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 ...