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Deutsche Bank National Trust Co. v. Watts

Supreme Court of Vermont

June 23, 2017

Deutsche Bank National Trust Company, as Trustee
Skip Watts and Paris Watts

         On Appeal from Superior Court, Rutland Unit, Civil Division

         William D. Cohen, J. (motions for summary judgment); Cortland Corsones (final judgment)

          Jennifer L. Maynard and Douglas A. Giron of Shechtman Halperin Savage, LLP, Pawtucket, Rhode Island, for Plaintiff-Appellee.

          Julie Carp, Vermont Legal Aid, Inc., Rutland, for Defendants-Appellants.

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

          DOOLEY, J.

         ¶ 1. Defendant borrowers, Skip Watts and Paris Watts, appeal the trial court's summary judgment decision in favor of plaintiff lender, Deutsche Bank National Trust Company, in this mortgage foreclosure action. They assert that the trial court erred by finding that a dismissal with prejudice under Vermont Rule of Civil Procedure 41(b) is not an adjudication on the merits given preclusive effect in a foreclosure action. Lender argues in response that earlier decisions of this Court that gave preclusive effect to the dismissal of foreclosure actions should be applied only prospectively and not to this case. We reverse and dismiss lender's action.

         ¶ 2. The relevant facts are undisputed. Borrowers executed an adjustable rate promissory note for $185, 000 with NovaStar Mortgage, Inc., in 2006. NovaStar Mortgage, Inc., assigned the note to lender. To secure the promissory note, borrowers executed a real property mortgage with the Mortgage Electronic Registration Systems, Inc., (MERS), as nominee for NovaStar Mortgage, Inc. MERS then assigned the mortgage to lender.

         ¶ 3. Borrowers did not make the monthly payment due on December 1, 2008, and thereby defaulted on their obligations under the note and mortgage. Lender accelerated payments due on the promissory note, requiring immediate payment of the entire amount due including outstanding principal, interest, fees, property taxes, and insurance premiums. Almost a full year after borrowers' 2008 default, lender filed a complaint in the superior court initiating a foreclosure action against borrowers. The December 2008 default was the basis for this cause of action, and lender sought judgment for the entire amount due on the note, including the principal and all interest on the note, all sums expended, and attorney's fees and costs. It also sought foreclosure of the mortgage and a deficiency judgment for the net amount owed on the note after the sale of the mortgaged property. Lender filed an Affidavit of Completion of Service by Publication on February 8, 2010. This was lender's last filing in the case. Borrowers did not file an answer to the complaint.

         ¶ 4. There was no further action in the case for over a year. The trial court issued a Notice of Potential Dismissal on April 22, 2011, stating that the "matter [was] eligible for dismissal pursuant to V.R.C.P. 41(b)(1)(ii) and [might] be dismissed on the Court's motion on May 6, 2011 unless good cause [was] shown for its continuance."[*] Lender filed nothing in response to the Notice, and the court dismissed the action on July 1, 2011, based on lender's failure to prosecute its claim. Following this dismissal, borrowers and their loan servicer unsuccessfully attempted to find a solution that would allow borrowers to resume payments.

         ¶ 5. Lender filed the action currently before the Court in 2013, again filing a complaint that alleged borrowers defaulted on their promissory note in December of 2008. This second complaint, like the complaint filed in 2009, sought a judgment for the entire outstanding principal, interest, insurance payments, taxes, and attorney's fees, as well as foreclosure of the mortgage and a deficiency judgment. Borrowers answered that the 2013 action was precluded under the principle of res judicata. Each party moved for summary judgment, and each repeated the claims in its initial filings. Lender pointed to borrowers' 2008 default and sought foreclosure and the full payment requested in its complaint, while borrowers argued that the 2011 dismissal of lender's prior action for collection on the note and foreclosure of the mortgage acted as an adjudication on the merits and, therefore, res judicata barred a second action based on the same default. The trial court granted lender's motion, applying equitable principles to find that the 2011 dismissal was not a preclusive adjudication on the merits but that lender was entitled to recover interest only if it was due after the date of lender's first, 2009, complaint against borrowers.

         ¶ 6. Borrowers filed a timely appeal. This Court placed their appeal on waiting status and stayed all deadlines pending decisions in Deutsche Bank v. Pinette, 2016 VT 71, Vt., 149 A.3d 479, and Cenlar FSB v. Malenfant, 2016 VT 93, Vt., 151 A.3d 778. Following the issuance of these decisions, lender dropped from its brief any argument that the trial court decision could be affirmed if the decisions applied to cases in progress when they were issued.

         ¶ 7. We review summary judgment rulings de novo, using the same standard as the trial court. Robertson v. Mylan Labs., Inc., 2004 VT 15, ¶ 15, 176 Vt. 356, 848 A.2d 210. Summary judgment is proper when there are no genuine issues of material fact and a party is entitled to judgment as a matter of law. V.R.C.P. 56(a). In determining whether genuine issues of material fact exist, we accept as true any allegations made in opposition to the summary judgment motion if they are supported by affidavits or other evidentiary materials. The nonmoving party receives the benefit of all reasonable doubts and inferences. Robertson, 2004 VT 15, ¶ 15.

         ¶ 8. Because our rulings in Pinette and Malenfant are dispositive here, we begin by outlining these two cases. Pinette presented facts similar to the present case. There, the borrower executed a promissory note for $54, 400 secured by a mortgage of real property. The note and mortgage were held by the lender. After the borrower defaulted on payments, the lender filed a complaint for judgment on the promissory note, mortgage foreclosure, and a deficiency judgment. Pinette, 2016 VT 71, ¶ 2. The superior court dismissed the action without prejudice after the borrower failed to enter an appearance or file an answer and the lender failed to seek a default judgment as directed by the court. Id. ΒΆ 4. The lender then filed a second action against the borrower, using an identical complaint. Again, the borrower failed to answer and ...

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