentiary support. In determining whether a party has violated Rule 9011, the court need not find that a party who makes a false representation to

the court acted in bad faith. “ The imposition 3of Rule 11SRVLWLRQ ^ RI F] 5XOH sanctions . . . requires only a showing of objectively unreasonable conduct.” Fellheimer, Eichen & Braverman, P.C. v. Charter Tech., Inc., 57 F.3d 1215, 1225 (3d Cir. 1995). We apply an abuse of discretion standard in reviewing the decision of the bankruptcy court. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990). However, we review its factual findings for clear error. Stern v. Marshall, - -- U. S. ---, 131 S. Ct. 2594, 2627 (2011) (Breyer, J., dissenting).

In this opinion, we focus on several statements by appellees: (1) in the motion for relief from stay, the statements suggesting that the Taylors had failed to make payments on their mortgage since the filing of their bankruptcy petition and the identification of the months in which and the amount by which they were supposedly delinquent; (2) in the motion for relief from stay, the statement that the Taylors had no or inconsequential equity in the property; (3) in the response to the claim objection, the statement that the figures in the proof of claim were accurate; and, (4) at the first hearing, the attempt to have the requests for admission concerning the lack of mortgage payments deemed admitted. As discussed above, all of these statements involved false or misleading representations to the court. 13

13 Appellees expend great energy in questioning the factual findings of the bankruptcy court, but we, like the District Court before us, see no error.

A. Alleged literal truth

As an initial matter, the appellees^ insistence thatQFH^ WKDW^

Doyle^s and Fitzgibbon^s statements were “literally true”ZHUH ^ 3OLWHUDOOT should not exculpate them from Rule 9011 sanctions. First, it should be noted that several of these claims were not, in fact, accurate. There was no literal truth to the statement in the request for relief from stay that the Taylors had no equity in their home. Doyle admitted that she made that statement simply as “part 3of the form pleading,” and “acknowledged' ^ DQG ^ having no knowledge of the value of the property and having made no inquiry on this subject.” (App. 215.) Similarly, the statement in the claim objection response that the figures in the original proof of claim were correct was false.

Just as importantly, appellees cite no authority, and we are aware of none, which permits statements under Rule 9011 that are literally true but actually misleading. If the

reasonably foreseeable effect of Doyle^s or Fitzgibbon^sLW]JLEERQ¶V ^ representations to the bankruptcy court was to mislead the court, they cannot be said to have complied with Rule 9011. See Williamson v. Recovery Ltd. P’ship, 542 F.3d 43, 51 (2d

Cir. 2008) ( a party violates Rule 11 “by making false,H ^ ^ ^ ^ 3E\^ PDNLQJ C misleading, improper, or frivolous representations to the court”) (emphasis added).

In particular, even assuming that Doyle^s andQG ^ Fitzgibbon^s statements as to the payments made by the Taylors were literally accurate, they were misleading. In attempting to evaluate whether HSBC was justified in seeking a relief from the stay on foreclosure, the court needed to know that at least partial payments had been made and that the failure to make some of the rest of the payments was due

to a bona fide dispute over the amount due, not simple default. Instead, the court was told only that the Taylors had “failed to make regular mortgage payments” from November 1, 2007 to January 15, 2008, with a mysterious notation concerning a “suspense balance” following. (App. 214-15.)ZLQJ^ ^ ^ A court could only reasonably interpret this to mean that the Taylors simply had not made payments for the period

specified. As the bankruptcy court found, “[f]or at best aG ^ ^ 3>I@RU ^ DW ^ EH' $540 dispute, the Udren Firm mechanically prosecuted a motion averring a $4,367[] post-petition obligation, the aim of which was to allow HSBC to foreclose on [the Taylors^]^ RQ ^ >WKH ^ 7D\ORUV house.” (App. 215.) Therefore, Do yle^ s' and Fitzgibbon ^s )LW] JLEERQ¶V ^ statements in question were either false or misleading.

B. Reasonable inquiry

We must, therefore, determine the reasonableness of the appellees^ inquiry before they made their false

representations. Reasonableness has been defined as “an GHILQHG ^ DV F] 3 D ^ objective knowledge or belief at the time of the filing of a challenged paper that the claim was well-grounded in law and

fact.” ^Ford Motor Co. v. Summit Motor Prods., Inc., 930

F.2d 277, 289 (3d Cir. 1991) (internal quotations omitted). The requirement of reasonable inquiry protects not merely the court and adverse parties, but also the client. The client is not expected to know the technical details of the law and ought to be able to rely on his attorney to elicit from him the information necessary to handle his case in the most effective, yet legally appropriate, manner.

In determining reasonableness, we have sometimes

looked at several factors: “the amount of time available to theQWEIRIEIWLPHEI

signer for conducting the factual and legal investigation; the

necessity for reliance on a client for the underlying factual information; the plausibility of the legal position advocated; . . . whether the case was referred to the signer by another member of the Bar . . . [; and] the complexity of the legal and factual issues implicated.” Mary Ann Pensiero, Inc. v. Lingle, 847 F.2d 90, 95 (3d Cir. 1988). However, it does not appear that the court must work mechanically through these factors when it considers whether to impose sanctions. Rather, it should consider the reasonableness of the inquiry under all the material circumstances. “ [T]he applicable standard is one of reasonableness under the circumstances.” Bus. Guides, Inc. v. Chromatic Commc’ns Ents., Inc., 498 U.S. 533, 551 (1991); accord Garr v. U.S. Healthcare, Inc., 22 F.3d 1274, 1279 (3d Cir. 1994).

Central to this case, then, is the degree to which an attorney may reasonably rely on representations from her

client. An attorney certainly “is not always foreclosed fromFORVHG ^ IURP ^ relying on information from other persons.” Garr, 2 2 F.3 dRQV ^ ' ^ ^ 1278. In making statements to the court, lawyers constantly and appropriately rely on information provided by their clients, especially when the facts are contained in a client^sW¶V ^ computerized records. It is difficult to imagine how attorneys might function were they required to conduct an independent investigation of every factual representation made by a client before it could be included in a court filing. While Rule 9011

“does not recognize a „pure heart an d gempty h ead^ defense,”G ^ HPSW\^ KHDG¶ ^ GI In re Cendant Corp. Derivative Action Litig., 96 F. Supp. 2d 403, 405 (D.N.J. 2000), a lawyer need not routinely assume the duplicity or gross incompetence of her client in order to meet the requirements of Rule 9011. It is therefore usually reasonable for a lawyer to rely on information provided by a client, especially where that information is superficially

plausible and the client provides its own records which appear to confirm the information.

However, Do yle^s behavior was unreasonable, both as a matter of her general practice and in ways specific to this

case. First, reasonable reliance on a client^s representations ^ FOLHQW¶V ^ UHSUH` assumes a reasonable attempt at eliciting them by the attorney. That is, an attorney must, in her independent professional judgment, make a reasonable effort to determine what facts are likely to be relevant to a particular court filing and to seek those facts from the client. She cannot simply settle for the information her client determines in advance²2 by means of an automated system, no less²that she should be provided with.

Yet that is precisely what happened here. “[I]tW r]

appears,” the ' bankruptcy court observed, “that Doyle,^ theOH ^ ^ WKH ^ manager of the Udren Firm bankruptcy department, had no relationship with the client, HSBC.” (App. 202. ) By working ' ^ ^ solely with NewTrak, a system which no one at the Udren Firm seems to have understood, much less had any influence over, Doyle permitted HSBC to define²perilously

narrowly²the information she had about the Taylors^ matter. ^ WKH ^ 7D\ORUV¶ ^ PI That HSBC was not providing her with adequate information through NewTrak should have been evident to Doyle from the face of the NewTrak file. She did not have any information concerningJ the Taylors^ equity in the home, though she madeRPH ^ ^ WKRXJK ^ VKH C a statement specifically denying that they had any.

More generally, a reasonable attorney would not file a motion for relief from stay for cause without inquiring of the client whether it had any information relevant to the alleged

cause, that is, the debtor^s failure to make payments. Had ^ SD\PHQWV ^

Doyle made even that most minimal of inquiries, HSBC presumably would have provided her with the information in its files concerning the flood insurance dispute, and Doyle could have included that information in her motion for relief from stay²or, perhaps, advised the client that seeking such a motion would be inappropriate under the circumstances.

With respect to the Taylors^ case in 7particular, DoyleVH ^ LQ ^ SDUWLFXODL ignored clear warning signs as to the accuracy of the data that she did receive. In responding to the motion for relief from stay, the Taylors submitted documentation indicating that they had already made at least partial payments for some of the months in question. In objecting to the proof of claim, the Taylors pointed out the inaccuracy of the mortgage payment listed and explained the circumstances surrounding the flood insurance dispute. Although Doyle certainly was not obliged to accept the Taylors^ claims at face value, they indisputably put her on notice that the matter was not as simple as it might have appeared from the NewTrak file. At that point, any reasonable attorney would have sought clarification and further documentation from her client, in order to correct any prior inadvertent misstatements to the court and to avoid any further errors. Instead, Doyle mechanically affirmed facts (the monthly mortgage payment) that her own prior filing with the court had already contradicted.

Doyle^s reliance on HSBC was particularly problematic because she was not, in fact, relying directly on HSBC. Instead, she relied on a computer system run by a third-party vendor. She did not know where the data provided by NewTrak came from. She had no capacity to check the data against the original documents if any of it seemed implausible. And she effectively could not question

the data with HSBC. In her relationship with HSBC, Doyle essentially abdicated her professional judgment to a black box.

None of the other factors discussed in the Mary Ann Pensiero case which are applicable here affect our analysis of

the reasonableness of appellees^ actions. This was no t a^ 7KLV ^ ZDV ^ QRW ^ matter of extreme complexity, nor of extraordinary deadline pressure. Although the initial data the Udren Firm received was not, in itself, wildly implausible, it was facially

inadequate. ,In short, then, w e find that Doyle^s inquiryKDW ^ 'R\OH¶V ^ LQTX before making her representations to the bankruptcy court was unreasonable.

In making this finding, we, of course, do not mean to suggest that the use of computerized databases is inherently inappropriate. However, the NewTrak system, as it was being used at the time of this case, permits parties at every level of the filing process to disclaim responsibility for inaccuracies. HSBC has handed off responsibility to a third-party maintainer, LPS, which, judging from the results in this case, has not generated particularly accurate records. LPS apparently regards itself as a mere conduit of information. Appellees, the attorneys and final link in the chain of transmission of this information to the court, claim reliance

on NewTrak^s records. Who, precisely, ca n be heldVHO\^ ^ FDQ ^ EH ^ IC accountable if HSBC^s records are inadequately maintained,DGHTXDWHO\^ PDLQ` LPS transfers those records inaccurately into NewTrak, or a law firm relies on the NewTrak data without further investigation, thus leading to material misrepresentations to the court? It cannot be that all the parties involved can insulate themselves from responsibility by the use of such a system. In the end, we must hold responsible the attorneys

who have certified to the court that the representations they are making are “well-grounded in law and fact.”

C. Notice

Doyle, Udren, and the Udren Firm also argue on appeal that they had insufficient notice that they were in

danger of sanctions.14 Rule 9011 directs that a court “[o]n itsW ^ D ^ FRXUW ^ 3>R@Q [ own initiative . . . may enter an order describing the specific conduct that appears to violate [the rule] and directing an attorney . . . to show cause why it has not violated [the rule].”H ^ UXOH@ ^ ' ^ ^

Fed. R. Bank. P. 9011(c)(1)(B). Due process in the

imposition of Rule I9011 sanctions requires “particularizedUHTXLUHV ^ 3SDUWLF. notice.” Jones v. Pittsburgh Nat’l Corp., 899 F.2d 1350,^ 135 7 (3 d Cir. 1990). The meaning of “particularized notice” RI ^ 3SDUWLFXODUL]H has not been rigorously defined in this circuit. In Fellheimer, we noted that this requirement was met where the sanctioned party “was 3 provided with sufficient, advance notice of exactlyDGYDQFH ^ QRWLFH ^ R which conduct was alleged to be sanctionable.” Fellheimer,FWLRQDEOH ^ ' ^ ^

57 F.3d at 1225. In Simmerman v. Corino, 27 F.3d 58, 64 (3d

Cir. 1994),1 Fwe held that “the party sought to be 3sanctioned isW\^ VRXJKW ^ WR ^ EH C entitled to particularized notice including, at a minimum, 1) the fact that Rule 11 sanctions are under consideration, 2) the reasons why sanctions are under consideration . . . .”

The bankruptcy court^s June order ^ was clearly inHU ^ ZDV ^ FOHDUOT substance an order to show cause, even if it was not

14 Any claim regarding a due process right to notification of the form of sanctions being considered has been waived by appellees, as it was not raised in their papers, either here or in the district court. United States v. Pelullo, 399 F.3d 197, 222 (3d Cir. 2005).

specifically captioned as such. The more difficult question is

whether the court adequately described “the specific conductLEHG^ 3WKH^ VSHFLIL that appear[ed] to violate” Rule 9011, so as to give sufficient^ ^ ^ ^ ^ VR^ DV ^ WR^ J notice of “exactly3 which conduct was Falleged to beDV^ DOOHJHG^ WRC sanctionable.” As mentioned above, the court^s June order ^ WKH ^ FRXUW¶V ^ -X identified “pressing a relief motion o n admissions that were RQ ^ DGPLVVLRQV ^ -0 known to be untrue, and signing and filing pleadings without

knowledge or inquiry regarding th e matters pled therein” asDWWHUV ^ SOHG ^ WK] the conduct the court wished to investigate. (App. 119) The

judge also told Fitzgibbon, “I^m issuing an order to showXLQJ ^ DQ ^ RUGHU ^ W cause on your firm, too, for filing these things . . . without

having any knowledge. And filing answers . . . without any

knowledge.” Id. The June order also made specific reference

to “the 3 motion for relief, the admissions and the reply to theVVLRQV ^ DQG ^ WKH C objection.”LRQ ^ ' ^ ^

In these particular circumstances, the notice given to appellees was sufficient to put them on notice as to which aspects of their conduct were considered sanctionable. At that point in the case, the Udren Firm lawyers had only filed three substantive papers with the court²totaling six (substantive) pages²and the court found all of them

problematic. Appe llees ^ claim that they believed that the^ WKH\^ EHOLHYHGF only issue at the time of the hearing w as Fitzgibb on^sHDULQJ ^ ZDV ^ )LW]J: inability to contact HSBC is simply not plausible in light of the language of the June order and the bankruptcy co urt^sNUXSWF\^ FRXUW¶V C statements at the hearing, which were incorporated by reference into the June order. In a case in which more extensive docket activity had taken place, the bankruptcy court^s order might no t have been sufficient to informQEI VXIILFLHQW ^ WR [ appellees as to which of their filings were sanctionable, but, given the unusual circumstances here, it was. But see Martens v. Thomann, 273 F.3d 159, 178 (2d Cir. 2001)

(requiring specific identification of individual challenged statements to uphold imposition of sanctions).

D. The Udren Firm and Udren’ s individual ^ LQGLYLGXDO ^ liability

We also find that it was appropriate to extend sanctions to the Udren Firm itself. Rule 11 explicitly allows the imposition of sanctions against law firms. Fellheimer, 57 F.3d 1215 at 1223 n.5. In this instance, the bankruptcy court found that the misrepresentations in the case arose not simply from the irresponsibility of individual attorneys, but from the system put in place at the Udren Firm, which emphasized high-volume, high-speed processing of foreclosures to such an extent that it led to violations of Rule 9011.

However, we do not find that responsibility for these failures extends specifically to Udren, whose involvement in this matter was limited to his role as sole shareholder of the firm.

E. The District Court’s reversal of sanctions against HSBC

Ordinarily, of course, a party which does not appeal a decision by a district court cannot receive relief with respect to that decision. “[T]he mere fact that a [party] may wind up with a judgment against one [party] that is not logically consistent with an unappealed judgment against another is not alone sufficient to justify taking away the unappealed

judgment in favor of a party not before the court.” Repola v.RUH ^ WKH ^ FRXUW ^ ' [ Morbark Indus., Inc., 980 F.2d 938, 942 (3d Cir. 1992). However, “where the disposition as to one party isV F1 WR ^ RQH ^ SDU

inextricably intertwined with the interests of a non-appealing

party,” it 'may be “impossible 3to grant relief to one partyQW ^ UHOLHI ^ WR^ R without granting relief to the other.” United States v. Tabor Court Realty Corp., 943 F.2d 335, 344 (3d Cir. 1991). In Tabor Court Realty, a contract dispute, the assignee of a property had failed to appeal a decision, while the assignor had (and had ultimately prevailed). Given that the dispute was over the disposition of the property, it was impossible to grant relief to the assignor without also granting relief to the assignee.

In this instance, whether the lawyers at the Udren Firm violated Rule 9011 is a question analytically distinct from whether HSBC was responsible for any violations of Rule 9011. A court might find that HSBC was responsible for violations, whereas, say, Udren himself was not. It was entirely possible for HSBC to comply with the sanctions ordered (a letter to its firms informing them that they are permitted to consult with HSBC) without affecting the interests of the lawyers at the Udren Firm. Therefore, the interests of the lawyers at the Udren Firm and HSBC were not “ineHIicabl intertwined” and the Disthbt Qflrt lacked jurisdiction to reverse the sanctions against HSBC.

F. Alternative basis for the District Court’s¶V ^ decision

,In reversing the bankruptcy court^s decision,^ theXUW¶V ^ GHFLVLRQ ^ District Court focused on that court^s apparent attention to theWWHQWLRQ ^ WR ^ WK broader problems of high-volume bankruptcy practice in imposing sanctions. It is true that the bankruptcy judge noted that appellees were not the first attorneys to run into these sorts of difficulties in her court. But she nonetheless made

individualized findings of wrong-doing after four days of hearings and issued sanctions thoughtfully chosen to prevent the recurrence of problems at the Udren Firm based on what she had learned of practices there. Insofar as she considered the effect of the sanctions on the future conduct of other attorneys appearing before her, such considerations were

permissible. After all, “the prime goal [of Rule 1 1 sanctions] JRDO ^ >RI ^ 5XOH ^ ^ ^ C should be deterrence of repetition o f improper conduct.”Q ^ RI E] LPSURSHU ^ FR Waltz v. County of Lycoming, 974 F.2d 387, 390 (3d Cir. 1992).

G. Conclusion

We appreciate that the use of technology can save both litigants and attorneys time and money, and we do not, of course, mean to suggest that the use of databases or even certain automated communications between counsel and client are presumptively unreasonable. However, Rule 11 requires more than a rubber-stamping of the results of an automated process by a person who happens to be a lawyer. Where a lawyer systematically fails to take any responsibility for seeking adequate information from her client, makes representations without any factual basis because they are included in a “form pleading” she has been trained to fill out, and ignores obvious indications that her information may be incorrect, she cannot be said to have made reasonable inquiry. Therefore, we find that the bankruptcy court did not abuse its discretion in imposing sanctions on Doyle or the Udren Firm itself. However, it did abuse its discretion in imposing sanctions on Udren individually.

III.

For the foregoing reasons, we will reverse the District Court with respect to Doyle and the Udren Firm, affirming

the bankruptcy court^s imposition of sanctions. With respectE] VDQFWLRQV ^ ^ ^ :LVA to HSBC, as discussed previously, the District Court lacked jurisdiction to reverse the sanctions, as do we; therefore, we vacate the District Court^s order with respect to that party, leaving the sanctions imposed by the bankruptcy court in place. We will affirm the District Court with respect to Udren individually, reversing the bankruptcy^s courtRXUW ^ imposition of sanctions.

END.

More Bumpy Rides for MERS: Failure to Hold the Promissory Note Voids Foreclosure

2011-08-29T20:14:00.000-07:00

The Court of Appeals of Michigan has found in yet another case, Aaron Richard v. Schneiderman & Sherman, PC., et al., Court of Appeals Michigan, Appeal No. 10-000273-CZ, (August 11, 2011), [1] that the Mortgage Electronic Registration System, Inc. (MERS) could not conduct a non-judicial foreclosure – because it was a mere “nominee.” Michigan Statute MCL 600.3204(1)(d) [2] states that to conduct a non-judicial foreclosure in Michigan the Advertising Lender must either hold the Promissory Note or be the authorized “servicer.” Because MERS neither held (nor owned) the Promissory Note concerning the debt, nor was an active servicer, the non-judicial foreclosure it conducted in Richard, supra was void ab initio.

Aaron Richard v. Schneiderman & Sherman, PC., et al., Court of Appeals Michigan, Appeal No. 10-000273-CZ, (August 11, 2011), reads as follows:

STATE OF MICHIGAN

COURT OF APPEALS

AARON RICHARD, Plaintiff-Appellant,

SCHNEIDERMAN & SHERMAN, P.C., GMAC MORTGAGE and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,

Defendants-Appellees.

FOR PUBLICATION August 11, 2011

9:00 a.m.

No. 297353

Wayne Circuit Court LC No. 10-000273-CZ

Before: BORRELLO, P.J., and METER and SHAPIRO, JJ.

PER CURIAM.

Plaintiff, Aaron Richard, appeals as of right an order granting summary disposition in favor of defendants, Schneiderman & Sherman, P.C. (Schneiderman), GMAC Mortgage (GMAC), and Mortgage Electronic Registration Systems, Inc. (MERS). We reverse the trial court's grant of summary disposition, vacate the foreclosure proceeding, and remand further proceedings consistent with this opinion.

This case arises from plaintiff's attempts to challenge the foreclosure and sale of property he owned located at 19952 Hubbell in Detroit. Plaintiff purchased the property in part through a $50,000 loan, executed on May 4, 2006, from Homecomings Financial Network, Inc. The loan was secured by a May 4, 2006, mortgage with MERS, as the nominee of Homecomings.

It is not clear from the record when plaintiff fell behind on his mortgage payments. However, on October 9, 2009, Schneiderman, acting as GMAC's agent, mailed plaintiff a notice stating that his mortgage was in default and informing him of his rights, including to request mediation. The outstanding debt owed to GMAC was listed as $50,267.78. Ultimately, MERS began non-judicial foreclosure by advertisement under MCL 600.3201, et seq., and purchased the property at the subsequent sheriff's sale.

Plaintiff filed suit, in pro per, during the redemption period, alleging that the sheriff's sale was "flawed" on numerous grounds and asserted that MERS did not hold any rights to the debt. Defendants filed for summary disposition, asserting, among other things, that the sheriff's sale was "not only legal, but also valid, as all required procedures were followed." The trial court granted summary disposition in favor of defendants and dismissed plaintiff's claim.

Although many of plaintiff's claims are without merit, it is clear that the sheriff's sale was invalid because, although MERS was only a mortgagee, MERS foreclosed on plaintiff's property utilizing non-judicial foreclosure by advertisement. This Court has held that MERS is not entitled to utilize foreclosure by advertisement where it does not own the underlying note. Residential Funding Co, Inc v Saurman, Mich App NW2d (Docket Nos. 290248, 291443; April 21, 2011), slip op at 11. Under such circumstances, "MERS' inability to comply with the statutory requirements rendered the foreclosure proceedings . . . void ab initio." Id. Because the application of Saurman is dispositive, we must determine whether Saurman is retroactive and, if so, whether to assign it full or limited retroactivity.

"[T]he general rule is that judicial decisions are to be given complete retroactive effect." Hyde v Univ of Mich Bd of Regents, 426 Mich 223, 240; 393 NW2d 847 (1986). "Complete prospective application has generally been limited to decisions which overrule clear and uncontradicted case law." Id.

Rules determined in opinions that apply retroactively apply to all cases "still open on direct review and as to all events, regardless of whether such events predate or postdate our announcement of the rule[s]." Harper v Virginia Dep't of Taxation, 509 US 86, 97, 113 S Ct 2510, 125 L Ed 2d 74 (1993). Rules determined in opinions that apply prospectively only, on the other hand, not only do not apply to cases still open on direct review, but do not even apply to the parties in the cases in which the rules are declared. See Pohutski v City of Allen Park, 465 Mich 675, 699, 641 NW2d 219 (2002). [McNeel v Farm Bureau Ins, 289 Mich App 76, 94; 795 NW2d 205 (2010).]

Given that this Court applied its holding to the cases in Saurman, it is clear that the holding in Saurman has been afforded at least limited retroactivity. [1] However, cases given limited retroactivity apply "in pending cases where the issue had been raised and preserved," Stein v Southeastern Mich Family Planning Project, Inc, 432 Mich 198, 201; 438 NW2d 876 (1989), while cases with full retroactivity apply to all cases then pending. This distinction makes a difference because, although plaintiff contested the foreclosure, he did not specifically raise and preserve the issue of whether MERS has the authority to foreclose by advertisement. Thus, Saurman is only applicable to this case if it is granted full retroactivity.

"The threshold question is whether 'the decision clearly established a new principle of law."' Rowland v Washtenaw Co Rd Comm, 477 Mich 197, 220; 731 NW2d 41 (2007) (citation omitted). Our Supreme Court has held that cases that properly interpret statutes, even if prior caselaw has held differently, "restore[] legitimacy to the law" and, thus, are "not a declaration of

-2-

a new rule, but . . . a vindication of controlling legal authority." Id. at 222 (quotation marks and citation omitted). In Saurman, this Court interpreted MCL 600.3204(1)(d). There was no existing caselaw and, therefore, it did not overrule any law or reconstrue a statute. See Hyde, 426 Mich at 240. Consequently, this Court's decision in Saurman was not "tantamount to a new rule of law," see Rowland, 477 Mich at 222 n 17, and, therefore should be given full retroactive effect. [2] Hence, Saurman is applicable to the instant case, rendering the foreclosure proceedings void ab initio. Saurman, Mich App at , slip op at 11.

Accordingly, we reverse the trial court's grant of summary disposition, vacate the foreclosure proceeding, and remand for further proceedings consistent with this opinion. We do not retain jurisdiction.

/s/ Stephen L. Borrello

/s/ Patrick M. Meter

/s/ Douglas B. Shapiro

Endnotes:

[1]

In addition, "there is a serious question as to whether it is constitutionally legitimate for this Court to render purely prospective opinions, as such ruling are, in essence, advisory opinions." Rowland v Washtenaw Co Rd Comm, 477 Mich 197, 221; 731 NW2d 41 (2007), quoting Wayne Co v Hathcock, 471 Mich 445, 485 n 98; 684 NW2d 765 (2004).

[2]

We reiterate the general rule that a retroactive decision cannot serve to reopen those cases that are already closed. Thus, where the time to oppose the foreclosure by advertisement, the time to oppose the resulting eviction, and the time to appeal from those actions have run, a party may not rely on Saurman in an attempt to reopen those cases to recover possession or ownership.

Hugh Wood, Esq.

Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084

www.woodandmeredith.com

hwood@woodandmeredith.com
www.hughwood.blogspot.com
twitter: USALawyer_
Phone: 404-633-4100
Fax: 404-633-0068

&&&&&&&&&&&&&&

[1]

http://www.scribd.com/doc/63545911/RichardvSchneiderman08112011

[2]

RESIDENTIAL FUNDING CO, LLC, f/k/a RESIDENTIAL FUNDING CORPORATION, Plaintiff-Appellee,

GERALD SAURMAN, Defendant-Appellant.

BANK OF NEW YORK TRUST COMPANY, Plaintiff-Appellee,

COREY MESSNER, Defendant-Appellant.

Nos. 290248, 291443

Court of Appeals of Michigan

April 21, 2011

Kent Circuit Court LC No. 08-011138-AV, Jackson Circuit Court LC No. 08-003406-AV

Before: Wilder, P.J., and Servitto and Shapiro, JJ.

Shapiro, J.

These consolidated cases each involve a foreclosure instituted by Mortgage Electronic Registration System (MERS), the mortgagee in both cases. The sole question presented is whether MERS is an entity that qualifies under MCL 600.3204(1)(d) to foreclose by advertisement on the subject properties, or if it must instead seek to foreclose by judicial process. We hold that MERS does not meet the requirements of MCL 600.3204(1)(d) and, therefore, may not foreclose by advertisement.

I. BASIC FACTS AND PROCEDURAL HISTORY

In these cases, each defendant purchased property and obtained financing for their respective properties from a financial institution. The financing transactions involved loan documentation ("the note") and a mortgage security instrument (the "mortgage instrument"). The original lender in both cases was Homecoming Financial, LLC.

Each note provided for the amount of the loan, the interest rate, methods and requirements of repayment, the identity of the lender and borrower and the like. The mortgage instrument provided for rights of foreclosure of the property by the mortgagee in the event of default on the loan. The lender, though named as the lender in the mortgage security instrument, was not designated therein as the mortgagee. Instead, the mortgage stated that the Mortgage Electronic Registration Systems, Inc ("MERS") "is the mortgagee under this Security Instrument" and it contained several provisions addressing the relationship between MERS and the lender including:

"MERS" is Mortgage Electronic Registration Systems Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns. MERS is the mortgagee under this Security Instrument.

* * *

This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower's covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower does hereby mortgage, warrant, grant and convey to MERS (solely as nominee for Lender and Lender's successors and assigns) and to the successors and assigns of MERS, with the power of sale, the following described property . . . . Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.

Defendants defaulted on their respective notes. Thereafter, MERS began non-judicial foreclosures by advertisement as permitted under MCL 600.3201, et seq., purchased the property at the subsequent sheriff's sales and then quit-claimed the property to plaintiffs as respective successor lenders. When plaintiffs subsequently began eviction actions, defendants challenged the respective foreclosures as invalid, asserting, inter alia, that MERS did not have authority under MCL 600.3204(1)(d) to foreclose by advertisement because it did not fall within any of the three categories of mortgagees permitted to do so under that statute. The district courts denied defendants' assertions that MERS lacked authority to foreclose by statute and their conclusions were affirmed by the respective circuit courts on appeal. We granted leave to appeal in both cases.[1]

II. ANALYSIS

A. STANDARD OF REVIEW

We review de novo decisions made on motions for summary disposition, [2] Coblentz v Novi, 475 Mich. 558, 567; 719 N.W.2d 73 (2006), as well as a circuit court's affirmance of a district court's decision on a motion for summary disposition. First of America Bank v Thompson, 217 Mich.App. 581, 583; 552 N.W.2d 516 (1996). We review all affidavits, pleadings, depositions, admissions and other evidence submitted by the parties in the light most favorable to the party opposing the motion, in this case, defendants. Coblentz, 475 Mich. at 567-568.

We also review de novo questions of statutory interpretation and application. Id. at 567.

The primary goal of statutory interpretation is to give effect to the intent of the Legislature. This determination is accomplished by examining the plain language of the statute. Although a statute may contain separate provisions, it should be read as a consistent whole, if possible, with effect given to each provision. If the statutory language is unambiguous, appellate courts presume that the Legislature intended the meaning plainly expressed and further judicial construction is neither permitted nor required. Statutory language should be reasonably construed, keeping in mind the purpose of the statute. If reasonable minds could differ regarding the meaning of a statute, judicial construction is appropriate. When construing a statute, a court must look at the object of the statute in light of the harm it is designed to remedy and apply a reasonable construction that will best accomplish the purpose of the Legislature. [ISB Sales Co v Dave's Cakes, 258 Mich.App. 520, 526-527; 672 N.W.2d 181 (2003) (citations omitted).]

B. MERS BACKGROUND

The parties, in their briefs and at oral argument, explained that MERS was developed as a mechanism to provide for the faster and lower cost buying and selling of mortgage debt. Apparently, over the last two decades, the buying and selling of loans backed by mortgages after their initial issuance had accelerated to the point that those operating in that market concluded that the statutory requirement that mortgage transfers be recorded was interfering with their ability to conduct sales as rapidly as the market demanded. By operating through MERS, these financial entities could buy and sell loans without having to record a mortgage transfer for each transaction because the named mortgagee would never change; it would always be MERS even though the loans were changing hands. MERS would purportedly track the mortgage sales internally so as to know for which entity it was holding the mortgage at any given time and, if foreclosure was necessary, after foreclosing on the property, would quit claim the property to whatever lender owned the loan at the time of foreclosure.

As described by the Court of Appeals of New York, in MERSCORP, Inc v Romaine, 8 N.Y.3d 90, 96; 861 N.E.2d 81(2006):

In 1993, the MERS system was created by several large participants in the real estate mortgage industry to track ownership interests in residential mortgages. Mortgage lenders and other entities, known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages. Members contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system.

The initial MERS mortgage is recorded in the County Clerk's office with "Mortgage Electronic Registration Systems, Inc." named as the lender's nominee or mortgagee of record on the instrument. During the lifetime of the mortgage, the beneficial ownership interest or servicing rights may be transferred among MERS members (MERS assignments), but these assignments are not publicly recorded; instead they are tracked electronically in MERS's private system. In the MERS system, the mortgagor is notified of transfers of servicing rights pursuant to the Truth in Lending Act, but not necessarily of assignments of the beneficial interest in the mortgage. [Footnotes omitted.]

The sole issue in this case is whether MERS, as mortgagee, but not noteholder, could exercise its contractual right to foreclose by means of advertisement.

C. MCL 600.3204(1)(d)

Foreclosure by advertisement is governed by MCL 600.3204(1)(d), which provides, in pertinent part:

[A] party may foreclose a mortgage by advertisement if all of the following circumstances exist:

* * *

(d) The party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.

The parties agree that MERS is neither the owner of the indebtedness, nor the servicing agent of the mortgage. Therefore, MERS lacked the authority to foreclose by advertisement on defendants' properties unless it was "the owner . . . of an interest in the indebtedness secured by the mortgage." MCL 600.3204(1)(d).

The question, then, is what being the "owner . . . of an interest in the indebtedness secured by the mortgage" requires. According to Black's Law Dictionary, to "own" means "[t]o have good legal title; to hold as property; to have a legal or rightful title to." Black's Law Dictionary (6th ed). That text defines an "interest" as "the most general term that can be employed to denote a right, claim, title or legal share in something". "Indebtedness" is defined as "[t]he state of being in debt . . . the owing of a sum of money upon a certain and express agreement."

In these cases, a promissory note was exchanged for loans of $229, 950 and $207, 575, respectively. Thus, reasonably construing the statute according to its common legal meaning, ISB Sales Co, 258 Mich.App. at 526-527, the defendants' indebtedness is solely based upon the notes because defendants owed monies pursuant to the terms of the notes. Consequently, in order for a party to own an interest in the indebtedness, it must have a legal share, title, or right in the note.

Plaintiffs' suggestion that an "interest in the mortgage" is sufficient under MCL 600.3204(d)(1) is without merit. This is necessarily so, as the indebtedness, i.e., the note, and the mortgage are two different legal transactions providing two different sets of rights, even though they are typically employed together. A "mortgage" is "[a] conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms." The mortgagee has an interest in the property. See Citizens Mtg Corp v Mich. Basic Prop Ins Assoc, 111 Mich.App. 393, 397; 314 N.W.2d 635 (1981) (referencing the "mortgagee's interests in the property"). The mortgagor covenants, pursuant to the mortgage, that if the money borrowed under the note is not repaid, the mortgagee will retain an interest in the property. Thus, unlike a note, which evidences a debt and represents the obligation to repay, a mortgage represents an interest in real property contingent on the failure of the borrower to repay the lender. The indebtedness, i.e., the note, and the mortgage are two different things.

Applying these considerations to the present case, it becomes obvious that MERS did not have the authority to foreclose by advertisement on defendants' properties. Pursuant to the mortgages, defendants were the mortgagors and MERS was the mortgagee. However, it was the plaintiff lenders that lent defendants money pursuant to the terms of the notes. MERS, as mortgagee, only held an interest in the property as security for the note, not an interest in the note itself. MERS could not attempt to enforce the notes nor could it obtain any payment on the loans on its own behalf or on behalf of the lender. Moreover, the mortgage specifically clarified that, although MERS was the mortgagee, MERS held "only legal title to the interest granted" by defendants in the mortgage.[3] Consequently, the interest in the mortgage represented, at most, an interest in defendants' properties. MERS was not referred to in any way in the notes and only Homecomings held the notes. The record evidence establishes that MERS owned neither the notes, nor an interest, legal share, or right in the notes. The only interest MERS possessed was in the properties through the mortgages. Given that the notes and mortgages are separate documents, evidencing separate obligations and interests, MERS' interest in the mortgage did not give it an interest in the debt.

Moreover, plaintiffs' analysis ignores the fact that the statute does not merely require an "interest" in the debt, but rather that the foreclosing party own that interest. As noted above, to own means "to have good legal title; to hold as property; to have a legal or rightful title to." None of these terms describes MERS' relationship to the note. Plaintiffs' claim that MERS was a contractual owner of an interest in the notes based on the agreement between MERS and the lenders misstates the interests created by that agreement. Although MERS stood to benefit if the debt was not paid—it stood to become the owner of the property—it received no benefit if the debt was paid. MERS had no right to possess the debt, or the money paid on it. Likewise, it had no right to use or convey the note. Its only "right to possess" was to possess the property if and when foreclosure occurred. Had the lender decided to forgive the debt in the note, MERS would have had no recourse; it could not have sued the lender for some financial loss. Accordingly, it owned no financial interest in the notes. Indeed, it is uncontested that MERS is wholly without legal or rightful title to the debt and that there are no circumstances under which it is entitled to receive any payments on the notes.

The dissent relies on the language in the mortgage instrument to suggest a contractual basis to find that MERS has an ownership interest in the loan. However, the fact that Homecomings gave MERS authority to take "any action required of the Lender" did not transform MERS into an owner of an interest in the notes. Trustees have the authority to take action on behalf of a trust; they can even be authorized to take "any" action. Nevertheless, such authority does not give them an ownership interest in the trust. Moreover, the provision on which the dissent relies (but does not fully quote) contains language limiting MERS to taking action on behalf of the lender's equitable interest in the mortgage instrument.[4] The relevant language provides that the borrower "understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument" (emphasis added) and gives MERS "the right: to exercise any or all of those interests . . . and to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument . . . ." (emphasis added). Thus, the contract language expressly limits the interests MERS owns to those granted in the mortgage instrument and limits MERS' right to take action to those actions related to the mortgage instrument. Nothing in this language permits MERS to take any action with respect to the debt, or provides it any interest therein.

Finally, even assuming that the contract language did create such a right, Homecomings cannot grant MERS the authority to take action where the statute prohibits it. Regardless of whether Homecomings would like MERS to be able to take such action, it can only grant MERS the authority to take actions that our Legislature has statutorily permitted. Where the Legislature has limited the availability to take action to a specified group of individuals, parties cannot grant an entity that falls outside that group the authority to take such actions. Here, the Legislature specifically requires ownership of an interest in the note before permitting foreclosure by advertisement.

The contention that the contract between MERS and Homecomings provided MERS with an ownership interest in the note stretches the concept of legal ownership past the breaking point. While the term may be used very loosely in some popular contexts, such as the expression to "own a feeling, " such use refers to some subjective quality or experience. We are confident that such a loose and uncertain meaning is not what the Legislature intended. Rather, the Legislature used the word "owner" because it meant to invoke a legal or equitable right of ownership. Viewed in that context, although MERS owns the mortgage, it owns neither the debt nor an interest in any portion of the debt, and is not a secondary beneficiary of the payment of the debt.[5]

The dissent's conclusion, that MERS owns an interest in the note because whether it ultimately receives the property depends on whether the note is paid, similarly distorts the term "interest" from a legal term of art to a generalized popular understanding of the word. It may be that MERS is concerned with (i.e., interested in) whether the loans are paid because that will define its actions vis-à-vis the properties, but being concerned about whether someone pays his loan is not the same as having a legal right, or even a contingent legal right, to those payments.

Plaintiffs are mistaken in their suggestion that our conclusion that MERS does not have "an interest in the indebtedness" renders that category in the statute nugatory. We need not determine the precise scope of that category, but, by way of example, any party to whom the note has been pledged as security by the lender has "an interest in the indebtedness" because, under appropriate circumstances, it owns the right to the repayment of that loan.

Plaintiffs also argue that MERS had the authority to foreclose by advertisement as the agent or nominee for Homecomings, who held the note and an equitable interest in the mortgage. However, this argument must also fail under the statute because the statute explicitly requires that, in order to foreclose by advertisement, the foreclosing party must possess an interest in the indebtedness. MCL 600.3204(1)(d). It simply does not permit foreclosure in the name of an agent or a nominee. If the Legislature intended to permit such actions, it could have easily included "agents or nominees of the noteholder" as parties that could foreclose by advertisement. Indeed, had the Legislature intended the result suggested by plaintiffs, it would have merely had to delete the word "servicing." The law is clear that this Court must "avoid construction that would render any part of the statute surplusage or nugatory." Wickens v Oakwood Healthcare Sys, 465 Mich. 53, 60; 631 N.W.2d 686 (2001). Thus, the Legislature's choice to permit only servicing agents and not all agents to foreclose by advertisement must be given effect.

Similarly, we reject plaintiffs' reliance on Jackson v Mortgage Electronic Registration Sys, Inc, 770 N.W.2d 487 (Minn, 2009). Jackson, a Minnesota case, is inapplicable because it interprets a statute that is substantially different from MCL 600.3204. The statute at issue in Jackson specifically permits foreclosure by advertisement if "a mortgage is granted to a mortgagee as nominee or agent for a third party identified in the mortgage, and the third party's successors and assigns." Id. at 491. Thus, the Minnesota statute specifically provides for foreclosure by advertisement by entities that stand in the exact position that MERS does here. Indeed, the Minnesota statute is "frequently called 'the MERS statute.'" Id. at 491. Our statute, MCL 600.3204(1)(d) makes no references to nominees or agents. Rather, it requires that the party foreclosing be either the mortgage servicer or have an ownership interest in the indebtedness. The Jackson statute also revolves around the mortgage, unlike MCL 600.3204(1)(d), which uses the term indebtedness, which, as discussed previously, is a reference to the note, not the mortgage. Thus, Jackson has no application to the case at bar. Moreover, the Minnesota statute demonstrates that if our Legislature had intended to allow MERS to foreclose by advertisement, they could readily have passed a statute including language like that included in Minnesota.

D. ANALYSIS BEYOND THE LANGUAGE OF THE STATUTE

Plaintiffs suggest that, despite the plain language of the statute, the Legislature did not create three discrete categories of entities that could foreclose by advertisement. Instead, plaintiffs assert that the Legislature envisioned a continuum of entities: those that actually own the loan, those that service the loan, and some ill-defined category which might be called "everything in between." However, courts may not "rewrite the plain statutory language and substitute our own policy decisions for those already made by the Legislature." DiBenedetto v West Shore Hosp, 461 Mich. 394, 405; 605 N.W.2d 300 (2000). Thus, without any language in the statute providing for a "continuum, " let alone an analysis of what it constitutes, we find no merit in this position.

Plaintiffs also raise a straw man argument by citing this Court's decision in Davenport v HSBC Bank USA, 275 Mich.App. 344; 739 N.W.2d 383 (2007) where we observed that "[o]ur Supreme Court has explicitly held that '[o]nly the record holder of the mortgage has the power to foreclose' under MCL 600.3204." Davenport, 275 Mich.App. at 347, quoting Arnold v DMR Financial Services, Inc (After Remand), 448 Mich. 671, 678; 532 N.W.2d 852 (1995). However, the facts in Davenport do not reflect that the party who held the note was a different party than the party who was the mortgagee. Davenport, 275 Mich.App. at 345. Indeed, the fact that the Court used the term "mortgage" interchangeably with "indebtedness, " id. at 345-347, rather than distinguishing the two terms, indicates that the same party held both the note and the mortgage. Because the instant cases involve a situation where the noteholder and mortgage holder are separate entities, the general proposition set forth in Davenport does not apply. There is nothing in Davenport holding that a party that owns only the mortgage and not the note has an ownership interest in the debt. [6]

We also note that Arnold, the Supreme Court case relied upon in Davenport, was interpreting a previous version of MCL 600.3204, which was substantially revised when the Legislature adopted the version we must apply in this case. The statute as it existed when Arnold was decided included a provision stating:

To entitle any party to give a notice as hereinafter prescribed, and to make such a foreclosure, it shall be requisite:

* * *

(3) That the mortgage containing such power of sale has been duly recorded; and if it shall have been assigned that all the assignments thereof shall have been recorded. [Arnold, 448 Mich. at 676.]

This requirement, that a noteholder could only foreclose by advertisement if the mortgage they hold is duly recorded, is no longer part of the statute and does not apply in this case. The version of the statute interpreted in Arnold also lacked the language, later adopted, and operative in this case, specifically permitting foreclosure by advertisement of the owner of the note. Moreover, the language the Legislature chose to adopt in the amended language appears to reflect an intent to protect borrowers from having their mortgages foreclosed upon by advertisement by those who did not own the note because it would put them at risk of being foreclosed but still owing the noteholder the full amount of the loan.

Under MCL 440.3602, an instrument is only discharged when payment is made "to a person entitled to enforce the instrument." Those parties listed in MCL 600.3204(1)(d)—the servicer, the owner of the debt, or someone owning an interest in the debt—would all be persons entitled to enforce the instrument that reflects the indebtedness. As previously noted, MERS is not entitled to enforce the note. Thus, if MERS were permitted to foreclose on the properties, the borrowers obligated under the note would potentially be subject to double-exposure for the debt. That is, having lost their property to MERS, they could still be sued by the noteholder for the amount of the debt because MERS does not have the authority to discharge the note. MERS members may agree to relinquish the right of collection once foreclosure occurs, but even if they were to do so within MERS, that would not necessarily protect the borrower in the event a lender violated that policy or the note was subsequently transferred to someone other than the lender.[7]

These risks are, however, not present in a judicial foreclosure. MCL 600.3105(2) provides:

After a complaint has been filed to foreclose a mortgage on real estate or land contract, while it is pending and after a judgment has been rendered upon it, no separate proceeding shall be had for the recovery of the debt secured by the mortgage, or any part of it, unless authorized by the court.

Thus, once a judicial foreclosure proceeding on the mortgage has begun, a subsequent action on the note is prohibited, absent court authorization, thereby protecting the mortgagor from double recovery. See Church & Church Inc v A-1 Carpentry, 281 Mich.App. 330, 341-342; 766 N.W.2d 30 (2008), aff'd in part, vacated in part, and aff'd on other grounds in part, 483 Mich. 885 (2009); United States v Leslie, 421 F.2d 763, 766 (CA6, 1970) ("[I]t is the purpose of the statute to force an election of remedies which if not made would create the possibility that the mortgagee could foreclose the mortgage and at the same time hold the maker of the note personally liable for the debt.").

Given that this risk of double-exposure only occurs where the mortgage holder and the noteholder are separate, the Legislature limited foreclosure by advertisement to those parties that were entitled to enforce the debt instrument, resulting in an automatic credit toward payment on the instrument in the event of foreclosure.[8]

While MERS seeks to blur the lines between itself and the lenders in this case in order to position itself as a party that may take advantage of the restricted tool of foreclosure by advertisement, it has, in other cases, sought to clearly define those lines in order to avoid the responsibilities that come with being a lender. For example, in MERS v Neb Dep't of Banking and Fin, 270 Neb 529; 704 N.W.2d 784 (2005), the Nebraska Department of Banking and Finance asserted that MERS was a mortgage banker and, therefore, subject to licensing and registration requirements. Id. at 530. MERS successfully maintained that it had nothing to do with the loans and did not even have an equitable interest in the property, holding only "legal title to the interests granted by Borrower." Id. at 534. The court accepted MERS argument that it is not a lender, but merely a shell designed to make buying and selling of loans easier and faster by disconnecting the mortgage from the loan. Id. at 535. Having separated the mortgage from the loan, and disclaimed any interest in the loan in order to avoid the legal responsibilities of a lender, MERS nevertheless claims in the instant case that it can employ the rights of a lender by foreclosing in a manner that the statute affords only to those mortgagees who also own an interest in the loan. But as the Nebraska court stated in adopting MERS argument, "MERS has no independent right to collect on any debt because MERS itself has not extended any credit, and none of the mortgage debtors owe MERS any money." Id. at 535

The separation of the note from the mortgage in order to speed the sale of mortgage debt without having to deal with all the "paper work" of mortgage transfers appears to be the sole reason for MERS' existence. The flip side of separating the note from the mortgage is that it can slow the mechanism of foreclosure by requiring judicial action rather than allowing foreclosure by advertisement. To the degree there were expediencies and potential economic benefits in separating the mortgagee from the noteholder so as to speed the sale of mortgage-based debt, those lenders that participated were entitled to reap those benefits. However, it is no less true that, to the degree that this separation created risks and potential costs, those same lenders must be responsible for absorbing the costs.

III. CONCLUSION

Defendants were entitled to judgment as a matter of law because, pursuant to MCL 600.3204(1)(d), MERS did not own the indebtedness, own an interest in the indebtedness secured by the mortgage, or service the mortgage. MERS' inability to comply with the statutory requirements rendered the foreclosure proceedings in both cases void ab initio. Thus, the circuit courts improperly affirmed the district courts' decisions to proceed with eviction based upon the foreclosures of defendants' properties.

In both Docket No. 290248 and 291443, we reverse the circuit court's affirmance of the district court's orders, vacate the foreclosure proceedings, and remand for further proceedings consistent with this opinion. We do not retain jurisdiction. Defendants, as the prevailing parties, may tax costs. MCR 7.219(A).

Wilder, J. (dissenting).

Because I conclude that, pursuant to MCL 600.3204(1)(d), Mortgage Electronic Registration System (MERS) was "the owner . . . of an interest in the indebtedness secured by the mortgage" at issue in each of these consolidated cases, I respectfully dissent.

Defendant Gerald Saurman (Saurman) and defendant Corey Messner (Messner) executed promissory notes in exchange for loans from Homecomings Financial Network (Homecomings). To secure the repayment of the loans, Saurman and Messner executed mortgage agreements that encumbered the properties purchased with the money loaned to them by Homecomings. The mortgage agreements provided that MERS, "solely as the nominee for [Homecomings], its successors and assigns, " was the mortgagee under each Security Instrument, and held the legal interests to the properties, and that MERS' interests under each Security Instrument, as nominee for Homecomings, included the right to foreclose and sell the properties. The mortgage agreements also provided that MERS had the obligation "to take any action required of

[Homecomings], including, but not limited to, releasing and canceling" the Security Instruments. Though it was not the mortgagee, as the Lender, Homecomings retained an equitable interest in the mortgages.

Both Saurman and Messner defaulted on their payments, and MERS initiated non-judicial foreclosure by advertisement under MCL 600.3201 et seq. MERS purchased the properties in sheriffs' sales, and subsequently, quitclaimed Saurman's property to Residential Funding Co, LLC (RFC), and Messner's property to Bank of New York Trust Co (BNYT). After the redemption periods expired, RFC and BNYT each sought to obtain possession of the respective properties. During eviction proceedings, Saurman and Messner challenged the foreclosure by MERS, asserting that MERS was not the servicing agent, did not own the indebtedness secured by the mortgage, and did not own an interest in the indebtedness secured by the mortgage as required by MCL 600.3204(1)(d). These arguments were rejected by both the district courts and the circuit courts, and this Court granted leave to appeal.

II.

This Court reviews de novo a summary disposition ruling and a circuit court's affirmance of a district court's ruling on a motion for summary disposition. Thorn v Mercy Mem Hosp Corp, 281 Mich.App. 644, 647; 761 N.W.2d 414 (2008); First of America Bank v Thompson, 217 Mich.App. 581, 583; 552 N.W.2d 516 (1996). Issues of statutory construction are questions of law, which this Court reviews de novo on appeal. Washington v Sinai Hosp of Greater Detroit, 478 Mich. 412, 417; 733 N.W.2d 755 (2007). Statutory construction discerns and gives effect to the Legislature's intent. Potter v McLeary, 484 Mich. 397, 410; 774 N.W.2d 1 (2009). In determining that intent, the court first looks to the language of the statute. Id. The interpretation of the language must accord with the legislative intent. Bush v Shabahang, 484 Mich. 156, 167; 772 N.W.2d 272 (2009). As far as possible, the court gives effect to every phrase, clause, and word in the statute. Id. "The statutory language must be read and understood in its grammatical context, unless it is clear that something different was intended." Id. (quotation marks and citations omitted). Courts read a statute as a whole, and individual words and phrases, while important, are read in the context of the entire legislative scheme. Id.

"The interpretation of a contract is also a question of law this Court reviews de novo . . . ." DaimlerChrysler Corp v G Tech Professional Staffing, Inc, 260 Mich.App. 183, 184-185; 678 N.W.2d 647 (2003). A contract must be interpreted according to its plain and ordinary meaning. Holmes v Holmes, 281 Mich.App. 575, 593; 760 N.W.2d 300 (2008).

Under ordinary contract principles if contractual language is clear, construction of the contract is a question of law for the court. If the contract is subject to two reasonable interpretations [or the provisions irreconcilably conflict with each other], factual development is necessary to determine the intent of the parties and summary disposition is therefore inappropriate. If the contract, although in artfully worded or clumsily arranged, fairly admits of but one interpretation, it is not ambiguous. Meagher v Wayne State Univ, 222 Mich.App. 700, 721-722; 565 N.W.2d 401 (1997); see also Shaw v City of Ecorse, 283 Mich.App. 1, 22; 770 N.W.2d 31 (2009).

A court may not rewrite clear and unambiguous language under the guise of interpretation. Woodington v Shokoohi, 288 Mich.App. 352, 374; 792 N.W.2d 63 (2010). Rather, "courts must . . . give effect to every word, phrase, and clause in a contract and avoid an interpretation that would render any part of the contract surplusage or nugatory." Klapp v United Ins Group Agency, Inc, 468 Mich. 459, 468; 663 N.W.2d 447 (2003).

III.

MCL 600.3204 provides, in relevant part:

(1) . . . a party may foreclose a mortgage by advertisement if all of the following circumstances exist:

(a)A default in a condition of the mortgage has occurred, by which the power to sell became operative.

(b) An action or proceeding has not been instituted, at law, to recover the debt secured by the mortgage or any part of the mortgage; or, if an action or proceeding has been instituted, the action or proceeding has been discontinued; or an execution on a judgment rendered in an action or proceeding has been returned unsatisfied, in whole or in part.

(d) The party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.

There are three categories of parties who may foreclose by advertisement under MCL 600.3204(1)(d): (1) the owner of the indebtedness secured by the mortgage; (2) the servicing agent of the mortgage; and (3) the owner of an interest in the indebtedness secured by the mortgage. Because we must give meaning to each of these phrases and each word in the phrases in order to give effect to the Legislature's intent, Bush v Shabahang, 484 Mich. at 167, it is clear that, the owner of an interest in the indebtedness secured by the mortgage, while accorded the same right to foreclose by advertisement, is a different person or entity, than either the owner of the indebtedness secured by the mortgage or the servicing agent of the mortgage. To "own" means "[t]o have good legal title; to hold as property; to have a legal or rightful title to." Black's Law Dictionary (6th ed), p 1105. "Owner" is defined as, "[the] person in whom is vested the ownership, dominion or title of property; proprietor. He who has dominion as a thing, real or personal, corporeal or incorporeal, which he has a right to enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right." Id. Indebtedness is defined as "[t]he state of being in debt" or "the owing of a sum of money upon a certain and express agreement." Id. at 768. The indebtedness secured by the mortgages are, in these cases, the promissory notes signed by Saurman and Messner. Thus, the owner of the indebtedness secured by the mortgage owns the debt or the notes. In these cases, the owner of the indebtedness is Homecomings.

The signature questions presented in these cases are what it means to own "an interest" in the indebtedness secured by the mortgage, i.e., to own an interest in the debt or the note, as opposed to owning the debt or the note, and what entity or person the Legislature meant to refer to when it permitted "the owner of an interest in the indebtedness secured by the mortgage" to have the same ability as the owner of the debt and the servicer of the mortgage to foreclose by advertisement. In general,

The right to foreclosure by advertisement is statutory. Calaveras Timber Co v Michigan Trust Co, 278 Mich. 445, 450; 270 N.W. 743 (1936). Such foreclosures are a matter of contract, authorized by the mortgagor, and ought not to be hampered by an unreasonably strict construction of the law. Cramer v Metropolitan Sav and Loan Ass'n, 401 Mich. 252, 261; 258 N.W.2d 20 (1977). Harsh results may and often do occur because of mortgage foreclosure sales, "but we have never held that because thereof, such sale should be enjoined, when no showing of fraud or irregularity is made." Calaveras Timber Co, [278 Mich] at 454. [Church & Church Inc v A-1 Carpentry, 281 Mich.App. 330, 339-340 (2008), aff'd in part and vacated in part on other grounds, 483 Mich. 885 (2009).]

"Interest" is defined in part as "the most general term that can be employed to denote a right, claim, title or legal share in something. . . .The word 'interest' is used in the Restatement of Property both generically to include varying aggregates of rights, privileges, powers and immunities and distributively to mean any one of them." Black's Law Dictionary (6th ed), p 812. Mortgage is defined as "an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt." Id., p 1009. Notably, the mortgage operates as a conveyance of the legal title to the mortgagee, but such title is subject to defeasance on payment of the debt or performance of the duty by the mortgagor. Id at 1010. In other words, the mortgagee's title is defeated when the debt is paid.

I would conclude that, as mortgagee, MERS owned a contractual interest in the indebtednesss. If the indebtedness is paid in conjunction with the note, MERS has the contractual obligation to cancel the security agreement because its title is defeated. If the indebtedness is not paid, however, MERS has the contractual right and obligation, to exercise the rights granted to it by the mortgagors, including the right to foreclose by advertisement under the statute. In other words, MERS interest in the indebtedness is derived from the fact that its contractual obligations as mortgagee were dependent upon whether the mortgagor met the obligation to pay the indebtedness which the mortgage secured.

According to the Security Instruments, MERS was the nominee of Homecomings, and held its status as mortgagee only in that capacity. "Nominee" is defined as "[a] person designated to act in place of another, usu. in a very limited way . . . [a] party who holds bare legal title for the benefit of others." Black's Law Dictionary, p 1149 (9th ed). Although Saurman and Messner agreed that MERS held "only legal title to the interest granted" in the Security Instruments, the security interest was specifically created to secure performance by Saurman and Messner of the obligation they undertook in the note, namely, to repay the debt. In other words, the security interest created was specifically linked to the debt and specifically created to ensure payment of the debt. Saurman and Messner agreed that "if necessary to comply with law or custom, MERS (as nominee for [Homecomings] . . . ha[d] the right to take any action required of [Homecomings], including, but not limited to, releasing and canceling" the Security Instruments.

By conveying the right to take any action required of it, Homecomings gave, and MERS received, a greater interest than just an interest in the property as security for the note, namely the contractual right to act for the benefit of Homecomings. MERS's interest in the debt reflected by the note is inextricably linked to its obligations under the mortgage. For example, if Saurman or Messner had satisfied their notes, MERS would have been obligated to cancel the Security Instruments on behalf of Homecomings. Alternatively, if Saurman and Messner had elected to sell their properties without Homecomings' prior written consent, MERS would have had the right to exercise the option to require immediate payment in full of all sums secured by the Security Instruments on behalf of Homecomings. Failure to pay in full would have then given MERS the right to invoke remedies such as foreclosure of the properties, as provided in the Security Instruments. In short, MERS was the contractual owner of an interest in the notes, which were secured by the mortgages.

There is no dispute that, had Homecomings retained its status as mortgagee, it would have been entitled to foreclose by advertisement upon the defaults by Saurman and Messner. Nothing in MCL 600.3204 precludes a noteholder-mortgagee from delegating, by contract, some of its rights and responsibilities under the statute and the mortgage, to a nominee which, while not the owner of the note, and therefore, not holding the identical interest in the note as the noteholder, nevertheless, clearly has an interest in whether the note is paid or defaulted upon.[1]

Finally, it bears noting that, contrary to the majority's contention that permitting MERS to foreclose by advertisement could potentially subject the mortgagors to a double-exposure for the same debt, MCL 600.3105(2) forces and election of remedies, such that Homecomings would be precluded from recovery of any debt secured by the mortgage if a foreclosure proceeding had already been initiated by MERS.

I would conclude that MERS did have the authority to foreclose on defendants' properties by advertisement. I would affirm in each case.

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Notes:

[1] Residential Funding Co, LLC v Saurman, unpublished order of the Court of Appeals, entered May 15, 2009 (Docket No. 290248); Bank of New York Trust Co v Messner, unpublished order of the Court of Appeals, entered July 29, 2009 (Docket No. 291443).

[2] In Docket No. 290248, the district court granted summary disposition under MCR 2.116(C)(10). In Docket No. 291443, the district court granted summary disposition under MCR 2.116(I)(2) ("If it appears to the court that the opposing party, rather than the moving party, is entitled to judgment, the court may render judgment in favor of the opposing party.").

[3] We note that, in these cases, MERS disclaims any interest in the properties other than the legal right to foreclose and immediately quitclaim the properties to the true owner, i.e., the lender.

[4] Though the lenders do not hold legal title to the mortgage instrument, they do have an equitable interest therein. See Alton v Slater, 298 Mich. 469, 480; 299 N.W. 149 (1941); Atwood v Schlee, 269 Mich. 322; 257 N.W. 712 (1934). The lender's equitable interest in the mortgage does not, however, translate into an equitable interest for MERS in the loan.

[5] The dissent's analogy between MERS' ability to "own an interest" in the note and an easement-holder's ownership of an interest in land without owning the land is unavailing. An easement holder owns rights to the land that even the landholder cannot infringe upon or divest him of, see Dobie v Morrison, 227 Mich.App. 536, 541; 575 N.W.2d 817 (1998) (noting that a fee owner cannot use the burdened land in any manner that would interfere with the easement holders' rights), while the interest the dissent contends MERS "owns" would be equal to or less than that of the noteholder and the noteholder could completely divest MERS of the alleged interest by forgiving the note without MERS having any recourse. Accordingly, the analogy fails.

[6] In addition, while we reject plaintiffs' overly broad reading of Davenport for the reasons just stated, we note that even under that reading, plaintiffs would merely have to obtain assignment of the mortgage from MERS prior to initiating foreclosure proceedings.

[7] The dissent's observation that, had Homecomings remained the mortgagee, it would have had the right to foreclose by advertisement does not change the outcome because the statutory language provides that it is Homecomings' additional status as the noteholder that would give it that right. The question before us is whether a mortgagee that is not a noteholder has the right to foreclose by advertisement.

[8] The dissent's assertion that MCL 600.3105(2) provides for an election of remedies that prevents this double recovery is erroneous, because that statute governs only judicial foreclosures, not foreclosures by advertisement. MCL 600.3105(2) requires the filing of a complaint, something that does not occur in foreclosure by advertisement. Absent the complaint, there is no time during which a complaint would be "pending" or any judgment that could be "rendered upon it" that would prohibit the filing of any "separate proceeding . . . for the recovery of the debt secured by the mortgage." See also Cheff v Edwards, 203 Mich.App. 557, 560; 513 N.W.2d 439 (1994) (holding that "foreclosure by advertisement is not a judicial action"). Consequently, the prohibitions expressed in MCL 600.3105(2) would not apply to foreclosure by advertisement and, therefore, would not protect borrowers from double recovery is MERS were permitted to foreclose by advertisement.

[1] In this regard, MERS' interest in the indebtedness is similar to the interest held by one who possesses an easement right. "[A]n easement is a not a possessory right. Terlecki v Stewart, 278 Mich.App. 644, 659-660; 754 N.W.2d 899 (2008). Rather, "[a]n easement is, by nature, a limited property interest. It is a right to use the land burdened by the easement rather than a right to occupy and possess the land as does an estate owner." Mich Dep't of Natural Res v Carmody-Lahti Real Estate, Inc, 472 Mich. 359, 378-379; 699 N.W.2d 272 (2005) (internal citations and punctuation omitted)(emphasis added). As one can "own" an easement right and have an interest in land without owning the land, so, too, can MERS "own" an interest in the note held by Homecomings without actually owning the note.

END