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Dernier v. Mortgage Network, Inc.

Supreme Court of Vermont

October 18, 2013

Peter Dernier and Nicole Dernier
Mortgage Network, Inc., Mortgage Electronic Registration Systems, Inc. and U.S. Bank National Association

Page 466

Editorial Note:

This Opinion is subject to motion for reargument or formal revision before publication. See V.R.A.P. 40

On Appeal from Superior Court, Windsor Unit, Civil Division. Theresa S. DiMauro, J.

Kimberly B. Cheney of Cheney Saudek & Grayck PC, Montpelier, for Plaintiffs-Appellants.

Andre D. Bouffard of Downs Rachlin Martin PLLC, Burlington, for Defendants-Appellees.

Present: Reiber, C.J., Dooley, Skoglund, Burgess and Robinson, JJ.


Page 467

Dooley, J.

[¶ 1] Plaintiffs Peter and Nicole Dernier appeal the dismissal for failure to state a claim, of their action for (1) a declaratory judgment that defendant U.S. Bank National Association cannot enforce the mortgage and promissory note for the debt associated with plaintiffs' purchase of their house based on irregularities and fraud in the transfer of both instruments, (2) a declaration that U.S. Bank has violated Vermont's Consumer Fraud Act (CFA) by asserting its right to enforce the mortgage and note, and (3) attorney's fees and costs under the CFA. They also appeal the trial court's failure to enter a default judgment against defendant Mortgage Electronic Registration Systems, Inc. (MERS). We affirm in part and reverse in part.

[¶ 2] The following facts set out the basic events that led to the suit and the procedural posture of the case. The allegations as to the alleged irregularities and fraud related to the note and mortgage, and the specific claims in plaintiffs' complaint, will be explained in greater detail thereafter.

[¶ 3] Plaintiffs purchased a house in Weston, Vermont in 2005. Kittredge Mortgage Corporation, a Vermont corporation, loaned plaintiffs $242,250 for the purchase, and Peter Dernier executed a promissory note in favor of Kittredge in that amount on October 7, 2005. Plaintiffs also executed a mortgage in favor of Kittredge on the same date. Plaintiffs allege no irregularities with the purchase of the house or the execution of the note or mortgage.

[¶ 4] After that smooth beginning, things began to get murky. The note and the mortgage were immediately transferred, and although their paths were slightly different, by the time of this suit both had entered the secondary mortgage market and had landed in a trust administered by U.S. Bank.

[¶ 5] Plaintiffs fell behind on their mortgage, and in March 2011 brought suit against two parties: Mortgage Network, Inc. (MNI), which is in the chain of title for both the note and the mortgage, and MERS, which is in the chain of title for the mortgage as a " nominee" for MNI. Plaintiffs sought a declaratory judgment that the mortgage was void, asserting that (1) MERS, as a nominee, never had any beneficial interest in the mortgage, (2) MNI had assigned its interest in both instruments to others without notifying plaintiffs,

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and (3) no party with the right to foreclose the mortgage had recorded its interest. MNI responded by letter on April 25, 2011 that plaintiffs had named MNI as a party in error, because MNI did " not own the right to the mortgage in question." MERS did not respond. Around this time, plaintiffs received a letter in which U.S. Bank, through its attorney, represented that it possessed the original promissory note and mortgage and that it had the right to institute foreclosure proceedings on the property.

[¶ 6] In June 2011, plaintiffs moved for a default judgment against MNI and MERS. A few days later, plaintiffs moved to amend their complaint to join U.S. Bank as a defendant, alleging for the first time -- in general terms -- that the assignment to U.S. Bank was invalid and U.S. Bank's assertion of any interest was an unfair and deceptive practice in violation of the CFA. The complaint as to U.S. Bank called for a declaratory judgment that U.S. Bank had no right to foreclose the mortgage or enforce the note, that U.S. Bank had violated the CFA, and that plaintiffs were entitled to attorney's fees.

[¶ 7] The trial court granted plaintiffs' motion to join U.S. Bank as a party, but denied the motion for default judgment. In denying plaintiffs' motion, the trial court noted that, because the case was a declaratory judgment action " in which relief granted as against one defendant may have significant effects on the rights of others," default judgment was not appropriate " until all parties have been added, served, and have had time to file answers." It added, however, that plaintiffs were free to renew their motion for default judgment after those conditions were satisfied.

[¶ 8] U.S. Bank moved to dismiss the case, and plaintiffs responded by filing an amended complaint, where they explained for the first time their allegations of fraud and noncompliance with the terms of the pooling and servicing agreement (PSA) governing the pool into which the mortgage had been assigned. U.S. Bank again moved to dismiss, noting the heightened pleading requirement for allegations of fraud under V.R.C.P. 9(b). Plaintiffs moved to file a second amended complaint, in which the allegations of fraud were laid out in detail and accompanied by exhibits. U.S. Bank opposed the filing of the second amended complaint and again moved to dismiss. The trial court denied plaintiffs' motion to amend and dismissed plaintiffs' case for failure to state a claim. See Prive v. Vt. Asbestos Grp., 2010 VT 2, ¶ ¶ 12-13, 187 Vt. 280, 992 A.2d 1035 (explaining that when a plaintiff files an amended complaint in response to a motion to dismiss, the correct test is whether the amended complaint would survive a motion to dismiss). Plaintiffs appealed.

[¶ 9] While we are technically reviewing the denial of a motion to amend a complaint, the trial court's decision was based on the content of the proposed second amendment to the complaint. Thus, we treat the case as if plaintiffs' complaint were amended as they proposed and the superior court dismissed it for failure to state a claim.

[¶ 10] We also note that, although plaintiffs continue to name MNI and MERS as defendants along with U.S. Bank, plaintiffs' amended complaint addresses only claims against U.S. Bank and prays for relief only against U.S. Bank. Accordingly, we treat U.S. Bank as the sole defendant here unless we state otherwise.

[¶ 11] In their complaint, plaintiffs allege irregularities and fraud related to the transfer both of the note and the mortgage. For each item, the note and the mortgage, we will first describe the state of the documentation as found in the exhibits attached to the complaint and then

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summarize the allegations made by plaintiffs. As this case comes to us on a motion to dismiss, we must take the allegations in plaintiffs' complaint as true, a point we stress below -- but examining the documents allows us to understand better plaintiffs' claims.

[¶ 12] We begin with the note, and with what appears on the note itself. In what was presumably the first step, although there are no dates on the assignments, Kittredge assigned the note to MNI, a Massachusetts corporation, through a stamp that was signed by Yvonne Pickard. The next transfer was effected by a stamp that reads: " Pay to the order of ** Without Recourse." Under that statement is the name " Mortgage Network, Inc.," followed by " By: Chad M. Goodwin, Pipeline Manager." Above this stamp is typed: " ** U.S. Bank National Association, as Trustee for CSMC Mortgage-Backed Pass-Through Certificates, Series 2006-3." What seems to be a signature is placed over Chad Goodwin's name.

[¶ 13] The CSMC trust is governed by a PSA, which plaintiffs submitted as an exhibit with their second amended complaint. According to the PSA, defendant is the " Trustee," and Wells Fargo Bank N.A. is the " Servicer." While that accords with the assignment on the mortgage, other elements of the PSA are confusing as they relate to plaintiffs' note. First, according to the PSA, the trust is composed of assets for which DLJ Mortgage Capital, Inc. is the " seller" and Credit Suisse First Boston Mortgage Securities Corp. is the " depositor." As there is no indication that plaintiffs' note was owned by Credit Suisse or DLJ Mortgage Capital, this is certainly perplexing, for the PSA suggests that it is composed entirely of instruments acquired by DLJ Mortgage Capital and transferred to Credit Suisse, and states that an " original Mortgage Note bearing all intervening endorsements " must be delivered to the custodian of the trust. (Emphasis added.) Another strange element of the PSA is that the trust has a " closing date" of March 30, 2006, and gives 90 days from that date for the trust to obtain any missing papers, but the note has no indication of when the transfer was made.

[¶ 14] Seizing on these facts, plaintiffs in their complaint assert various conflicting fact patterns surrounding the transfer of the note, in an effort to show that defendant does not have the right to enforce it. First, they assert that DLJ Mortgage Capital acquired the note from MNI and transferred it to Credit Suisse -- although there is no evidence of this on the note, this assertion is presumably based on the proposition that because the trust is composed of instruments from DLJ Mortgage Capital and Credit Suisse it must have passed through those entities to become part of the trust. Plaintiffs draw from this the conclusion that the purported transfer to defendant from MNI was invalid, as defendant had given up the note to DLJ Mortgage Capital. Second, plaintiffs assert that defendant acquired the note after the closing date of March 30, 2006, which they claim makes the transfer invalid and prevents the trust from owning the note. There is no stamp on the date of the transfer to defendant, but plaintiffs seem to presume that it occurred after June 30, 2006, while acknowledging that the date has not been precisely determined. Finally, plaintiffs assert that the initial stamp from Chad Goodwin was blank, but that defendant, " by its employees or agents, caused the purported signature of Goodwin to be affixed on the Note." They also state, in a different variation on that allegation, that defendant " knew the endorsement was fraudulent." The justification for these last two statements is that plaintiffs have somehow located Chad Goodwin's signature on a mortgage in Maine, which they

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submitted as an exhibit, noting that that signature looks very different from the signature on their note.

[¶ 15] Moving on to the mortgage, the picture is no clearer. On October 7, 2005 -- the very day the mortgage was executed by Peter Dernier to Kittredge -- Kittredge assigned it to MERS, a Delaware corporation, as nominee for MNI. Plaintiffs allege no irregularity in this assignment, and it was recorded in the Weston land records on October 12, 2005. The next transfer for which there is documentation was on March 18, 2011, from MERS to defendant, again as trustee for Credit Suisse First Boston Mortgage Securities Corp., Mortgage Backed Pass-Through Certificates, Series 2006-3.

[¶ 16] There are three things pertinent to plaintiffs' complaint to flag about this transfer. First, the text of the assignment says that MERS is acting as a nominee for Kittredge Mortgage Corporation.[1] Given the earlier transfer from Kittredge to MERS as nominee for MNI, this language appears to be clearly wrong. Second, the assignment is signed for MERS by " Michael Snively, Assistant Secretary." As evidenced by another document attached to the complaint, Michael Snively is an employee of Wells Fargo -- the servicer of the trust -- not of MERS.[2] Finally, similar to the problem of the note discussed above, the date of the assignment to the trust was after the closing date.

[¶ 17] Plaintiffs in their complaint assert that the assignment to defendant was invalid for all of these reasons, adding an allegation that the signature of the notary public avowing to the signature by Michael Snively was " forged."

[¶ 18] After putting forward these allegations, plaintiffs explain in their complaint that they seek three forms of relief. First, they request a declaratory judgment that defendant has no right to enforce either the note or the mortgage, based on the violations of the PSA and the alleged fraud. Second, they request a declaration that defendant has violated the CFA by stating that it believes it has the right to enforce the mortgage and note. Finally, presumably based on the CFA claim, they request payment of their attorney's fees and costs.

[¶ 19] Defendant opposed the motion to amend, essentially arguing that it was futile and would not survive a motion to dismiss. Its primary arguments were that plaintiffs lacked standing to make their claims. As to the alleged violations of the PSA, defendant argued that plaintiffs were neither parties to nor beneficiaries of the PSA, so they have no standing to enforce it. As to the alleged fraud in the assignments, defendant argued that the suit is premature and the issues will become ripe only if and when defendant files a foreclosure action. As we discuss below, defendant attached to its motion documents that show that plaintiffs ...

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