Provident Funding Associates, L.P.
Arnold and Peggy Campney, et al.
Appeal from Superior Court, Rutland Unit, Civil Division
William D. Cohen, J.
S. Cannella of Bendett and McHugh, P.C., Farmington,
Connecticut, for Plaintiff-Appellant.
J. Welch, Jr., Rutland, for Defendant-Appellee Joan Campney.
S. Kulig of Kulig Law Offices, P.C., Rutland, for
Defendants-Appellees Arnold and Peggy Campney.
PRESENT: Reiber, C.J., Dooley, Skoglund, Robinson and Eaton,
1. Senior mortgagee appeals the trial court's order
dismissing junior mortgagee as a defendant from senior
mortgagee's fourth foreclosure action against mortgagors.
The trial court determined that junior mortgagee was entitled
to dismissal as an equitable remedy because senior mortgagee
had imposed unnecessary costs on junior mortgagee by
repeatedly filing foreclosure actions against defendants and
failing to prosecute them to completion. The court's
order had the effect of reordering the priority of mortgages,
making senior mortgagee's interest second in priority to
that of junior mortgagee. We reverse and remand for the court to
consider monetary sanctions, such as attorney's fees, as
an alternative sanction.
2. This is the fourth in a series of foreclosure actions
involving a parcel of real property in Clarendon, Vermont. In
March 2007, defendants-mortgagors Arnold and Peggy Campney
executed a promissory note to E-Loans, Inc. for $310, 000,
secured by a mortgage on the Clarendon property. The note and
mortgage are now held by senior mortgagee Provident Funding
Associates, L.P., the plaintiff in this case, pursuant to a
special endorsement. Junior mortgagee Joan Campney also held
a mortgage on the Clarendon property that was recorded in
2004. She signed a subordination agreement in March 2007 in
which she agreed that her mortgage would be inferior in
priority to senior mortgagee's mortgage.
3. Mortgagors failed to make payments called for under the
note and mortgage, and senior mortgagee filed a foreclosure
action against them in October 2008. Junior mortgagee was
also named as a defendant. The action was dismissed without
prejudice at senior mortgagee's request in January 2009.
4. In August 2009, senior mortgagee filed another foreclosure
action against the same defendants. Senior mortgagee moved
for default judgment, but it apparently did not provide proof
that it was the holder of the promissory note. In October
2009, the court ordered senior mortgagee to produce an
endorsed note to establish its standing to foreclose upon the
mortgage. Senior mortgagee did not respond. The court
dismissed the action for failure to prosecute in January
5. Senior mortgagee filed a third foreclosure action in
December 2010. In June 2011, the court sent notice to senior
mortgagee that the action would be dismissed because it
appeared that the defendants had not been served with the
complaint. Senior mortgagee did not respond, and the court
dismissed the action in August 2011 due to senior
mortgagee's failure to prosecute the case. Senior
mortgagee filed a motion to reopen, alleging that it had
provided proof of service. The court denied the motion in
November 2011 because there were several other irregularities
with senior mortgagee's filings and senior mortgagee had
failed to respond to the court's warning of
6. Senior mortgagee commenced the present action in January
2012. Junior mortgagee moved to dismiss the case, arguing
that the court's previous dismissals operated as an
adjudication on the merits under Vermont Rule of Civil
Procedure 41(b)(3) and barred further litigation of the same
7. The trial court granted junior mortgagee's motion in
an order issued in June 2012. Although the motion ostensibly
sought to dismiss the entire case, the court only addressed
whether the dismissal of the third action rendered finality
to the interests of junior mortgagee in the present action.
The court agreed with senior mortgagee that the present
action was a "new claim" because "further
defaults have occurred since the [third claim] was
filed." The court held that senior mortgagee was not
precluded under Rule 41(b) from filing the present action
against junior mortgagee, despite the dismissals of the
earlier actions. It based this conclusion on U.S. Bank
National Ass'n v. Kimball, in which we held that the
dismissal "with prejudice" of a foreclosure suit
for lack of standing did not cancel the underlying note or
mortgage or preclude subsequent foreclosure proceedings
"based on proven delinquency." 2011 VT 81, ¶
23, 190 Vt. 210, 27 A.2d 1087.
8. However, the trial court determined that because
foreclosure proceedings are equitable in nature, it could use
its equitable powers to dismiss junior mortgagee as a
defendant. The trial court concluded that
"undisputed facts" supported the equitable remedy
of dismissal of ...