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MERS: Trouble In The Empire State: The Agard Case

MERS: TROUBLE IN THE EMPIRE STATE: THE AGARD CASE

Hugh Wood
Atlanta, GA

If the Agard case [1] migrates from the Empire State [2] to the Empire State of the South [3], some of our clients may win on their Georgia MERS [4] arguments and change Georgia law.

Currently, the scant Georgia caselaw that exists concerning MERS and its designation as “nominee,” agent, grantee, etc., with regard to Georgia Security Deeds, would indicate that MERS may hold, assign, and foreclose (after default of the borrower) at will. The one Georgia case on point, holds that MERS has standing to maintain a Georgia foreclosure even as nominee. That the Court found nothing wrong with the splitting of the Note from the Security Deed. [5] “However, the nominee of the lender has the ability to foreclose on a debtor’s property even if such nominee does not have a beneficial interest in the note secured by the mortgage.” Nicholson, at 9.

In an Opinion that runs completely counter to the bits of law in Georgia and follows the Anti-MERS holdings of the Kansas Supreme Court and the Nebraska Supreme Court, the Bankruptcy Court for the Eastern District of New York in the Agard Case, found for MERS, but cautioned future filings by MERS, writing:

This Court finds that MERS’s theory that it can act as a “common agent” for undisclosed principals is not support by the law. The relationship between MERS and its lenders and its distortion of its alleged “nominee” status was appropriately described by the Supreme Court of Kansas [6] as follows: “The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant – their description depended on which part they were touching at any given time.” [ * * * ] Conclusion. For all of the foregoing reasons, the Court finds that the Motion in this case should be granted. However, in all future cases which involve MERS, the moving party must show that it validly holds both the mortgage and the underlying note in order to prove standing before this Court. Agard, at 37.

Our firm currently has cases pending in Georgia that raise the exact same issue reviewed in the Agard opinion.

In the types of arguments that we have made in Georgia, we have asserted, vis a vis MERS documents, as follows:

[Second Lender] First American is Not in Privity Because
All the Conveyances Were With MERS

All of the conveyances associated with these transactions contain MERS as the Grantee and the “mere nominee,” for [ ORIGINAL LENDER ] or [ ASSIGNED LENDER ]. SUMF ¶¶s XX to XX. Even though, MERS is listed as Grantee on the [ ORIGINAL LENDER ] and [ ASSIGNED LENDER ] Security Deed, it, MERS, later goes to lengths to document its existence as “mere nominee.” “MERS, Mortgage Electronic Registration Systems, Inc., a separate corporation that is acting solely as a nominee for the Lender and Lender’s successors and assigns…” SUMF at ¶ XX.

The Security Deed in question reads in pertinent part:

Security deed dated May xx, 20xx. This security instrument is granted between [ REDACTED ], borrower, grantor to MERS. MERS is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as nominee for lender and lender’s successors and assigns. MERS is the grantee under the security instrument. MERS is organized and existing under the laws of Delaware, and has an address and telephone number of P.O. Box 2026, Flint, Michigan 48501 2026, Telephone No. (888) 697 MERS. The lender in this instrument is [ ASSIGNED LENDER ]. Note means that promissory note dated May XX, 20XX in the amount of $1,XX0,000.00. [ * * * ] At Page XXX MERS further defines itself as “to have and to hold this property unto MERS (solely as nominee for lender and lender’s successors and assigns) and to the successors and assigns of MERS, forever, together with all the improvements now or hereafter erected on the property, and all easements, appurtenances, fixtures now or hereafter a part of the property. All replacements and additions shall also be covered by this security instrument. All of the foregoing is referred to in this security instrument as “property.” Borrower understands and agrees that MERS holds only legal title to the interest granted by borrower in the 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: to exercise any and 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 the security instrument. This security deed was recorded on Fulton County records on July XX, 20XX at Deed Book 4XXXX, Page XXX. SUMF at ¶ XX,

Georgia has never construed the meaning of conveyances to MERS, as a Grantee, where MERS further limits its involvement on the instrument to that of mere nominee. Only one case in Georgia, Taylor, Bean & Whitaker Mortgage Corporation Et Al. v. Brown, 276 Ga. 848, 583 S.E.2d 844 (2003), defines MERS in a footnote [fn. 1.],. That case does not specify the meaning of Grantee vs. Mere Nominee in Georgia,

Two states, Kansas and Nebraska, have found that MERS acting as “mere nominee,” does not allow MERS to also act as “naked Grantee.” That is, notwithstanding MERS statement in its Security Deed’s that is a Grantee, other Courts have found that the language of “mere nominee,” defeats MERS self serving statement of “Grantee.”

Kansas weighted in on this issue in Landmark National Bank v. Kesler, 40 Kan.App.2d 325, 192 P.3d 177 (2008). It wrote:

Landmark National Bank brought a suit to foreclose its mortgage against Boyd Kesler and joined Millennia Mortgage Corp. as a defendant because a second mortgage had been filed of record for a loan between Kesler and Millennia. In a foreclosure suit, it is normal practice to name as defendants all parties who may claim a lien against the property. When neither Kesler nor Millennia responded to the suit, the district court gave Landmark a default judgment, entered a journal entry foreclosing Landmark’s [40 Kan.App.2d 326] mortgage, and ordered the property sold so that sale proceeds could be applied to pay Landmark’s mortgage.

But Millennia apparently had sold its mortgage to another party and no longer had interest in the property by this time. Sovereign Bank filed a motion to set aside the judgment and asserted that it now held the title to Kesler’s obligation to pay the debt to Millennia. And another party, Mortgage Electronic Registration Systems, Inc. (” MERS” ), also filed a motion to set aside the judgment and asserted that it held legal title to the mortgage, originally on behalf of Millennia and later on behalf of Sovereign. Both Sovereign and MERS claim that MERS was a necessary party to the foreclosure lawsuit and that the judgment must be set aside because MERS wasn’t included on the foreclosure suit as a defendant.

[ * * * ]

A mortgage grants a title or lien against a property as security for the payment of a debt or the performance of a duty. The ” mortgagor” is the borrower who grants a mortgage in exchange for a loan; the ” mortgagee” is the lender who gives the loan secured by the mortgage. See Black’s Law Dictionary 1031, 1034 (8th ed.2004). The mortgagee is so well understood as the lender that Black’s Law Dictionary defines a ” foreclosure” as an action brought by the lender/mortgagee: a foreclosure is a ” legal proceeding to terminate a mortgagor’s interest in property, instituted by the lender (the mortgagee) either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property.” Black’s Law [40 Kan.App.2d 327] Dictionary 674. Similarly, the tie between a mortgage and an underlying debt is so intrinsic that Kansas law provides that ” [t]he assignment of any mortgage … shall carry with it the debt thereby secured.” K.S.A. 58-2323. Indeed, an assignment of a mortgage without the debt transfers nothing. 55 Am.Jur.2d, Mortgages § 1002. Thus, the mortgagee, who must have an interest in the debt, is the lender in a typical home mortgage.

But for reasons thought beneficial by a group of lenders who trade mortgages, the form of mortgage used in this case designates an entity that is not the lender as the mortgagee. See MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 96, 828 N.Y.S.2d 266, 861 N.E.2d 81 (2006) (MERS was established by large lenders to allow easy electronic trading and tracking of mortgages). Specifically, the mortgage says that the mortgagee is MERS, though ” solely as nominee for Lender.” Does this mean that MERS really was the mortgagee, even though it didn’t lend money or have any rights to loan repayments? Assuming so, MERS argues that it was a necessary party to the foreclosure and that the foreclosure must be set aside. But the premise upon which MERS bases this argument is flawed.

What is MERS’ interest? MERS claims that it holds the title to the second mortgage, not the real estate. So it does, but only as a nominee. In terms of the roles that we’ve discussed in the mortgage business, MERS holds the mortgage but without rights to the debt. The district court found that MERS was merely an agent for the principal player, Millennia. While MERS objects to its characterization as an agent, it’s a fair one.

MERS had no right to the underlying debt repayment secured by the mortgage; MERS did not even act as the servicing agent to receive the payments and remit them to the lender. MERS’ right to act to enforce the mortgage was strictly limited: if ” necessary to comply with law or custom,” MERS could foreclose the mortgage or enter a release of the mortgage. MERS certainly could not act at odds to its principal, the lender. Its role fits the classic definition of an agent: one ” ‘ authorized by another to act for him, or entrusted with another’s business.’ ” In re Tax Appeal of Scholastic Book Clubs, Inc., 260 Kan. 528, 534, 920 P.2d 947 (1996) (quoting Black’s Law Dictionary 85 [4th ed.1968] ).

[ * * * ]

But whatever authority the nominee may have comes from the delegation of that authority by the principal. In its ordinary meaning, a nominee represents the principal in only a ” nominal capacity” and does not receive any property or ownership rights of the person represented. See, e.g., Cisco v. Van Lew, 60 Cal.App.2d 575, 583-84, 141 P.2d 433 (1943); see also Applebaum v. Avaya, Inc., 812 A.2d 880, 889 (Del.2002) (referring to nominees ” as agents of the beneficial owners” ). The Millennia mortgage does not purport to give MERS any greater rights than normally given a nominee. The mortgage says that MERS acts ” solely as nominee for Lender.” There is no express grant of any right to MERS to transfer or sell the mortgage or even to assign its duties as nominee. Nor does MERS obtain any right to the borrower’s payments or even a role in receiving payments.

In Mortgage Electronic Registration Systems, Inc., Appellant, v. Nebraska Department Of Banking And Finance, Appellee, 270 Neb. 529, 704 N.W.2d 784 (2005), MERS successfully overturned a finding by the Nebraska Department of Banking and Finance that it was a Mortgage Banker and required to register in Nebraska as such.

The Nebraska Supreme Court struggled with MERS odd existence in the world of mortgages and wrote:

The MERS system was created to facilitate the transfer of ownership interests and servicing rights in mortgage loans. Under the System, MERS serves as mortgagee of record for participating members through assignment of the members’ interests to MERS. Mortgage lenders participate in the MERS System as members upon completion of a membership application. The district court went on to discuss the elements of the contract between MERS and its members, referring specifically to a document entitled, “Terms and Conditions,” that states, in part: The Member, at its own expense, shall promptly, or as soon as practicable, cause MERS to appear in the appropriate public records as the mortgagee of record with respect to each mortgage loan that the Member registers on the MERS’ System. MERS shall serve as mortgagee of record with respect to all such mortgage loans solely as a nominee, in an administrative capacity, for the beneficial owner or owners thereof from time to time. MERS shall have no rights whatsoever to any payments made on account of such mortgage loans, to any servicing rights related to such mortgage loans, or to any mortgaged properties securing such mortgage loans. MERS agrees not to assert any rights (other than rights specified in the Governing Documents) with respect to such mortgage loans or mortgaged.

[ * * * ]

MERS argues that it does not acquire mortgage loans and is therefore not a mortgage banker under § 45-702(6) because it only holds legal title to members’ mortgages in a nominee capacity and is contractually prohibited from exercising any rights with respect to the mortgages (i.e., foreclosure) without the authorization of the members. Further, MERS argues that it does not own the promissory notes secured by the mortgages and has no right to payments made on the notes. MERS explains that it merely “immobilizes the mortgage lien while transfers of the promissory notes and servicing rights continue to occur.” Brief for appellant at 12.

[ * * * ]

To execute a MERS Mortgage, the borrower conveys the mortgage to MERS, who is acting as a contractual nominee. MERS becomes the recorded grantee, however, the lender retains the note and servicing right.

[ * * * ]

Although we agree with the district court’s characterization of the services provided by MERS and its contractual relationship with its members, we conclude that such services are not equivalent to acquiring mortgage loans, as defined by the Act. In other words, through its services to its members as characterized by the district court, MERS does not acquire “any loan or extension of credit secured by a lien on real property.” MERS does not itself extend credit or acquire rights to receive payments on mortgage loans. Rather, the lenders retain the promissory notes and servicing rights to the mortgage, while MERS acquires legal title to the mortgage for recordation purposes.

MERS serves as legal title holder in a nominee capacity, permitting lenders to sell their interests in the notes and servicing rights to investors without recording each transaction. But, simply stated, MERS has no independent right to collect on any debt because MERS itself has not extended credit, and none of the mortgage debtors owe MERS any money. Based on the foregoing, we conclude that MERS does not acquire mortgage loans, as defined in § 45-702(8), and therefore, MERS is not subject to the requirements of the Act.

Both Kansas and Nebraska found that MERS as a mere “Nominee,” was not empowered to buy and sell the Notes and Mortgages that were the subject matter of Landmark, supra, and MERS v. Nebraska Banking, supra. MERS is conducting its operations in Georgia in the exact manner as it conducts business in Kansas and Nebraska. In fact, the language in the Security Deeds in this case is exactly the same language used in Kansas and Nebraska. Both states found that MERS conveyances were deficient when conveyed in its own name, the name of MERS. Since the relevant conveyances in this case were conveyed in the name of MERS, this Court should find those conveyances to be deficient for the same reasoning applied by the Courts in Landmark, supra, and MERS v. Nebraska Banking, supra.

While there is no law on point in Georgia on this issue [ DEFENDANT / APPELLANT ] hereby moves this Court to establish the holdings in Landmark, supra, as the law to be applied in MERS situations in Georgia. If such law is applied, [ ASSIGNED LENDER ] then holds nothing with which to pursue [ DEFENDANT / APPELLANT ] and [ ASSIGNED LENDER’S ] claims, obtained by transfer from MERS should be dismissed. [This was taken from a Brief and the actual names were redacted.]

We have made this similar argument in a number of cases pending in Georgia. Whether any of them will make it to the Supreme Court of Georgia, remains to be seen. Only the Supreme Court (and perhaps the General Assembly – but given its Chamber of Commerce bend, I have grave doubts that any Bill on this issue would even make it out of Committee).

While we are writing in a parallel universe and one that does not meet the other – our arguments here in Georgia and the Agard holding in New York, supra, are highly similar.

In Georgia, we assert that the following clauses are fatal to MERS standing and assignment:

In New York in Agard, supra, the Court reviews the EXACT SAME LANGUAGE and finds it deficient. In New York the MERS language at issue is:

The Mortgage

First Franklin is the “Lender” named in the Mortgage. With reference to MERS’s role in the transaction, the Mortgage states:

MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is organized and existing under the laws of Delaware, and has an address and telephone number of P.O. Box 2026, Flint, MI 48501-2026, tel. (888) 679 MERS. FOR PURPOSES OF RECORDING THIS MORTGAGE, MERS IS THE MORTGAGEE OF RECORD.
(Mortgage at 1 (emphasis added by the Court)).The Mortgage also purports to contain a transfer to MERS of the Borrower’s (i.e., the
Page 27 of 37) Case 8-10-77338-reg Doc 41 Filed 02/10/11 Entered 02/10/11 14:13:10/Debtor’s) rights in the subject Property as follows:

BORROWER’S TRANSFER TO LENDER OF RIGHTS IN THE PROPERTY

[The Borrower] mortgage[s], grant[s] and convey[s] the Property to MERS (solely as nominee for Lender and Lender’s successors in interest) and its successors in interest subject to the terms of this Security Instrument. This means that, by signing this Security Instrument, [the Borrower is] giving Lender those rights that are stated in this Security Instrument and also those rights that Applicable Law gives to lenders who hold mortgage on real property. [The Borrower is] giving Lender these rights to protect Lender from possible losses that might result if [the Borrower] fail[s] to [comply with certain obligations under the Security Instrument and accompanying Note.]

[The Borrower] understand[s] and agree[s] that MERS holds only legal title to the rights granted by [the Borrower] in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lenders’s successors and assigns) has the right: (A) to exercise any or all those rights, including, but not limited to, the right to foreclose and sell the Property; and (B) to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.

[The Borrower gives] MERS (solely as nominee for Lender and Lender’s successors in interest), rights in the Property . . .
(Mortgage at 3) (emphasis added).
The Assignment of Mortgage references the Mortgage and defines the “Assignor” as “‘Mers’ Mortgage Electronic Registration Systems, Inc., 2150 North First Street, San Jose, California 95131, as nominee for First Franklin, a division of National City Bank of IN, 2150 North First Street San Jose, California 95153. ” (Emphasis added by the Court). The “Assignee” is U.S. Bank. Agard, supra, at 28.

We have moved the Georgia Courts, on behalf of our clients to adopt the holdings in the Landmark National Bank (Kansas) case, supra. However, to date no Georgia Court has been interested in taking up the issue.

The New York Court in Agard, supra, adopts our theoretical Georgia argument lock, stock and barrel. In finding MERS will have in future New York cases filed in Bankruptcy, “no standing,” and no ability to foreclose unless it can show that it holds both the Note and Mortgage (New York uses Mortgages and is a judicial foreclosure state; by contrast, Georgia is primarily a non-judicial foreclosure state), it cannot foreclose. It wrote:

The Assignment of Mortgage references the Mortgage and defines the “Assignor” as “‘Mers’ Mortgage Electronic Registration Systems, Inc., 2150 North First Street, San Jose, California 95131, as nominee for First Franklin, a division of National City Bank of IN, 2150 North First Street San Jose, California 95153. ” (Emphasis added by the Court). The “Assignee” is U.S. Bank.

Premised on the foregoing documentation, MERS argues that it had full authority to validly execute the Assignment of Mortgage to U.S. Bank on February 1, 2008, and that as of the date the foreclosure proceeding was commenced U. S. Bank held both the Note and the Mortgage. However, without more, this Court finds that MERS’s “nominee” status and the rights bestowed upon MERS within the Mortgage itself, are insufficient to empower MERS to effectuate a valid assignment of mortgage.

There are several published New York state trial level decisions holding that the status of “nominee” or “mortgagee of record” bestowed upon MERS in the mortgage documents, by itself, does not empower MERS to effectuate an assignment of the mortgage. These cases hold that MERS may not validly assign a mortgage based on its nominee status, absent some evidence of specific authority to assign the mortgage. See Bank of New York v. Mulligan, No. 29399/07, 2010 WL 3339452, at *7 (N.Y. Sup. Ct. Aug. 25, 2010); One West Bank, F.S.B. v. Drayton, 910 N.Y.S.2d 857, 871 (N.Y. Sup. Ct. 2010); Bank of New York v. Alderazi, 900 N.Y.S.2d 821, 824 (N.Y. Sup. Ct. 2010) (the “party who claims to be the agent of another bears the burden of proving the agency relationship by a preponderance of the evidence”); HSBC Bank USA v. Yeasmin, No. 34142/07, 2010 WL 2089273, at *3 (N.Y. Sup. Ct. May 24, 2010); HSBC Bank USA v. Vasquez, No. 37410/07, 2009 WL 2581672, at *3 (N.Y. Sup. Ct. Aug. 21, 2010); LaSalle Bank N.A. v. Lamy, 824 N.Y.S.2d 769, 2006 WL 2251721, at *2 (N.Y. Sup. Ct. Aug. 7, 2006) (“A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.”). See also MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010) (“MERS’s only right is to record the mortgage. Its designation as the ‘mortgagee of record’ in the document does not change or expand that right…”). But see US Bank, N.A. v. Flynn, 897 N.Y. S.2d 855 (N.Y. Sup. Ct. 2010) (finding that MERS’s “nominee” status and the mortgage documents give MERS authority to assign); Crum v. LaSalle Bank, N.A., No. 2080110, 2009 WL 2986655, at *3 (Ala. Civ. App., Sept. 18, 2009) (finding MERS validly assigned its and the lender’s rights to assignee); Blau v. America’s Servicing Company, et al., No. CV-08-773-PHX-MHM, 2009 WL 3174823, at *8 (D. Ariz. Sept. 29, 2009) (finding that assignee of MERS had standing to foreclose).

In LaSalle Bank, N.A. v. Bouloute, No. 41583/07, 2010 WL 3359552, at *2 (N.Y. Sup. Aug. 26, 2010), the court analyzed the relationship between MERS and the original lender and concluded that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves. The court stated:

MERS . . . recorded the subject mortgage as “nominee” for FFFC. The word “nominee” is defined as “[a] person designated to act in place of another, usu. In a very limited way ” or “[a] party who holds bare legal title for the benefit of others.” (Black’s Law Dictionary 1076 [8th ed 2004] ). “This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves.” (Landmark National Bank v. Kesler, 289 Kan 528, 538 [2009] ). The Supreme Court of Kansas, in Landmark National Bank, 289 Kan at 539, observed that:

The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship. See In re Sheridan, 2009 WL631355, at *4 (Bankr. D. Idaho, March 12, 2009) (MERS “acts not on its own account. Its capacity is representative.”); Mortgage Elec. Registrations Systems, Inc. v. Southwest, 2009 Ark. 152 —-, 301 SW3d 1, 2009 WL 723182 (March 19, 2009) (“MERS, by the terms of the deed of trust, and its own stated purposes, was the lender’s agent”); La Salle Nat. Bank v. Lamy, 12 Misc.3d 1191 [A], at *2 [Sup Ct, Suffolk County 2006] ) … (“A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.”).

LaSalle Bank, N.A. v. Bouloute, No. 41583/07, 2010 WL 3359552, at *2; see also Bank of New York v. Alderazi, 900 N.Y.S.2d 821, 823 (N.Y. Sup. Ct. 2010) (nominee is “‘[a] person designated to act in place of another, usually in a very limited way.’”) (quoting Black’s LawDictionary)).

In LaSalle Bank, N.A. v. Bouloute the court concluded that MERS must have some evidence of authority to assign the mortgage in order for an assignment of a mortgage by MERS to be effective. Evidence of MERS’s authority to assign could be by way of a power of attorney or some other document executed by the original lender. See Bouloute, 2010 WL 3359552, at *1; Alderazi, 900 N.Y.S.2d at 823 (“‘To have a proper assignment of a mortgage by an authorized agent, a power of attorney is necessary to demonstrate how the agent is vested with the authority to assign the mortgage.’”) (quoting HSBC Bank USA, NA v. Yeasmin, 866 N.Y. S.2d 92 (N.Y. Sup. Ct. 2008)).

Other than naming MERS as “nominee”, the Mortgage also provides that the Borrower transfers legal title to the subject property to MERS, as the Lender’s nominee, and acknowledges MERS’s rights to exercise certain of the Lender’s rights under state law. This too, is insufficient to bestow any authority upon MERS to assign the mortgage. In Bank of New York v. Alderazi, the court found “[t]he fact that the borrower acknowledged and consented to MERS acting as nominee of the lender has no bearing on what specific powers and authority the lender granted MERS. ” Alderazi, 900 N.Y.S.2d at 824. Even if it did bestow some authority upon MERS, the court in Alderazi found that the mortgage did not convey the specific right to assign the mortgage.

The Court agrees with the reasoning and the analysis in Bouloute and Alderazi, and the other cases cited herein and finds that the Mortgage, by naming MERS a “nominee,” and/or “mortgagee of record” did not bestow authority upon MERS to assign the Mortgage.

If this holding were to become law in Georgia, it would knock out MERS ability to foreclose in Georgia. While it is unclear whether any Georgia Superior Court and/or the Georgia Supreme Court will take up this issue, if they do Agard may become the “roadmap” for resolution in Georgia.

It might happen. We raise this issue in all appropriate MERS foreclosure cases. Stay tuned.

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

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

Endnotes

[1] In Re: Ferrell A. Agard, Debtor, United States Bankruptcy Court for the Eastern District of New York, Case No. 8-10-77338-reg, February 10, 2011 (Opinion by Hon. Robert E. Grossman.).

[2] Nickname of the State of New York.

[3]
One of the two nicknames for Georgia: The Peach State and The Empire State of the South.

[4]
MERS: Mortgage Electronic Registration Systems, Inc. MERS is organized and existing under the laws of Delaware, and has an address and telephone number of P.O. Box 2026, Flint, Michigan 48501 2026.

[5]
Barbara Ann Nicholson, Plaintiff v. Onewest Bank, Defendant, In The United States District Court For The Northern District Of Georgia Atlanta Division, Civil Action File No. 1:10-Cv-0795-Jec/Ajb (Hon. Assigned to: Judge Julie E. Carnes; Report and Recommendation by Hon. Alan J. Baverman). See, Order For Service Of Report And Recommendation, being Case 1:10-cv-00795-Jec Document 13 Filed 04/20/10 Page 1 Of 19, at 9.

[6]
Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2010).

THE FULL OPINIONS

AGARD CASE

Case 8-10-77338-reg Doc 41 Filed 02/10/11 Entered 02/10/11 14:13:10

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK

In re:

Case No. 810-77338-reg FERREL L. AGARD,

Chapter 7

Debtor.

—————————————————————–x

MEMORANDUM DECISION

Before the Court is a motion (the “Motion”) seeking relief from the automatic stay pursuant to 11 U.S.C. § 362(d)(1) and (2), to foreclose on a secured interest in the Debtor’s real property located in Westbury, New York (the “Property”). The movant is Select Portfolio Servicing, Inc. (“Select Portfolio” or “Movant”), as servicer for U. S. Bank National Association, as Trustee for First Franklin Mortgage Loan Trust 2006-FF12, Mortgage Pass-Through Certificates, Series 2006-FF12 (“U.S. Bank”). The Debtor filed limited opposition to the Motion contesting the Movant’s standing to seek relief from stay. The Debtor argues that the only interest U.S. Bank holds in the underlying mortgage was received by way of an assignment from the Mortgage Electronic Registration System a/k/a MERS, as a “nominee” for the original lender. The Debtor’s argument raises a fundamental question as to whether MERS had the legal authority to assign a valid and enforceable interest in the subject mortgage. Because U.S. Bank’s rights can be no greater than the rights as transferred by its assignor – MERS – the Debtor argues that the Movant, acting on behalf of U. S. Bank, has failed to establish that it holds an enforceable

Case 8-10-77338-reg Doc 41 Filed 02/10/11 Entered 02/10/11 14:13:10

right against the Property.1 The Movant’s initial response to the Debtor’s opposition was that MERS’s authority to assign the mortgage to U.S. Bank is derived from the mortgage itself which allegedly grants to MERS its status as both “nominee” of the mortgagee and “mortgagee of record.” The Movant later supplemented its papers taking the position that U.S. Bank is a creditor with standing to seek relief from stay by virtue of a judgment of foreclosure and sale entered in its favor by the state court prior to the filing of the bankruptcy. The Movant argues that the judgment of foreclosure is a final adjudication as to U.S. Bank’s status as a secured creditor and therefore the Rooker-Feldman doctrine prohibits this Court from looking behind the judgment and questioning whether U.S. Bank has proper standing before this Court by virtue of a valid assignment of the mortgage from MERS.

The Court received extensive briefing and oral argument from MERS, as an intervenor in these proceedings which go beyond the arguments presented by the Movant. In addition to the rights created by the mortgage documents themselves, MERS argues that the terms of its membership agreement with the original lender and its successors in interest, as well as New York state agency laws, give MERS the authority to assign the mortgage. MERS argues that it holds legal title to mortgages for its member/lenders as both “nominee” and “mortgagee of

The Debtor also questions whether Select Portfolio has the authority and the standing to seek relief from the automatic stay. The Movant argues that Select Portfolio has standing to bring the Motion based upon its status as “servicer” of the Mortgage, and attaches an affidavit of a vice president of Select Portfolio attesting to that servicing relationship. Caselaw has established that a mortgage servicer has standing to seek relief from the automatic stay as a party in interest. See, e.g., Greer v. O’Dell, 305 F.3d 1297 (11th Cir. 2002); In re Woodberry, 383 B.R. 373 (Bankr. D.S.C. 2008). This presumes, however, that the lender for whom the servicer acts validly holds the subject note and mortgage. Thus, this Decision will focus on whether U.S. Bank validly holds the subject note and mortgage.

Page 2 of 37

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record.” As such, it argues that any member/lender which holds a note secured by real property, that assigns that note to another member by way of entry into the MERS database, need not also assign the mortgage because legal title to the mortgage remains in the name of MERS, as agent for any member/lender which holds the corresponding note. MERS’s position is that if a MERS member directs it to provide a written assignment of the mortgage, MERS has the legal authority, as an agent for each of its members, to assign mortgages to the member/lender currently holding the note as reflected in the MERS database.

For the reasons that follow, the Debtor’s objection to the Motion is overruled and the Motion is granted. The Debtor’s objection is overruled by application of either the Rooker-Feldman doctrine, or res judicata. Under those doctrines, this Court must accept the state court judgment of foreclosure as evidence of U. S. Bank’s status as a creditor secured by the Property. Such status is sufficient to establish the Movant’s standing to seek relief from the automatic stay. The Motion is granted on the merits because the Movant has shown, and the Debtor has not disputed, sufficient basis to lift the stay under Section 362(d).

Although the Court is constrained in this case to give full force and effect to the state court judgment of foreclosure, there are numerous other cases before this Court which present identical issues with respect to MERS and in which there have been no prior dispositive state court decisions. This Court has deferred rulings on dozens of other motions for relief from stay pending the resolution of the issue of whether an entity which acquires its interests in a mortgage by way of assignment from MERS, as nominee, is a valid secured creditor with standing to seek relief from the automatic stay. It is for this reason that the Court’s decision in this matter will address the issue of whether the Movant has established standing in this case notwithstanding the

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existence of the foreclosure judgment. The Court believes this analysis is necessary for the precedential effect it will have on other cases pending before this Court.

The Court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law.

Facts

Procedural Background

On September 20, 2010, the Debtor filed for relief under Chapter 7 of the Bankruptcy Code. In Schedule A to the petition, the Debtor lists a joint ownership interest in the Property described as follows:

A “[s]ingle family home owned with son, deed in son’s name since 2007; used as primary residence . . .. Debtor was on original deed and is liable on the mortgage, therefore has equitable title. Debtor is in default of the mortgage with a principal balance of over $450,000.00. The house is worth approximately $350,000. A

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foreclosure sale was scheduled 9/21/10.

According to Schedule D, the Property is valued at $350,000 and is encumbered by a mortgage in the amount of $536,920.67 held by “SPS Select Portfolio Servicing.”

On October 14, 2010, the Movant filed the Motion seeking relief from the automatic stay pursuant to 11 U.S.C. §362(d) to foreclose on the Property. The Motion does not state that a foreclosure proceeding had been commenced or that a judgment of foreclosure was granted prior to the filing of the bankruptcy petition. Nor does it mention that the Debtor holds only equitable title and does not hold legal title to the Property. Instead, Movant alleges that U.S. Bank is the “holder” of the Mortgage; that the last mortgage payment it received from the Debtor was applied to the July, 2008 payment; and that the Debtor has failed to make any post-petition payments to the Movant. Movant also asserts that as of September 24, 2010, the total indebtedness on the Note and Mortgage was $542,902.33 and the Debtor lists the value of the Property at $350,000 in its schedules. On that basis, Movant seeks entry of an order vacating the stay pursuant to 11 U.S.C. § 362(d)(1) and (d)(2).

Annexed to the Motion are copies of the following documents:

Adjustable Rate Note, dated June 9, 2006, executed by the Debtor as borrower and listing First Franklin a Division of Na. City Bank of In. (“First Franklin”) as the lender (“Note”);

• Balloon Note Addendum to the Note, dated June 9, 2006;

• Mortgage, dated June 9, 2006 executed by the Debtor and listing First Franklin as lender, and MERS as nominee for First Franklin and First Franklin’s successors and assigns (“Mortgage”);

• Adjustable Rate and Balloon Rider, dated June 9, 2006;

• Addendum to Promissory Note and Security Agreement executed by the Debtor; and Page 5 of 37

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Assignment of Mortgage, dated February 1, 2008, listing MERS as nominee for First Franklin as assignor, and the Movant, U.S. Bank National Association, as Trustee for First Franklin Mortgage Loan Trust 2006- FF12, Mortgage Pass-through Certificates, Series 2006-FF12, as assignee (“Assignment of Mortgage”).

The Arguments of the Parties

On October 27, 2010, the Debtor filed “limited opposition” to the Motion, alleging that the Movant lacks standing to seek the relief requested because MERS, the purported assignor to the Movant, did not have authority to assign the Mortgage and therefore the Movant cannot establish that it is a bona fide holder of a valid secured interest in the Property.

The Movant responded to the Debtor’s limited opposition regarding MERS’s authority to assign by referring to the provisions of the Mortgage which purport to create a “nominee” relationship between MERS and First Franklin. In conclusory fashion, the Movant states that it therefore follows that MERS’s standing to assign is based upon its nominee status.

On November 15, 2010, a hearing was held and the Court gave both the Debtor and Movant the opportunity to file supplemental briefs on the issues raised by the Debtor’s limited opposition.

On December 8, 2010, the Movant filed a memorandum of law in support of the Motion arguing that this Court lacks jurisdiction to adjudicate the issue of whether MERS had authority to assign the Mortgage, and even assuming the Court did have jurisdiction to decide this issue, under New York law the MERS assignment was valid. In support of its jurisdictional argument, the Movant advises the Court (for the first time) that a Judgement of Foreclosure and Sale (“Judgment of Foreclosure”) was entered by the state court in favor of the Movant on November 24, 2008, and any judicial review of the Judgment of Foreclosure is barred by the doctrines of

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res judicata, Rooker-Feldman, and judicial estoppel.2 The Movant argues that the Debtor had a full and fair opportunity to litigate these issues in state court, but chose to default, and cannot now challenge the state court’s adjudication as to the Movant’s status as a secured creditor or holder of the Note and Mortgage, or its standing to seek relief from the automatic stay in this Court. The Movant also notes that the Debtor admits in her petition and schedules that she is liable on the Mortgage, that it was in default and the subject of a foreclosure sale, and thus judicial estoppel bars her arguments to the contrary.

In addition to its preclusion arguments, on the underlying merits of its position the Movant cites to caselaw holding that MERS assignments similar to the assignment in this case, are valid and enforceable. See U.S. Bank, N.A. v. Flynn, 897 N.Y.S. 2d 855, 858 (N.Y. Sup. Ct. 2010); Kiah v. Aurora Loan Services, LLC, 2010 U. S. Dist. LEXIS 121252, at *1 (D. Mass. Nov. 16, 2010); Perry v. Nat’l Default Servicing Corp., 2010 U. S. Dist. LEXIS 92907, at *1 (Dist. N.D. Cal. Aug. 20, 2010). It is the Movant’s position that the provisions of the Mortgage grant to MERS the right to assign the Mortgage as “nominee,” or agent, on behalf of the lender, First Franklin. Specifically, Movant relies on the recitations of the Mortgage pursuant to which the “Borrower” acknowledges that MERS holds bare legal title to the Mortgage, but has the right “(A) to exercise any or all those rights, including, but not limited to, the right to foreclose and

The Judgment of Foreclosure names the Debtor and an individual, Shelly English, as defendants. Shelly English is the Debtor’s daughter-in-law. At a hearing held on December 13, 2010, the Debtor’s counsel stated that he “believed” the Debtor transferred title to the Property to her son, Leroy English, in 2007. This is consistent with information provided by the Debtor in her petition and schedules. Leroy English, however, was not named in the foreclosure action. No one in this case has addressed the issue of whether the proper parties were named in the foreclosure action. However, absent an argument to the contrary, this Court can only presume that the Judgment of Foreclosure is a binding final judgment by a court of competent jurisdiction.

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sell the Property; and (B) to take any action required of Lender including, but not limited to, releasing and canceling [the Mortgage].” In addition, the Movant argues that MERS’s status as a “mortgagee” and thus its authority to assign the Mortgage is supported by the New York Real Property Actions and Proceedings Law (“RPAPL”) and New York Real Property Law (“RPL”). Movant cites to RPAPL § 1921-a which allows a “mortgagee” to execute and deliver partial releases of lien, and argues that MERS falls within the definition of “mortgagee” which includes the “current holder of the mortgage of record . . . or . . . their . . . agents, successors or assigns.” N.Y. Real Prop. Acts. Law § 1921(9)(a) (McKinney 2011). Although the definition of “mortgagee” cited to by the Movant only applies to RPAPL § 1921, Movant argues that it is a “mortgagee” vested with the authority to execute and deliver a loan payoff statement; execute and deliver a discharge of mortgage and assign a mortgage pursuant to RPL §§ 274 and 275.

In addition to its status as “mortgagee,” Movant also argues that the assignment is valid because MERS is an “agent” of each of its member banks under the general laws of agency in New York, see N.Y. Gen. Oblig. Law § 5-1501(1) (McKinney 2011),3 and public policy requires the liberal interpretation and judicial recognition of the principal-agent relationship. See Arens v. Shainswitt, 37 A.D.2d 274 (N.Y. App. Div. 1971), aff’d 29 N.Y.2d 663 (1971). In the instant case, Movant argues, the Mortgage appoints MERS as “nominee,” read “agent,” for the original

3 Movant cites to New York General Obligations Law for the proposition that “an agency agreement may take any form ‘desired by the parties concerned.’” The direct quote “desired by the parties concerned” seems to be attributed to the General Obligations Law citation, however, the Court could find no such language in the current version of § 5- 1501(1). That provision, rather, defines an agent as “a person granted authority to act as attorney-in-fact for the principal under a power of attorney, and includes the original agent and any co-agent or successor agent. Unless the context indicates otherwise, an ‘agent’ designated in a power of attorney shall mean ‘attorney-in-fact’ for the purposes of this title. An agent acting under a power of attorney has a fiduciary relationship with the principal.” N.Y. Gen. Oblig. Law § 5-1501(1) (McKinney 2011) (emphasis added).

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lender and the original lender’s successors and assigns. As nominee/agent for the lender, and as mortgagee of record, Movant argues MERS had the authority to assign the Mortgage to the Movant, U.S. Bank, “in accordance with the principal’s instruction to its nominee MERS, to assign the mortgage lien to U.S. Bank . . . .”

Finally, Movant argues that even absent a legally enforceable assignment of the Mortgage, it is entitled to enforce the lien because U. S. Bank holds the Note. The Movant argues that if it can establish that U.S. Bank is the legal holder the Note, the Mortgage by operation of law passes to the Movant because the Note and the Mortgage are deemed to be inseparable. See In re Conde-Dedonato, 391 B.R. 247 (Bankr. E.D.N.Y. 2008). The Movant represents, but has not proven, that U.S. Bank is the rightful holder of the Note, and further argues that the assignment of the Note has to this point not been contested in this proceeding.

MERS moved to intervene in this matter pursuant to Fed. R. Bankr. P. 7024 because:

12. The Court’s determination of the MERS Issue directly affects the business model of MERS. Additionally, approximately 50% of all consumer mortgages in the United States are held in the name of MERS, as the mortgagee of record.

13. The Court’s determination of the MERS Issue will have a significant impact on MERS as well as the mortgage industry in New York and the United States.

14. MERS has a direct financial stake in the outcome of this contested matter, and any determination of the MERS Issue has a direct impact on MERS.

(Motion to Intervene, ¶¶12-14).

Permission to intervene was granted at a hearing held on December 13, 2010.

In addition to adopting the arguments asserted by the Movant, MERS strenuously defends its authority to act as mortgagee pursuant to the procedures for processing this and other mortgages under the MERS “system.” First, MERS points out that the Mortgage itself

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designates MERS as the “nominee” for the original lender, First Franklin, and its successors and assigns. In addition, the lender designates, and the Debtor agrees to recognize, MERS “as the mortgagee of record and as nominee for ‘Lender and Lender’s successors and assigns’” and as such the Debtor “expressly agreed without qualification that MERS had the right to foreclose upon the premises as well as exercise any and all rights as nominee for the Lender.” (MERS Memorandum of Law at 7). These designations as “nominee,” and “mortgagee of record,” and the Debtor’s recognition thereof, it argues, leads to the conclusion that MERS was authorized as a matter of law to assign the Mortgage to U.S. Bank.

Although MERS believes that the mortgage documents alone provide it with authority to effectuate the assignment at issue, they also urge the Court to broaden its analysis and read the documents in the context of the overall “MERS System.” According to MERS, each participating bank/lender agrees to be bound by the terms of a membership agreement pursuant to which the member appoints MERS to act as its authorized agent with authority to, among other things, hold legal title to mortgages and as a result, MERS is empowered to execute assignments of mortgage on behalf of all its member banks. In this particular case, MERS maintains that as a member of MERS and pursuant to the MERS membership agreement, the loan originator in this case, First Franklin, appointed MERS “to act as its agent to hold the Mortgage as nominee on First Franklin’s behalf, and on behalf of First Franklin’s successors and assigns.” MERS explains that subsequent to the mortgage’s inception, First Franklin assigned the Note to Aurora Bank FSB f/k/a Lehman Brothers Bank (“Aurora”), another MERS member. According to MERS, note assignments among MERS members are tracked via self-effectuated and self-monitored computer entries into the MERS database. As a MERS member, by

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operation of the MERS membership rules, Aurora is deemed to have appointed MERS to act as its agent to hold the Mortgage as nominee. Aurora subsequently assigned the Note to U.S. Bank, also a MERS member. By operation of the MERS membership agreement, U.S. Bank is deemed to have appointed MERS to act as its agent to hold the Mortgage as nominee. Then, according to MERS, “U.S. Bank, as the holder of the note, under the MERS Membership Rules, chose to instruct MERS to assign the Mortgage to U.S. Bank prior to commencing the foreclosure proceedings by U.S. Bank.” (Affirmation of William C. Hultman, ¶12).

MERS argues that the express terms of the mortgage coupled with the provisions of the MERS membership agreement, is “more than sufficient to create an agency relationship between MERS and lender and the lender’s successors in interest” under New York law and as a result establish MERS’s authority to assign the Mortgage. (MERS Memorandum of Law at 7).

On December 20, 2010, the Debtor filed supplemental opposition to the Motion. The Debtor argues that the Rooker-Feldman doctrine should not preclude judicial review in this case because the Debtor’s objection to the Motion raises issues that could not have been raised in the state court foreclosure action, namely the validity of the assignment and standing to lift the stay. The Debtor also argues that the Rooker-Feldman doctrine does not apply because the Judgment of Foreclosure was entered by default. Finally, she also argues that the bankruptcy court can review matters “which are void or fraudulent on its face.” See In re Ward, 423 B.R. 22 (Bankr. E.D.N.Y. 2010). The Debtor says that she is “alleging questionable, even possibly fraudulent conduct by MERS in regards to transferring notes and lifting the stay.” (Debtor’s Supplemental Opposition at 3).

The Movant filed supplemental papers on December 23, 2010 arguing that the Motion is

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moot because the Property is no longer an asset of the estate as a result of the Chapter 7 Trustee’s “report of no distribution,” and as such, the Section 362(a) automatic stay was dissolved upon the entry of a discharge on December 14, 2010. See Brooks v. Bank of New York Mellon, No. DKC 09-1408, 2009 WL 3379928, at *2 (D. Md. Oct. 16, 2009); Riggs Nat’l Bank of Washington, D. C. v. Perry, 729 F.2d 982, 986 (4th Cir. 1984).

The Movant also maintains that Rooker-Feldman does apply to default judgments because that doctrine does not require that the prior judgment be a judgment “on the merits.” Charchenko v. City of Stillwater, 47 F.3d 981, 983 n.1 (8th Cir. 1995); see also Kafele v. Lerner, Sampson & Rothfuss, L.P.A., No. 04-3659, 2005 WL 3528921, at *2-3 (6th Cir. Dec. 22, 2005); In re Dahlgren, No. 09-18982, 2010 WL 5287400, at *1 (D.N.J. Dec. 17, 2010). The Movant points out that the Debtor seems to be confusing the Rooker-Feldman doctrine with issue and claim preclusion and that the Debtor has misapplied Chief Judge Craig’s ruling in In re Ward.

Discussion

As a threshold matter, this Court will address the Movant’s argument that this Motion has been mooted by the entry of the discharge order.

Effect of the Chapter 7 discharge on the automatic stay

Section 362(c) provides that:

Except as provided in subsections (d), (e), (f), and (h) of this section–

(1) the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate;

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(2) the stay of any other act under subsection (a) of this section continues until the earliest of–

(A) the time the case is closed;

(B) the time the case is dismissed; or

(C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied;

11 U.S.C. § 362(c) (emphasis added).

Pursuant to Section 362(c)(1), the automatic stay which protects “property of the estate,” as opposed to property of the debtor, continues until the property is no longer property of the estate regardless of the entry of the discharge. The provision of the statute relied upon by the Movant for the proposition that the automatic stay terminates upon the entry of a discharge, relates only to the stay of “any other act under subsection(a),”, i.e., an act against property that is not property of the estate, i.e., is property “of the debtor.” The relationship between property of the estate and property of the debtor is succinctly stated as follows:

Property of the estate consists of all property of the debtor as of the date of the filing of the petition. 11 U.S.C. § 541. It remains property of the estate until it has been exempted by the debtor under § 522, abandoned by the trustee under § 554(a), or sold by the trustee under § 363. If property of the estate is not claimed exempt, sold, or abandoned by the trustee, it is abandoned to the debtor at the time the case is closed if the property was scheduled under § 521(1). If the property is not scheduled by the debtor and is not otherwise administered, it remains property of the estate even after the case has been closed.

If the property in question is property of the estate, it remains subject to the automatic stay until it becomes property of the debtor and until the earlier of the time the case was closed, the case is dismissed, or a discharge is granted or denied in a chapter 7 case.

In re Pullman, 319 B.R. 443, 445 (Bankr. E.D. Va. 2004).

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Movant’s position seems to be that the Chapter 7 Trustee’s filing of a “report of no distribution,” otherwise known as a “no asset report,” effectuated an abandonment of the real property at issue in this case, and therefore the Property has reverted back to the Debtor. However, Movant fails to cite the relevant statute. Section 554(c) provides that “[u]nless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title.” 11 U.S.C. § 554(c) (emphasis added); Fed. R. Bankr. P. 6007. Cases interpreting Section 554(c) hold that the filing of a report of no distribution does not effectuate an abandonment of estate property. See, e.g., In re Israel, 112 B.R. 481, 482 n.3 (Bankr. D. Conn. 1990) (“The filing of a no-asset report does not close a case and therefore does not constitute an abandonment of property of the estate.”) (citing e.g., Zlogar v. Internal Revenue Serv. (In re Zlogar), 101 B.R. 1, 3 n.3 (Bankr. N.D. Ill. 1989); Schwaber v. Reed (In re Reed), 89 B.R. 100, 104 (Bankr. C.D. Cal. 1988); 11 U.S.C. § 554(c)).

Because the real property at issue in this case has not been abandoned it remains property of the estate subject to Section 362(a) unless and until relief is granted under Section 362(d).

Rooker-Feldman and res judicata4

The Movant argues that U.S. Bank’s status as a secured creditor, which is the basis for its standing in this case, already has been determined by the state court and that determination cannot be revisited here. The Movant relies on both the Rooker-Feldman doctrine and res

4 Because the Debtor’s objection is overruled under Rooker-Feldman and res judicata, the Court will not address the merits of the Movant’s judicial estoppel arguments.

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judicata principles to support this position.

The Rooker-Feldman doctrine is derived from two Supreme Court cases, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and D. C. Court of Appeals v. Feldman, 460 U.S. 462 (1983), which together stand for the proposition that lower federal courts lack subject matter jurisdiction to sit in direct appellate review of state court judgments. The Rooker-Feldman doctrine is a narrow jurisdictional doctrine which is distinct from federal preclusion doctrines. See McKithen v. Brown, 481 F.3d 89, 96-97 (2d Cir. 2007) (citing Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U. S. 280, 284 (2005), and Hoblock v. Albany County Board of Elections, 422 F.3d 77, 85 (2d Cir. 2005)). In essence, the doctrine bars “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments. Rooker-Feldman does not otherwise override or supplant preclusion doctrine or augment the circumscribed doctrines that allow federal courts to stay or dismiss proceedings in deference to state-court actions.” Exxon Mobil, 544 U.S. at 283.

The Second Circuit has delineated four elements that must be satisfied in order for Rooker-Feldman to apply:

First, the federal-court plaintiff must have lost in state court. Second, the plaintiff must “complain [ ] of injuries caused by [a] state-court judgment[.]” Third, the plaintiff must “invit[e] district court review and rejection of [that] judgment [ ].” Fourth, the state-court judgment must have been “rendered before the district court proceedings commenced”-i.e., Rooker-Feldman has no application to federal-court suits proceeding in parallel with ongoing state-court litigation. The first and fourth of these requirements may be loosely termed procedural; the second and third may be termed substantive.

McKithen, 481 F.3d at 97 (internal citation omitted and alteration in original) (quoting Hoblock,

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422 F.3d at 85).

In a case with facts similar to the instant case, Chief Judge Craig applied the Rooker-Feldman doctrine to overrule a debtor’s objection to a motion for relief from the automatic stay. See In re Ward, 423 B.R. 22 (Bankr. E.D.N.Y. 2010). In In re Ward, a foreclosure sale was conducted prior to the filing of the bankruptcy petition. When the successful purchaser sought relief from stay in the bankruptcy case to proceed to evict the debtor, the debtor opposed the motion. The debtor argued that the foreclosure judgment was flawed because “no original note was produced”, “the mortgage was rescinded”, “the plaintiff in the action doesn’t exist” or “was not a proper party to the foreclosure action”, and that “everything was done irregularly and underneath [the] table.” In re Ward, 423 B.R. at 27. Chief Judge Craig overruled the debtor’s opposition and found that each of the elements of the Rooker-Feldman doctrine were satisfied:

The Rooker-Feldman doctrine applies in this case because the Debtor lost in the state court foreclosure action, the Foreclosure Judgment was rendered before the Debtor commenced this case, and the Debtor seeks this Court’s review of the Foreclosure Judgment in the context of her opposition to the Purchaser’s motion for relief from the automatic stay. The injury complained of, i.e., the foreclosure sale to the Purchaser, was “caused by ” the Foreclosure Judgment because “the foreclosure [sale] would not have occurred but-for” the Foreclosure Judgment. Accordingly, the Rooker-Feldman doctrine does not permit this Court to disregard the Foreclosure Judgment.

In re Ward, 423 B.R. at 28 (citations omitted and alteration in original).

In the instant case, the Debtor argues that the Rooker-Feldman doctrine does not apply because the Judgment of Foreclosure was entered on default, not on the merits. She also argues that Rooker-Feldman should not apply because she is alleging that the Judgment of Foreclosure was procured by fraud in that the MERS system of mortgage assignments was fraudulent in nature or void. However, this Court is not aware of any exception to the Rooker-Feldman

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doctrine for default judgments, or judgments procured by fraud and the Court will not read those exceptions into the rule. See Salem v. Paroli, 260 B.R. 246, 254 (S.D.N.Y. 2001) (applying Rooker-Feldman to preclude review of state court default judgment); see also Lombard v. Lombard, No. 00-CIV-6703 (SAS), 2001 WL 548725, at *3-4 (S.D.N.Y. May 23, 2001) (applying Rooker-Feldman to preclude review of stipulation of settlement executed in connection with state court proceeding even though applicant argued that the stipulation should be declared null and void because he was under duress at the time it was executed).

The Debtor also argues that Rooker-Feldman does not apply in this case because she is not asking this Court to set aside the Judgment of Foreclosure, but rather is asking this Court to make a determination as to the Movant’s standing to seek relief from stay. The Debtor argues that notwithstanding the Rooker-Feldman doctrine, the bankruptcy court must have the ability to determine the standing of the parties before it.

Although the Debtor says she is not seeking affirmative relief from this Court, the net effect of upholding the Debtor’s jurisdictional objection in this case would be to deny U.S. Bank rights that were lawfully granted to U. S. Bank by the state court. This would be tantamount to a reversal which is prohibited by Rooker-Feldman.

Even if Rooker-Feldman were found not to apply to this determination, the Court still would find that the Debtor is precluded from questioning U.S. Bank’s standing as a secured creditor under the doctrine of res judicata. The state court already has determined that U.S. Bank is a secured creditor with standing to foreclose and this Court cannot alter that determination in order to deny U. S. Bank standing to seek relief from the automatic stay.

The doctrine of res judicata is grounded in the Full Faith and Credit Clause of the United

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States Constitution. U.S. Const. art. IV, § 1. It prevents a party from re-litigating any issue or defense that was decided by a court of competent jurisdiction and which could have been raised or decided in the prior action. See Burgos v. Hopkins, 14 F.3d 787, 789 (2d Cir. 1994) (applying New York preclusion rules); Swiatkowski v. Citibank, No. 10-CV-114, 2010 WL 3951212, at *14 (E.D.N.Y. Oct. 7, 2010) (citing Waldman v. Vill. of Kiryas Joel, 39 F.Supp.2d 370, 377 (S.D.N.Y. 1999)). Res judicata applies to judgments that were obtained by default, see Kelleran v. Andrijevic, 825 F.2d 692, 694-95 (2d Cir. 1987), but it may not apply if the judgment was obtained by extrinsic fraud or collusion. “Extrinsic fraud involves the parties’ ‘opportunity to have a full and fair hearing,’ while intrinsic fraud, on the other hand, involves the ‘underlying issue in the original lawsuit.’” In re Ward, 423 B.R. at 29. The Debtor’s assertions that the MERS system of assignments may have been fraudulent is more appropriately deemed an intrinsic fraud argument. The Debtor has not alleged any extrinsic fraud in the procurement of the Judgment of Foreclosure which prevented a full and fair hearing before the state court.

As a result, the Court finds that the Judgment of Foreclosure alone is sufficient evidence of the Movant’s status as a secured creditor and therefore its standing to seek relief from the automatic stay. On that basis, and because the Movant has established grounds for relief from stay under Section 362(d), the Motion will be granted.

MERS

Because of the broad applicability of the issues raised in this case the Court believes that it is appropriate to set forth its analysis on the issue of whether the Movant, absent the Judgment of Foreclosure, would have standing to bring the instant motion. Specifically MERS’s role in

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the ownership and transfer of real property notes and mortgages is at issue in dozens of cases before this Court. As a result, the Court has deferred ruling on motions for relief from stay where the movants’ standing may be affected by MERS’s participation in the transfer of the real property notes and mortgages. In the instant case, the issues were resolved under the Rooker-Feldman doctrine and the application of res judicata. Most, if not all, of the remainder of the “MERS cases” before the Court cannot be resolved on the same basis. For that reason, and because MERS has intervened in this proceeding arguing that the validity of MERS assignments directly affects its business model and will have a significant impact on the national mortgage industry, this Court will give a reasoned opinion as to the Movant’s standing to seek relief from the stay and how that standing is affected by the fact that U.S. Bank acquired its rights in the Mortgage by way of assignment from MERS.

Standing to seek relief from the automatic stay

The Debtor has challenged the Movant’s standing to seek relief from the automatic stay. Standing is a threshold issue for a court to resolve. Section 362(d) states that relief from stay may be granted “[o]n request of a party in interest and after notice and a hearing.” 11 U.S.C. § 362(d). The term “party in interest” is not defined in the Bankruptcy Code, however the Court of Appeals for the Second Circuit has stated that “[g]enerally the ‘real party in interest’ is the one who, under the applicable substantive law, has the legal right which is sought to be enforced or is the party entitled to bring suit.” See Roslyn Savings Bank v. Comcoach (In re Comcoach), 698 F.2d 571, 573 (2d Cir. 1983). The legislative history of Section 362 “suggests that, notwithstanding the use of the term ‘party in interest’, it is only creditors who may obtain relief

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from the automatic stay.” Id. at 573-74. (citing H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 175, reprinted in 1978 U.S.Code Cong. & Ad. News 5787, 6136); see also Greg Restaurant Equip. And Supplies v. Toar Train P’ship (In re Toar Train P’ship), 15 B.R. 401, 402 (Bankr. D. Vt. 1981) (finding that a judgment creditor of the debtor was not a “party in interest” because the judgment creditor was not itself a direct creditor of the bankrupt).

Using the standard established by the Second Circuit, this Court must determine whether the Movant is the “one who, under applicable substantive law, has the legal right” to enforce the subject Note and Mortgage, and is therefore a “creditor” of this Debtor. See In re Toar, 15 B.R. at 402; see also In re Mims, 438 B.R. 52, 55 (Bankr. S.D.N.Y. 2010). The Bankruptcy Code

defines a “creditor” as an “entity that has a claim against the debtor that arose at the time of or before the order for relief . . . . ” 11 U.S.C. § 101(10). “Claim” is defined as the “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured . . . . ” 11 U.S.C. § 101(5)(A). In the context of a lift stay motion where the movant is seeking to commence or continue with an action to foreclose a mortgage against real property, the movant must show that it is a “party in interest” by showing that it is a creditor with a security interest in the subject real property. See Mims, 438 B.R. at 57 (finding that as movant “failed to prove it owns the Note, it has failed to establish that it has standing to pursue its state law remedies with regard to the Mortgage and Property”). Cf. Brown Bark I L.P. v. Ebersole (In re Ebersole), 440 B.R. 690, 694 (Bankr. W.D. Va. 2010) (finding that movant seeking relief from stay must prove that it is the holder of the subject note in order to establish a ‘colorable claim’ which would establish standing to seek relief from stay).

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Noteholder status

In the Motion, the Movant asserts U.S. Bank’s status as the “holder” of the Mortgage. However, in order to have standing to seek relief from stay, Movant, which acts as the representative of U.S. Bank, must show that U.S. Bank holds both the Mortgage and the Note. Mims, 438 B.R. at 56. Although the Motion does not explicitly state that U.S. Bank is the holder of the Note, it is implicit in the Motion and the arguments presented by the Movant at the hearing. However, the record demonstrates that the Movant has produced no evidence, documentary or otherwise, that U. S. Bank is the rightful holder of the Note. Movant’s reliance on the fact that U.S. Bank’s noteholder status has not been challenged thus far does not alter or diminish the Movant’s burden to show that it is the holder of the Note as well as the Mortgage.

Under New York law, Movant can prove that U. S. Bank is the holder of the Note by providing the Court with proof of a written assignment of the Note, or by demonstrating that U.S. Bank has physical possession of the Note endorsed over to it. See, eg., LaSalle Bank N.A. v. Lamy, 824 N.Y. S.2d 769, 2006 WL 2251721, at * 1 (N.Y. Sup. Ct. Aug. 7, 2006). The only written assignment presented to the Court is not an assignment of the Note but rather an “Assignment of Mortgage” which contains a vague reference to the Note. Tagged to the end of the provisions which purport to assign the Mortgage, there is language in the Assignment stating “To Have and to Hold the said Mortgage and Note, and also the said property until the said Assignee forever, subject to the terms contained in said Mortgage and Note.” (Assignment of Mortgage (emphasis added)). Not only is the language vague and insufficient to prove an intent to assign the Note, but MERS is not a party to the Note and the record is barren of any representation that MERS, the purported assignee, had any authority to take any action with

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respect to the Note. Therefore, the Court finds that the Assignment of Mortgage is not sufficient to establish an effective assignment of the Note.

By MERS’s own account, it took no part in the assignment of the Note in this case, but merely provided a database which allowed its members to electronically self-report transfers of the Note. MERS does not confirm that the Note was properly transferred or in fact whether anyone including agents of MERS had or have physical possession of the Note. What remains undisputed is that MERS did not have any rights with respect to the Note and other than as described above, MERS played no role in the transfer of the Note.

Absent a showing of a valid assignment of the Note, Movant can demonstrate that U.S. Bank is the holder of the Note if it can show that U.S. Bank has physical possession of the Note endorsed to its name. See In re Mims, 423 B.R. at 56-57. According to the evidence presented in this matter the manner in which the MERS system is structured provides that, “[w]hen the beneficial interest in a loan is sold, the promissory note is [] transferred by an endorsement and delivery from the buyer to the seller [sic], but MERS Members are obligated to update the MERS® System to reflect the change in ownership of the promissory note. . . . ” (MERS Supplemental Memorandum of Law at 6). However, there is nothing in the record to prove that the Note in this case was transferred according to the processes described above other than MERS’s representation that its computer database reflects that the Note was transferred to U. S. Bank. The Court has no evidentiary basis to find that the Note was endorsed to U.S. Bank or that U.S. Bank has physical possession of the Note. Therefore, the Court finds that Movant has not satisfied its burden of showing that U. S. Bank, the party on whose behalf Movant seeks relief from stay, is the holder of the Note.

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Mortgagee status

The Movant’s failure to show that U. S. Bank holds the Note should be fatal to the Movant’s standing. However, even if the Movant could show that U.S. Bank is the holder of the Note, it still would have to establish that it holds the Mortgage in order to prove that it is a secured creditor with standing to bring this Motion before this Court. The Movant urges the Court to adhere to the adage that a mortgage necessarily follows the same path as the note for which it stands as collateral. See Wells Fargo Bank, N.A. v. Perry, 875 N.Y.S.2d 853, 856 (N.Y. Sup. Ct. 2009). In simple terms the Movant relies on the argument that a note and mortgage are inseparable. See Carpenter v. Longan, 83 U.S. 271, 274 (1872). While it is generally true that a mortgage travels a parallel path with its corresponding debt obligation, the parties in this case have adopted a process which by its very terms alters this practice where mortgages are held by MERS as “mortgagee of record.” By MERS’s own account, the Note in this case was transferred among its members, while the Mortgage remained in MERS’s name. MERS admits that the very foundation of its business model as described herein requires that the Note and Mortgage travel on divergent paths. Because the Note and Mortgage did not travel together, Movant must prove not only that it is acting on behalf of a valid assignee of the Note, but also that it is acting on behalf of the valid assignee of the Mortgage.5

5 MERS argues that notes and mortgages processed through the MERS System are never “separated” because beneficial ownership of the notes and mortgages are always held by the same entity. The Court will not address that issue in this Decision, but leaves open the issue as to whether mortgages processed through the MERS system are properly perfected and valid liens. See Carpenter v. Longan, 83 U.S. at 274 (finding that an assignment of the mortgage without the note is a nullity); Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2009) (“[I]n the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable”).

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MERS asserts that its right to assign the Mortgage to U.S. Bank in this case, and in what it estimates to be literally millions of other cases, stems from three sources: the Mortgage documents; the MERS membership agreement; and state law. In order to provide some context to this discussion, the Court will begin its analysis with an overview of mortgage and loan processing within the MERS network of lenders as set forth in the record of this case.

In the most common residential lending scenario, there are two parties to a real property mortgage – a mortgagee, i.e., a lender, and a mortgagor, i.e., a borrower. With some nuances and allowances for the needs of modern finance this model has been followed for hundreds of years. The MERS business plan, as envisioned and implemented by lenders and others involved in what has become known as the mortgage finance industry, is based in large part on amending this traditional model and introducing a third party into the equation. MERS is, in fact, neither a borrower nor a lender, but rather purports to be both “mortgagee of record” and a “nominee” for the mortgagee. MERS was created to alleviate problems created by, what was determined by the financial community to be, slow and burdensome recording processes adopted by virtually every state and locality. In effect the MERS system was designed to circumvent these procedures. MERS, as envisioned by its originators, operates as a replacement for our traditional system of public recordation of mortgages.

Caselaw and commentary addressing MERS’s role in the mortgage recording and foreclosure process abound. See Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 78 U. Cin. L. Rev. 1359 (2010). In a 2006 published opinion, the New York Court of Appeals described MERS system as follows:

In 1993, the MERS system was created by several large participants in the real estate mortgage industry to track ownership interests in residential mortgages.

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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.

Merscorp, Inc., v. Romaine, 8 N.Y.3d 90 (N.Y. 2006) (footnotes omitted).

In the words of MERS’s legal counsel, “[t]he essence of MERS’ business is to hold legal title to beneficial interests under mortgages and deeds of trust in the land records. The MERS® System is designed to allow its members, which include originators, lenders, servicers, and investors, to accurately and efficiently track transfers of servicing rights and beneficial ownership.” (MERS Memorandum of Law at 5). The MERS® System “. . . eliminate[s] the need for frequent, recorded assignments of subsequent transfers.” (MERS Supplemental Memorandum of Law at 4). “Prior to MERS, every time a loan secured by a mortgage was sold, the assignee would need to record the assignment to protect the security interest. If a servicing company serviced the loan and the servicing rights were sold, – an event that could occur multiple times during the life of a single mortgage loan – multiple assignments were recorded to ensure that the proper servicer appeared in the land records in the County Clerk’s office.” (MERS Supplemental Memorandum of Law at 4-5).

“When the beneficial interest in a loan is sold, the promissory note is still transferred by

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an endorsement and delivery from the buyer to the seller, but MERS Members are obligated to update the MERS® System to reflect the change in ownership of the promissory note. . . . So long as the sale of the note involves a MERS Member, MERS remains the named mortgagee of record, and continues to act as the mortgagee, as the nominee for the new beneficial owner of the note (and MERS’ Member). The seller of the note does not and need not assign the mortgage because under the terms of that security instrument, MERS remains the holder of title to the mortgage, that is, the mortgagee, as the nominee for the purchaser of the note, who is then the lender’s successor and/or assign.” (MERS Supplemental Memorandum of Law at 6). “At all times during this process, the original mortgage or an assignment of the mortgage to MERS remains of record in the public land records where the security real estate is located, providing notice of MERS’s disclosed role as the agent for the MERS Member lender and the lender’s successors and assigns.” (Declaration of William C. Hultman, ¶9).

MERS asserts that it has authority to act as agent for each and every MERS member which claims ownership of a note and mortgage registered in its system. This authority is based not in the statutes or caselaw, but rather derives from the terms and conditions of a MERS membership agreement. Those terms and conditions provide that “MERS shall serve as mortgagee of record with respect to all such mortgage loans solely as a nominee, in an administrative capacity, for the beneficial owner or owners thereof from time to time.” (Declaration of William C. Hultman, ¶5). MERS “holds the legal title to the mortgage and acts as the agent or nominee for the MERS Member lender, or owner of the mortgage loan.” (Declaration of William C. Hultman, ¶6). According to MERS, it is the “intent of the parties . . . for MERS to serve as the common nominee or agent for MERS Member lenders and their

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successors and assigns.” (MERS Supplemental Memorandum of Law at 19) (emphasis added by the Court). “Because MERS holds the mortgage lien for the lender who may freely transfer its interest in the note, without the need for a recorded assignment document in the land records, MERS holds the mortgage lien for any intended transferee of the note.” (MERS Supplemental Memorandum of Law at 15) (emphasis added by the Court). If a MERS member subsequently assigns the note to a non-MERS member, or if the MERS member which holds the note decides to foreclose, only then is an assignment of the mortgage from MERS to the noteholder documented and recorded in the public land records where the property is located. (Declaration of William C. Hultman, ¶12).

Before commenting on the legal effect of the MERS membership rules or the alleged “common agency” agreement created among MERS members, the Court will review the relevant portions of the documents presented in this case to evaluate whether the documentation, on its face, is sufficient to prove a valid assignment of the Mortgage to U.S. Bank.

The Mortgage

First Franklin is the “Lender” named in the Mortgage. With reference to MERS’s role in the transaction, the Mortgage states:

(Mortgage at 1 (emphasis added by the Court)).

The Mortgage also purports to contain a transfer to MERS of the Borrower’s (i.e., the

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Debtor’s) rights in the subject Property as follows:

BORROWER’S TRANSFER TO LENDER OF RIGHTS IN THE PROPERTY

[The Borrower gives] MERS (solely as nominee for Lender and Lender’s successors in interest), rights in the Property . . .

(Mortgage at 3) (emphasis added).

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rights bestowed upon MERS within the Mortgage itself, are insufficient to empower MERS to effectuate a valid assignment of mortgage.

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assignee); Blau v. America’s Servicing Company, et al., No. CV-08-773-PHX-MHM, 2009 WL 3174823, at *8 (D. Ariz. Sept. 29, 2009) (finding that assignee of MERS had standing to foreclose).

MERS . . . recorded the subject mortgage as “nominee” for FFFC. The word “nominee” is defined as “[a] person designated to act in place of another, usu. in a very limited way ” or “[a] party who holds bare legal title for the benefit of others.” (Black’s Law Dictionary 1076 [8th ed 2004] ). “This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves.” (Landmark National Bank v. Kesler, 289 Kan 528, 538 [2009] ). The Supreme Court of Kansas, in Landmark National Bank, 289 Kan at 539, observed that:

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Dictionary)).

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The MERS membership rules

According to MERS, in addition to the alleged authority granted to it in the Mortgage itself, the documentation of the Assignment of Mortgage comports with all the legal requirements of agency when read in conjunction with the overall MERS System. MERS’s argument requires that this Court disregard the specific words of the Assignment of Mortgage or, at the very least, interpret the Assignment in light of the overall MERS System of tracking the beneficial interests in mortgage securities. MERS urges the Court to look beyond the four corners of the Mortgage and take into consideration the agency relationship created by the agreements entered into by the lenders participating in the MERS System, including their agreement to be bound by the terms and conditions of membership.

MERS has asserted that each of its member/lenders agrees to appoint MERS to act as its agent. In this particular case, the Treasurer of MERS, William C. Hultman, declared under penalty of perjury that “pursuant to the MERS’s Rules of Membership, Rule 2, Section 5. . . First Franklin appointed MERS to act as its agent to hold the Mortgage as nominee on First Franklin’s behalf, and on behalf of First Franklin’s successors and assigns.” (Affirmation of William C. Hultman, ¶7). However, Section 5 of Rule 2, which was attached to the Hultman Affirmation as an exhibit, contains no explicit reference to the creation of an agency or nominee relationship. Consistent with this failure to explicitly refer to the creation of an agency agreement, the rules of membership do not grant any clear authority to MERS to take any action with respect to the mortgages held by MERS members, including but not limited to executing assignments. The rules of membership do require that MERS members name MERS as “mortgagee of record” and that MERS appears in the public land records as such. Section 6 of Rule 2 states that “MERS

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shall at all times comply with the instructions of the holder of mortgage loan promissory notes, but this does not confer any specific power or authority to MERS.

State law

Under New York agency laws, an agency relationship can be created by a “manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and the consent by the other to act. ” Meisel v. Grunberg, 651 F.Supp.2d 98, 110 (S.D.N.Y. 2009) (citing N.Y. Marine & Gen. Ins. Co. v. Tradeline, L.L.C., 266 F.3d 112, 122 (2d Cir.2001)).

‘Such authority to act for a principal may be actual or apparent.’ . . . Actual authority arises from a direct manifestation of consent from the principal to the agent The existence of actual authority ‘depends upon the actual interaction between the putative principal and agent, not on any perception a third party may have of the relationship.’

Meisel v. Grunberg, 651 F. Supp.2d at 110 (citations omitted).

Because MERS’s members, the beneficial noteholders, purported to bestow upon MERS interests in real property sufficient to authorize the assignments of mortgage, the alleged agency relationship must be committed to writing by application of the statute of frauds. Section 5- 703(2) of the New York General Obligations Law states that:

An estate or interest in real property, other than a lease for a term not exceeding one year, or any trust or power, over or concerning real property, or in any manner relating thereto, cannot be created, granted, assigned, surrendered or declared, unless by act or operation of law, or by a deed or conveyance in writing, subscribed by the person creating, granting, assigning, surrendering or declaring the same, or by his lawful agent, thereunto authorized by writing.

See N.Y. Gen. Oblig. Law § 5-703(1) (McKinney 2011); Republic of Benin v. Mezei, No. 06 Civ.

870 (JGK), 2010 WL 3564270, at *3 (S.D.N.Y. Sept. 9, 2010); Urgo v. Patel, 746 N.Y.S.2d 733

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(N.Y. App. Div. 2002) (finding that unwritten apparent authority is insufficient to satisfy the statute of frauds) (citing Diocese of Buffalo v. McCarthy, 91 A.D.2d 1210 (4th Dept. 1983)); see also N.Y. Gen. Oblig. Law § 5-1501 (McKinney 2011) (“‘agent’ means a person granted authority to act as attorney-in-fact for the principal under a power of attorney. . .”). MERS asks this Court to liberally interpret the laws of agency and find that an agency agreement may take any form “desired by the parties concerned.” However, this does not free MERS from the constraints of applicable agency laws.

The Court finds that the record of this case is insufficient to prove that an agency relationship exists under the laws of the state of New York between MERS and its members. According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word “agency.” MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents. For example, MERS argues that its agent status can be found in the Mortgage which states that MERS is a “nominee” and a “mortgagee of record.” However, the fact that MERS is named “nominee” in the Mortgage is not dispositive of the existence of an agency relationship and does not, in and of itself, give MERS any “authority to act. ” See Steinbeck v. Steinbeck Heritage Foundation, No. 09-18360cv, 2010 WL 3995982, at *2 (2d Cir. Oct. 13, 2010) (finding that use of the words “attorney in fact” in documents can constitute evidence of agency but finding that such labels are not dispositive); MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010) (designation as the ‘mortgagee of record’ does not qualify MERS as a “mortgagee”). MERS also relies on its rules of membership as evidence

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of the agency relationship. However, the rules lack any specific mention of an agency relationship, and do not bestow upon MERS any authority to act. Rather, the rules are ambiguous as to MERS’s authority to take affirmative actions with respect to mortgages registered on its system.

In addition to casting itself as nominee/agent, MERS seems to argue that its role as “mortgagee of record” gives it the rights of a mortgagee in its own right. MERS relies on the definition of “mortgagee” in the New York Real Property Actions and Proceedings Law Section 1921 which states that a “mortgagee” when used in the context of Section 1921, means the “current holder of the mortgage of record . . . or their agents, successors or assigns.” N.Y. Real Prop. Acts. L. § 1921 (McKinney 2011). The provisions of Section 1921 relate solely to the discharge of mortgages and the Court will not apply that definition beyond the provisions of that section in order to find that MERS is a “mortgagee” with full authority to perform the duties of mortgagee in its own right. Aside from the inappropriate reliance upon the statutory definition of “mortgagee,” MERS’s position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best.

Adding to this absurdity, it is notable in this case that the Assignment of Mortgage was by MERS, as nominee for First Franklin, the original lender. By the Movant’s and MERS’s own admission, at the time the assignment was effectuated, First Franklin no longer held any interest in the Note. Both the Movant and MERS have represented to the Court that subsequent to the origination of the loan, the Note was assigned, through the MERS tracking system, from First Franklin to Aurora, and then from Aurora to U.S. Bank. Accordingly, at the time that MERS, as nominee of First Franklin, assigned the interest in the Mortgage to U.S. Bank, U.S.

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Bank allegedly already held the Note and it was at U.S. Bank’s direction, not First Franklin’s, that the Mortgage was assigned to U.S. Bank. Said another way, when MERS assigned the Mortgage to U.S. Bank on First Franklin’s behalf, it took its direction from U.S. Bank, not First Franklin, to provide documentation of an assignment from an entity that no longer had any rights to the Note or the Mortgage. The documentation provided to the Court in this case (and the Court has no reason to believe that any further documentation exists), is stunningly inconsistent with what the parties define as the facts of this case.

However, even if MERS had assigned the Mortgage acting on behalf of the entity which held the Note at the time of the assignment, this Court finds that MERS did not have authority, as “nominee” or agent, to assign the Mortgage absent a showing that it was given specific written directions by its principal.

Conclusion

For all of the foregoing reasons, the Court finds that the Motion in this case should be granted. However, in all future cases which involve MERS, the moving party must show that it

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validly holds both the mortgage and the underlying note in order to prove standing before this Court.

Dated: Central Islip, New York

February 10, 2011 /s/ Robert E. Grossman Hon. Robert E. Grossman

United States Bankruptcy Judge

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& & &

NICHOLSON CASE

Case 1:10-cv-00795-JEC Document 13 Filed 04/20/10 Page 1 of 19

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

BARBARA ANN NICHOLSON,

Plaintiff, CIVIL ACTION FILE NO. 1:10-CV-0795-JEC/AJB v.

ONEWEST BANK, Defendant.

ORDER FOR SERVICE OF

REPORT AND RECOMMENDATION

Attached is the Report and Recommendation of the United States Magistrate Judge made in accordance

with 28 U.S.C. § 636(b)(1), FED. R. Civ. P. 72(b), N.D. Ga. R. 72.1(B), (D), and Standing Order

08-01 (N.D. Ga. June 12, 2008). Let the same be filed and a copy, with a copy of this order, be

served upon counsel for the parties or, if a party is not represented, upon that party directly.

Pursuant to 28 U.S.C. § 636(b)(1), each party may file written objections, if any, to the Report

and Recommendation within fourteen (14) days of service of this Order. However, at the hearing on

Plaintiff’s motion for a TRO, the Court indicated that due to the impending foreclosure sale, the

Court would shorten the time for objections to be filed. Although the parties did not expressly

consent to this

AO 72A (Rev.8/8 2)

Case 1:10-cv-00795-JEC Document 13 Filed 04/20/10 Page 2 of 19

statement, compare United States v. Nuyens, 17 F. Supp. 2d 1303, 1311

(M.D. Fla. 1998) (where parties agreed to a shortened period of time to file

objections to the R&R), THE PARTIES SHALL HAVE UNTIL 5:00 PM ON

APRIL 28, 2010, IN WHICH TO FILE OBJECTIONS, SO THAT THE

DISTRICT COURT MAY HAVE SUFFICIENT TIME TO RULE ON ANY OBJECTIONS. Should objections be filed, they

shall specify with particularity the alleged error(s) made (including reference by page number to

any transcripts if applicable) and shall be served upon the opposing party. The party filing

objections will be responsible for obtaining and filing the transcript of any evidentiary hearing

for review by the District Court. If no objections are filed, the Report and Recommendation may be

adopted as the opinion and order of the District Court and any appellate review of factual findings

will be limited to a plain error review. United States v. Slay, 714 F.2d 1093 (11th Cir. 1983).

The Clerk is directed to submit the Report and Recommendation with objections, if any, to the

District Court after expiration of the above time period.

IT IS SO ORDERED and DIRECTED, this 20th day of April , 2010.

ALAN J. BAV r AN

UNITED STA ES MAGISTRATE JUDGE

AO 72A (Rev.8/8 2)

Case 1:10-cv-00795-JEC Document 13 Filed 04/20/10 Page 3 of 19

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

BARBARA ANN NICHOLSON,

Plaintiff, CIVIL ACTION FILE NO.

v. 1:10-CV-0795-JEC/AJB

ONEWEST BANK,

Defendant.

UNITED STATES MAGISTRATE JUDGE’S

ORDER AND NON-FINAL REPORT AND RECOMMENDATION

Before the Court are Plaintiffs Motion and Amended Motion for Temporary Restraining Order and

Motion for Preliminary Injunction, [Docs. 6 and 7], and Motion to Allow Filing of Affidavit. [Doc.

8]. For the reasons discussed below, the Court RECOMMENDS that Plaintiffs motion and amended motion

for a temporary restraining order be DENIED. Plaintiffs motion to allow filing of affidavit is

GRANTED.

Introduction

On March 19, 2010, Plaintiff filed, inter alia, a motion for temporary restraining order (“TRO”) in

the above-captioned case to prevent Defendant from foreclosing on her property located at 1879

Tobey Road, Atlanta, Ga. 30341 (“the Tobey Road

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property”), on May 4, 2010. [Doc. 4]. Thereafter, Plaintiff withdrew her motion for a TRO. [Doc.

5]. Approximately ten days later, on April 6, 2010, Plaintiff filed a motion for a TRO and

preliminary injunction, which she amended on April 13, 2010. [Does. 6 and 7]. Also on April 13,

2010, Plaintiff filed a Motion to Allow for the Filing of an Affidavit. [Doc. 8]. The Court

scheduled a hearing on Plaintiff’s motion for a TRO for April 19, 2010. [Doc. 10]. It does not

appear that Defendant has been served in the present action. [See Dkt.]. The Court notified counsel

for the Defendant of the April 19 hearing. [Doc. 10].

Discussion

A. Plaintiff’s Motion to Allow Filing of Affidavit, [Doc. 8]

Plaintiff argues that she should be allowed to file an her affidavit which supports her motion for

a TRO. [Doc. 8 at 2]. The affidavit Plaintiff wishes to submit states that she is over the age of

18 that she verifies that the facts presented in her motion for a TRO are true and correct to the

best of her knowledge. [Doc.8-21. Plaintiff's motion is GRANTED. The Clerk is DIRECTED to file

Plaintiff's affidavit in support of her motion for a TRO, [Doc. 8-2], as a separate document in

this case.

All document and page references are to the CM/ECF document and page numbers appearing at the

header of each page as filed with the Clerk’s Office.

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B. Motion and Amended Motion for a TRO, [Does. 6 and 7]

1. Contentions of the parties

Plaintiff argues that Defendant OneWest Bank (“OneWest”) is not entitled to foreclose on her

property because there has been no assignment of the original note from American Mortgage Express

Corporation (“American Mortgage”) to any other party. [Doc. 7 at 2-3]. Plaintiff does acknowledge

that Mortgage Electronic Registration Systems, Inc (“MERS”) “purported” to make an assignment of

the security deed to IndyMac Federal Bank FSB, but argues that there is no other transfer of

record. [Id. at 3]. Second, Plaintiff argues that the splitting of the mortgage and the note

rendered the mortgage a nullity. [Id. at 4-8]. Third, Plaintiff argues that she is entitled to a

TRO because there is a substantial likelihood that she will prevail on the merits and that because

the property is unique, she will be irreparably damaged if the foreclosure occurs. [Id. at 10].

In addition, at the TRO hearing, Plaintiff argued that the FDIC did not assign the security deed to

OneWest until March 16, 2010, and therefore any notice of foreclosure received before that date was

in violation of O.C.G.A. § 44-14-162.2. Finally, Plaintiff argued that Fannie Mae’s website shows

that it is the true holder of the note, and therefore, Defendant cannot foreclose on Plaintiff’s

property.

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At the hearing, Defendant responded that a TRO should not issue because Plaintiff has put forth no

security and never tendered the money to bring the note current. Defendant also argued that

O.C.G.A. § 44-14-162(b) does not require the assignment of the note to be conveyed at the time of

the notice of the sale, but merely when the sale occurs. Next, Defendant argued that Plaintiff was

collaterally estopped from attacking its right to foreclose because Plaintiff did not object to the

Bankruptcy Court modifying the automatic stay to allow Defendant to foreclose on the property.

Finally, Defendant argued its documents show that the note and the mortgage are both held by

OneWest, and therefore, it is entitled to foreclose on Plaintiff’s property.

2. Standard for granting injunctive relief

A plaintiff seeking a temporary restraining order under FED. R. Civ. P. 65(b) must establish: “(1)

a substantial likelihood of success on the merits; (2) that irreparable injury will be suffered if

relief is not granted; (3) that the threatened injury outweighs any harm relief would inflict on

the non-movant; and (4) that entry of relief would serve the public interest.” Schiavo ex rel.

Schindler v. Schiavo, 403 F.3d 1223,1225-26 (11′ Cir. 2005). The same factors are considered

whether deciding a temporary restraining order or a preliminary injunction. Schiavo, 403 F.3d at

1225. Preliminary injunctive relief is a drastic and extraordinary remedy which should not be

granted

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unless the movant can clearly establish each of the four elements. Four Seasons Hotels and Resorts

v. Consorcio Barr, S.A., 320 F.3d 1205, 1210 (11′ Cir. 2003); see also Suntrust Bank v. Houghton

Mifflin Co., 252 F.3d 1165, 1166 (11th Cir. 2001).

3. Discussion

As Plaintiff conceded at the hearing, her FDCPA claim affords her no right to injunctive relief.

Sibley v. Fulton DeKalb Collection Serv., 677 F.2d 830, 834 (11th Cir. 1982) (holding that

“equitable relief is not available to an individual under the civil liability section of the

[FDCPA]“). Accordingly, Plaintiff is entitled to a TRO, if at all, on her state law claim of

attempted wrongful foreclosure. See Sale City Peanut & Mill. Co. v. Planters & Citizens Bank, 130

S.E.2d 518, 520, 107 Ga. App. 463, 465 (1963) (recognizing attempted foreclosure cause of action).

Although no Georgia cases explicitly set out the elements of an attempted wrongful foreclosure, and

Plaintiff has not illuminated the Court as to what those elements are, Georgia law requires a

plaintiff asserting a claim of wrongful foreclosure to establish a legal duty owed to it by the

foreclosing party, a breach of that duty, a causal connection between the breach of that duty and

the injury it sustained, and damages. All Fleet Refinishing, Inc. v. West Georgia Nat. Bank, 634

S.E.2d 802, 807, 280 Ga. App. 676, 681 (2006); Heritage Creek Dev. Corp. v. Colonial Bank,

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601 S.E.2d 842, 844, 268 Ga. App. 369, 371 & n.4 (2004) (citing Calhoun First Nat. Bank v. Dickens,

443 S.E.2d 837, 264 Ga. 285, 286 (1994)). ” ‘A claim for wrongful exercise of a power of sale under

O.C.G.A. § 23-2-114 can arise when the creditor has no legal right to foreclose.’ ” DeGoyler v.

Green Tree Servicing, LLC, 662 S.E.2d 141, 147, 291 Ga. App. 444, 448 (2008) (quoting Brown v.

Freedman, 474 S.E.2d 73, 222 Ga. App. 213, 214 (1996)). The Court therefore assumes that a party

states a claim of attempted wrongful foreclosure under Georgia law where a creditor attempts to

foreclose when it has no legal right to foreclose.

The gist of Plaintiffs argument in favor of enjoining the scheduled foreclosure is that OneWest is

not the holder of the note originally executed by her in favor of American Mortgage and is not owed

any money by Plaintiff Therefore, she argues, OneWest’s attempted foreclosure is unlawful.

The Court rejects Plaintiffs arguments. The evidence before the Court demonstrates that on February

23, 2007, Plaintiff granted American Mortgage a security deed (“the Security Deed”) in the Tobey

Road property in order to secure an interest-only period fixed rate note in the amount of $172,000

(“the Note”). (Security Deed attached to Doc. 1-2 at 7-16; Note attached at Doc. 9-3 at 5-6). The

Security Deed secured to the lender (American Mortgage) the repayment of the Note and the

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performance of all of the borrower’s (Nicholson’s) covenants and agreements under the Security

Deed. Security Deed in Doc. 1-2 at 8. Under the Security Deed, Nicholson “grant[ed] and convey[ed]

to MERS (solely as nominee of Lender and Lender’s successors and assigns) and the successors and

assigns of MERS, with power of sale,” the Tobey Road property. Id. On May 13, 2009, MERS, in a

document entitled “Assignment of Note and Security Deed,” conveyed to IndyMac Federal Bank FSB

(“IndyMac”) the Security Deed and the Note. [See Doc. 1-2 at 20-21]

On March 16, 2010, the FDIC, as receiver for IndyMac,2 in an Assignment of Security Deed, assigned

to OneWest

that certain Security Deed or Deed to Secure Debt executed by Barbara A. Nicholson to Mortgage

Electronic Registration Systems, Inc. and dated February 23, 2007, . . . together with the real

property therein described; and also the indebtedness described in said Deed and secured thereby,

having this day been transferred and assigned to the said assignee together with all of the

Assignor’s right, title and interest in and to the said Deed, the property therein described and

the indebtedness secured; . . . .

2 On July 11, 2008, IndyMac was closed by the Office of Thrift Supervision (OTS) and the FDIC was

named Conservator. On March 19, 2009, the FDIC completed the sale of IndyMac to OneWest, a newly

formed federal savings

bank organized by IMB HoldCo LLC. All deposits of IndyMac

were transferred to OneWest. FDIC Failed Bank Information,

http://www.fdic.gov/bank/individual/failed/IndyMac.html (last visited Apr. 20, 2010).

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[Doc. 9-3 at 11-12 (emphasis supplied)]. The instrument was filed in the DeKalb County Superior

Court Clerk’s Office on March 29, 2010. [Id at 9]. This document demonstrates strong evidence that

OneWest holds both the Security Deed under which it may exercise the power of sale and the Note

which Plaintiff does not contest that she has not paid and is in default. See p. 13 infra.

Plaintiff makes two arguments why this instrument does not grant OneWest the right to foreclose on

her property. First, she argues that Fannie Mae actually is the holder of the note because its

website, under the heading “Does Fannie Mae Own Your Mortgage?” indicates “Match Found” as to

Plaintiff’s residence. [See Doc. 9-2]. Even assuming that the printout from Fannie Mae’s website is

admissible, the Court concludes that such evidence does not meet Plaintiff’s high burden of

persuasion in establishing her entitlement to immediate injunctive relief While the printout does

show that Fannie Mae may at one time have had some sort of interest in Plaintiff’s mortgage, the

information on the website also states as follows:

The Fannie Mae Loan Lookup is provided as a convenience for borrowers. Fannie Mae makes no

representation or completeness of the results. . . You should contact your mortgage lender to

verify these results.

[Id. (emphasis added)]. Therefore, such evidence is insufficient to overcome

Defendant’s showing that it holds both the note and security deed to Plaintiff’s

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property, which has been recorded in the Superior Court of DeKalb County, [Doc. 9-3], and is

therefore entitled to proceed with the May 4 foreclosure sale.

Second, Plaintiff contends that the “splitting” of the mortgage and the note rendered the mortgage

a nullity. In her brief, Plaintiff argues that the mortgage and the note are inseparable and must

be transferred together. Essentially, Plaintiff is arguing that American Mortgage rendered

Plaintiff’s mortgage unenforceable when it initially transferred the security deed, but not the

mortgage to MERS. However, the nominee of the lender has the ability to foreclose on a debtor’s

property even if such nominee does not have a beneficial interest in the note secured by the

mortgage. Morgera v. Countrywide Home Loans, Inc, No. 2:09-cv-1476-MCE-GGH, 2010 WL 160348, *8

(E.D. Cal. Jan 11, 2010) (citing Trent v. Mortgage Elec. Registration Sys., Inc., 288 Fed. Appx.

571 (11`” Cir. 2008)). Here, assuming that the Security Deed and the Note were separated initially

when American Mortgage transferred the Security Deed to MERS, Defendant now retains possession of

both instruments. [Doc. 9-3 at 9-10].3’4

3 In fact, it appears it appears that MERS was the holder of both the security deed and the note

when it assigned both to IndyMac. [Doc. 9-3 at 11].

4 Also, it appears from the hearing that OneWest, through its counsel, holds the Note. The Note is

a bearer obligation. [See Doc. 9-3 at 5].

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Thus, to the extent there was any problem regarding the separation of the Security Deed from the

Note, such defect has been cured by Defendant.’

Therefore, the Court finds that OneWest is lawfully entitled to foreclose on Plaintiff’s property.

That is the sole argument Plaintiff makes in support of her claim that OneWest’s scheduled

foreclosure is contrary to law. Since she has not

5 The Court notes that the case law cited by Plaintiff to support her position that the splitting

of the security deed and the note rendered the security deed a nullity are inapplicable to the

present case. First, the Court notes that Plaintiff has merely listed a long list of string

citations without any explanation as to why these cases are applicable to the present case. Second,

although not obligated to do so, the Court’s review of these cases shows that Carpenter v. Logan,

83 U.S. 271 (1872), concerns a loan that had not yet matured and not a home mortgage in default as

in the present case.

Next, In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008); In re Leisure Time Sports, Inc., 194 B.R.

859 (9th Cir. 1996); Merritt v. Bartholick, 36 N.Y. 44 (1867); Honore v. Wilshire, 1884 WL 9777

(Ill. 1884); Ellison v. Daniels, 11 N.H. 274 (1840); Pope & Slocum v. Jacobus, 10 Iowa 262 (1859);

Hough v. Osborne, 7 Ind. 140 (1855); U.S. Bank N.A. v. Collymore, 890 N.Y.S.2d. 578 (N.Y.A.D. 2009);

Northstream Investments Inc. V. 1804 Country Store Co., 697 N.W. 2d 762 (S.D. 2005); Andrews v.

Commissioner ofInternal Revenue, 38 F.2d 55 (2d Cir. 1930); In re Brager, 39 B.R. 441 (Bankr. Pa.

1984); Bellistri v. Ocwen Loan Servicing LLC, 284 S.W.3d 619 (Mo. App. 2009); Landmark Nat. Bank v.

Kesler, 289 Kan. 528, 216 P.3d 158 (2009); In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009);

Jackson v. MERS, 770 N.W.2d 487 (Minn. 2009); Columbus Investments v. Lewis, 48 P.3d 1222 (Colo.

2002); In re Bird, No, 03-52010-JS, 2007 WL 26284265 (Bankr. D. Md. Sept. 7, 2007); Prime Financial

Services, LLC v. Vinson, 761 N.W.2d 694 (Mich. App. 2008); and UMLIC VP, LLC v. Matthias, 234 F.

Supp. 2d 520 (D.V.I. 2002), all concern questions of state law in other jurisdictions besides

Georgia. The D.B. Steeman, 48 F. 580 (E.D. Va. 1880), concerns whether there was a maritime lien on

a shipping vessel. As a result the Court fails to see the relevance or these cases to the present

controversy.

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demonstrated that OneWest is not entitled to foreclose, she has not clearly shown a substantial

likelihood of success on the merits, and therefore is not entitled to injunctive relief.’

Similarly, Plaintiff has not made the requisite showing as to the other factors for entry of a TRO.

The Court is not unmindful that the impending loss of Plaintiff’s home is a serious injury, and

that once it is foreclosed upon, there is a strong likelihood that Plaintiff will be dispossessed.

In the event the Court is wrong in its conclusions, the “bell cannot be unrung.” However, the Court

finds that her potential injury under these circumstances does not constitute irreparable injury,

because Plaintiff has not been paying the amount due on her mortgage to anyone, whether it be

Fannie Mae (which she contends is the rightful creditor) or OneWest. See p. 13 infra. She has not

protected herself by tendering the amount in default to the Clerk of Court. Therefore, any injury

she suffers, if she ultimately were to prevail on her contention that OneWest is not the proper

party to foreclose upon her residence, can adequately be compensated with damages for being

dispossessed from a home in which she has in effect been

6 To the extent that Plaintiff argues that OneWest could not seek to foreclose prior to receiving

the assignment on March 16, 2010, and filing it on March 29, 2010, none of her papers or arguments

at the hearing reflects if OneWest advertised the foreclosure or gave notice to her of the

impending sale in violation of O.C.G.A. § 4414-162.2.

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living rent-free. See eBay v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006) (holding that in order

to warrant injunctive relief, a party must show that remedies available at law, such as monetary

damages, are inadequate to compensate for that injury). As a result, any threatened injury does not

outweigh any harm relief would inflict on OneWest, since it has the right to foreclose on the

property under the Security Deed and the payments under the Note according to the documents on file

with the DeKalb County Superior Court Clerk. Finally, Plaintiff has not made any argument, much

less presented any evidence, admissible on a merits hearing or otherwise, that entry ofrelief would

serve the public interest. To the extent that she argues that there are many properties where the

financial institution is not entitled to foreclose since it does not possess the note underlying

the security deed, Plaintiff’s has made an inadequate evidentiary showing to support such a

contention.

The Court also concludes that three other grounds cast serious doubt on the Plaintiff’s ability to

contest the scheduled foreclosure in this case. First, Plaintiff cannot enjoin the upcoming May

foreclosure sale because she has not paid the full amount due to bring the Note current. Under

Georgia law, “[a] borrower who has executed a deed to secure debt is not entitled to enjoin a

foreclosure sale unless he first pays or tenders to the lender the amount admittedly due.” Mickel

v. Pickett, 247 S.E.2d

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82, 87, 241 Ga. 528, 535 (1978) (citing Cochran v. Teasley, 236 S.E.2d 635, 239 Ga. 289 (1977));

see also Taylor v. Wachovia Mortgage Corp., Civil Action File No. 1:07- CV-2671-TWT, 2009 WL 249353,

*5 n.6 (N.D. Ga. Jan. 30, 2009) (Thrash, J., adopting R&R of Vineyard, M.J.). According to

Defendant, Plaintiff owes approximately $29,450.00 to bring her loan current. Plaintiff does not

dispute that she owes this amount and that she has not been making her payments. Instead, she

argues that no money is due to OneWest because it does not hold the Note. Because Plaintiff admits

that she has not tendered the money to bring her loan current, she cannot enjoin Defendant from

foreclosing on her property.

Second, Plaintiff is prevented from contesting the foreclosure proceeding due to collateral

estoppel. The doctrine of collateral estoppel applies under federal law if the following four

factors are met:

(1) the issue at stake must be identical to the one involved in the prior litigation; (2) the issue

must have been actually litigated in the prior suit; (3) the determination of the issue in the

prior litigation must have been a critical and necessary part of the judgment in that action; and

(4) the party against whom the earlier decision is asserted must have had a full and fair

opportunity to litigate the issue in the earlier proceeding.

In re Bush, 232 Fed. Appx. 852, 855 (11th Cir. 2007) (citing CSX Transp., Inc. v. Bhd.

of Maint. of Way Employees, 327 F.3d 1309, 1317 (11th Cir. 2003) (citation and

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quotation marks omitted)). These criteria are met in the present case because the same parties are

involved and the same issue was before the Bankruptcy Court when that Court was determining whether

to lift the automatic stay to allow the foreclosure to proceed. Here, the Bankruptcy Court provided

relief from the automatic stay specifically to allow Defendant to proceed with the foreclosure.

[See Doc. 22 in In re Nicholson, No. 09-89061 (Bankr. N.D. Ga. Jan. 28, 2010)]. Plaintiff did not

object to the relief sought. [Id.].

Instead, Plaintiff now argues that the Court should not find that she is estopped from contesting

OneWest’s foreclosure because she did not have all of the facts that would have allowed her to

object to the lifting of the automatic stay. Specifically, Plaintiff argues that she was unaware

that Fannie Mae owned Plaintiff’s loan. The Court finds such arguments to be without merit.

Plaintiff has failed to come forward with any reason as to why (1) she could not have raised this

argument in the Bankruptcy Court, and (2) this issue was not fully litigated there. Plaintiff

admitted at the hearing before the undersigned that during the pendency of her bankruptcy petition,

there were various issues as to who held the Note. Since Plaintiff was aware of her contentions

that OneWest allegedly was not actual Note holder at the time the automatic stay was lifted, her

arguments that Defendant is the improper party to

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proceed with the foreclosure should have been made before the Bankruptcy Court. The Bankruptcy

Court’s Order was not a generic one merely allowing Plaintiffs residence to be foreclosed upon; it

specifically granted OneWest the right to “to proceed to obtain possession and foreclose the

Property.” [Id. at 1]. Thus, Plaintiff is estopped from seeking to enjoin the foreclosure in this

Court.’

7 Following the hearing, Plaintiff submitted a brief in which she argued that there was no

preclusive effect as a result of an order of a stay from bankruptcy. [Doc. 11 at 1]. The Court

finds the cases cited by Plaintiff to be distinguishable from the present case. In Grella v. Salem

Five Cent Saving Bank, 4 F.3d 26 (1St Cir. 1994), the issue before the court did not involve the

Trustee’s counterclaims when bankruptcy court decided to lift the automatic stay. Thus, there was

no preclusive effect on these claims as a result of the automatic stay being lifted. Id. at 35. In

the present case, the same cannot be said as the automatic stay was specifically lifted in order

for OneWest to go forward with a foreclosure sale. Therefore, Plaintiff should have raised her

arguments about Plaintiff being the improper party to proceed with the foreclosure sale at the

hearing to lift the automatic stay.

The Court also finds that D-1 Enterprises, Inc. v. Commercial State Bank, 864 F.2d 36 (5th Cir.

1989); In re Torco Equipment Co., 65 B.R. 353 (Bankr. W.D. Ky. 1986); In re Suggs, 377 B.R. 198

(Bankr. Mo. 2007); In re Ken Carpenter RV, Inc., 177 B.R. 754 (Bankr. D. N.H. 1995); and In re

Hurst, 409 B.R. 79 (Bankr. D. Md. 2009), are inapplicable to the present case for the same reasons,

i.e. the hearing on the automatic stay concerned matters unrelated to the lifting if the automatic

stay.

Finally, the Court concludes that In re Martin, No. 05-14587, 2006 WL 3086361 (Bankr. E.D. Va. Jan.

18, 2006), is distinguishable from the present case because a third party was asserting defenses to

the foreclosure. Because neither the debtor nor the bankruptcy estate had an interest in the

property, the bankruptcy court determined that relief from the automatic stay was appropriate. Id.

at *2. Here, such is not the case as Plaintiff does have an interest in the property and the stay

was lifted in order for the

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Finally, under FED. R. CIV. P. 65, the Court may not issue a preliminary injunction or a TRO unless

“the movant gives security in an amount that the court considers proper to pay the costs and

damages sustained by any party found to have been wrongfully enjoined or restrained.” FED. R. Civ.

P. 65(c). Here, Plaintiff has not offered to tender any amount as security for an injunction.

Instead, she argues that the Court may elect not to set a bond at all, citing Corrigan Dispatch Co.

v. Casa Guzman, 569 F.2d 300 (5th Cir. 1978), and City of Atltanta v. MARTA, 636 F.2d 1084 (5th

Cir. 1981). Although the cases cited by Plaintiff do state that a court, in its discretion, may

elect to require no security at all before issuing a TRO, Plaintiff has failed to come forward with

any evidence to show why security is unnecessary, or what the appropriate amount of security is,

since in the present case TRO Plaintiff seeks does not seek to protect the public interest, as, for

example, in City of Atlanta, 636 F.2d 1084.

As a result, the Court concludes that Plaintiff has failed to meet the requirements for the

issuance of a TRO in this matter.

Conclusion

For the reasons discussed above, the undersigned RECOMMENDS that Plaintiff’s Motion and Amended Motion For A Temporary Restraining Order,

foreclosure to proceed.

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[Docs. 6 and 7], be DENIED. Plaintiff’s Motion to Allow Filing of Affidavit, [Doc. 8], is GRANTED.

To the extent counsel for Defendant has not entered his appearance, the Clerk is DIRECTED to serve

a copy of this Order on counsel for Defendant whose name and address is:

John D. Andrle

McCurdy & Candler, LLC

Suite 600

250 E. Ponce De Leon Avenue

Decatur, Georgia 30030

IT IS SO RECOMMENDED, ORDERED, and DIRECTED, this the 20th day of April, 2010.

ALAN J. B VERMAN

UNITED STATES MAGISTRATE JUDGE

AO 72A (Rev.8/8 2)

& & &

LANDMARK NATIONAL BANK CASE

216 P.3d 158 (Kan. 2009)

LANDMARK NATIONAL BANK, Plaintiff/Appellee,

Boyd A. KESLER Appellee/Cross-appellant

Millennia Mortgage Corporation, Defendant,

(Mortgage Electronic Registration Systems, Inc. and Sovereign Bank), Appellants/Cross-appellees,

and

Dennis Bristow and Tony Woydziak, Intervenors/Appellees.

No. 98,489.

Supreme Court of Kansas.

August 28, 2009

Page 159

[Copyrighted Material Omitted]

Page 160

Syllabus by the Court

1. Denial of a motion to set aside default judgment is subject to review under a standard of abuse of discretion. A district court decision that denies a motion to join a party as a necessary party under K.S.A. 60-219(a) is also subject to an abuse of discretion standard of review.

2. Whether the evidence demonstrates that the statutory requirements for joinder have been met is a mixed question of fact and law. When reviewing a mixed question of fact and law, an appellate court reviews the district court’s factual findings for substantial competent evidence and reviews de novo the district court’s legal conclusions.

3. Intervention as a matter of right is subject to the same mixed determination of law and fact as is joinder. Permissive intervention lies within the discretion of the district court.

4. Judicial discretion is abused when no reasonable person would take the view adopted by the trial court. Review for abuse of discretion includes review to determine whether erroneous legal conclusions guided the exercise of discretion.

5. K.S.A. 60-255(b) does not require that the party moving for relief from default judgment be a party to the action.

6. It is appropriate for a trial court to consider evidence beyond the bare pleadings to determine whether it should set aside a default judgment. In a motion to set aside default, a trial court should consider a variety of factors to determine whether the defendant or would-be defendant had a meritorious defense, and the burden of establishing a meritorious defense rests with the moving party.

7. Relief under K.S.A. 60-255(b) is appropriate only upon a showing that if relief is granted the outcome of the suit may be different than if the entry of default or the default judgment is allowed to stand; the showing should underscore the potential injustice of allowing the case to be disposed of by default. In most cases the court will require the party in default to demonstrate a meritorious defense to the action as a prerequisite to vacating the default entry or judgment. The nature and extent of the showing that will be necessary lie within the trial court’s discretion.

8. The law relating to a contingently necessary party closely resembles the law relating to vacating default judgment, in that both require the party asserting the interest to demonstrate a meritorious defense or an interest that may be impaired.

9. The word ” nominee” is subject to more than one interpretation. The legal significance of the word depends on the context in which it is used. The word encompasses a range of meanings from a straw man or limited agent to a representative enjoying

Page 161

the same legal rights as the party that acts as the nominator.

10. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is a party to whom property is mortgaged, which is to say, a mortgage creditor or lender. A mortgagee and a lender have intertwined rights that defy a clear separation of interests.

11. Parties are bound by the formal admissions of their counsel in an action.

12. The Due Process Clause does not protect entitlements where the identity of the alleged entitlement is vague. A protected property right must have some ascertainable monetary value. An entitlement to a procedure does not constitute a protected property interest.

Tyson C. Langhofer and Court T. Kennedy, of Stinson Morrison Hecker, L.L.P., of Wichita, for appellants/cross-appellees.

Ted E. Knopp, of Ted E. Knopp, Chartered, of Wichita, for appellee Boyd A. Kesler.

David A. Schatz, of Husch Blackwell Sanders L.L.P., of Kansas City, Missouri, for amicus curiae American Land Title Association.

OPINION

ROSEN, J.:

Mortgage Electronic Registration Systems, Inc. (MERS) and Sovereign Bank seek review of an opinion by our Court of Appeals holding that a nonlender is not a contingently necessary party in a mortgage foreclosure action and that due process does not require that a nonlender be allowed to intervene in a mortgage foreclosure action.

The facts underlying this appeal are not in dispute. On March 19, 2004, Boyd Kesler secured a loan of $50,000 from Landmark National Bank (Landmark) with a mortgage registered in Ford County, Kansas. On March 15, 2005, he secured an additional loan of $93,100 from Millennia Mortgage Corp. (Millennia) through a second mortgage registered in Ford County. Both mortgages were secured by the same real property located in Ford County.

The second mortgage lies at the core of this appeal. That mortgage document stated that the mortgage was made between Kesler-the ” Mortgagor” and ” Borrower” -and MERS, which was acting ” solely as nominee for Lender, as hereinafter defined, and Lender’s successors and assigns.” The document then identified Millennia as the ” Lender.” At some subsequent time, the mortgage may have been assigned to Sovereign and Sovereign may have taken physical possession of the note, but that assignment was not registered in Ford County.

On April 13, 2006, Kesler filed for bankruptcy in the United States Bankruptcy Court for the District of Kansas, Wichita Division. He named Sovereign as a creditor; although he claimed the secured property as exempt, he filed an intention to surrender the property. The bankruptcy court discharged his personal liability on November 16, 2006. The record contains little documentation or evidence explaining the interplay of the bankruptcy and the foreclosure action, except to suggest that the bankruptcy action may have given Sovereign constructive notice of a possible default on payments.

On July 27, 2006, Landmark filed a petition to foreclose on its mortgage, serving and naming as defendants Kesler and Millennia. It did not serve notice of the litigation on MERS or Sovereign. In the absence of answers from either defendant, the trial court entered default judgment against Kesler and Millennia on September 6, 2006. The trial court then filed an order of sale on September 29, 2006. Notice of the sale was initially published in the Dodge City Daily Globe on October 4, 2006. On October 26, 2006, Dennis Bristow and Tony Woydziak purchased the secured property at a sheriff’s sale for $87,000, and on November 14, 2006, Landmark filed a motion to confirm sale of the secured property.

Also on November 14, 2006, Sovereign filed an answer to the foreclosure petition, asserting an interest in the real property as the successor in interest to Millennia’s second mortgage. A week later, on November 21, 2006, Sovereign filed a motion to set aside

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or vacate the default judgment and an objection to confirmation of sale. The motion asserted that MERS was a K.S.A. 60-219(a) contingently necessary party and, because Landmark failed to name MERS as a defendant, Sovereign did not receive notice of the proceedings. The motion asked the court to vacate the default judgment under K.S.A. 60-260(b). The motion further asked the court to set aside the surplus from the sale, holding it to later to be paid to Sovereign if the court elected not to grant the motion to vacate.

On November 27, 2006, Kesler filed a motion seeking distribution of surplus funds from the sheriff’s sale, and on January 3, 2007, Kesler filed a motion joining Landmark’s earlier motion to confirm the sheriff’s sale. The trial court conducted a hearing on the various motions on January 8, 2007, at which counsel for Landmark, Kesler, Sovereign, and Bristow appeared and presented their cases. The trial court deferred judgment pending review of the pleadings.

On January 16, 2007, MERS filed a motion joining Sovereign’s motion to vacate the journal entry of default judgment and objecting to confirmation of the sheriff’s sale, followed on January 18, 2007, by a motion to intervene under K.S.A. 60-224. MERS proffered an answer and a cross-claim to the original foreclosure petition.

On that same date, the trial court filed an order finding that MERS was not a real party in interest and Landmark was not required to name it as a party to the foreclosure action. The court found that MERS served only as an agent or representative for Millennia. The court also found that Sovereign’s failure to register its interest with the Ford County Register of Deeds precluded it from asserting rights to the mortgage after judgment had been entered. The court denied the motions to set aside judgment and to intervene and granted the motions to confirm the sale and to distribute the surplus.

On February 1, 2007, MERS and Sovereign filed motions to reconsider. The trial court conducted a hearing on those motions, at which counsel for Kesler, Sovereign, and MERS appeared and argued. The trial court subsequently entered an order denying the motions to reconsider. MERS and Sovereign filed timely notices of appeal.

Prior to the appellants submitting their briefs, the purchasers Bristow and Woydziak filed a motion with the Court of Appeals seeking leave to intervene in the appeal. The Court of Appeals granted the motion. Bristow and Woydziak then filed a motion to compel the office of the Clerk of the Appellate Courts to docket their cross-appeal, which the Court of Appeals denied. The Court of Appeals affirmed the district court in Landmark National Bank v. Kesler, 40 Kan.App.2d 325, 192 P.3d 177 (2008). This court granted the appellants’ petition for review.

I. Did The District Court Abuse Its Discretion In Denying MERS’s Motion To Set Aside Default Judgment And Motion To Intervene As A Contingently Necessary Party?

A. Standard of Review

Denial of a motion to set aside a default judgment is subject to review under a standard of abuse of discretion. See Canaan v. Bartee, 272 Kan. 720, Syl. ¶ 9, 35 P.3d 841 (2001). A district court decision that denies a motion to join a party as a necessary party under K.S.A. 60-219(a) is also subject to an abuse of discretion standard of review. State ex rel. Graeber v. Marion County Landfill, Inc., 276 Kan. 328, 352, 76 P.3d 1000 (2003). Whether the evidence demonstrates that the statutory requirements for joinder have been met is a mixed question of fact and law. When reviewing a mixed question of fact and law, an appellate court reviews the district court’s factual findings for substantial competent evidence and reviews de novo the district court’s legal conclusions. State v. Fisher, 283 Kan. 272, 286, 154 P.3d 455 (2007).

Intervention as a matter of right is subject to the same mixed determination of law and fact as is joinder. K.S.A. 60-224(a). Permissive intervention lies within the discretion of the district court. K.S.A. 60-224(b); see Stringfellow v. Concerned Neighbors in Action, 480 U.S. 370, 382 n. 1, 107 S.Ct. 1177, 94 L.Ed.2d 389 (1987) (Brennan, J., concurring) (discussing the different standards

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applied to Federal Rule of Civil Procedure 24[a] and [b] ).

Judicial discretion is abused when no reasonable person would take the view adopted by the trial court. Harsch v. Miller, 288 Kan. 280, 293, 200 P.3d 467 (2009). Review for abuse of discretion includes review to determine whether erroneous legal conclusions guided the exercise of discretion. State v. Skolaut, 286 Kan. 219, Syl. ¶ 3, 182 P.3d 1231 (2008).

To the extent that this appeal requires interpretation of statutory mandates, this court exercises unlimited review. See Genesis Health Club, Inc. v. City of Wichita, 285 Kan. 1021, 1031, 181 P.3d 549 (2008).

B. Analysis

While this is a matter of first impression in Kansas, other jurisdictions have issued opinions on similar and related issues, and, while we do not consider those opinions binding in the current litigation, we find them to be useful guideposts in our analysis of the issues before us.

At the heart of this issue is whether the district court abused its discretion in refusing to set aside the default judgment and in refusing to join MERS as a contingently necessary party.

The statutory provision for setting aside a default judgment is K.S.A. 60-255(b), which refers to K.S.A. 60-260(b), relating to relief from judgment, in a manner similar to the correlation between the corresponding federal rules, Fed. R. Civ. Proc. 55(c) and 60(b). K.S.A. 60-260(b) allows relief from a judgment based on mistake, inadvertence, surprise, or excusable neglect; newly discovered evidence that could not have been timely discovered with due diligence; fraud or misrepresentation; a void judgment; a judgment that has been satisfied, released, discharged, or is no longer equitable; or any other reason justifying relief from the operation of the judgment. K.S.A. 60-260(b) requires that the motion be made by a party or by a representative who is in privity with a party, thus precluding a nonparty of standing to file such a motion. K.S.A. 60-255(b) does not, however, require that the movant be a party to the action. See 11 Wright, Miller & Kane, Federal Practice & Procedure: Civil 2d § 2865 (1995).

It is appropriate-and probably necessary-for a trial court to consider evidence beyond the bare pleadings to determine whether it should set aside a default judgment. In a motion to set aside default, a trial court should consider a variety of factors to determine whether the defendant (or would-be defendant) had a meritorious defense, and the burden of establishing a meritorious defense rests with the moving party. See Canaan v. Bartee, 272 Kan. 720, 731, 35 P.3d 841 (2001).

This conclusion is consistent with the construction of the parallel federal rules:

” Generally, a federal court will grant a motion under Rule 55(c) only after some showing is made that if relief is granted the outcome of the suit may be different than if the entry of default or the default judgment is allowed to stand; the showing should underscore the potential injustice of allowing the case to be disposed of by default. In most cases, therefore, the court will require the party in default to demonstrate a meritorious defense to the action as a prerequisite to vacating the default entry or judgment. …

” A majority of the courts … have insisted upon a presentation of some factual basis for the supposedly meritorious defense….

” The demonstration of a meritorious defense is not expressly called for by the federal rules and, therefore, the nature and extent of the showing that will be necessary is a matter that lies within the court’s discretion. … The underlying concern is to determine whether there is some possibility that the outcome of the suit after a full trial will be contrary to the result achieved by the default. ” (Emphasis added.) 10A Wright, Miller & Kane, Federal Practice & Procedure: Civil 3d § 2697 (1998).

We accordingly find that it was incumbent on the trial court, when ruling on the motion to set aside default judgment, to consider

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whether MERS would have had a meritorious defense if it had been named as a defendant and whether there was some reasonable possibility MERS would have enjoyed a different outcome from the trial if its participation had precluded default judgment.

In determining whether MERS was a contingently necessary party that was entitled to relief from judgment, the trial court was required to consider the factors of K.S.A. 60-219(a) in addition to those of K.S.A. 60-260(b).

K.S.A. 60-219(a) defines which parties are to be joined in an action as necessary for just adjudication:

” A person is contingently necessary if (1) complete relief cannot be accorded in his absence among those already parties, or (2) he claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action in his absence may (i) as a practical matter substantially impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.”

The law relating to a contingently necessary party closely resembles the law relating to vacating a default judgment, in that both require the party asserting the interest to demonstrate a meritorious defense or an interest that may be impaired. In order to prevail on appeal, MERS must demonstrate that the trial court abused its discretion when it found, based on the testimony, evidence, and pleadings before the court at the time when it considered the motion to set aside default judgment, that MERS lacked a meritorious defense to the foreclosure proceeding or had an interest that could be impaired. We will accordingly examine the nature of the interest in the mortgage that MERS has demonstrated.

Sovereign is a financial institution that putatively purchased the Kesler mortgage from Millennia but did not register the transaction in Ford County. The relationship of MERS to the transaction is not subject to an easy description. One court has described MERS as follows:

” MERS is a private corporation that administers the MERS System, a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans. Through the MERS System, MERS becomes the mortgagee of record for participating members through assignment of the members’ interests to MERS. MERS is listed as the grantee in the official records maintained at county register of deeds offices. The lenders retain the promissory notes, as well as the servicing rights to the mortgages. The lenders can then sell these interests to investors without having to record the transaction in the public record. MERS is compensated for its services through fees charged to participating MERS members.” Mortgage Elec. Reg. Sys., Inc. v. Nebraska Depart. of Banking, 270 Neb. 529, 530, 704 N.W.2d 784 (2005).

The second mortgage designated the relationships of Kesler, MERS, and Millennia and established payment and notice obligations. That document purported to define the role played by MERS in the transaction and the contractual rights of the parties.

The document began by identifying the parties:

” THIS MORTGAGE is made this 15th day of March 2005, between the Mortgagor, BOYD A. KESLER, (herein ‘ Borrower’ ), and the Mortgagee, Mortgage Electronic Registration Systems, Inc. (‘ MERS’), (solely as nominee for Lender, as hereinafter defined, and Lender’s successors and assigns). MERS is organized and existing under the laws of Delaware, and has an address and telephone number of P.O. Box 2026, Flint, MI 48501-2026, tel. (888) 679-MERS. MILLENNIA MORTGAGE CORP., A CALIFORNIA CORPORATION is organized and existing under the laws of CALIFORNIA and has an address of 23046 AVENIDA DE LA CARLOTA # 100, LAGUNA HILLS, CALIFORNIA 92653 (herein ‘ Lender’ ).”

The third paragraph of the first page of the mortgage document conveyed a security interest in real estate:

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” TO SECURE to Lender the repayment of the indebtedness evidenced by the Note, with interest thereon; the payment of all other sums, with interest thereon, advanced in accordance herewith to protect the security of this Mortgage; and the performance of the covenants and agreements of Borrower herein contained, Borrower does hereby mortgage, grant and convey to MERS (solely as nominee for Lender and Lender’s successors and assigns) and to the successors and assigns of MERS the following described property located in the County of FORD, State of Kansas.”

The first paragraph of the second page of the mortgage document contains the following language that apparently both limits and expands MERS’s rights:

” Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Mortgage; 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 and 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 or cancelling this Mortgage.”

Paragraph 7 of the mortgage document provides the lender with the right to protect the security:

” If Borrower fails to perform the covenants and agreements contained in this Mortgage, or if any action or proceeding is commenced which materially affects Lender’s interest in the Property, then Lender, at Lender’s option, upon notice to Borrower, may make such appearances, disburse such sums, including reasonable attorneys’ fees, and take such action as is necessary to protect Lender’s interest.”

Paragraph 9 of the mortgage document provides the lender with rights in the event of a condemnation:

” Condemnation. The proceeds of any award or claim for damages, direct or consequential, in connection with any condemnation or other taking of the Property, or part thereof, or for conveyance in lieu of condemnation, are hereby assigned and shall be paid to Lender, subject to the terms of any mortgage, deed of trust or other security agreement with a lien which has priority over this mortgage.”

Paragraph 12 of the mortgage document addresses notice:

” Notice. Except for any notice required under applicable law to be given in another manner, (a) any notice to Borrower provided for in this Mortgage shall be given by delivering it or by mailing such notice by certified mail addressed to Borrower at the Property Address or at such other address as Borrower may designate by notice to Lender as provided herein, and (b) any notice to Lender shall be given by certified mail to Lender’s address stated herein or to such other address as Lender may designate by notice to Borrower as provided herein. Any notice provided for in this Mortgage shall be deemed to have been given to Borrower or Lender when given in the manner designated herein.” (Emphasis added.)

The signature page of the mortgage document contains language relating to notice in the event of default:

” Borrower and Lender request the holder of any mortgage, deed of trust or other encumbrance with a lien which has priority over this Mortgage to give Notice to Lender, at Lender’s address set forth on page one of this Mortgage, of any default under the superior encumbrance and of any sale or other foreclosure action.” (Emphasis added.)

The mortgage instrument states that MERS functions ” solely as nominee” for the lender and lender’s successors and assigns. The word ” nominee” is defined nowhere in the mortgage document, and the functional relationship between MERS and the lender is likewise not defined. In the absence of a contractual definition, the parties leave the definition to judicial interpretation.

What meaning is this court to attach to MERS’s designation as nominee for Millennia? The parties appear to have defined the word in much the same way that the blind men of Indian legend described an elephant

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-their description depended on which part they were touching at any given time. Counsel for Sovereign stated to the trial court that MERS holds the mortgage ” in street name, if you will, and our client the bank and other banks transfer these mortgages and rely on MERS to provide them with notice of foreclosures and what not.” He later stated that the nominee ” is the mortgagee and is holding that mortgage for somebody else.” At another time he declared on the record that the nominee

” is more like a trustee or more like a corporation, a trustee that has multiple beneficiaries. Now a nominee’s relationship is not a trust but if you have multiple beneficiaries you don’t serve one of the beneficiaries you serve the trustee of the trust. You serve the agent of the corporation.”

Counsel for the auction property purchasers stated that a nominee is ” one designated to act for another as his representative in a rather limited sense.” He later deemed a nominee to be ” like a power of attorney.”

Black’s Law Dictionary defines a nominee as ” [a] person designated to act in place of another, usu. in a very limited way” and as ” [a] party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.” Black’s Law Dictionary 1076 (8th ed.2004). This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves.

In its opinion below, the Court of Appeals cited Thompson v. Meyers, 211 Kan. 26, 30, 505 P.2d 680 (1973), which provides the only discussion in Kansas of the legal significance of a nominee:

” In common parlance the word ‘ nominee’ has more than one meaning. Much depends on the frame of reference in which it is used. In Webster’s Third New International Dictionary, unabridged, one of the definitions given is ‘ a person named as the recipient in an annuity or grant.’ We view a ‘ nominee’ , as the term was used by the parties here, not simply in the sense of a straw man or limited agent …, but in the larger sense of a person designated by them to purchase the real estate, who would possess all the rights given a buyer….”

The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship. See In re Sheridan, 2009 WL 631355, at *4 (Bankr.D.Idaho March 12, 2009) (MERS ” acts not on its own account. Its capacity is representative.” ); Mortgage Elec. Registration System, Inc. v. Southwest, 2009 Ark. 152, __, __ S.W.3d __, 2009 WL 723182 (March 19, 2009) (” MERS, by the terms of the deed of trust, and its own stated purposes, was the lender’s agent” ); LaSalle Bank Nat. Ass’n v. Lamy, 12 Misc.3d 1191, 824 N.Y.S.2d 769, 2006 WL 2251721, at *2 (Sup.2006) (unpublished opinion) (” A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.” )

The relationship that MERS has to Sovereign is more akin to that of a straw man than to a party possessing all the rights given a buyer. A mortgagee and a lender have intertwined rights that defy a clear separation of interests, especially when such a purported separation relies on ambiguous contractual language. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is ” [o]ne to whom property is mortgaged: the mortgage creditor, or lender.” Black’s Law Dictionary 1034 (8th ed.2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323. Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting ” solely” as the nominee of the lender.

Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying

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with some independent entity, the mortgage may become unenforceable.

” The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. [Citation omitted.] Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. [Citation omitted.] The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo.App.2009).

The Missouri court found that, because MERS was not the original holder of the promissory note and because the record contained no evidence that the original holder of the note authorized MERS to transfer the note, the language of the assignment purporting to transfer the promissory note was ineffective. ” MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force.” 284 S.W.3d at 624; see also In re Wilhelm, 407 B.R. 392 (Bankr.D.Idaho 2009) (standard mortgage note language does not expressly or implicitly authorize MERS to transfer the note); In re Vargas, 396 B.R. 511, 517 (Bankr.C.D.Cal.2008) (” [I]f FHM has transferred the note, MERS is no longer an authorized agent of the holder unless it has a separate agency contract with the new undisclosed principal. MERS presents no evidence as to who owns the note, or of any authorization to act on behalf of the present owner.” ); Saxon Mortgage Services, Inc. v. Hillery, 2008 WL 5170180 (N.D.Cal.2008) (unpublished opinion) (” [F]or there to be a valid assignment, there must be more than just assignment of the deed alone; the note must also be assigned…. MERS purportedly assigned both the deed of trust and the promissory note…. However, there is no evidence of record that establishes that MERS either held the promissory note or was given the authority … to assign the note.” ).

What stake in the outcome of an independent action for foreclosure could MERS have? It did not lend the money to Kesler or to anyone else involved in this case. Neither Kesler nor anyone else involved in the case was required by statute or contract to pay money to MERS on the mortgage. See Sheridan, 2009 WL 631355, at *4 (” MERS is not an economic ‘ beneficiary’ under the Deed of Trust. It is owed and will collect no money from Debtors under the Note, nor will it realize the value of the Property through foreclosure of the Deed of Trust in the event the Note is not paid.” ). If MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right. See Vargas, 396 B.R. at 517 (” [w]hile the note is ‘ essential,’ the mortgage is only ‘ an incident’ to the note” [quoting Carpenter v. Longan, 16 Wall. 271, 83 U.S. 271, 275, 21 L.Ed. 313 (1872) ] ).

When it found that MERS did not have an interest in the property that was impaired by the default judgment, the trial court properly considered four factors: (1) that the written pleadings and oral arguments by MERS and Sovereign identified MERS as acting only as a digital mortgage tracking service; (2) that counsel for MERS insisted that no evidence of a financial or property interest was necessary and its argument rested solely on its identity as the mortgagee on the mortgage document, when counsel was directly challenged to produce evidence of a financial or property interest; (3) that evidence showed that Sovereign was on notice that Landmark had leave of the bankruptcy court to proceed with foreclosure and that MERS did not attempt to intervene in the action until after its alleged principal, Sovereign, had already had its motion to intervene and to set aside judgment denied; and (4) that the case law submitted by the parties weighed more in favor of denying the motion. These factors were properly before the trial court and were consistent with the evidence and supported the court’s legal reasoning.

Counsel for MERS explicitly declined to demonstrate to the trial court a tangible interest in the mortgage. Parties

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are bound by the formal admissions of their counsel in an action. Dick v. Drainage District No. 2, 187 Kan. 520, 525, 358 P.2d 744 (1961). Counsel for MERS made no attempt to show any injury to MERS resulting from the lack of service; in fact, counsel insisted that it did not have to show a financial or property interest.

MERS argued in another forum that it is not authorized to engage in the practices that would make it a party to either the enforcement of mortgages or the transfer of mortgages. In Mortgage Elec. Reg. Sys. v. Nebraska Dept. of Banking, 270 Neb. 529, 704 N.W.2d 784 (2005), MERS challenged an administrative finding that it was a mortgage banker subject to license and registration requirements.

The Nebraska Supreme Court found in favor of MERS, noting that ” MERS has no independent right to collect on any debt because MERS itself has not extended credit, and none of the mortgage debtors owe MERS any money.” 270 Neb. at 535, 704 N.W.2d 784. The Nebraska court reached this conclusion based on the submissions by counsel for MERS that

” MERS does not take applications, underwrite loans, make decisions on whether to extend credit, collect mortgage payments, hold escrows for taxes and insurance, or provide any loan servicing functions whatsoever. MERS merely tracks the ownership of the lien and is paid for its services through membership fees charged to its members. MERS does not receive compensation from consumers.” 270 Neb. at 534, 704 N.W.2d 784.

Even if MERS was technically entitled to notice and service in the initial foreclosure action-an issue that we do not decide at this time-we are not compelled to conclude that the trial court abused its discretion in denying the motions to vacate default judgment and require joinder of MERS and Sovereign. The record lacks evidence supporting a claim that MERS suffered prejudice and would have had a meritorious defense had it been joined as a defendant to the foreclosure action. We find that the trial court did not abuse its discretion and did not commit reversible error in ruling on the post default motions.

We note that various arguments were presented suggesting that economic policy provides independent grounds for reversing the trial court. MERS and the amicus curiae American Land Title Association argue that MERS provides a cost-efficient method of tracking mortgage transactions without the complications of county-by-county registration and title searches. The amicus suggests the statutory recording system is grounded in seventeenth-century property law that is entirely unsuited to twentieth-century financial transactions. While this may be true, the MERS system introduces its own problems and complications.

One such problem is that having a single front man, or nominee, for various financial institutions makes it difficult for mortgagors and other institutions to determine the identity of the current note holder.

” [I]t is not uncommon for notes and mortgages to be assigned, often more than once. When the role of a servicing agent acting on behalf of a mortgagee is thrown into the mix, it is no wonder that it is often difficult for unsophisticated borrowers to be certain of the identity of their lenders and mortgagees.” In re Schwartz, 366 B.R. 265, 266 (Bankr.D.Mass.2007).

” [T]he practices of the various MERS members, including both [the original lender] and [the mortgage purchaser], in obscuring from the public the actual ownership of a mortgage, thereby creating the opportunity for substantial abuses and prejudice to mortgagors …, should not be permitted to insulate [the mortgage purchaser] from the consequences of its actions in accepting a mortgage from [the original lender] that was already the subject of litigation in which [the original lender] erroneously represented that it had authority to act as mortgagee.” Johnson v. Melnikoff, 20 Misc.3d 1142, 873 N.Y.S.2d 234, 2008 WL 4182397, at *4 (Sup.1008).

The amicus argues that ” [a] critical function performed by MERS as the mortgagee is the receipt of service of all legal process related to the property.” The amicus makes this argument despite the mortgage clause

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that specifically calls for notice to be given to the lender, not the putative mortgagee. In attempting to circumvent the statutory registration requirement for notice, MERS creates a system in which the public has no notice of who holds the obligation on a mortgage.

The Arkansas Supreme Court has noted:

” The only recorded document provides notice that [the original lender] is the lender and, therefore, MERS’s principal. MERS asserts [the original lender] is not its principal. Yet no other lender recorded its interest as an assignee of [the original lender]. Permitting an agent such as MERS purports to be to step in and act without a recorded lender directing its action would wreak havoc on notice in this state.” Southwest Homes v. Carmen Price, __ Ark. at __.

In any event, the legislature has established a registration requirement for parties that desire service of notice of litigation involving real property interests. It is not the duty of this court to criticize the legislature or to substitute its view on economic or social policy. Samsel v. Wheeler Transport Services, Inc., 246 Kan. 336, 348, 789 P.2d 541 (1990).

II. Did The Trial Court’s Refusal To Join MERS As A Party Violate MERS’s Right To Due Process?

MERS contends that the Fourteenth Amendment and § 18 of the Kansas Constitution Bill of Rights guarantees of due process were violated when the foreclosure action was consummated without MERS receiving notice of the proceeding and without MERS having the opportunity to intervene in the action.

Although joinder is evaluated under an abuse of discretion standard, if a constitutional right is involved the trial judge’s exercise of discretion is limited. Discretion must be exercised not in opposition to, but in accordance with, established principles of law. It is not an arbitrary power. In re Adoption of B.G.J., 281 Kan. 552, 563, 133 P.3d 1 (2006).

The Fourteenth Amendment to the United States Constitution provides: ” No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law.”

Section 18 of the Kansas Constitution Bill of Rights provides: ” All persons, for injuries suffered in person, reputation or property, shall have remedy by due course of law, and justice administered without delay.”

Due process provides any interested party with the elementary and fundamental right to notice of the pendency of an action and the opportunity to present its objections in any proceeding that is to be accorded finality. Alliance Mortgage Co. v. Pastine, 281 Kan. 1266, 1275, 136 P.3d 457 (2006) (citing Mullane v. Central Hanover Bank & Tr. Co., 339 U.S. 306, 314, 94 L.Ed. 865, 70 S.Ct. 652 [1950] ). In the absence of a protected property or liberty interest, there can be no due process violation. State ex rel. Tomasic v. Unified Gov’t of Wyandotte County/Kansas City, 265 Kan. 779, 809, 962 P.2d 543 (1998).

The Due Process Clause does not protect entitlements where the identity of the alleged entitlement is vague. Castle Rock v. Gonzales, 545 U.S. 748, 763, 125 S.Ct. 2796, 162 L.Ed.2d 658 (2005). A protected property right must have some ascertainable monetary value. 545 U.S. at 766, 125 S.Ct. 2796. Indirect monetary benefits do not establish protection under the Fourteenth Amendment. 545 U.S. at 767, 125 S.Ct. 2796. An entitlement to a procedure does not constitute a protected property interest. 545 U.S. at 764, 125 S.Ct. 2796.

MERS’s contention that it was deprived of due process in violation of constitutional protections runs aground in the shallows of its property interest. As noted in the discussion of the first issue above, MERS did not demonstrate, in fact, did not attempt to demonstrate, that it possessed any tangible interest in the mortgage beyond a nominal designation as the mortgagor. It lent no money and received no payments from the borrower. It suffered no direct, ascertainable monetary

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loss as a consequence of the litigation. Having suffered no injury, it does not qualify for protection under the Due Process Clause of either the United States or the Kansas Constitutions.

Furthermore, MERS received the full opportunity to present arguments and evidence to the trial court. Only after Sovereign clearly had notice of the litigation, had filed a motion to intervene, and had participated in a hearing on the motion did MERS-Sovereign’s nominee-elect to file for joinder. Despite its late decision to enter an appearance in the case, the trial court allowed MERS the opportunity to present arguments and evidence. It cannot be said that MERS was prejudicially denied notice and the opportunity to be heard.

We find that the district court did not abuse its discretion in denying the motions to vacate and for joinder and in holding that MERS was not denied due process. We accordingly affirm the district court and the Court of Appeals.

END

Friday, August 12th, 2011 Category: 2011 No Comments

Jury Trials: An Endangered Species

Hugh Wood
Atlanta, Georgia

Tort driven jury trials both in state court and federal court are extinct. Well, if they’re not extinct they are on the endangered species list.

The causes for the endangered status of jury trials in America is somewhat unknown. Now, by contrast, and I am not referring to criminal jury trials which continue relatively unabated (though they are substantially down in the last 30 years) and civil business fights which now occupy more court resources than ever. I am referring to garden variety torts, auto accidents and, yes, medical malpractice. Television and the popular literature continue to assert that the tort system, lawyers and particularly jury trials are driving the United States into “ruin.” Yet, jury trials, like the Siberian Tiger, are quite rare.

Since I have not conducted any of my own empirical studies, I must rely on those who have. Thus, this article, I am concerned, will consist more of quotations from other authors than this author (which may very well be an improvement).

This article will review some of the history of the jury trial, it will review the statistics concerning the vanishing jury trial and it will review some scholarly literature concerning the vanishing jury trial. It will then look to the possible reasons for the decline of this noble lynchpin of our civilized society and then postulate some possible recommendations for the future.

It is odd to consider at the outset that poor Mr. Tomkins, walking along the beaten path of the Erie and Lackawanna Railroad, would have never reached a jury trial in today’s court makeup:

Tomkins was injured on a dark night by a passing freight train of the Erie Railroad Company while walking along its right of way at Hughestown in that State. He claimed that the accident occurred through negligence in the operation, or maintenance, of the train; that he was rightfully on the premises as licensee because on a commonly used beaten footpath which ran for a short distance alongside the tracks, and that he was struck by something which looked like a door projecting from one of the moving cars. [1]

I. THE HISTORY OF JURY TRIALS

A. The Assizes

The exact origin of our modern day jury trial is lost in the dimness of time, however, many sources point to the old English assizes as a possible origin. The assizes were a somewhat travelling circuit riding judge and local jury system – though, that is an oversimplification. Keep in mind, serfs had no real rights.

The Assize of Clarendon of 1166 was an Act of Henry II of England that began the transformation of English law from systems for deciding a case as trial by ordeal or trial by battle to a system of deciding a case by evidence. The evidence and inspection of the evidence was made by laymen. Assize of Clarendon greatly fostered the methods that would eventually be known in common law countries as trial by jury. [2] King Henry appointed “justices in eyre,” the counterpart of circuit judges, to travel from town to town. TheMagna Carta of 1215 at Runnymead provided some oversight, but it originally granted “rights” only to nobels in relation to the King. It took some centuries for an understanding and application of rights to be applied to the common populace.

B. The Bushell case from 1607

The right of a jury trial in England was established as controlling in early 17th Century.

The 1670 Bushell case marked a major turning point in the development of the modern jury trial. Twelve jurymen refused to convict the Quakers William Penn and William Mead of seditious assembly and were locked up for two nights without food, water, fire, tobacco, or chamber-pot. When this failed to force them to retract their not guilty verdict, the jurors were sentenced to prison until they had paid a fine. Four of the jurors, led by Bushell, refused to pay the fine and challenged their incarceration by a writ of habeas corpus. The Lord Chief Justice released them in a landmark decision establishing the jury as the sole judge of fact. Decline Of The “Little Parliament”: Juries And Jury Reform In England And Wales. See also, 2 II Bushell’s Case, 124 Eng. Rep. 1006, 1007 (C.P. 1670).

C. The United States Supreme Court and Companion State Authority

While the “right” to a jury trial, presumably, came over on the boats from England with the common law, the 1791 United States Constitution contained an Amendment in the Bill of Rights that guaranteed the right of a jury trial for, not only criminal actions, but civil actions.

The Seventh Amendment read as follows: In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law. Amendment VII. Civil Trials, U.S. Constitution (1791).

The United States Supreme Court has often reviewed the right to a jury trial. Recently, it again reviewed that right in, City of Monterey v. Del Monte Dunes At Monterey, Ltd., Et Al., 526 U.S. 687, 707-708, 119 S.Ct. 1624, 143 L.Ed.2d 882 (1999). It wrote:

As a consequence, we must reach the constitutional question. The Seventh Amendment provides that “[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved . . . .” Consistent with the textual mandate that the jury right be preserved, our interpretation of the Amendment has been guided by historical analysis comprising two principal inquiries. “[W]e ask, first, whether we are dealing with a cause of action that either was tried at law at the time of the founding or is at least analogous to one that was.” Markman v. Westview Instruments, Inc., 517 U.S. 370, 376 (1996). “If the action in question belongs in the law category, we then ask whether the particular trial decision must fall to the jury in order to preserve the substance of the common-law right as it existed in 1791.” Ibid. With respect to the first inquiry, we have recognized that “suits at common law” include “not merely suits, which the common law recognized among its old and settled proceedings, but [also] suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered.” Parsons v. Bedford, 3 Pet. 433, 447 (1830). The Seventh Amendment thus applies not only [Page 709] to common-law causes of action but also to statutory causes of action ” ‘analogous to common-law causes of action ordinarily decided in English law courts in the late 18th century, as opposed to those customarily heard by courts of equity or admiralty.’ ” Id.

In Georgia, the right to a jury trial appeared in the First Constitution of 1777. It read:

Article XLI. The jury shall be judges of law, as well as of fact, and shall not be allowed to bring in a special verdict; but if all or any of the jury have any doubts concerning points of law, they shall apply to the bench, who shall each of them in rotation give their opinion.

Article XLII. The jury shall be sworn to bring in a verdict according to law, and the opinion they entertain of the evidence; provided it be not repugnant to the rules and regulations contained in this constitution.

That right is granted to Georgians in Georgia’s 10th Constitution, the 1983 Constitution, at Art. 1, Sec 1, Para. 9 of the Georgia Constitution

§ I. Rights of Persons
Paragraph XI. Right to trial by jury; number of jurors; selection and compensation of jurors. (a) The right to trial by jury shall remain inviolate, except that the court shall render judgment without the verdict of a jury in all civil cases where no issuable defense is filed and where a jury is not demanded in writing by either party.

Additionally, the right is granted by Georgia Statute. OCGA § 9-11-38.

II. THE VANISHING JURY TRIAL

Despite the constitutional right to a jury trial, the actual number of jury trials being completed in both state and federal court has declined substantially in the last four (4) decades

A. Federal Jury Trials are Vanishing

Jury trials, as the method of resolution, have fallen from 12% of federal actions to under 2%. Galanter, Mark, The Vanishing Trial: An Examination of Trials and Related Matters in Federal and State Courts, Journal of Empirical Legal Studies, Volume 1, Issue 3, 459 570, November, 2004.

Percentage of civil terminations during/after trial, U.S. district courts. 1962 – 2002.

[There has been a precipitous] decline in the portion of cases that are terminated by trial and the decline in the absolute numbers of trials in various American judicial [venues]. The portion of federal civil cases resolve by trial fell from 11.5 percent in 1962 to 1.8 percent in 2002, continuing along historic decline. More startling was the 60 percent decline in the absolute numbers of trials since the mid 1980s. The make up of trial shifted from a predominant torts to a predominance of civil rights, but trials are declining in every category. A similar decline both in the percentage and absolute numbers of trials is found in federal criminal cases and in bankruptcy cases. The phenomenon is not confined to the federal courts; there are comparable declines of trials, both civil and criminal, in the state courts, where the great majority of trials occur. Plausible causes for this decline include a shift in the ideology and practice among litigants, lawyers, and judges. Another manifestation of this shift is the diversion of cases to alternative dispute resolution forums. Within the courts, judges conduct trials only a fraction of the rate that their predecessors did, but they are more heavily involved in the early stages of cases. Although virtually every other indicator of legal activity is rising, trials are declining not only in the relation to cases in the courts but to the size of the population and the size of the economy. The consequences of this decline for the functioning legal system and for the larger society remain to be explored. Id.

Tort and Contract trials, U.S. district court, 1962 – 2002.

[ & & & ]

The sharp decline in the number of civil trials runs counter to the prevailing image of litigation in the United States. Over the past generation or more, the legal world has been growing vigorously. Almost any measure the number of lawyers, the amount spent on the law, the amount of authoritative legal material, the size of the legal literature, the predominance of law and public consciousness has flourished and grown. It seems curious, then, to find a contrary pattern in one central legal phenomenon, indeed one that lies at the very heart of our image of the court system – trials. The number of trials has not increased in proportion to these other measures. In some, perhaps most, forums, the absolute numbers of trials has undergone a sharp decline. The sense of the change can be gathered in that civil trials in federal court over a ten year interval from 1962 to 2002 have fallen from approximately 14 percent of cases filed determined during the trial or at or after the verdict versus 2 percent in 2002 determined at the jury trial or after a verdict. Id., at 460 and 461.

Civil Trials Conducted by District Judges and Magistrate Judges 1990 to 1999.

B. Bankruptcy Jury Trials are Vanishing

The Absolute and relative number of trials in Bankruptcy Court have declined.

It is interesting to note that the absolute number of jury trials has declined, even though the resources and time relative to the litigated and participants, in Bankruptcy has increased. In English that means, the Bankruptcy Courts have been given huge resources, a vast increase in the number of judges available and a vast increase in staff and in court time since 1962 (and I am aware of the overhaul of Bankruptcy in 1978) and yet from 1962 to the present, Jury trials have plunged. One conclusion is that the Judges simply do not want to be bothered with jury trials.

Bankruptcy provides a two tier system: One is a bankruptcy filing that allows a debt or creditor dispute to be funneled into the system for a relatively quick and cheap resolution. The second tier focuses on adversary proceedings, the lawsuit-like subset of disputes that sometimes are resolved within a bankruptcy. The trend line suggests that the number of adversary proceedings filed is climbing, while the number of such disputes that are actually resolved by trial is declining. Like the federal court system generally, these data suggests that the trial is additionally vanishing from the bankruptcy system. Warren, Elizabeth Vanishing Trials: The Bankruptcy Experience, Journal of Empirical Legal Studies, Volume 1, Issue 3, Page 913 942, November, 2004.

C. State Jury Trials are Vanishing

Tort (personal injury) case filings are declining. Long term data from the National Center for State Courts shows a 21 percent decline in tort filings in 30 states from 1996 to 2005. Center for Democracy & Justice, New York, New York: Citing U.S. Department of Justice, Bureau of Judicial Statistics, “Civil Bench and Jury Trials in State Courts, 2005, “NCJ 223851 (October, 2008) at 9. Tort cases represent a small percentage of civil caseloads: In 2007, monetary disputes (contract and small claims cases) accounted for 70 percent of all civil caseloads in seven states reporting statistics, while tort cases represented only 6 percent of civil caseloads in the states. Center for Justice & Democracy, New York, New York citing Richard La Fountain, et al. Examining the Workload of State Courts: A National Perspective From The Court’s Statistics Project (National Center for State Courts 2009) at Pages 1 and 2.

1. The Elrod Journal

Even though Texas is considered a hotbed of litigation, statistical studies in Texas show jury trials are substantially off in Texas. Elrod, David W. and Walter, Worthy Fact or Fiction: Are There Less Jury Trials & Trial Lawyers? If So, What Do We Do About It?, Elrod, PLLC Dallas, Texas (2009).

Statistics show that – between 1970 and 1999 – the number of civil cases that went to trial dropped by 20 percent even though the number of civil cases filed rose 152 percent. Between both civil and criminal cases, Judge Higginbotham (Texas) found that the rate of trials dropped from approximately 12 percent in 1970 to 3 percent in 1999. Higginbotham also notes that as a percentage of all civil dispositions, the number of trials has dropped from 11.5 percent to 1.8 percent. Patrick E. Higginbotham, Judge Robert A. Ainsworth, Jr. Memorial Lectern, Loyola University School of Law: So Why Do We Call Them Trial Courts?, 55 SMU Law Review, 1405, 1423 (2002).

Other data presented in other articles have been similar. In Justice Hecht’s 2005 article, he provided statistics on Texas civil cases obtained from Texas Office of Court Administration. Those statistics indicated that between 1986 and 2004, the number of civil jury trials in Texas fell by 49 percent, while the number of civil jury trials per court dropped 58.2 percent. Elrod at 5. Citing Nathan L. Hecht, The Vanishing Civil Jury Trial: Trends in Texas Courts and an Uncertain Future, 47 S. Texas Law Review. 163, 188 (2005).

2. Law Journals Reveal the Decline

The Yale Law Journal Asserts Jury Trials are Disappearing

By late in the twentieth century, the jury trial had fallen on hard times. The percentage of all cases being resolved by referral to juries had been declining in both federal and state courts for decades. By the 1990s, that decline had become so dramatic that even with rising total caseloads, the actual number of trials was falling. In the quarter century from 1976 to 2002, for example, the number of civil jury trials in state courts declined by thirty-two percent.

The causes of this decline were multiple. Energetic use of mediation, arbitration, and private judging diverted many civil disputes. Federal sentencing guidelines offered such substantial incentives for defendants who cooperated with the government that plea bargains went up and trials went down.

As for the general public, the experience of participating in a trial had become a chore. Jurors frequently complained about poor treatment at the hands of court officials, the inconvenience of jury service, fear over their role as jurors, and anxiety flowing from uncertainty about the trial process. Moreover, many citizens viewed the jury as archaic, emotional, irrational, and unintelligent. The jury system became a fertile source of material for comedians and cartoonists, up to and including Homer Simpson. This scorn seemed to reach new heights, though it was hardly without precedent. Mark Twain once said that the efficiency of the jury system was marred only by “the difficulty of finding twelve men every day who don’t know anything and can’t read.” State Court Reform of the American Jury. Yale Law Journal On Line (2008?).

3. Newspaper Articles Show the Decline of Jury Trials

i. The Tennessean

Recently The Tennessean published a series of interviews with “trial,” lawyers in Tennessee who lamented that trials are so rare that they doubt they should be called “trial” lawyers.

The trend of settling disputes through alternative means rather than going through a jury trial has been going on for about two decades and continued last year, according to recently released court statistics. Avoiding trials saves litigants time and money — a big selling point, particularly for risk-averse businesses, in tough economic times. But many attorneys worry that grizzled trial veterans such as Branham and Walker are an endangered species, and that the jury trial is vanishing. Her inability to participate in the trials she loved was a key reason Nancy Jones left Bass Berry & Sims’ office in 2007 to lead the Tennessee Board of Professional Responsibility. “What it really boiled down to is, when you wake up in the morning, and you haven’t had a trial in nine years, can you look at yourself in the mirror and call yourself a trial lawyer?” she said.

[ & & & ]

There were only 384 jury trials in state civil courts in Tennessee last year, nearly 1,000 less than a decade ago. Forty-three were in Nashville, down from 138 in 2000. Federal trial courts have experienced a similar trend. There were 5,325 civil and criminal jury trials in U.S. district courts in 2008, down from 6,839 in 2000 and 9,844 in 1990. Todd Campbell, chief judge of the U.S. District Court for the Middle District of Tennessee, said the lack of jury trials is not only a concern for lawyers and firms, but also the general public. He is proud that his court consistently leads the nation in the number of trials completed per judgeship. The court was 15th out of 94 federal districts in 2009. Gee, Brandon, As jury cases decline, so does art of trial lawyers, The Tennessean, Feb. 4, 2011.

ii. The Lackawanna CitizensVoice

In Lackawanna: Medical Malpractice? Lots of Cost, but No Trials In Lackawanna County, Pennsylvania. Lackawanna is the origin of one of the railroads that hit the hapless Mr. Tompkins in Erie v. Tompkins, supra. Despite complaints that lawyers are ruining the medical establishment in Lackawanna, it reports that medical malpractice trials have gone dry. There are no trials. It is interesting to note, that no jury trials are occurring, yet medical malpractice insurers have doubled and tripled their rates for an “event,” that seems not to occur.

Lackawanna County’s medical malpractice case filings in 2009 dropped 53 percent over the last eight years, a change many experts say is the result of reforms meant to weed out frivolous lawsuits and limit hefty jury awards. Throughout the state, medical malpractice case filings fell almost 42 percent since 2000, according to statistics kept by the Administrative Office of Pennsylvania Courts. But even as state officials hail the success, some experts say more needs to be done. Medical malpractice insurance premiums remain twice as expensive as they were in 2000, said Roger Baumgarten, spokesman for the Hospital & Healthsystem Association of Pennsylvania. In part because of that, many areas across Pennsylvania are seeing a shortage of doctors that could reach crisis proportions in the next 15 years, he said.

& & &

“The overall environment for physicians in Pennsylvania remains very unfriendly,” Baumgarten said. “Doctors with school loans to pay and families to raise are still making decisions to leave.” In 2009, there were 33 medical malpractice cases filed in Lackawanna County, compared to 71 filed in 2000. The number of cases filed in the county has remained more or less steady since 2003, ranging from a high of 36 in 2008 and a low of 30 in 2007.

The number of medical malpractice cases making it to a jury trial each year in Lackawanna County has also dropped dramatically. Only three (3) cases went to trial last year and of those, only one (1) resulted in a verdict for the plaintiff. Comparatively, 27 cases went to trial between January 2000 and July 2003, three of which resulted in verdicts for the plaintiff. Nissley, Erin L., Medical Malpractice Cases Fall By More Than Half in Lackawanna County, The CitizensVoice, May 17, 2010.

iii. The Kentucky Law Journal (a blog)

Tort trials are significantly off in Kentucky.

Jason Riley’s story in the Courier-Journal this past Sunday entitled ‘Slip-and-fall’ trials becoming fewer addressed statistically what most of us trial lawyers already knew anecdotally – fewer cases are being tried today than a decade ago; and in the case of this story fewer cases involving business premises liability. Stevens, Michael L., Kentucky Law Review, Ky Trials:Fewer Slip and Falls and Speculation as to the Why, Monday, January 08, 2007.

iv. Anecdotal Information

The “impact” of the impossibility or improbability of obtaining a jury trial in the Georgia Court system is, unfortunately, reflected in the posting by a frustrated plaintiff in a case. She blames here lawyer for the lack of a jury trial, when the rest of us know that the reasons are myriad for the lack of jury trials.

Jury Trials In Georgia

I have a case pending in Ga. It is a civil case.
My attorney filed it for a jury trial after taking 1.5 years to even file the suit. It is scheduled to come up soon and I was told by the state court clerk that in that town, she has only had one civil calender-(sic) scheduled jury trial in the past 3 years despite that she has scheduled them every month.
She also told me that attorneys try to avoid jury trials and push them off for other dates and repeat the process. She still has trials that dates back years and years and that they are done by age: first in, first out. My case was finally filed but is a year old.
What I’d like to know is why would an attorney file for a jury trial if he knew they hardly ever go to court and can drag on for years? I cannot grasp the strategy.
Also why are cases allowed to be put off a mulitude of times? Why isn’t there a time limit to satisfy the case as oppossed to permitting them to try up time, money and labor resources perpetually?Can this case be refiled for a bench trial and what are the ramifications of doing such considering this is not a small claims issues and there is a 6 month discovery process involved?
I know I will told to direct my questions to the attorney “representing” me, but I’d have better luck talking to G W Bush over steamed oysters next weekend.
Help???? Advise?? Answers?? What are your thoughts? Captured from A thread on Expert Law, perhaps 2007.

III. TORT REFORM

At least with regard to Georgia, tort reform may very well be one of the reasons that jury trials in tort cases have become extinct. Mr. Justice Weltner in 1986, in reaction to the facts in Yost v. Torok, (a tort suit over an auto accident that never occurred), wrote the Opinion in Yost v. Torok, et.al., 256 Ga. 92, 344 S.E.2d 414 (1986). It engrafted the language of OCGA § 9-15-14 into Georgia caselaw.

Thereafter in 1987 the Georgia General Assembly pieced together various tort reform statutes. One statute required an OCGA § 9-11-9.1 affidavit to bring an action against physicians and then amended to include any type of professional in Georgia.

Not to be satisfied at chipping away at various potential court filings, the Georgia General Assembly strengthened the initial affidavit filing requirement. The courts determined that it was a fatal non-amendable defect if such affidavit is not present. The General Assembly passed and the Courts upheld Georgia’s own version of Daubert (taken from Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993)).

The General Assembly imposed statutory caps of $350,000.00 for any non-economic damage in a medical malpractice case and provided complete insulation to any emergency room physician. (it is unclear whether the General Assembly will revisit the unconstitutional finding by the Georgia Supreme Court of jury caps. Caps were found unconstitutional in Atlanta Oculoplastic Surgery v. Nestlehutt, et al., 286 Ga. 731, 691 S.E.2d 218 (2010)).

We have had (in Georgia) for a long time the bad faith penalties imposed by OCGA § 13-6-11, being bad faith attorney’s fees for actions that occurred in the underlying action. The General Assembly in its wisdom provided us with yet a new statutory codification of malicious prosecution. To the extent that a defendant suffers harm unrelated to attorney’s fees, that defendant, provided that it provides statutory overnight mail notice in the underlying case, may proceed to sue the plaintiff under OCGA §§ 51-7-80 through 51-7-85 in an subsequent lawsuit filed within one (1) year.

And not to be outdone in creating road blocks to jury trials, the General Assembly recently left us with an interesting but difficult to comply with, “Offer of Settlement,” statute – OCGA § 9-11-68. In response to formal offers of settlement, the plaintiff must now pick a verdict outcome and be within a range of 75 percent to 125 percent accurate or suffer defendant’s attorney’s fees. Defendant if it chooses to make an offer must predict that a plaintiff cannot exceed its offer by 125 percent or potentially it suffers plaintiff’s attorney’s fees.

IV. MODERN IMPEDIMENTS
TO REACH A JURY VERDICT

The tort reforms discussed above act as impediments or “tank traps” and keep many causes of action from reaching a jury. Consider the following reforms in the perspective not as “reforms,” but as ”impediments,”

Before 1987 and the first round of tort reform in Georgia, a plaintiff was able to identify cause of action, meet with an attorney (and assuming the attorney did the due diligence necessary to file the complaint) and proceed to file the complaint or petition in Superior Court. That complaint would move through a minimum of six months of discovery (after the 1966 Civil Practice Act and assuming that it wasn’t discharged in a Motion to Dismiss) and head toward a Motion for Summary Judgment (if filed). If Plaintiff got over the hurdle of the Motion for Summary Judgment the case moved to trial.

This Georgia pattern of “filing to discovery to jury,” exists – no more.

After three (3) rounds of tort reform, the landscape concerning Plaintiff’s filing of a Complaint and then proceeding to a jury trial has been radically altered.

A plaintiff may set out various tort claims in a complaint. The lawyer now has “additional duties” to investigate claims prior to proceeding. Additionally, there are now new risks associated with various tort reform statutes. If the complaint or any portion of it is to be filed against a professional in Georgia, the plaintiff’s attorney must retain an expert and obtain an OCGA § 9-11-9.1 affidavit (opinion) prior in time to filing or the complaint or the complaint is subject to dismissal. That dismissal is a non amendable defect that is fatal to the refilling of the cause of action. [3]

As is similar to pre-1987 practice, the plaintiff still must survive a motion to dismiss and/or a motion for summary judgment. Each of plaintiff’s counts are now subject to the additional scrutiny of OCGA § 9-15-14. That is, throughout the litigation defendant may challenge (as a collateral matter) the basis for any claim or count pursuant to OCGA § 9-15-14 (that each Count or action by counsel is “frivolous,” or so unnecessary as to amount to harassment).

After 1989 litigants face the potential challenge under OCGA §§ 51-7-80 through 51-7-85 of receiving a challenge that, if defendant prevails in the main case, the party and counsel may be sued for any damages (non economic) that are found to be different, special or in excess of the attorney’s fees. [4] Claims merely for attorney’s fees are limited to OCGA § 9-15-14 and now the small tail end of OCGA § 9-11-68.

Prior to 1987 an expert qualified in the field, could testify on the plaintiff’s behalf. Now, the parties are required to retain and provide testimony only from experts that fit within the parameters of OCGA § 24-9-67.1. Georgia Daubert, OCGA § 24-9-67.1, [5] provides significant additional impediments to the obtainment of testimony for both perspectives (plaintiff and defendant) in Georgia courts. “Georgia Daubert,” dictates than an expert must have actively worked in the same field as the defendant (or party opposed) within the three of the last five years.

With the constitutional support and Opinion in Smith, et al. v Baptiste, et al.,287 Ga. 23, 694 S.E.2d (2010), plaintiffs are now required predict the future concerning whether a jury verdict will be within 75 percent to 125 percent of the offer made by the defendant to plaintiff. [This statute is mutual; plaintiff may make an offer to a defendant].

It would appear that, notwithstanding all the additional tort reforms from 1987, 1989 and 2005, a defense verdict or failure to adequately predict the future pursuant to OCGA § 9-11-68, now subjects plaintiff to all defense fees from the date of the rejected offer to jury resolution. Is it any wonder then that litigants now shy away from jury resolution?

V. A VIEW INTO THE FUTURE

It may be that we suffer from a lack of expansion of judicial resources. If in the 1950′s the United States had not moved from two lane roads and two and three lane federal highways to the interstate system, we would be left with a byzantine road system that resembles that around San Palo, Brazil and the road system in India.

The United States Congress wisdom (and this actually was wisdom) enacted the Interstate Highway System. [6] That system has vastly expanded the ability to transmit goods, services and people through the United States. Our court system by comparison has never achieved any such expansion such as the interstate road system, but continues to limp along on two lane roads in the same manner that they existed in the 1950′s and 1960′s. Nor has there been the expansion of judicial resources and particularly “in court time” resources that anywhere matches the growth of both the numerical claims and the complexity of the claims filed in court.

Additionally, while we continue to live in an increasingly information driven and complex system we persist in (perhaps because constitutionally we are required to) drive the resolution of our jury matters into the hands of 12 or 6 “peers” being nothing more than individuals drawn from a large jury pool. Though it would require constitutional modification and perhaps several statutes, this author thinks that both more access to some type of alternative bench or jury resolution is neede. And, though this is a thought found nowhere in the literature, as the experts have been driven into more information and more complexity and must comply with more “Daubert” type standards, jurors have not kept the pace. Perhaps, the time has come for we as a society to consider creating, employing and maintaining professional jurors who are at least as skilled as Daubert experts. On that one, though, I am not holding my breath.

VI. CONCLUSION

This article has shown that contrary to the information disseminated by the popular press both the filing of tort cases and resolution by jury trial of tort cases has declined precipitously in the last 30 years. The decline has been so severe that the jury trial is either extinct or as endangered as the Siberian Tiger. This article has shown that while both English common law, the Constitution of the United States and Georgia Constitution provide us with the right to a jury trial they have become practically unobtainable in a general tort setting. This article has shown that the statistics both in the administrative courts and in respected law journals show that the decline (absolute decline) of jury trials is a statistical fact and not mere speculation. Jury trial resolution in federal court now accounts for less than 2 percent of all claims filed.

It is poignant perhaps that the one jury trial in Erie v. Tompkins, a jury trial that changed the very fabric of our entire state and fedearl court system would never occur in today’s modern federal court.

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
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Phone: 404-633-4100
Fax: 404-633-0068

[1]
Erie Railroad Co.v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), mandating that a federal court, sitting in diversity jurisdiction must apply state substantive law. It overturned, Swift v. Tyson, 41 U.S. 1 (1842), and the then main case on point,Black and White Taxicab & Transfer Co. v. Brown and Yellow Taxicab & Transfer Co., 276 U.S. 518 (1928) and the development of a federal common law separate from state substantive law. Poor Mr. Tompkins got his Jury trial in the Southern District of New York and recovered $30,000. However, in reversing the case and applying Pennsylvania substantive law, Mr. Tomkins lost his jury victory.

[2]
Assize of Clarendon, 1166, The Avalon Project, Documents in Law, History and Diplomacy, The Lillian Goldman Law Library, Yale Law School. Various Documents available online.

[3]
The failure to file a OCGA § 9-11-9.2 Authorization Form in a medical malpractice case may also subject the claim to dismissal.

[4]
In Ga. L.1989, p. 408, § 2, the General Assembly created a new cause of action for abusive litigation and codified it as OCGA § 51-7-80 et seq., which became effective on July 1, 1989, and which provided for procedures that were part of the elements of the action. OCGA § 51-7-80 et seq., as a new statutory cause of action, replaced several existing common law actions: malicious use of process; malicious abuse of process; and a claim under Yost v. Torok, 256 Ga. 92, 344 S.E.2d 414 (1986). Since OCGA § 51-7-80 et seq. is in derogation of common law, then it must be strictly construed. Kirsch v. Meredith, 211 Ga.App. 823, 825, 440 S.E.2d 702 (1994). Unlike OCGA § 9-15-14, which is a court-imposed sanction for misconduct in litigation, OCGA § 51-7-80 et seq. is an independent cause of action based upon the successful termination of the action upon which it is based and is not procedurally ancillary and post-judgment, as is OCGA § 9-15-14, except when only attorney fees are sought under OCGA § 51-7-83(b). Hutchison v. Divorce & Custody Law Center, etc., 207 Ga.App. 421, 423, 427 S.E.2d 784 (1993). An action for abusive litigation must be brought as a separate and distinct action where damages are sought; however, when only attorney fees in the original abusive litigation are sought, OCGA § 51-7-83(b) provides that “the procedures provided in Code Section 9-15-14 shall be utilized.” Hallman v. Emory University, 225 Ga.App. 247, 483 S.E.2d 362, 364-365 (1997).

[5]
Constitutional and applicable to all Georgia cases in HNTB Georgia, Inc. v. Hamilton King, et. al., 287 Ga. 641, 697 S.E.2d 770 (2010).

[6]
The Federal-Aid Highway Act of 1956, popularly known as the National Interstate and Defense Highways Act (Public Law 84-627), was enacted on June 29, 1956.

END

Friday, August 12th, 2011 Category: 2011 No Comments

Georgia’s Offer of Settlement Statute (OCGA § 9-11-9-68): Does It Foster Settlements or Encourage “Betting the Line?”

This Paper Was Presented at The Georgia “Abusive Litigation,” CLE at the State Bar of Georgia Headquarters. February 2011. ICLEGA

Hugh Wood

Atlanta, GA

This paper will: 1) review the mechanics of OCGA § 9-11-68, 2) it will review the subparts of the statute, 3) it will review the “good faith” portion of the statute and the jury driven homologue to OCGA § 9-15-14, 4) it will review whether OCGA § 9-11-68 is merely a statutory scheme of “Betting the Spread,” 5) it will review recent Georgia cases decided under OCGA § 9 11 68, and 6) it will review whether Offers of Settlement reduce litigation? Then this paper will review separately Rule 68 of the Federal Rules of Civil Procedure: 1) it will review The Rule, 2) it will review that the underlying federal statute must authorize fees, 3) it will review recent Federal (Georgia District) cases, 4) it will review the necessary terms that must be inserted in a federal Offer of Judgment and 5) it will review how OCGA § 9-11-68 will be applied in Federal Court. I. OCGA § 9 11 68, GEORGIA’S OFFER OF SETTLEMENT STATUTE A. The Offer of Settlement Statute: OCGA § 9 11 68 OCGA § 9-11-68. Offer of Settlement (a) At any time more than 30 days after the service of a summons and complaint on a party but not less than 30 days (or 20 days if it is a counteroffer) before trial, either party may serve upon the other party, but shall not file with the Court, a written offer, denominated as an offer under this Code section, to settle a tort claim for the money specified in the offer and to enter into an agreement dismissing the claim or to allow judgment to be entered accordingly. Any offer under this Code section must: (1) Be in writing and state that it is being made pursuant to this Code section; (2) Identify the party or parties making the proposal and the party or parties to whom the proposal is being made; (3) Identify generally the claim or claims the proposal is attempting to resolve; (4) State with particularity any relevant conditions; (5) State the total amount of the proposal; (6) State with particularity the amount proposed to settle a claim for punitive damages, if any; (7) State whether the proposal includes attorney´s fees or other expenses and whether attorney´s fees or other expenses are part of the legal claim; and (8) Include a certificate of service and be served by certified mail or statutory overnight delivery in the form required by Code Section 9-11-5. (b)(1) If a defendant makes an Offer of Settlement which is rejected by the plaintiff, the defendant shall be entitled to recover reasonable attorney ´s fees and expenses of litigation incurred by the defendant or on the defendant ´s behalf from the date of the rejection of the Offer of Settlement through the entry of judgment if the final judgment is one of no liability or the final judgment obtained by the plaintiff is less than 75 percent of such Offer of Settlement. (2) If a plaintiff makes an Offer of Settlement which is rejected by the defendant and the plaintiff recovers a final judgment in an amount greater than 125 percent of such Offer of Settlement, the plaintiff shall be entitled to recover reasonable attorney ´s fees and expenses of litigation incurred by the plaintiff or on the plaintiff ´s behalf from the date of the rejection of the Offer of Settlement through the entry of judgment. (c) Any offer made under this Code section shall remain open for 30 days unless sooner withdrawn by a writing served on the offeree prior to acceptance by the offeree, but an offeror shall not be entitled to attorney´s fees and costs under subsection (b) of this Code section to the extent an offer is not open for at least 30 days (unless it is rejected during that 30 day period). A counteroffer shall be deemed a rejection but may serve as an offer under this Code section if it is specifically denominated as an offer under this Code section. Acceptance or rejection of the offer by the offeree must be in writing and served upon the offeror. An offer that is neither withdrawn nor accepted within 30 days shall be deemed rejected. The fact that an offer is made but not accepted does not preclude a subsequent offer. Evidence of an offer is not admissible except in proceedings to enforce a settlement or to determine reasonable attorney´s fees and costs under this Code section. (d)(1) The Court shall order the payment of attorney ´s fees and expenses of litigation upon receipt of proof that the judgment is one to which the provisions of either paragraph (1) or paragraph (2) of subsection (b) of this Code section apply; provided, however, that if an appeal is taken from such judgment, the Court shall order payment of such attorney ´s fees and expenses of litigation only upon remittitur affirming such judgment. (2) If a party is entitled to costs and fees pursuant to the provisions of this Code section, the Court may determine that an offer was not made in good faith in an order setting forth the basis for such a determination. In such case, the Court may disallow an award of attorney´s fees and costs. (e) Upon motion by the prevailing party at the time that the verdict or judgment is rendered, the moving party may request that the finder of fact determine whether the opposing party presented a frivolous claim or defense. In such event, the Court shall hold a separate bifurcated hearing at which the finder of fact shall make a determination of whether such frivolous claims or defenses were asserted and to award damages, if any, against the party presenting such frivolous claims or defenses. Under this subsection: (1) Frivolous claims shall include, but are not limited to, the following: (A) A claim, defense, or other position that lacks substantial justification or that is not made in good faith or that is made with malice or a wrongful purpose, as those terms are defined in Code Section 51-7-80; (B) A claim, defense, or other position with respect to which there existed such a complete absence of any justiciable issue of law or fact that it could not be reasonably believed that a Court would accept the asserted claim, defense, or other position; and (C) A claim, defense, or other position that was interposed for delay or harassment; (2) Damages awarded may include reasonable and necessary attorney´s fees and expenses of litigation; and(3) A party may elect to pursue either the procedure specified in this subsection or the procedure specified in Code Section 9-15-14, but not both. History. Amended by 2006 Ga. Laws 589, §1, eff. 4/27/2006. Added by 2005 Ga. Laws 1, §5, eff. 2/16/2005. B. The Mechanics of the Statute OCGA § 9-11-68(a): The statute applies only to tort cases. While this author is certain that some creative practitioners will attempt to expand the scope of this charming statute to probate, hybrid-contract actions and other actions, it by its language, presently only applies to “tort” actions. Thus, your case must have the prerequisite of a tort claim to be able to make an Offer of Settlement. [1] With regard to timing, the offer may only be made thirty (30) days after the service of the summons and complaint (Note: it does not refer to the Answer, but only service) and not less than thirty (30) days before trial. Assuming that your case has a tort claim and the offer is made within the proper timing parameters (thirty (30) days after service or thirty (30) days before trial) then it must contain the following elements: OCGA § 9-11-68(a)(1): It must be in writing and it must specifically state that it is made under the Offer of Settlement statute 9-11-68; OCGA § 9-11-68(a)(2): It must particularly identify which parties are making the offer [assuming that there are multiple parties in addition to a simply plaintiff and defendant]; it must also identify the target of the offer; OCGA § 9-11-68(a)(3): It must identify, generally, the claim or claims concerning which the Offer desired to settle; [2] OCGA § 9-11-68(a)(4): The offer must “state with particularity any relevant conditions.” What is the legal meaning of “relevant conditions?” This definition escapes this author. OCGA § 9-11-68(a)(5): The offer must state the total dollar ($) amount of the proposal. OCGA § 9-11-68(a)(6): The offer must state with particularity the amount that offeror proposes to settle any punitive damage claim; OCGA § 9-11-68(a)(7): The offer must state specifically whether it includes “attorney’s fees” and/or other expenses and whether attorney’s fees or other expenses are part of the underlying legal claim; OCGA § 9-11-68(a)(8): The offer must include a certificate of service and be served by certified or statutory overnight delivery (read that UPS or FedEx) in the form required by OCGA § 9-11-5. Under Section OCGA § 9-11-68 (c) any offer made must remain open for Thirty 30 days unless withdrawn in writing served on the Offeree prior to acceptance. [3] OCGA § 9-11-68(b). Liability for a Rejected Offer. It is somewhat difficult to state the liability for a rejected offer, however: If defendant makes an Offer and it is rejected, plaintiff must beat the offer at trial by, at least, 75% of the rejected offer or pay defendant’s attorney’s fees. If plaintiff makes an Offer and it is rejected, defendant is not liable for plaintiff’s attorney’s fees unless plaintiff beats the rejected offer by 125% of the amount of the offer. C. The Good Faith Defense The statute appears to allow the trial Court, upon motion of the non prevailing party under an Offer of Settlement, to request that the Court find that Offeror knew that Offer of Settlement was not made “in good faith”. OCGA § 9-11-68(d)(2). If the Court finds the offer was not made in good faith, then the Offer of Settlement is just considered either void or null. D. The Jury Version Homologue of OCGA § 9-15-14 OCGA § 9-11-68(e). The 1987 enactment of OCGA § 9-15-14 motion for attorney’s fees for frivolous litigation and claims was supposed to be the remedy enacted by the legislature which merged all common law claims of malicious abuse and malicious use of prosecution into one statute. However, since the enactment of OCGA § 9-15-14, we have seen the enactment of OCGA § 51-7-80 through 85 and now a jury-driven version of OCGA § 9-15-14. Under subparagraph (e) of OCGA § 9-11-68 a prevailing party at the end of a jury trial may move the Court to allow the jury (then impaneled) to hear a bifurcated discussion of whether the claims advanced by the non prevailing party were frivolous, lacked substantial justification or were not made in good faith. If the jury finds that those claims were made during trial were frivolous then and in that event the jury may proceed to award damages against the non-prevailing party pursuant to OCGA § 9-11-68(e). It is possible that a motion under subparagraph (e) may be made to the judge; however, it is clear that the General Assembly wanted to give the prevailing party the opportunity to present frivolous claims to the jury then impaneled. A prevailing party may not use both OCGA § 9-15-14 and OCGA § 9-11-68(e) for the same factual conduct by the non-prevailing party. II. GEORGIA’S OCGA § 9-11-68 OFFER OF SETTLEMENT STATUTE: “GAMING ON THE FUTURE?” OR “BETTING THE SPREAD?” A. The History of Spread Betting Betting on future outcomes is perhaps as old as human history itself. However, “spread betting” is a method of betting on a future “buy” or “sell” price to be determined at a future date based on an established known “fixed” price. That is, in spread betting, the gambler knows the current fixed price and bets according to whether he or she believes that the market will move to a fixed higher or lower price on a set future date. Spread betting, in modern times, began in earnest in 1974 when an unemployed stock broker in London by the name of Stewart Wheeler came upon the idea of trading a gold index or a gold price futures index. At that time it was illegal in the United Kingdom to own gold. Thus, he and a select group of friends met at a merchant banker’s office, the Offices of N.M. Rothschild at Newport, every week to learn the prices the Bank of England had established as that week’s benchmark price for gold. Once Stewart Wheeler and his friends knew the fixed benchmark price of gold they began a secondary market of allowing investors to bet against the next “to be set” benchmark price of gold. That is (on a simplistic basis) some investors thought that the price of gold to be set by the Bank of England would fall by ten (£10) pounds at the next benchmark whereas other investors thought it would rise by ten (£10) pounds at the next benchmark. The investors who picked correctly made money and investors who did not pick the future benchmark lost money. Thus, at least in terms of betting on what came to be known as the International Gold Index (IG Index) investors won or lost based the “accuracy,” of their bet – not on the value of the gold itself. Richardson, A., Financial Spread Betting: A Trader’s Guide, London (2010). Even though that seems like a fairly complex process to determine how to bet on the future benchmark of gold, it is far easier than attempting to make “a bet” under Georgia’s OCGA § 9-11-68 Offer of Settlement statute. In OCGA § 9-11-68, counsel for the client choosing to bet on a future benchmark does not have the benefit of the current fixed value of the case. Thus, in betting under the OCGA § 9-11-68 statute plaintiff or defendant’s counsel must first attempt to establish what they believe is the proposed “value” of the case is at the time they choose (or receive) and Offer of Settlement. Then once they come to an established determination of the present value of the case counsel (betting party) must then predict, with some certainty, the future outcome of the case post jury verdict. Not only must the predicting party bet on the future outcome, he or she must pick the successful parameter of the outcome to “win,” the bet. Pre-permitting the details of the statute, a plaintiff making an Offer of Settlement must predict a proposed Offer of Settlement by which plaintiff believes it can achieve 75% percent of its offer or suffer the full weight of defendant attorney’s fees. Conversely, a betting defendant in making an Offer of Settlement must place an offer with confidence that it believes plaintiff cannot achieve an outcome in excess of 125% percent or it bear the full weight the plaintiff’s attorney’s fees. Unlike the gold index market where (assuming the sun comes up on a day in the future) the betting parties have a known fixed benchmark from which to begin and have the certainty that a new value will be set at a future day. Neither plaintiff nor defendant have any certainty that a jury determination will ever occur. Hundreds of obstacles and motions and events may occur to prevent the outcome from coming about. Generally, that would cut against plaintiff in a betting situation. Because plaintiff would always risk the position of a defense verdict whereas a defendant making an Offer of Settlement never risks a similar outcome that a default by the defendant constitutes plaintiff’s victory. If one does not agree with the analogy that OCGA § 9-11-68 is nothing more than “betting the spread,” then how do you explain Madam Chief Justice Hunstein’s Commentary in Footnote 14 of Smith, et al. v Baptiste, et al., 287 Ga. 23, 694 S.E.2d (2010), that a prevailing party may be punished not on the strength or weakness of their claim, but rather their, “failure to see into the future so as to calculate the precise amount a factfinder may award them . . . ?” B. New Impetus for High/Low Agreements It may be that tort cases that generate substantial attorney’s fees on both plaintiff and defendant’s positions pose too must risk to employ any Offer of Settlement pursuant to OCGA § 9-11-68. That in the minds of counsel some cases will shift too much risk to a proposed jury outcome. While there appear to be no commentators that have discussed this in the context that OCGA § 9-11-68 in Georgia (because perhaps the statute is too new and was only found constitutional in 2010) a new impetus may develop for the use of “high/low, agreements in the future. The high/low agreement drafted in the face of an unpleasant OCGA § 9-11-68 Offer of Settlement would (to make any sense under this statute) have to contain the agreement that neither side would pay the other side’s attorney’s fees under a high/low outcome. That is, the parties would enter in to a garden variety high/low agreement with the caveat that they would pay the high/low agreement and each party would bear its own attorney’s fees. While this author is unaware of any particular statute that authorizes the use of high/low agreements in Georgia, they are clearly discussed and acceptable to the Courts as contracts attempting to settle litigation. See,Kuhl v. Shepherd, 226 Ga. App. 439, 487 S.E. 2d 68 (1997) referring to the enforceability of a high/low agreement presented to an arbitrator in a personal injury suit. See also, Dziwura v. Broda, 297 Ga. App. 1, 676 S.E. 2d 400 (2009), allowing for a set-off (previously denied by the trial Court) based on an enforceable high/low agreement entered while jury deliberations were occurring in DeKalb State Court. C. Potential Issues of Malpractice Associated with OCGA § 9-11-68 OCGA § 9-11-68 Offer of Settlement sets out a new legal malpractice exposure for attorneys practicing in Georgia and representing clients with tort based claims. The risk of legal malpractice seems, unfortunately, to be more heavily weighted toward plaintiffs counsel’s error than defense counsel error. Consider the potential hypothetical where there is a million dollars at risk in a lawsuit. As the case matures through two years of pretrial discovery and motions both the plaintiff’s attorney and defense attorney have run up $200,000.00 of attorney’s fees respectively. Assume that offers have been made and refused on behalf of plaintiff and defendant. Since plaintiff is required to achieve at least 75% percent plus $1.00 of its demand or suffer defendant’s attorney’s fees, plaintiff may be at risk for any type of adverse dismissal causally related to plaintiff’s counsel’s error. It would appear (unless we missed something in this analysis) that defendant’s counsel would not be subject to the same risk. Possible Coming Attractions to Georgia. There is a legal malpractice case in Connecticut that turned on, partially, a legal malpractice suit against the attorney for failing to assert an “Offer of Judgment,” in Federal Court in Connecticut pursuant to the Connecticut Offer of Judgment Rule, Conn. Gen. Stat. Ann. § 52-192(a). Connecticut law (which is substantive law to be applied in federal court) allowed the recovery of attorney’s fees. Since the Connecticut lawyer forgot to make the demand and did not recover the extensive attorney’s fees expended, he got sued. The client won the legal malpractice case and the lawyer ended up owning the client in excess of the phantom of the $200,000 of fees not collected in the underlying federal case. Kregos v. Stone, 88 Conn.App. 459, 872 A.2d 901 (2005). D. An Agreement Not to Use an OCGA § 9-11-68 Offer of Settlement It is unclear where the future of the settlement statutes such as Offer of Settlement will develop in the future in Georgia. As is shown, infra, in the discussion on Offers of Judgment presented at the Symposium at Mercer Law School in 2006, the use of offers of judgment may develop into “[A] game of mutual assured destruction (“MAD”).” The author, Yoon, cites: Wolfgang, K. H. Panofsky, The Mutual Hostage Relationship Between Russia And America, 52 Foreign Affairs 109 (1973). 57 Mercer L. Rev. 825, 828 (2006). If the parties in a significant tort based claim are aware that their use of the Georgia Offer of Settlement rule will become a game of Mutually Assured Destruction unrelated to the merits of the case, it is possible that sane, forthright and able counsel may simply enter into an agreement pre-litigation to not use OCGA § 9 11 68 in any portion of the proceeding to be filed. E. Reinventing the E&O Paradigm to Mitigate the Effects of OCGA § 9-11-68 Like the existing risk of legal malpractice that is presently insured by a handful of E&O carriers in Georgia, OCGA § 9-11-68 the Offer of Settlement rule injects yet another risk into the practice of law. While there is no particular insurance policy that this author knows of that would particularly or specifically bear the risk associated with OCGA § 9-11-68, it may be that some insurance company will offer some form of coverage against this risk. Or, it may be that this risk is simply an inherent risk of any current lawyer’s E&O policy. However, the risk of loss or making an incorrect “bet” on the future is probably not due to the “negligence of counsel.” It is more akin to the inability of human beings to predict the future outcome of a jury verdict within the parameters established by the Georgia General Assembly (75 % to 125 % of the jury verdict outcome). Whether this potential risk is currently covered by E&O carriers or whether a secondary market will develop as reinsurance on top of existing E&O carriers is something that the future will reveal. F. Shifting the Risk of OCGA § 9-11-68 to the Client For the first time post the Supreme Court’s finding of OCGA § 9-11-68 both constitutional and enforceable in Smith, et al. v. Baptiste, et al.,287 Ga. 23, 694 S.E. 2d 83 (2010), this author’s firm has included a clause in its firm’s fee agreement specifically shifting the risk of an adverse outcome under OCGA § 9-11-68 to the client. It would appear that both under the State Bar Rules and current extant case law in Georgia, a law firm is allowed to shift the risk of an adverse outcome of an OCGA § 9 11 68 Offer of Settlement as long as all of the parameters are disclosed to the client and (the firm additionally) shifts the burden of an adverse outcome to the client. While this does nothing to mitigate the potential exposure to the underlying clients with regard to OCGA § 9-11-68, it does, perhaps, limit counsel’s exposure to the effects of OCGA § 9-11-68. III. RECENT GEORGIA CASES INTERPRETING OCGA § 9-11-68 A. Small Jury Verdict for Plaintiff Equals Judgment for the Defendant Abraham v. Hannah, Court of Appeals of Georgia Fourth Division, Case No. A10A0902 (November 9, 2010), is a case that has a truly shocking outcome under OCGA Code § 9-11-68. While Abraham was reversed on appeal because the plaintiff did not have notice of the OCGA § 9-11-68 hearing, it shows how a plaintiff may win and then lose under OCGA § 9-11-68. Abraham (Plaintiff) recovered $850.00 in a jury verdict (this author admits that it’s in a tiny sum); however, prior to the jury verdict Hannah (defendant) had offered $2,500.00 to Abraham to settle the case. After the jury verdict in Abraham’s favor of $850.00, the trial Court held a hearing and granted attorney’s fees, pursuant to OCGA § 9-11-68, to Hannah in the amount of $2,425.00. Once the jury verdict of $850.00 was subtracted from that amount the defendant (though the defendant lost at trial) had a judgment in its favor against the successful plaintiff, Abraham, of $1,575.00. While this case was reversed for lack of notice, it displays in stark contrast the painful reality of an unaccepted offer in the face of a small jury verdict. B. Punitive Damages Count Toward the 75% – 125% In Wildcat Cliffs Builders, LLC v. Hagwood, 229 Ga. App. 244, 663 S.E.2d 818 (2008), (This case was decided under prior law), plaintiff in the underlying action, Hagwood, recovered a $90,000.00 compensatory award, $100,000.00 punitive damage award and $14,688.56 in OCGA § 9-11-68 attorney’s fees. The facts most favorable to Hagwood showed that Wild Cliffs Builders knowingly encroached upon Hagwood’s property, built a retaining wall, refused to remove it and then offered Hagwood only $10,000.00 in an effort to purchase an easement and a complete release of liability. A jury awarded to Hagwood the amounts stated above. Though decided under prior law, an interesting nuance out of the Wildwood Builders case is that defendant/appellant’s took the position on appeal that punitive damages should not be counted in calculating the 9-11-68 award. Although it is unclear whether the Georgia Court of Appeals simply said that they would or would not consider the inclusion of punitive damages, they held that it was “moot” once they affirmed the punitive damage award. Wildcat Cliffs, at 822. In sum, the evidence showed that Wildcat had no interest in remedying or lessening the run-off problem or compensating Hagwood for the property damage he had sustained. Rather, it was amenable only to paying Hagwood for an easement and a release from all liability arising from the retaining walls it had constructed on Hagwood’s property. The foregoing evidence was sufficient to authorize the jury’s conclusion that, after it learned of its trespass onto Hagwood’s property and its creation of a continuing nuisance thereon, Wildcat acted with a conscious indifference to the consequences of its conduct. See, Tyler v. Lincoln, 272 Ga. 118, 120-121(1), 527 S.E.2d 180 (2000); Sumitomo Corp. of America v. Deal, 256 Ga.App. 703, 706-707(2), 569 S.E.2d 608 (2002);Baumann v. Snider, 243 Ga.App. 526, 530-531, 532 S.E.2d 468 (2000). Hagwood requested and received attorney fees and expenses pursuant to OCGA § 9-11-68(b)(2). Prior to trial, Hagwood offered to settle the case for $110,000. After the jury awarded him a total of $190,000 in damages, he was, therefore, statutorily entitled to recover his attorney fees and expenses. On appeal, Wildcat argued that this award must be overturned, because, in the absence of the punitive damages award, Hagwood did not recover greater than 125% percent of his Offer of Settlement. The Court of Appeals held that since it sustained the award of punitive damages, that argument is moot. It affirmed the entry of judgment against Wildcat in favor of Hagwood, including the award of $100,000 in punitive damages and $14,688.56 in attorney fees and expenses. C. A Dismissal Without Prejudice Did Not Trigger the Award In McKesson Corporation, et al. v. Green, et al., 286 Ga. App. 110, 648 S.E.2d 457 (2007), (decided under prior law), the Court of Appeals declined to award OCGA § 9-11-68 attorney’s fees where a demand had been made but plaintiff took a dismissal without prejudice (OCGA § 9-11-41) prior to proceeding to trial. While the McKesson case turned on complex issues associated with stockholdings, RICO allegations concerning stockholdings and plaintiff’s apparent lack of an expert immediately prior to trial, the OCGA § 9 11-68 issue was resolved by the Court of Appeals in that a voluntary dismissal does not constitute the type of judgment or final judgment which will invoke liability under the OCGA § 9-11-68 statute. The Court of Appeals wrote in that regard as follows: McKesson contends that the trial Court erred in denying its motion for attorney’s fees under OCGA § 9-11-68(b)(1). That code section provides that a defendant whose settlement offer is rejected shall recover attorney’s fees and expenses of litigation “if the final judgment is one of no liability or the final judgment obtained by the plaintiff is less than 75 percent of such Offer of Settlement.” The trial Court in this case entered no final judgment within the meaning of the statute, and therefore did not err in denying this motion. A right to dismiss voluntarily without prejudice would be meaningless if doing so would trigger the payment of defendant’s attorney’s fees. Without explicit language establishing that the legislature intended to excise a plaintiff’s right to dismiss in this manner, this Court will not engraft such an intention into the statute. McKesson, at 462. D. OCGA § 9-11-68 found Constitutional Smith et al. v. Baptiste, et al., 287 Ga. 23, 694 S.E.2d 83 (2010), stands for the proposition that the Supreme Court of Georgia found OCGA § 9-11-68 to be constitutional. The Baptistes filed a complaint for damages against Chuck Smith and the radio station WQXI 790 AM after WQXI broadcast defamatory statements about the Baptistes. While the case was pending and pursuant to OCGA § 9-11-68(a), Smith and WQXI offered to settle the case for $5,000.00. The Baptistes did not respond to the offer which was deemed a rejection under OCGA § 9-11-68(c). The Court granted summary judgment. Smith and WQXI moved for attorney’s fees pursuant to OCGA § 9-11-68(b)(1); however, after a hearing, the trial Court denied Smith and WQXI’s motion for attorney’s fees and found that the scheme enacted under OCGA § 9-11-68 was unconstitutional and violated various provisions of the Georgia constitution. In the Baptiste Opinion, Mr. Justice Carley sketched out the background of OCGA § 9-11-68. He wrote that OCGA § 9-11-68 was enacted as part of the Tort Reform Act of 2005. The scheme enacted under OCGA § 9-11-68(a) specifies that in a tort claim either party may serve on the other party a written demand or offer to settle that tort claim. If the settlement demand or offer is rejected, that party may be entitled to recover attorney’s fees pursuant to OCGA § 9-11-68(b). Mr. Justice Carley opined that the Court previously found that OCGA § 9-11-68 may not be applied retroactively in Georgia. The Georgia Supreme Court overturned the trial Court on the finding that OCGA § 9-11-68 violated the “uniformity” clause of the Georgia constitution. The trial Court apparently found that OCGA § 9-11-68 was non-uniform in that it applied only to tort cases and not to civil cases including contract claims or other claims. That is, because it did not apply to the entire class of civil cases but only to tort claims inside civil cases it was therefore (in the trial Court’s opinion) unconstitutional. The Georgia Supreme Court wrote that “our state Constitution only requires a law to have uniform operation across all laws.” Baptiste, at 88. Because the Supreme Court found that OCGA § 9-11-68 applied uniformly across the state to all similarly situated tort claims, it was a general law and was therefore uniform across those types of claims. It was therefore constitutional. Id. IV. DO OFFERS OF SETTLEMENT AND OFFERS OF JUDGMENT REDUCE LITIGATION? A. Empirical Study of New Jersey’s Offer of Judgment Rule 4:58 While Georgia statute, OCGA § 9-11-68, is too new to provide any statistical review concerning whether the Offer of Settlement statute will, in fact, reduce litigation some analogies may be drawn from other states. In a detailed empirical study of the impact of an Offer of Settlement and an Offer of Judgment statute on the outcome of litigation, the results were mixed. Albert Yoon professor at Northwestern Law School and Tom Baker, professor University of Connecticut Law School, did an extremely detailed empirical study of the impact of New Jersey Court Rule 4.58 (“Rule 4:58”) on litigation. [4] While the New Jersey Offer of Judgment Rule had been effect since 1971, the New Jersey Legislature put teeth into it in 1994. Professor Yoon and Thomas’ empirical study showed that Rule 4:58 appeared to reduce tort litigation by approximately 7% percent. That is, on a statistical basis with New Jersey automobile tort cases used as a baseline from the 1994 changes in the New Jersey Court Rule 4:58 resulted in an approximate differential of 7% percent shorting in time to resolution. Albert Yoon and Tom Baker, Offer of Judgment Rules and Civil Litigation: An Empirical Study of Automobile Litigation in the East, 59 Vand. L. Rev., 155 (2006). In their empirical study, holding all other variables equal, New Jersey Court Rule 4:58 appears to have had a discernible effect on insurance-based litigation. Id., at 185. The empirical study showed that the New Jersey the Offer of Judgment rule reduced the length of litigation by approximately 7% percent (2.3 months out of an average of 34.3 months) and caused an approximate 20% percent reduction to New Jersey insurers own counsel’s attorney fees. Id., at 186. Yoon and Thomas indicated that no data was available to base a control in a reduction of potential plaintiff’s attorney fees, because there was no central reporting for plaintiff’s fees. Curiously, while the data show that there was a small decrease in the length of a tort case in New Jersey and a 20% percent reduction in defense fees, a review of the numerical dollar amount of damage awards showed no statistical change. Yoon and Thomas wrote that while “both [length of time and reduction of insurance counsel fees] were statistically significant at the same time, damage awards, which had a modest relative decrease in New Jersey, did not change in any significant amount.” Id. In a symposium that Professor Yoon participated in at Mercer Law School in 2006 he indicated to the symposium panel that the results reviewed from New Jersey “while statistically significant, were modest.” One interpretation is that revised Rule 4:58 expedites the bargaining not during the initial stages, but later on, typically after the parties have invested in discovery.” Symposium on FRCP 68: Lessons from New Jersey [New Jersey Court Rule 4:58] by Albert Yoon. 57 Mercer L. Rev. 825 (2006). In the same symposium, Professor Yoon, discusses that his findings led him to the conclusion that rules such as Offer of Settlement and Offer of Judgment that shift large burden of attorney’s fees end up forcing the parties to engage in a game of “mutual assured destruction (“MAD”).Id., at 828. He writes of his study in New Jersey (at the symposium in Macon): How does Rule 4:58 expedite the time to resolution? Unfortunately, the insurer data does not reliably tell us the manner in which the claim resolved (e.g., settlement, dismissal, or trial). We can therefore only hypothesize from the known results. The average claim took nearly three years to resolve, and revised Rule 4:58 shortened that by roughly 2.3 months, or approximately seven percent. The reduction, while statistically significant, was modest. One interpretation is that revised Rule 4:58 expedites the bargaining not during the initial stages, but later on, typically after the parties have invested in discovery. Our preliminary hypothesis is that Rule 4:58 forces the parties to engage in a game of mutual assured destruction (“MAD”). Here is the intuition: in most civil litigation, the incurring of attorney fees provides positive but diminishing returns to the actual outcome. At some point, the net expected return is negative (e.g., when the amount the plaintiff would spend on attorney fees exceeds the anticipated damage award). In the absence of an offer-of-judgment rule, litigants cannot convince their adversaries that they will spend an amount on attorney fees that exceeds the anticipated damage award. It is irrational, and therefore, not a credible commitment. However, with an offer-of-judgment rule, this commitment to greater attorney expenditures now becomes credible: upon making a pre-trial offer, offerors may shift their attorney fees to the offerees if fee-shifting occurs (e.g., if the outcome at trial is less favorable than the pre-trial offer). Because Rule 4:58 allows both sides to make repeated offers, litigants could engage in an escalating series of commitments to spend higher amounts on attorney fees to prevail at trial by invoking the fee-shifting. At the same time, litigants realize that such behavior, if carried through, would negatively affect both sides. Therefore, they decide it is better to resolve their dispute prior to trial. As with MAD in the Cold War context, the game does not occur: each side elects not to exercise the “nuclear” option of going to trial. Id. Thus, what are we in Georgia to derive from many years of statistical evidence in New Jersey with regard to this statute? The New Jersey Rule has had apparently a modest effect on the length of time a litigation stays in court, a 20% percent reduction in auto insurance fees for the defense in New Jersey and “no effect” on the dollar damage claim rendered. However, the parties involved in each and every one of the New Jersey actions now had to determine whether their “bet” on the outcome was within 20% percent of the final money judgment (80% to 120%), or the losing party paid the other side of the Offer of Judgment’s reasonable attorney’s fees. In Georgia, litigants will now be required to predict the final jury outcome within a range of 75% to 125% accuracy or risk paying the opponents fees– not because one did not prevail — but because one did not “beat the spread.” It seems to this author that we have injected a great deal of uncertainty into the judicial process for a statistically insignificant movement of timing, legal fees and outcome of the litigation. B. Nevada’s Offer of Judgment Rule: A Descent Into Gaming If you ever wonder how far the outer limits of an Offer of Judgment statute are, you may need look no further than Nevada’s Offer of Judgment rule. Nevada Revised Statute NRS 17.115 and Nevada Rules of Civil Procedure (“NRCP”) 68. [5] While a copy of NRS 17.115 is displayed the endnotes, suffice it to say it gives new meaning to “gaming” litigation. Our statute (Georgia) may seem simplistic in relation to the litigation and court opinions that have arisen simply attempting to interpret Nevada’s Offer of Judgment Rule. In drafting an Offer of Judgment in Nevada a party can make a joint offer; a party can include or exclude pre-judgment interest and costs, and a party can include or exclude attorney’s fees in the offer. The Offer must be served more than 10 days before trial. However, Nevada has a special rule on serving offers at different times before bifurcated trials. Plaintiffs and defendants both get to challenge the timing of the offer; the get to challenge whether the offers were brought in “good faith” or whether the offer was “grossly unreasonable” or presented in bad faith; and, apparently, the trial court in Nevada get to pass upon, by motion, whether the rejection of an offer was grossly unreasonable or done in bad faith. This author is offended that a court would pass on whether our client “should have,” accepted or rejected an offer. In Nevada, the court has to pass on whether it finds that attorney’s fees were included or not included properly in the offer. The court must determine whether to award pre offer costs and interest or to not award them. The court must pass on whether the proper party made an offer to the proper defendant for third party defense. The prevailing party in an Offer of Judgment may proceed to take his or her judgment 20 days after the entry of a final order in the Nevada District Court (the District Court is a plenary court similar to our Superior Court). However, no fees on an Offer of Judgment or Offer of Settlement run (in Georgia) through our Georgia Court of Appeals or Georgia Supreme Court timeframe. That is not correct in Nevada. In Nevada the non prevailing party on an Offer of Settlement not only bears the burden of the lost case and the potential attorney’s fees through the end of the District Court case, that party must prevail or win on appeal or the appellate fees are automatically added to the Offer of Settlement in the District Court case. Apparently a cottage industry of local practitioners has arisen to provide advice on how to make “successive offers of judgment.” In Nevada a successive offer will defeat a prior offer and knock out any fees between the prior offer and a successive offer. So, an informal method of preserving the initial offer has cropped up in Nevada. Litigators will make an initial Offer of Judgment in writing and memorialize the first Offer of Judgment. They will simply then dance around their other settlement negotiations without “memorializing” them in order not to revoke the very first offer in the case. Echols, Michas and Fox, Erik W., Offers of Judgment in Nevada: Best Friends Or Worst Enemy?, Nevada Lawyer, Nov. 2010 at 25 – 31. V. FEDERAL RULE OF CIVIL PROCEDURE 68: OFFER OF JUDGMENT The Federal Rules of Civil Procedure replaced the Field Code on September 16, 1938. Fed. R. Civ. P. 68 or Rule 68, “Offer of Judgment,” appeared in its near current form on December 27, 1946. Originally Rule 68 required that a defendant make an Offer of Judgment at least ten (10) days before the date set for trial. In a revamp to the entire timing sequence of all Federal Rules, the timing in Rule 68 was changed in sub paragraph (a) to require that an Offer of Judgment must be made at least “14 days before the date set for trial.” An Offer of Judgment must now be served at least fourteen (14) days before the date set for trial. In a case where liability has already been determined but the extent of liability must still be determined by the trial, the party at risk for liability must serve an Offer of Judgment at least fourteen (14) days before the hearing to determine the extent of the offering party’s liability. Additionally, the change in the Rule now allows fourteen (14) days for the party receiving the offer to accept the Offer of Judgment by serving a written notice of acceptance. Silverman and DeFranco, 2009 Amendments to Federal Rules of Civil Procedure, The Checkoff, Florida Bar Labor & Employment Law Section, Vol. 69, No. 3 (January 2010). A. The Rule Fed. R. Civ. P. 68 Offer of Judgment Rule reads as follows: Title VIII. Provisional And Final Remedies As amended through December 1, 2010 Rule 68. Offer of Judgment (a) Making An Offer; Judgment On An Accepted Offer. At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued. If, within 14 days after being served, the opposing party serves written notice accepting the offer, either party may then file the offer and notice of acceptance, plus proof of service. The clerk must then enter judgment. (b) Unaccepted Offer. An unaccepted offer is considered withdrawn, but it does not preclude a later offer. Evidence of an unaccepted offer is not admissible except in a proceeding to determine costs. (c) Offer After Liability Is Determined. When one party’s liability to another has been determined but the extent of liability remains to be determined by further proceedings, the party held liable may make an Offer of Judgment. It must be served within a reasonable time-but at least 14 days-before the date set for a hearing to determine the extent of liability. (d) Paying Costs After An Unaccepted Offer. If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made. History. As amended Dec. 27, 1946, eff. Mar. 19, 1948; Feb. 28, 1966, eff. July 1, 1966; Mar. 2, 1987, eff. Aug. 1, 1987; Apr. 30, 2007, eff. Dec. 1, 2007; Mar. 26, 2009, eff. Dec. 1, 2009. B. The Underlying Federal Statute Must Authorize Fees While this author is somewhat reticent to comment on a United States Supreme Court case that is six (6) pages in the majority and fifty (50) some pages in the Dissent, I will wade into that pond. The 1985 case ofMarek v. Estate of Chesny, 473 U.S. 1, 105 S.Ct. 3012, 87 L.Ed.2d 1 (1985), provides a helpful overview of the workings of Fed. R. Civ. P. 68. Marek, supra, concerned the application of an Offer of Judgment where the underlying federal statute provided for an award of attorney’s fees. That analysis differs with the Georgia Offer of Settlement statute because the Georgia statute applies attorney’s fees to any tort case, whereas the Federal Rule does not. In Marek, supra, Petitioner police officers (Marek) answered a domestic disturbance and unfortunately shot and killed Chesny, respondent’s, adult son. Chesny as Administrator for his son’s estate filed suit in federal district court (Chicago, Illinois) under 42 U.S.C. § 1983 and Illinois state law. Prior to trial, the police officers offered $100,000.00 and Chesny declined to accept it. At trial, Chesny recovered approximately $60,000.00 which was $40,000.00 less than the Offer of Judgment made by the police officers. Since Chesny prevailed at trial, his attorneys filed a request for fees pursuant to 42 U.S.C. § 1988 [Proceeding in Vindication of civil rights which provides for an allowance of attorney’s fees to the successful party]. It was denied by the Illinois Federal District Court but granted by the 7th Circuit. Chesny v. Marek, 720 F.2d 474 (7th Cir. 1983). The Police officers then petitioned United States Supreme Court to determine whether they were required to pay attorney’s fees (couched as “costs” under Rule 68) for the period of time after Chesny rejected the Offer. The Seventh Circuit found that under 42 U.S.C. § 1988 the police officers were required to pay the prevailing attorney’s fees. 720 F.2d 480. The United States Supreme Court in Marek, 473 U.S. 1, Chief Justice Burger, reversed and indicated that the attorney’s fees were not part of the costs after the Offer. 473 U.S. at 9 – 12. While the mechanics of Rule 68 are obvious to any reasonably skilled practitioner employing them, actually obtaining an award granting attorney’s fees is another matter. The dissent in Marek, 473 U.S. 14, is interesting in that it provides a laundry list of 63 federal statutes that specifically include attorney’s fees in the Rule 68 scheme for the collection of “costs.” Marek, 473 U.S. at 44 48. [6] Additionally, Marek, 473 U.S. at 48-51, provides, in the dissent, a list of 49 federal statutes that specifically exclude attorney’s fees as part of the costs. [7] Thus, while initially one might view the word “costs” as filing fees and perhaps expenses and deposition fees, it may very well include “attorney’s fees” under the particular federal statute. Unlike the Georgia scheme where all reasonable attorney’s fees would be included in an OCGA § 9-11-68 Offer of Settlement, the federal Rules require the practitioner to look to the specific federal statute and determine whether fees are available to be shifted pursuant to that statute and then apply that fee shifting mechanism through Rule 68. C. Federal (Georgia) Rule 68 Cases The number of cases interpreting Fed. R. Civ. P. 68 in the 11th Circuit is certainly not expansive. Unless the research has failed us, there appear to only be 12 cases cited from 1983 to the present focusing on the meaning of Fed. R. Civ. P. 68. A search for “Offer of Settlement,” in the 11th Circuit and in the F. Supp. will take the reader, generally, to an interpretation of the Florida statute. The federal court has found that the Florida Offer of Settlement statute, is substantive law and may be applied in federal court. Menchise v. Senterfitt, et al., 532 F.3d 1146 (11th Cir. 2008). The number of Florida citations outnumber Georgia citations (and this is a rule of thumb) approximately 20 to 1. The Florida statute, while not particularly relevant here, is Florida Statute § 768.79 (Offer of Settlement and Demand for Judgment) and its companion rule Florida Rule of Civil Procedure 1.442 (Proposals for Settlement). That statute and its companion civil rule provide the mechanism in Florida for obtaining legal fees and costs when a party in Florida rejects a formal offer to settle the case. Florida Statute § 768.79 is a homegrown minefield. If you or your client find yourself on either side of a Florida offer for judgment, this author strongly suggest you retain competent counsel familiar with presenting and defending Offers of Judgment in Florida. 1. Ekeberg v. Donny Shook (2010) The language and terms of a federal offer are crucial. In Ekeberg v. Donny Shook-Brown and Stanley Richardson, Defendants the United States District Court for the Northern District of Georgia – Gainesville Division, Civil Action File No. 2:08 CV 0195 RWS (April 15, 2010), Hon. Richard W. Story struggled with an issue on which there was no 11th Circuit authority. Ekeberg, supra, concerned a 42 USC § 1983 allegation of a prisoner who alleged she was strip searched and fondled in the Towns County Jail. Toward the end of discovery, the defendants made a Fed. R. Civ. P. 68 Offer of Settlement. The offer stated as follows: COMES NOW the defendants, and, pursuant to Rule 68 of the Federal Rules of Civil Procedure, hereby offer to allow judgment to be taken by plaintiff in the amount of $10,500.00 to discharge all claims against all defendants. This offer is in compromise of strongly disputed and doubtful claims.” Ekeberg, Order of April 15, 2010 at 1. Apparently, the offer was mailed regular mail during a period of time that plaintiff was engaged in a day by day extensive discovery involving depositions. The economic difference in attorney’s fees between the date the offer was mailed and the date plaintiff eventually accepted the offer was many tens of thousands of dollars of additional attorney’s time. Judge Story struggled with the ambiguity under Fed. R. Civ. P. 68 concerning whether the offer made by the defendants stopped the running of all costs and fees or whether the attorney’s fees and costs (which were allowed under 42 U.S.C. §§1983 and 1988) continued through the date of the acceptance of the offer. Judge Story finally resolved this in favor of the plaintiff by providing reference to the old maxim that, “the drafter of the offer was the master of his offer.” Since it was ambiguous concerning whether costs and attorney’s fees would be extended through the date of acceptance, he found against the drafter concerning the ambiguity. Id. 2. Utility Automation (2002) The specific language included in the drafting of the offer is crucial under Fed. R. Civ. P. 68. In Utility Automation 2000, Inc., v. Choctawhatchee Electric Cooperative, Inc., et al., 298 F.3d 1238 (11th Cir. 2002), the 11th Circuit appears to have allowed an additional $61,000.00 of attorney’s fees on top of an accepted Offer of Settlement under Fed. R. Civ. P. 68 for only $45,000.00. [Note: The additional $61,000.00 was remanded for a determination of whether it was reasonable and the record does not show what the District Court did on remand.] In Utility Automation 2000, (the organization, “UA 2000”) sued Choctawhatchee Electric Cooperative for misappropriation of trade secrets, breach of contract and intentional interference with business and contractual relationships. Near trial, defendants made a Fed. R. Civ. P. 68 Offer of Settlement to UA 2000. It stated: Defendants … hereby make the following Offer of Settlement pursuant to Fed. R. Civ. P. 68; that defendants shall pay plaintiff [UA 2000] the sum of $45,000.00 and 00/$100.00 ($45,000.00) with costs accrued, and the defendant, Chelco Services, Inc., shall refrain from competing with the plaintiff for a period of thirty (30) days from the date of acceptance of this offer. 298 F.3d 1239, 1240. UA 2000 accepted the offer and then subsequent to the acceptance brought a motion for its attorney’s fees on top of the $45,000.00. Its theory was that the $45,000.00 constituted payment for a violation of the Trade Secret Act and that it was entitled to fees as the “prevailing party” for the $61,000.00 it took to get the $45,000.00 award. Defendant Choctawhatchee Electric Cooperative took the position that the $45,000.00 included the fees. The 11th Circuit said the issue was ambiguous and struggled to determine whether these were or were not included. The 11th Circuit’s analysis is lengthy, however it found that the Defendants’ offer did not preclude a review of additional fees to the Plaintiff because the offer didn’t specifically prohibit it. The 11th Circuit found that it had the authority to review it under Marek v. Estate of Chesny, supra, but it really didn’t want to wade into that issue. Finally, it found that the Trade Secret Act specifically allowed for attorney’s fees by statute and that Plaintiff had successfully pled for that relief. It further found that by the offer of the $45,000.00 by defendant and acceptance of the $45,000.00 by Plaintiff, Plaintiff became the “prevailing party” under the Trade Secret Act. Therefore, the 11th Circuit found that the additional attorney’s fees or $61,000.00 of attorney’s fees necessary to obtain the award should be awarded. While the “reasonableness,” was remanded to the District Court, the 11th Circuit wrote in warning to all practitioners who draft Fed. R. Civ. P. 68 offers of judgment the following: We note, as have other Courts, that defendants can easily preempt the dispute exemplified here, as well as others, by clearly stating their intent in the Offer of Settlement. We echo the 7th Circuit in cautioning that ‘[t] the prudent defendant … will mention [attorney's fees] explicitly, in order to head off the type of appeal that we are wrestling with here. Nordby, v. Anchor Hocking Packaging Company, 199 F.3d 390, 393 (7th Cir. 1999). Lastly, we have not had occasion to determine whether the amount UA 2000 requests for attorney’s fees – approximately $61,000.00 – is in fact a reasonable sum. Therefore, in remanding to the District Court, we do so with the expectation the District Court will determine a suitable amount of attorney’s fees. 298 F.3d. 1240. Both Ekeberg, being only a district order, and Utility Automation 2000, surpa, strongly caution against the drafting of an ambiguous offer in federal Court. If the practitioner wishes to make an offer that includes attorney’s fees and costs in the Fed. R. Civ. P. 68 offer, the United States District Court for the Northern District of Georgia and the 11th Circuit strongly encourage the practitioner to state with specificity the inclusion or non inclusion of attorney’s fees in its offer. 3. OCGA § 9 11 68 is Substantive Law in Federal Court Wheatley v. Moe’s Southwest Grill, LLC, et al. 580 F. Supp. 2d 1324 (N.D. Ga. 2008), sheds light on some of the difficulties of the enforcement of OCGA § 9 11 68 (the Georgia Offer of Settlement) in Federal Court. While many parts of this long and messy case go beyond a simple discussion of OCGA § 9 11 68, it turned on an offer of 50,000 shares of stock in Moe’s and related corporations [Mama Fu's Noodle House, Inc. and Raving Brands Holding, Inc.] when Plaintiff, Wheatley, was promoted from employee to company vice president with an equity share. When Wheatley resigned from the corporation, she sought the 50,000 shares by written certificate. Because of the lack of writing and ambiguity, litigation arose concerning whether the shares had to be issued. An award of OCGA § 9 11 68 attorney’s fees may not be had for the attorney’s fees incurred from an appeal from the District Court through the 11th Circuit and on remittitur back to the District Court. Attorneys for Moe’s Southwest moved for $49,000.00 of attorney’s fees incurred while the case was appealed from the District Court through the 11th Circuit and back on remand to District Court. The United States District Court for the Northern District of Georgia, the Honorable Timothy C. Batten, Sr., gave a short shrift to the request for attorney’s fees on appeal in federal Court and wrote: “The motion that seeks attorney’s fees and expenses of litigation incurred on appeal is meritless. The statute expressly limits the award of attorney’s fees and expenses to those incurred from the date of the rejection of the Offer of Settlement to the date of entry of judgment … ” 580 F. Supp. 2d 1326. It is unclear, from Wheatley and similar cases, how practitioners are to deal with cases that are a combination of contract claims, tort claims and hybrid claims. In Wheatley, the Plaintiffs contended they were suing on contract for the 50,000 shares. The defendants contended that it was a meritless tort suit, suit on breach of fiduciary duties, conversion and other counts. The federal Court struggled with the question concerning whether an OCGA § 9 11 68 Offer of Settlement could properly be made to a case that had some contract claims buried in amongst tort claims. 580 F. Supp. 2d 1325 1327. While Judge Batten did not resolve this area of the law, he found that the statute applied to any suit that involved a “tort claim” in the action. Thus, perhaps reading between the lines, one can make an Offer of Settlement if any portion of Plaintiff’s complaint includes a well-defined “tort” claim. 580 F. Supp. 2d 1327. Perhaps the most important determination out of Wheatley, supra, is that the Court specifically and unequivocally held that OCGA § 9 11 68 offers apply as substantive law in federal Court. While the Plaintiff argued that the Georgia statute was merely procedural and could not be applied in federal Court, the Court found otherwise. Citing, Erie Railroad Company v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L. Ed. 1188 (1938) and its progeny, the Court found that it could (and perhaps was obliged to) apply state substantive law on this particular issue. Id. The Wheatley case goes on to show that it certified three (3) questions to the Georgia Supreme Court. Research reveals that while the record was transferred to the Georgia Supreme Court and the issues were placed before the Supreme Court, the parties settled their claims and the Supreme Court allowed the case to return to the District Court on remittitur without answering the certified questions posed in Wheatley. See, the Order of the Supreme Court of Georgia dated April 28, 2009 and Wheatley, returning the file to the United States District Court for the Northern District of Georgia without an answer. Document 173 in United States District Court Northern District of Georgia Case. No. 1:05 CV 02174 TCB. VI. CONCLUSION The Georgia Offer of Settlement statute OCGA § 9-11-68 is a powerful tool to shift an opponent off the status quo and toward a resolution of the case. This paper has shown that the drafter of the Offer must carefully follow the statute. A plaintiff must recover more than 75% percent of a rejected offer or bear the defendant’s fees and a defendant must be confident that a plaintiff can recover no more than 125% percent of a rejected offer or risk paying plaintiff’s counsel’s fees. This paper has reviewed the theoretical aspects concerning whether the Offer of Settlement statute is simply “betting the line,” and has reviewed its potential for legal malpractice if an Offer is not made or not employed correctly. It has reviewed the recent finding of constitutionality of the statute and looked at additional recent cases. This paper has also reviewed the similar Offer of Judgment rule in federal court: Fed. R. Civ. P. 68. It has contrasted the Georgia rule to the Federal Rule and shown that while attorney’s fees may be recovered in federal court the recovery in federal court may turn on the federal statute in litigation in federal court as opposed to merely using the federal Offer of Judgment. Finally, the paper has shown that the Georgia Offer of Settlement has been determined to be substantive law in the federal court and it has reminded practitioners of the importance of being accurate in making a federal Offer of Judgment or having that Offer declared meaningless for its vagueness. Hugh Wood, Esq. Wood & Meredith, LLP 3756 LaVista Road Suite 250 Atlanta (Tucker), GA 30084 http://www.woodandmeredith.com/ hwood@woodandmeredith.com http://www.hughwood.blogspot.com/ twitter: USALawyer_ Phone: 404-633-4100 Fax: 404-633-0068 &&& ENDNOTES [1] In 1989 the Georgia General Assembly, in its wisdom, gave us OCGA §§ 51-7-80 through 51-7-85. In that abusive litigation/malicious prosecution scheme we, as practitioners, had to stay within the confines of two paragraphs of OCGA § 51 7 84 to write a cogent and enforceable notice by certified mail to be able to enforce a claim after the end of the suit. The General Assembly, in its wisdom, has now given us twenty-three (23) paragraphs under OCGA § 9-11-68 to make an appropriate Offer of Settlement during a case. [2] What if the Complaint, is part in tort and part in contract? May one submit an OCGA § 9-11-68 Offer of Settlement for the tort portions of the action? The United States District Court, Northern District of Georgia struggled with this issue in Wheatley v. Moe’s Southwest Grill, LLC, et al., 580 Fed. Supp. 2d 1324 (2008). Unfortunately, there is no clear answer from that case. The Federal Court certified the question to the Georgia Supreme Court; however, the case then settled without an answer. Wheatly, supra, contains and interesting “chart,” delineating “tort,” causes of action from “contract,” causes of action. 586 Supp. 2d 1324, 1326. This author’s personal opinion, though is that this expands litigation and makes the offers unwieldy and unfair, but “yes,” one can make Offers of Settlement to the tort claims (inside) a larger complaint or petition. [3] There are substantial nuances in the concerning the making of an Offer of Settlement with regard to a counter-offer and nuances with regard the effect of the withdrawal of an Offer on the collection of on attorney’s fees. These are beyond the scope of this article. [4] New Jersey Court Rule 4:58-1. Time and Manner of Making and Accepting Offer (a) Except in a matrimonial action, any party may, at any time more than 20 days before the actual trial date, serve one adverse party, without prejudice, and file with the court, an offer to take a monetary judgment in the offeror’s favor, or as the case may be, to allow judgment to be taken against the offeror, for a sum stated therein (including costs). The offer shall not be effective unless, at the time the offer is extended, the relief sought by the parties in the case is exclusively monetary in nature. (b) If at any time on or prior to the 10th day before the actual trial date the offer is accepted, the offeree shall serve on the offeror and file a notice of acceptance with the court. The making of a further offer shall constitute a withdrawal of all previous offers made by that party. An offer shall not, however, be deemed withdrawn upon the making of a counter-offer by an adverse party but shall remain open until accepted or withdrawn as is herein provided. If the offer is not accepted on or prior to the 10th day before the actual trial date or within 90 days of its service, whichever period first expires, it shall be deemed withdrawn and evidence thereof shall not be admissible except in a proceeding after the trial to fix costs, interest, and attorney’s fee. The fact that an offer is not accepted does not preclude a further offer within the time herein prescribed in the same or another amount or as specified therein. 4:58-2. Consequences of Non-Acceptance of Claimant’s Offer (a) If the offer of a claimant is not accepted and the claimant obtains a money judgment, in an amount that is 120% of the offer or more, excluding allowable prejudgment interest and counsel fees, the claimant shall be allowed, in addition to costs of suit: (1) all reasonable litigation expenses incurred following non-acceptance; (2) prejudgment interest of eight percent on the amount of any money recovery from the date of the offer or the date of completion of discovery, whichever is later, but only to the extent that such prejudgment interest exceeds the interest prescribed by R. 4:42-11(b), which also shall be allowable; and (3) a reasonable attorney’s fee, which shall belong to the client, for such subsequent services as are compelled by the non-acceptance. (b) No allowances shall be granted pursuant to paragraph (a) if they would impose undue hardship. If undue hardship can be eliminated by reducing the allowance to a lower sum, the court shall reduce the amount of the allowance accordingly. 4:58-3. Consequences of Non-Acceptance of Offer of Party Not a Claimant (a) If the offer of a party other than the claimant is not accepted, and the claimant obtains a monetary judgment that is favorable to the offeror as defined by this rule, the offeror shall be allowed, in addition to costs of suit, the allowances as prescribed by R. 4:58-2, which shall constitute a prior charge on the judgment. (b) A favorable determination qualifying for allowances under this rule is a money judgment in an amount, excluding allowable prejudgment interest and counsel fees, that is 80% of the offer or less. (c) No allowances shall be granted if (1) the claimant’s claim is dismissed, (2) a no-cause verdict is returned, (3) only nominal damages are awarded, (4) a fee allowance would conflict with the policies underlying a fee-shifting statute or rule of court, or (5) an allowance would impose undue hardship. If, however, undue hardship can be eliminated by reducing the allowance to a lower sum, the court shall reduce the amount of the allowance accordingly. 4:58-4. Multiple Claims; Multiple Parties (a) Multiple Plaintiffs. If a party joins as plaintiff for the purpose of asserting a per quod claim, the claimants may make a single unallocated offer. (b) Multiple Defendants. If there are multiple defendants against whom a joint and several judgment is sought, and one of the defendants offers in response less than a pro rata share, that defendant shall, for purposes of the allowances under R. 4:58-2 and -3, be deemed not to have accepted the claimant’s offer. If, however, the offer of a single defendant, whether or not intended as the offer of a pro rated share, is at least as favorable to the offeree as the determination of total damages to which the offeree is entitled, the single offering defendant shall be entitled to the allowances prescribed in R. 4:58-3, provided, however, that the single defendant’s offer is at least 80% of the total damages determined. (c) Multiple Claims. If a claimant asserts multiple claims for relief or if a counterclaim has been asserted against the claimant, the claimant’s offer shall include all claims made by or against that claimant. If a party not originally a claimant asserts a counterclaim, that party’s offer shall also include all claims by and against that party. 4:58-5. Application for Fee; Limitations Applications for allowances pursuant to R. 4:58 shall be made in accordance with the provisions of R. 4:42-9(b) within 20 days after entry of final judgment. A party who is awarded counsel fees, costs, or interest as a prevailing party pursuant to a fee-shifting statute, rule of court, contractual provision, or decisional law shall not be allowed to recover duplicative fees, costs, or interest under this rule. [5] NRS § 17.115. Offer of Judgment. (Nevada) 1. At any time more than 10 days before trial, any party may serve upon one or more other parties a written offer to allow judgment to be taken in accordance with the terms and conditions of the Offer of Judgment. 2. Except as otherwise provided in subsection 7, if, within 10 days after the date of service of an Offer of Judgment, the party to whom the offer was made serves written notice that the offer is accepted, the party who made the offer or the party who accepted the offer may file the offer, the notice of acceptance and proof of service with the clerk. Upon receipt by the clerk: (a) The clerk shall enter judgment according to the terms of the offer unless: (1) A party who is required to pay the amount of the offer requests dismissal of the claim instead of entry of the judgment; and (2) The party pays the amount of the offer within a reasonable time after the offer is accepted. (b) Regardless of whether a judgment or dismissal is entered pursuant to paragraph (a), the court shall award costs in accordance with NRS 18.110 to each party who is entitled to be paid under the terms of the offer, unless the terms of the offer preclude a separate award of costs. Any judgment entered pursuant to this section shall be deemed a compromise settlement. 3. If the Offer of Judgment is not accepted pursuant to subsection 2 within 10 days after the date of service, the offer shall be deemed rejected by the party to whom it was made and withdrawn by the party who made it. The rejection of an offer does not preclude any party from making another offer pursuant to this section. Evidence of a rejected offer is not admissible in any proceeding other than a proceeding to determine costs and fees. 4. Except as otherwise provided in this section, if a party who rejects an Offer of Judgment fails to obtain a more favorable judgment, the court: (a) May not award to the party any costs or attorney’s fees; (b) May not award to the party any interest on the judgment for the period from the date of service of the offer to the date of entry of the judgment; (c) Shall order the party to pay the taxable costs incurred by the party who made the offer; and (d) May order the party to pay to the party who made the offer any or all of the following: (1) A reasonable sum to cover any costs incurred by the party who made the offer for each expert witness whose services were reasonably necessary to prepare for and conduct the trial of the case. (2) Any applicable interest on the judgment for the period from the date of service of the offer to the date of entry of the judgment. (3) Reasonable attorney’s fees incurred by the party who made the offer for the period from the date of service of the offer to the date of entry of the judgment. If the attorney of the party who made the offer is collecting a contingent fee, the amount of any attorney’s fees awarded to the party pursuant to this subparagraph must be deducted from that contingent fee. 5. To determine whether a party who rejected an Offer of Judgment failed to obtain a more favorable judgment: (a) If the offer provided that the court would award costs, the court must compare the amount of the offer with the principal amount of the judgment, without inclusion of costs. (b) If the offer precluded a separate award of costs, the court must compare the amount of the offer with the sum of: (1) The principal amount of the judgment; and (2) The amount of taxable costs that the claimant who obtained the judgment incurred before the date of service of the offer. As used in this subsection, “claimant” means a plaintiff, counterclaimant, cross-claimant or third-party plaintiff. 6. Multiple parties may make a joint Offer of Judgment pursuant to this section. 7. A party may make to two or more other parties pursuant to this section an apportioned Offer of Judgment that is conditioned upon acceptance by all the parties to whom the apportioned offer is made. Each party to whom such an offer is made may serve upon the party who made the offer a separate written notice of acceptance of the offer. If any party rejects the apportioned offer: (a) The action must proceed as to all parties to whom the apportioned offer was made, whether or not the other parties accepted or rejected the offer; and (b) The sanctions set forth in subsection 4: (1) Apply to each party who rejected the apportioned offer. (2) Do not apply to any party who accepted the apportioned offer. 8. If the liability of one party to another party has been determined by verdict, order or judgment, but the amount or extent of the liability of the party remains to be determined by further proceedings, the party found liable may, not later than 10 days before commencement of the proceedings to determine the amount or extent of his liability, serve upon the party to whom he is liable a written Offer of Judgment. An Offer of Judgment made pursuant to this subsection shall be deemed to have the same effect as an Offer of Judgment made before trial. 9. The sanctions set forth in subsection 4 do not apply to: (a) An Offer of Judgment made to multiple defendants unless the same person is authorized to decide whether to settle theclaims against all the defendants to whom the offer is made and: (1) There is a single common theory of liability against all the defendants to whom the offer is made; (2) The liability of one or more of the defendants to whom the offer is made is entirely derivative of the liability of the remaining defendants to whom the offer is made; or (3) The liability of all the defendants to whom the offer is made is entirely derivative of a common act or omission by another person. (b) An Offer of Judgment made to multiple plaintiffs unless the same person is authorized to decide whether to settle the claims of all the plaintiffs to whom the offer is made and: (1) There is a single common theory of liability claimed by all the plaintiffs to whom the offer is made; (2) The damages claimed by one or more of the plaintiffs to whom the offer is made are entirely derivative of an injury to the remaining plaintiffs to whom the offer is made; or (3) The damages claimed by all the plaintiffs to whom the offer is made are entirely derivative of an injury to another person. History. (Added to NRS by 1971, 1129; A 1979, 829; 1987, 1027; 1999, 1102; 2005, 116) [6] A. Attorney’s Fees Referred to as “Costs” 1. Freedom of Information Act, 5 U.S.C. §§ 552(a)(4)(E) and (F). 2. Privacy Act of 1974, 5 U.S.C. §§ 552a(g)(2)(B), 552a(g)(4)(B) 3. Government in the Sunshine Act, 5 U.S.C. § 552b(i). 4. Commodity Exchange Act, 88 Stat. 1394, as amended, 7 U.S.C. §§ 18(d) and (e). 5. Packers and Stockyard Act of 1921, 42 Stat. 166, as amended, 7 U.S.C. § 210(f). 6. Perishable Agricultural Commodities Act of 1930, 46 Stat. 534, as amended, 7 U.S.C. § 499g(b). 7. Agricultural Fair Practices Act of 1967, 82 Stat. 95, 7 U.S.C. §§ 2305(a) and (c). 8. Home Owners’ Loan Act of 1933, 48 Stat. 132, as amended, 12 U.S.C. § 1464(q)(3). 9. Bank Holding Company Act Amendments of 1970, 84 Stat. 1767, 12 U.S.C. § 1975. 10. Clayton Antitrust Act, 38 Stat. 731, as amended, 15 U.S.C. §§ 15(a) and (b). 11. Hart-Scott-Rodino Antitrust Improvements Act of 1976, 90 Stat. 1394, 1396, as amended, 15 U.S.C. §§ 15c(a)(2), 26. 12. Unfair Competition Act of 1916, 39 Stat. 798, 15 U.S.C. § 72. 13. Securities Act of 1933, 48 Stat. 82, as amended, 15 U.S.C. § 77k(e). 14. Trust Indenture Act of 1939, 53 Stat. 1171, 1176, 15 U.S.C. §§ 77ooo(e), 77www(a). 15. Securities Exchange Act of 1934, 48 Stat. 890, 898, as amended, 15 U.S.C. §§ 78i(e), 78r(a). 16. Jewelers Hall-Mark Act, 34 Stat. 262, as amended, 15 U.S.C. §§ 298(b)-(d). 17. Consumer Product Safety Act, 86 Stat. 1218, 1226, as amended, 15 U.S.C. §§ 2060(c) and (f), 2072(a), 2073. 18. Hobby Protection Act, 87 Stat. 686, 15 U.S.C. § 2102. 19. Export Trading Company Act of 1982, 96 Stat. 1243, 15 U.S.C. §§ 4016(b)(1) and (4). 20. National Cooperative Research Act of 1984, 98 Stat. 1817, 15 U.S.C. §§ 4304(a) and (b)(1982ed., Supp. III). 21. National Historic Preservation Act Amendments of 1980, 94 Stat. 3002, 16 U.S.C. § 470w-4. 22. Endangered Species Act of 1973, 87 Stat. 897, as amended, 16 U.S.C. § 1540(g)(4). 23. Public Utility Regulatory Policies Act of 1978, 92 Stat. 3129, 16 U.S.C. §§ 2632(a) and (b). 24. Copyright Act of 1976, 90 Stat. 2586, 17 U.S.C. § 505. 25. Semiconductor Chip Protection Act of 1984, 98 Stat. 3353, 17 U.S.C. § 911(f) (1982 ed., Supp. III). 26. Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1964(c). 27. Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. § 2520. 28. Jury System Improvement Act of 1978, 28 U.S.C. § 1875(d)(2). 29. Rehabilitation Act of 1973, 92 Stat. 2982, 29 U.S.C. § 794a(b). 30. Surface Mining Control and Reclamation Act of 1977, 91 Stat. 503, 30 U.S.C. § 1270(d). 31. Deep Seabed Hard Mineral Resources Act, 94 Stat. 573, 30 U.S.C. § 1427(c). 32. Federal Oil and Gas Royalty Management Act of 1982, 96 Stat. 2458, 30 U.S.C. § 1734(a)(4). 33. Federal Water Pollution Control Act, 86 Stat. 888, 33 U.S.C. § 1365(d). 34. Marine Protection, Research, and Sanctuaries Act of 1972, 86 Stat. 1057, 33 U.S.C. § 1415(g)(4). 35. Deepwater Ports Act of 1974, 88 Stat. 2141, 33 U.S.C. § 1515(d). 36. Act to Prevent Pollution from Ships, 94 Stat. 2302, 33 U.S.C. § 1910(d). 37. Safe Drinking Water Act, 88 Stat. 1690-1691, as amended, 42 U.S.C. §§ 300j-8(d), 300j-9(2)(B)(i) and (ii). 38. Voting Rights Act of 1965, 79 Stat. 445, as amended, 42 U.S.C. § 19731(e). 39. The Civil Rights Attorney’s Fees Awards Act of 1976, 90 Stat. 2641, 42 U.S.C. § 1988. 40. Civil Rights of Institutionalized Persons Act, 94 Stat. 350-351, 42 U.S.C. §§ 1997a(b), 1997c(d). 41. Title II of the Civil Rights Act of 1964, 78 Stat. 244, 42 U.S.C. § 2000a-3(b). 42. Title III of the Civil Rights Act of 1964, 78 Stat. 246, 42 U.S.C. § 2000b-1. 43. Title VII of the Civil Rights Act of 1964, 78 Stat. 261, 42 U.S.C. § 2000e-5(k). 44. Privacy Protection Act of 1980, 94 Stat. 1880, 42 U.S.C. § 2000aa-6(f). 45. Noise Control Act of 1972, 86 Stat. 1244, 42 U.S.C. § 4911(d). 46. Comprehensive Older Americans Act Amendments of 1978, 92 Stat. 1555, 42 U.S.C. § 6104(e)(1). 47. Energy Policy and Conservation Act, 89 Stat. 930, 42 U.S.C. § 6305(d). 48. Resource Conservation and Recovery Act of 1976, 90 Stat. 2826, 42 U.S.C. § 6972(e). 49. Clean Air Act, 84 Stat. 1686, 1706-1707, 42 U.S.C. §§ 7413(b), 7604(d), 7607(f). 50. Clean Air Act Amendments of 1977, 91 Stat. 784, 42 U.S.C. § 7622(e)(2). 51. Powerplant and Industrial Fuel Use Act of 1978, 92 Stat. 3335, 42 U.S.C. § 8435(d). 52. Ocean Thermal Energy Conversion Act of 1980, 94 Stat. 990, 42 U.S.C. § 9124(d). 53. Outer Continental Shelf Lands Act Amendments of 1978, 92 Stat. 657, 43 U.S.C. § 1349(a)(5). 54. Railway Labor Act of 1926, 44 Stat. 578, as amended, 45 U.S.C. § 153(p). 55. Shipping Act of 1916, 39 Stat. 737, as amended, 46 U.S.C. § 829. 56. Merchant Marine Act of 1936, 49 Stat. 2015, as amended, 46 U.S.C. § 1227. 57. Shipping Act of 1984, 98 Stat. 3132, 46 U.S.C.App. § 1710(h)(2) (1982 ed., Supp. III). 58. Communications Act of 1934, 48 Stat. 1072, 1095, 47 U.S.C. §§ 206, 407. 59. Cable Communications Policy Act of 1984, 98 Stat. 2779, 47 U.S.C. §§ 553(c)(2), 605(d)(3)(B) (1982 ed., Supp. III) 60. Natural Gas Pipeline Safety Act, 90 Stat. 2076, as amended, 49 U.S.C.App. § 1686(e).61. Hazardous Liquid Pipeline Safety Act of 1979, 93 Stat. 1015, 49 U.S.C.App. § 2014(e). 62. Interstate Commerce Act, 49 U.S.C. §§ 11705(d)(3), § 11710(b). 63. Foreign Intelligence Surveillance Act of 1978, 92 Stat. 1796, 50 U.S.C. § 1810(c). [7] B. Attorney’s Fees Not Referred to as “Costs” 1. Privacy Act of 1974, 5 U.S.C. § 552a(g)(4)B. 2. Plant Variety Act, 84 Stat. 1556, 7 U.S.C. § 2565. 3. Bankruptcy Act of 1978, as amended, 11 U.S.C. §§ 303(i), 362(h), 363(n), 523(d). 4. Home Owners’ Loan Act of 1933, 48 Stat. 132, as amended, 12 U.S.C. § 1464(d)(8)(A). 5. National Housing Act, 48 Stat. 1260, as amended, 12 U.S.C. § 1730(m)(3). 6. Federal Credit Union Act, 84 Stat. 1010, as amended, 12 U.S.C. 1786(p). 7. Federal Deposit Insurance Act, 64 Stat. 879, as amended, 12 U.S.C. § 1818(n). 8. Real Estate Settlement Procedures Act of 1974, 88 Stat. 1728, as amended, 12 U.S.C. § 2607(d)(2)(b). 9. Right to Financial Privacy Act of 1978, 92 Stat. 3708, 3789, 12 U.S.C. §§ 3417(a)(4), 3418. 10. Securities Exchange Act of 1934, 48 Stat. 899, as amended, 15 U.S.C. § 78u(h)(8). 11. Trademark Act, 60 Stat. 439, as amended, 15 U.S.C. § 1117. 12. National Traffic and Motor Vehicle Safety Act of 1966, 80 Stat. 724, 15 U.S.C. § 1400(b). 13. Truth-in-Lending Act, 82 Stat. 157, as amended, 15 U.S.C. § 1640(a). 14. Consumer Leasing Act, 90 Stat. 259, 15 U.S.C. § 1667b(a). 15. Consumer Credit Protection Act, 84 Stat. 1134, 15 U.S.C. §§ 168m(3), 1681o(2). 16. Consumer Credit Protection Act, 88 Stat. 1524, 15 U.S.C. § 1691e(d). 17. Consumer Credit Protection Act, 91 Stat. 881, 15 U.S.C. § 1692k(a). 18. Electronic Fund Transfer Act, 92 Stat. 3737, 15 U.S.C. §§ 1693m(a) and (f). 19. Interstate Land Sales Full Disclosure Act, 82 Stat. 595, as amended, 15 U.S.C. § 1709(c). 20. Motor Vehicle Information and Cost Savings Act, 86 Stat. 955, 963, as amended, 15 U.S.C. §§ 1918(a), 1989(a)(2). 21. Toxic Substances Control Act, 90 Stat. 2039, 2041-2042, 15 U.S.C. §§ 2618(d), 2619(c)(2), 2020(b)(4)(C). 22. Petroleum Marketing Practices Act, 92 Stat. 331, 15 U.S.C. §§ 2805(d)(1) and (3). 23. Condominium and Cooperative Abuse Relief Act of 1980, 94 Stat. 1677, 1679, 15 U.S.C. §§ 3608(d), 3611(d). 24. Alaska National Interest Lands Conservation Act, 94 Stat. 2426, 16 U.S.C. § 3117(a). 25. Navajo and Hopi Indian Relocation Amendments Act of 1980, 94 Stat. 934, 25 U.S.C. § 640d-27(b). 26. Tax Reform Act of 1976, 90 Stat. 1665, 26 U.S.C. § 6110(i)(2). 27. Judicial Code, 28 U.S.C. § 1927. 28. Equal Access to Justice Act, 28 U.S.C. § 2412(b). 29. Norris-LaGuardia Act, 47 Stat. 71, 29 U.S.C. § 107. 30. Fair Labor Standards Act of 1938, 52 Stat. 1069, as amended, 29 U.S.C. § 216(b). 31. Labor-Management Reporting and Disclosure Act of 1959, 73 Stat. 524, 29 U.S.C. § 431(c). 32. Age Discrimination in Employment Act of 1967, 81 Stat. 604, as amended, 29 U.S.C. § 626(b). 33. Employee Retirement Income Security Act of 1974, 88 Stat. 891, as amended, 29 U.S.C. § 1132(g). 34. Multiple Mineral Development Act, 68 Stat. 710, 30 U.S.C. § 526(e). 35. State and Local Fiscal Assistance Act of 1972, 86 Stat. 919, as amended, 31 U.S.C. § 6721(c). 36. Longshoremen’s and Harbor Workers’ Compensation Act, 44 Stat. 1438, as amended, 33 U.S.C. § 928(a). 37. Patent Infringement Act, 66 Stat. 813, 35 U.S.C. § 285. 38. Servicemen’s Group Life Insurance Act, 72 Stat. 1165, 38 U.S.C. § 784(g). 39. Social Security Act, 49 Stat. 624, as amended, 42 U.S.C. § 406(b). 40. Atomic Energy Act of 1954, 68 Stat. 946, 42 U.S.C. § 2184. 41. Legal Services Corporation Act, 88 Stat. 381, as amended, 42 U.S.C. § 2996e(f). 42. Fair Housing Act of 1968, 82 Stat. 88, 42 U.S.C. § 3612(c). 43. Mobile Home Construction and Safety Standards Act, 88 Stat. 706, as amended, 42 U.S.C. § 5412(b). 44. Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 94 Stat. 2792, 42 U.S.C. § 9612(c)(3). 45. Outer Continental Shelf Lands Act Amendments of 1978, 92 Stat. 658, 682, 43 U.S.C. §§ 1349(b)(2), 1818(c)(1)(C). 46. Alaska National Interest Lands Conservation Act, 94 Stat. 2430, 43 U.S.C. § 1631(c). 47. Act of Mar. 2, 1897, 29 Stat. 619, 48 U.S.C. § 1506. 48. Interstate Commerce Act, 49 U.S.C. § 11708(c). 49. Household Goods Transportation Act of 1980, 94 Stat. 2016, as amended, 49 U.S.C. §§ 11711(d) and (e). END

Friday, August 12th, 2011 Category: 2011 No Comments

How to Locate a Foreclosure Notice in Georgia

By, Hugh Wood
Atlanta, Georgia

One of the most frustrating aspects of foreclosure in Georgia is the difficulty associated with locating the formal Notice of Sale Advertisement in the County Legal Organ.

My complaints about Georgia Legal Organs are that they have a monopoly on fundamental public information, public Notices and legal required advertisements. Georgia has 159 counties – the most in the nation, except Texas. [1] To find information on a foreclosure in a non-metro county, you have to locate an obscure newspaper (i.e., theWillacoochee Bi-Weekly Standard and Auto Trader Emporium) [2] being the Official Legal Organ [3] of that county. Then, you have to laboriously read every column of legal ads in the legal organ and find (if you can) your client’s legal advertisement. In metro counties, you can search the Legal Organ in DeKalb County, The Champion, or the Legal Organ in Fulton County, The Fulton County Daily Report, IF you purchase an online subscription. [4]

Finally, there is a newspaper (or perhaps only an online internet portal) that allows the general public to search for foreclosure advertisements without purchasing a copy of the Willacoochee Bi-Weekly Standard and Auto Trader Emporium or being forced to drive to Willachooee, Georgia and read it live off the press. Here then is the portal to all foreclosure advertisements in Georgia:

THE GEORGIA PUBLIC NOTICE

http://georgiapublicnotice.com/

If you are in need of copies of Warranty Deeds, Quitclaim Deeds, Warranty Deeds and Assignments, you may locate those at the Georgia Superior Court Clerk’s Cooperative Authority database. It is as follows:

THE GEORGIA SUPERIOR COURT CLERK’S COOPERATIVE AUTHORITY

http://www.gsccca.org/

This is NOT a forms database, but rather the semi-official database for all optical images of deeds and security deeds on file in all 159 Georgia Counties. It is not the final “official” word, since if you need a Certified Copy, you will still need to obtain that from the Clerk of the Superior Court in the appropriate County. It is, unfortunately, not a free service. If you have financial information on file, they will simply charge you 0.50 cents per page per document. If you are a first time visitor, you will need a credit card and be prepared to take a small haircut to get your documents. However, for those of us who had to trek to the hinterlands to get copies, it is a miracle database.

My guess is this will be one of the most helpful blog articles I post. If it helps you or your client, leave a comment. Thanks.

Happy Searching.

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]
Although the source of the statement has never been verified, reportedly there was a rule of thumb in Georgia that every citizen should be within a one-day round trip by horse or wagon from the seat of county government. Jackson, Ed, A Brief History of Georgia Counties, Carl Vinson Institute of Government, Athens, Georgia, University of Georgia Press (2005).

[2]
Willachoochee is not the County Seat of Atkinson County, Georgia. Pearson is the County Seat. But Willachoochee is the site of the “No Name Bar,” Lewis Grizzard’s favorite Bar and Watering Hole. Go Dawgs. Post Script: The Official Legal Organ is the Atkinson County Citizen.

[3]

If you need to locate an official Georgia Legal Organ, they may be found at: Legal Organs of Georgia.

http://www.gacorporations.org/legal_organs.htm

The Statute Concerning Georgia Legal Organs is:

O.C.G.A. § 9-13-142. Requirements for official organ of publication; how official organ changed; notice to Secretary of State.

OCGA Sec. 9-13-142 Requirements for official organ of publication; how official organ changed; notice to Secretary of State.

(a) No journal or newspaper published in this state shall be declared, made, or maintained as the official organ of any county for the publication of sheriff’s sales, citations of probate court judges, or any other advertising commonly known in terms of “official or legal advertising” and required by law to be published in such county official newspaper unless the newspaper shall meet and maintain the following qualifications:

(1) “Newspaper” as used in this Code section means a printed product of multiple pages containing not greater than 75 percent advertising content in no more than one-half of its issues during the previous 12 months, excluding separate advertising supplements inserted into but separately identifiable from any regular issue or issues of the newspaper;

(2) The newspaper shall be published within the county and continuously at least weekly for a period of two years or is the direct successor of such a newspaper. Failure to publish for not more than two weeks in any calendar year shall not disqualify a newspaper otherwise qualified;

(3) For a period of two years prior to designation and thereafter, the newspaper shall have and maintain at least 75 percent paid circulation as established by an independent audit. Paid circulation shall not include newspapers that are distributed free or in connection with a service or promotion at no additional charge to the ultimate recipient. For circulation to be considered paid, the recipient of the newspaper or such recipient’s employer or household must pay reasonable and adequate consideration for the newspaper. No rules of circulation of audit companies, the United States Postal Service, or accounting principles may be considered in determining paid circulation if they are inconsistent with the provisions of this subsection;

(4) Based on the published results of the 1990 United States decennial census or any future such census, the newspaper shall have and maintain at least the following paid circulation within the county for which it is designated as the legal organ newspaper:

(A) Five hundred copies per issue in counties having a population of less than 20,000;

(B) Seven hundred fifty copies per issue in counties having a population of at least 20,000 but less than 100,000; or

(5) For purposes of this Code section, paid circulation shall include home or mail delivery subscription sales, counter, vendor and newsrack sales, and sales to independent newspaper contract carriers for resale. Paid circulation shall not include multiple copies purchased by one entity unless the multiple copies are purchased for and distributed to the purchaser’s officers, employees, or agents, or within the purchaser’s household.

(b) However, in counties where no journal or newspaper meets the qualifications set forth in subsection (a) of this Code section, the official organ may be designated by the judge of the probate court, the sheriff, and the clerk of the superior court, a majority of these officers governing from among newspapers otherwise qualified to be a legal organ that meet the minimum circulation in the preceding subsection for the county, or if there is no such newspaper, then the newspaper having the greatest general paid circulation in the county.

(c) Any selection or change in the official organ of any county shall be made upon the concurrent action of the judge of the probate court, the sheriff, and the clerk of the superior court of the county or a majority of the officers. No change in the official legal organ shall be effective without the publication for four weeks of notice of the decision to make a change in the newspaper in which legal advertisements have previously been published. All changes in the official legal organ shall be made effective on January 1 unless a change has to be made where there is no other qualified newspaper.

(d) Notwithstanding the other provisions of this Code section, an official organ of any county meeting the qualifications under the statute in force at the time of its appointment and which was appointed prior to July 1, 1999, may remain the official organ of that county until a majority of the judge of the probate court, the sheriff, and the clerk of the superior court determine to appoint a new official organ for the county.

(e) During the month of December in each year, the judge of the probate court of each county shall notify the Secretary of State, on a form supplied by the Secretary of State, of the name and mailing address of the journal or newspaper currently serving as the official organ of the county. The judge of the probate court shall also likewise notify the Secretary of State of any change in the official organ of the county at the time that such change is made. The Secretary of State shall maintain at all times a current listing of the names and addresses of all county organs and shall make such list available to any person upon request.

(Laws 1850, Cobb’s 1851 Digest, p. 580; Code 1863, § 3577; Code 1868, § 3600; Code 1873, § 3650; Code 1882, § 3650; Civil Code 1895, § 5460; Ga. L. 1910, p. 87, § 1; Code 1910, § 6065; Code 1933, §§ 39-1103, 39-1107; Ga. L. 1953, Nov.-Dec. Sess., p. 271, § 1; Ga. L. 1989, p. 1248, § 1; Ga. L. 1992, p. 1035, § 1; Ga. L. 1997, p. 528, § 1; Ga. L. 1999, p. 6, § 2.)

[4]

In fairness to the metro legal organs, there are some ways to search for information without purchasing an online subscription. However, it is a barebones search with no bells and whistles and no access to other important and relevant news content.

END

Friday, August 12th, 2011 Category: 2011 No Comments

The Fallout of US Bank v Ibanez on Georgia Law

By: Hugh Wood, Atlanta, GA
If the legal holding in In U.S. BANK NATIONAL ASSOCIATION, Trustee vs. Antonio IBANEZ, Mass. Sup. Ct. Appeals, No. SJC.,10694. (January 7, 2011), (hereinafter “Ibanez”) makes its way to Georgia, then Georgia non-judicial foreclosures are in for a significant legal change.

“The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.” Carpenter v. Longan, 83 U.S. 271, 274, 21 L.Ed. 313 (1873). This hundred year old maxim from the United States Supreme Court should have provided a complete victory for U.S. Bank in Massachusetts. However, it would appear that U.S. Bank foreclosed without holding ANY completed assignment and then created the necessary assignment and back dated (which was accepted industry custom) the assignment after the non-judicial foreclosure.

In Ibanez, the Massachusetts Supreme Judicial Court wrote, “Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone’s home or farm and must be treated as such.” Ibanez, at 13 – 14 (Slip Opinion).

The Massachusetts Supreme Judicial Court held that banks that cannot show the absolute land title ownership at the time of (on the day of) a non-judicial foreclosure, do not have “title,” on which to bring the non-judicial foreclosure. Thus, their foreclosures are void – not merely voidable. And, they, the banks, may be sued for those historical foreclosures that were/are fatally defective. They held that Ibanez was not prospectively only.

Massachusetts, like Georgia, is one of about 29 states that allow for a non-judicial foreclosure. [1] Ibanez seems like it will have the most initial fallout on non-judicial foreclosures. A case like Ibanez would, perhaps, not occur in a judicial foreclosure state, since the lender as Plaintiff would be subject to a Motion to Dismiss for failure to prove its title or its standing prior to proceeding to judgment.

The central focus of the Ibanez ruling holds:

I. The Effect of Ibanez on Georgia

Because Georgia is primarily a non-judicial foreclosure state, Ibanez will resonate throughout the non-judicial foreclosures pleadings in Georgia. However, Ibanez has no direct precedential effect in Georgia. The showdown in the fallout of Ibanez is going to focus on the financial industries (i.e., Wall Street’s) resolution of the desire and need to securitize and sell home loans in bundles versus the still required demands that a lender hold and prove title (and a valid assignment) on the day of the non-judicial foreclosure. This entire tug-of-war seems to turn on the swift and speedy needs of securitization supported by 15 U.S.C. § 77r versus the 333 year old (Statute of Frauds 1677) requirement of a writing in land transactions.

II. Georgia’s After Acquired Title Doctrine may Come Under Attack in Foreclosures after Ibanez

The Georgia Doctrine of, “after acquired title,” states:

“The petitioner invokes the principal that: ‘where a grantor conveys land in which he has no interest and later acquires title, the after acquired title will vest in the first grantee as against subsequent purchasers.’” Roy Brinson v. Clara B. Thornton, et al., 220 Ga. 234, 138 SE 2d 268, 270 (1964). Citing, JL Dillard v. Christine Crane Brannan, et al., 217 Ga. 179, 122 SE 2d 768, 771 (1961). [2]

This doctrine works quite well in Georgia if there is a missing link in a title chain that is made complete by an after acquired title. Ibanez, supra, though pits the non-judicial foreclosure process against this often used Georgia title doctrine.

If the theory underpinning Ibanez were to become law in Georgia, the doctrine presently asserted with regard to late filed assignments (after acquired, thus the title error is cured), will no longer work. Ibanez said that the non-judicial foreclosure itself was a nullity. Therefore, all of the after acquired title to a null act will not cure it.

If Ibanez were law in Georgia, the lender would need to show that it possessed the title on the day it foreclosed. Merely showing that the bank somehow acquired good title long after the foreclosure occurred will no longer cure the foreclosure, in a post Ibanez world.

III. Borrowers May Attack the Doctrine of Privity in Georgia after Ibanez

The doctrine of privity of a contract requires that only parties to a contract may bring suit to enforce it. Scott v. Cushman & Wakefield of Georgia, Inc., 249 Ga. App. 264, 547 SE 2d 794 (2001). [3] An exception to this requirement of contractual privity occurs when a party assigns to another the contractual right to collect payment, including the right to sue to enforce the right. However, to be enforceable by the assignee, such assignment must be in writing. Level 1 Contact, Inc., et al. v. BJL Enterprises, LLC, 305 Ga. App. 78, 699 SE 2d 89 (2010).

Given that the Bank moving to foreclose in a Georgia Non-Judicial Foreclosure may not be able to produce the Security Deed, the Note and the Assignment, we may see an uptick in challenges to the lender’s privity of contract and the sister doctrine in this context – standing.

The problem with Georgia is that the borrower must find a method to get into a courtroom prior to the foreclosure [perhaps a TRO under OCGA § 9-11-65] or risk having to pursue his or her remedies post foreclosure and eviction.

IV. The Ibanez Opinion Reviewed

While not fleshed out well in the opinion, U.S. Bank’s briefing exposed the inherent conflict between the stiff and inflexible requirements of a non-judicial foreclosure versus the loose application of filing a completed assignment in blank after the non-judicial foreclosure. [4]

Instead of looking directly to the Court’s Opinion, let us look initially to the summary of arguments presented by U.S. Bank concerning why the Massachusetts Supreme Judicial Court should find against Ibanez and for U.S. Bank.

U.S. Bank’s lawyers wrote in its Brief to the Massachusetts Supreme Judicial Court, as follows:

Issues as posed by U.S.Bank:

US Bank Brief-to-MassachusettsSJC

STATEMENT OF THE ISSUES PRESENTED

[First] The Land Court [5] erred in ruling that Ibanez’ securitization documents did not act to assign the Ibanez mortgage and thus did not confer legal authority on which to foreclose.

[Second] The Land Court erred in ruling that Ibanez’ assignment of the mortgage in blank did not act to assign the Ibanez mortgage and thus did not confer legal authority on [USBank] on which to foreclose.

[Third] The Land Court erred in ruling that USBank did not have legal authority to foreclose through possession of the original notes, the original mortgages, the assignments of mortgage in blank, and the securitization documents.

[Fourth] The Land Court erred in ruling that the execution and recording of a confirmatory assignment did not validate the prior actions taken by USBank in furtherance of foreclosure.

[Fifth] The Land Court erred by not limiting its rulings to prospective application only, where it failed to take into consideration Title Standard No. 58 of the Real Estate Bar Association for Massachusetts and the far-reaching consequences of the retroactive application of its rulings on numerous titles to real property in Massachusetts. U.S. Bank Brief to Court at 1.

& & &

SUMMARY OF THE ARGUMENT [By U.S. Bank] The Land Court’s rulings were erroneous and should be reversed for the following reasons.

First, the Land Court erred by ignoring the plain language of Appellants’ securitization agreements that assigned all interest in Appellees’ loans to Appellants. The assignment provisions in those agreements are valid and enforceable, and provided the legal predicate on which to provide notice pursuant to Mass. Gen. L. ch. 244, § 14, and to invoke the power of sale pursuant to Mass. Gen. L. ch. 183, § 21. [pp. 17-28].

Second, rather than giving effect to the language of assignment in the securitization agreements, the Land Court devoted much of its analysis to whether assignments of mortgage in blank satisfy Mass. Gen. L. ch. 244, § 14. The controlling language of assignment is found in the securitization agreements, but even if that were not the case, the Land Court erred in holding that assignments of mortgage in blank do not evidence a valid transfer of a mortgage. [pp. 28-34].

Third, the Land Court erred in ruling that Appellants’ equitable interests in the mortgages as note holders, their status as owners of Appellees’ mortgage loans under the operative securitization [ -15- ] agreements, and their legal possession and control of all indicia of ownership in the mortgages did not vest in them authority to foreclose. The Land Court’s interpretation of Mass. Gen. L. ch. 244, § 14, is not supported by the law, and the Court erred in considering the hypothetical possibility of prejudice where no evidence existed in the record. [pp. 34-46].

Fourth, after the foreclosure sales, Appellants recorded confirmatory assignments of mortgage in accord with a decades-long practice in Massachusetts and in accordance with REBA Title Standard No. 58. The Land Court’s rejection of the confirmatory assignments of mortgage was plain error. [pp. 46-48].

Finally, the Land Court’s decisions have arguably affected thousands of properties that have a “void” foreclosure sale in their chain of title. As a matter of public policy, the Land Court’s rulings should not stand. If, however, they are affirmed on appeal, sound policy mandates prospective application only of those rulings. V. [pp. 18-50]. U.S. Bank Brief at 15.

Ibanez’s lawyers wrote in his Brief to the Massachusetts Supreme Judicial Court, as follows:

Issues as posed by Ibanez:

Ibanez Brief-to-MassachusettsSJC

QUESTIONS PRESENTED 1. Whether a Land Court judge correctly entered judgment against U.S. Bank on the ground that G. L. c. 244, § 14, authorizes a foreclosure only by the holder of the mortgage, where the record established that U.S. Bank did not become the holder of the mortgage until fourteen months after the foreclosure sale. Whether a Land Court judge abused his discretion in denying U.S. Bank’s Rule 60(b) motion to vacate judgment on the grounds that U.S. Bank lacked a valid, foreclosable interest at the time of its foreclosure sale, where U.S. Bank failed to produce title documents as promised and as ordered produced, and where the Rule 60(b) motion was based upon claimed title obtained by mortgage assignments “in blank,” a postforeclosure mortgage assignment, possession of the note, and “financial interest[s]”, “splintered rights” or “indicia of ownership?” Whether U.S. Bank can prevail on appeal on the basis of arguments which U.S. Bank failed to make in the Land Court proceedings? Ibanez Brief to the Court 1, Question 1 only.

& & &

III. SUMMARY OF THE ARGUMENT In some respects, this appeal is simple and straightforward. Plaintiff-Appellant U.S. Bank foreclosed on a mortgage by sale on July 2, 2007, and received its assignment of the foreclosed mortgage fourteen months later. (pp.16-30) This foreclosure [ -12- ] sale was undertaken pursuant to statutory provisions which required that non-judicial foreclosure sales be conducted only by mortgagees, or their assignees. (pp. 17-18) The foreclosure sale was authorized by a power of sale in the mortgage being foreclosed, which allowed only the original lender and its assignees to exercise the power, and U.S. Bank was neither. (pp. 16-17) Judicial precedent establishes that foreclosures under such powers of sale must strictly comply with the terms of the power – and invalidates foreclosure sales which do not name the mortgagee at the time of sale. (pp.18-40) Consequently, it seems unremarkable that the Land Court invalidated the U.S. Bank foreclosure sale, and denied its motion to vacate judgment; a holding which should be affirmed, given the deference afforded trial courts’ Rule 60 decisions. (pp.16-17) The appeal takes on greater significance, however, because Plaintiff-Appellant U.S. Bank insists that requiring foreclosing entities to possess legally sufficient and valid documents establishing title before foreclosure over-burdens securitized conveyances. (pp.30-44) U.S. Bank argues that this Court should discard the requirement that only entities with then-valid assignments of mortgagees’ rights may lawfully foreclose upon an underlying mortgage; and that this Court should hold that an [ -13- ] entity with mere “financial interests[s]” or “splintered rights” may conduct foreclosure sales.(pp.23-33) However, the rule that U.S. Bank asks this Court to create is contrary to both statutory commandments and explicit contractual agreements between the borrowers and lenders themselves, and, moreover, likely to add uncertainty and inaccuracy to foreclosure titles. The conflict actually presented by this appeal is, indeed, a significant one. (pp. 30-46) For literally hundreds of years, our system of conveyancing and recording of titles, deeds, and assignments has provided certainty and doctrines developed to protect integrity of title have served well. (pp. 30-46) The securitization documents – and specifically, the securitization documents for the securitized trusts at issue in this appeal – incorporate, and require compliance with, applicable title and assignment recording rules for the securitized mortgages held by them. (pp.35-36) However, neither trust has provided evidence that it complied with the recording requirements of their own trust documents, or the foreclosure statutes and contractual terms which govern conveyance and ownership of these mortgages. Id. Instead, U.S. Bank argues that this Court should do what U.S. Bank’s own governing rules do not: relax or abrogate requirements [ -14- ] which ensure that title to real property is public and transparent, and allow undisclosed and private conveyance of mortgages, and even non-judicial foreclosure sales based on private and undisclosed conveyance, in the name of expediency. (pp.23-44) The record here evidences repeated instances of careless – even reckless – treatment of long-standing rules governing the integrity of conveyancing documents, and careless – even reckless – disregard of statutory and contractual obligations governing nonjudicial property foreclosures. (pp.41-46) Indeed, there is nothing in the record which lends confidence to the integrity that private, undisclosed and unrecorded securitized conveyances would have, were the Court to accept the invitation to abrogate the title protections contained in mortgages and foreclosure statutes. Id. More importantly, the statutory protections U.S. Bank violated are clear and unequivocal, and its remedy, if any, lies in the legislature. (pp.17-32) Finally, U.S. Bank failed to even present the claims and evidence upon which it relies on appeal during the trial court proceedings. (pp. 47-50) Its improper attempts to assert these materials for the first time in this appeal should be rejected, as should its meritless insistence that decades-old [ -15- ] statutory requirements should be applied only to future conveyances. (pp.47-49). Ibanez Brief to the Court at 12 – 16.
& & &

V. The Pertinent Portions of the Ibanez Opinion:

The Opinion, finding generally for Ibanez, holds, in pertinent part as follows:

46471786-IbanezOpinionMassachusetts01072011

GANTS, J.

[ * * * ]

Procedural history. On July 5, 2007, U.S. Bank, as trustee, foreclosed on the mortgage of Antonio Ibanez, and purchased the Ibanez property at the foreclosure sale. On the same day, Wells Fargo, as trustee, foreclosed on the mortgage of Mark and Tammy LaRace, and purchased the LaRace property at that foreclosure sale.

In September and October of 2008, U.S. Bank and Wells Fargo brought separate actions in the Land Court under G.L. c. 240, § 6, which authorizes actions “to quiet or establish the title to land situated in the commonwealth or to remove a cloud from the title thereto.” The two complaints sought identical relief: (1) a judgment that the right, title, and interest of the mortgagor (Ibanez or the LaRaces) in the property was extinguished by the foreclosure; (2) a declaration that there was no cloud on title arising from publication of the notice of sale in the Boston Globe; and (3) a declaration that title was vested in the plaintiff trustee in fee simple. U.S. Bank and Wells Fargo each asserted in its complaint that it had become the holder of the respective mortgage through an assignment made after the foreclosure sale.

In both cases, the mortgagors–Ibanez and the LaRaces–did not initially answer the complaints, and the plaintiffs moved for entry of default judgment. In their motions for entry of default judgment, the plaintiffs addressed two issues: (1) whether the Boston Globe, in which the required notices of the foreclosure sales were published, is a newspaper of “general circulation” in Springfield, the town where the foreclosed properties lay. See G.L. c. 244, § 14 (requiring publication every week for three weeks in newspaper published in town where foreclosed property lies, or of general circulation in that town); and (2) whether the plaintiffs were legally entitled to foreclose on the properties where the assignments of the mortgages to the plaintiffs were neither executed nor recorded in the registry of deeds until after the foreclosure sales. [FN6] The two cases were heard together by the Land Court, along with a third case that raised the same issues.

On March 26, 2009, judgment was entered against the plaintiffs. The judge ruled that the foreclosure sales were invalid because, in violation of G.L. c. 244, § 14, the notices of the foreclosure sales named U.S. Bank (in the Ibanez foreclosure) and Wells Fargo (in the LaRace foreclosure) as the mortgage holders where they had not yet been assigned the mortgages. [FN7] The judge found, based on each plaintiff’s assertions in its complaint, that the plaintiffs acquired the mortgages by assignment only after the foreclosure sales and thus had no interest in the mortgages being foreclosed at the time of the publication of the notices of sale or at the time of the foreclosure sales.

[FN8]

For ease of reference, the chain of entities through which the Ibanez mortgage allegedly passed before the foreclosure sale is:

Rose Mortgage, Inc. (originator)

ꜜ

Lehman Brothers Bank, FSB

ꜜ

Lehman Brothers Holdings Inc. (seller)

ꜜ

Lehman Brothers Holdings Inc. (seller)

ꜜ

Structured Asset Securities Corporation (depositor)

ꜜ

U.S. Bank National Association, as trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z

According to U.S. Bank, the assignment of the Ibanez mortgage to U.S. Bank occurred pursuant to a December 1, 2006, trust agreement, which is not in the record. What is in the record is the private placement memorandum (PPM), dated December 26, 2006, a 273-page, unsigned offer of mortgage-backed securities to potential investors. The PPM describes the mortgage pools and the entities involved, and summarizes the provisions of the trust agreement, including the representation that mortgages “will be” assigned into the trust. According to the PPM, “[e]ach transfer of a Mortgage Loan from the Seller [Lehman Brothers Holdings Inc.] to the Depositor [Structured Asset Securities Corporation] and from the Depositor to the Trustee [U.S. Bank] will be intended to be a sale of that Mortgage Loan and will be reflected as such in the Sale and Assignment Agreement and the Trust Agreement, respectively.” The PPM also specifies that “[e]ach Mortgage Loan will be identified in a schedule appearing as an exhibit to the Trust Agreement.” However, U.S. Bank did not provide the judge with any mortgage schedule identifying the Ibanez loan as among the mortgages that were assigned in the trust agreement.

On April 17, 2007, U.S. Bank filed a complaint to foreclose on the Ibanez mortgage [ * * * ] At the foreclosure sale on July 5, 2007, the Ibanez property was purchased by U.S. Bank, as trustee for the securitization trust, for $94,350, a value significantly less than the outstanding debt and the estimated market value of the property.

[ * * * ]

On April 27, 2007, Wells Fargo filed a complaint under the Servicemembers Act in the Land Court to foreclose on the LaRace mortgage. The complaint represented Wells Fargo as the “owner (or assignee) and holder” of the mortgage given by the LaRaces for the property.

[ * * * ]

At the foreclosure sale on July 5, 2007, Wells Fargo, as trustee, purchased the LaRace property for $120,397.03, a value significantly below its estimated market value. Wells Fargo did not execute a statutory foreclosure affidavit or foreclosure deed until May 7, 2008. That same day, Option One, which was still the record holder of the LaRace mortgage, executed an assignment of the mortgage to Wells Fargo as trustee; the assignment was recorded on May 12, 2008. Although executed ten months after the foreclosure sale, the assignment declared an effective date of April 18, 2007, a date that preceded the publication of the notice of sale and the foreclosure sale

[ * * * ]

Discussion. The plaintiffs brought actions under G.L. c. 240, § 6, seeking declarations that the defendant mortgagors’ titles had been extinguished and that the plaintiffs were the fee simple owners of the foreclosed properties. As such, the plaintiffs bore the burden of establishing their entitlement to the relief sought. Sheriff’s Meadow Found., Inc. v. Bay-Courte Edgartown, Inc., 401 Mass. 267, 269 (1987). To meet this burden, they were required “not merely to demonstrate better title … than the defendants possess, but … to prove sufficient title to succeed in [the] action.” Id. See NationsBanc Mtge. Corp. v. Eisenhauer, 49 Mass.App.Ct. 727, 730 (2000). There is no question that the relief the plaintiffs sought required them to establish the validity of the foreclosure sales on which their claim to clear title rested.

Massachusetts does not require a mortgage holder to obtain judicial authorization to foreclose on a mortgaged property. See G.L. c. 183, § 21; G.L. c. 244, § 14. With the exception of the limited judicial procedure aimed at certifying that the mortgagor is not a beneficiary of the Servicemembers Act, a mortgage holder can foreclose on a property, as the plaintiffs did here, by exercise of the statutory power of sale, if such a power is granted by the mortgage itself. See Beaton v. Land Court, 367 Mass. 385, 390-391, 393, appeal dismissed, 423 U.S. 806 (1975).

Where a mortgage grants a mortgage holder the power of sale, as did both the Ibanez and LaRace mortgages, it includes by reference the power of sale set out in G.L. c. 183, § 21, and further regulated by G.L. c. 244, §§ 11-17C. Under G.L. c. 183, § 21, after a mortgagor defaults in the performance of the underlying note, the mortgage holder may sell the property at a public auction and convey the property to the purchaser in fee simple, “and such sale shall forever bar the mortgagor and all persons claiming under him from all right and interest in the mortgaged premises, whether at law or in equity.” Even where there is a dispute as to whether the mortgagor was in default or whether the party claiming to be the mortgage holder is the true mortgage holder, the foreclosure goes forward unless the mortgagor files an action and obtains a court order enjoining the foreclosure. [FN15] See Beaton v. Land Court, supra at 393.

Recognizing the substantial power that the statutory scheme affords to a mortgage holder to foreclose without immediate judicial oversight, we adhere to the familiar rule that “one who sells under a power [of sale] must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void.” Moore v. Dick, 187 Mass. 207, 211 (1905). See Roche v. Farnsworth, 106 Mass. 509, 513 (1871) (power of sale contained in mortgage “must be executed in strict compliance with its terms”). See also McGreevey v. Charlestown Five Cents Sav. Bank, 294 Mass. 480, 484 (1936). [FN16]

One of the terms of the power of sale that must be strictly adhered to is the restriction on who is entitled to foreclose. The “statutory power of sale” can be exercised by “the mortgagee or his executors, administrators, successors or assigns.” G.L. c. 183, § 21. Under G.L. c. 244, § 14, “[t]he mortgagee or person having his estate in the land mortgaged, or a person authorized by the power of sale, or the attorney duly authorized by a writing under seal, or the legal guardian or conservator of such mortgagee or person acting in the name of such mortgagee or person” is empowered to exercise the statutory power of sale. Any effort to foreclose by a party lacking “jurisdiction and authority” to carry out a foreclosure under these statutes is void. Chace v. Morse, 189 Mass. 559, 561 (1905), citing Moore v. Dick, supra. See Davenport v. HSBC Bank USA, 275 Mich.App. 344, 347-348 (2007) (attempt to foreclose by party that had not yet been assigned mortgage results in “structural defect that goes to the very heart of defendant’s ability to foreclose by advertisement,” and renders foreclosure sale void).

A related statutory requirement that must be strictly adhered to in a foreclosure by power of sale is the notice requirement articulated in G.L. c. 244, § 14. That statute provides that “no sale under such power shall be effectual to foreclose a mortgage, unless, previous to such sale,” advance notice of the foreclosure sale has been provided to the mortgagee, to other interested parties, and by publication in a newspaper published in the town where the mortgaged land lies or of general circulation in that town. Id. “The manner in which the notice of the proposed sale shall be given is one of the important terms of the power, and a strict compliance with it is essential to the valid exercise of the power.” Moore v. Dick, supra at 212. See Chace v. Morse, supra (“where a certain notice is prescribed, a sale without any notice, or upon a notice lacking the essential requirements of the written power, would be void as a proceeding for foreclosure”). See also McGreevey v. Charlestown Five Cents Sav. Bank, supra. Because only a present holder of the mortgage is authorized to foreclose on the mortgaged property, and because the mortgagor is entitled to know who is foreclosing and selling the property, the failure to identify the holder of the mortgage in the notice of sale may render the notice defective and the foreclosure sale void. [FN17] See Roche v. Farnsworth, supra (mortgage sale void where notice of sale identified original mortgagee but not mortgage holder at time of notice and sale). See also Bottomly v. Kabachnick, 13 Mass.App.Ct. 480, 483-484 (1982) (foreclosure void where holder of mortgage not identified in notice of sale).

For the plaintiffs to obtain the judicial declaration of clear title that they seek, they had to prove their authority to foreclose under the power of sale and show their compliance with the requirements on which this authority rests. Here, the plaintiffs were not the original mortgagees to whom the power of sale was granted; rather, they claimed the authority to foreclose as the eventual assignees of the original mortgagees. Under the plain language of G.L. c. 183, § 21, and G.L. c. 244, § 14, the plaintiffs had the authority to exercise the power of sale contained in the Ibanez and LaRace mortgages only if they were the assignees of the mortgages at the time of the notice of sale and the subsequent foreclosure sale. See In re Schwartz, 366 B.R. 265, 269 (Bankr.D.Mass.2007) (“Acquiring the mortgage after the entry and foreclosure sale does not satisfy the Massachusetts statute”). [FN18] See also Jeff-Ray Corp. v. Jacobson, 566 So.2d 885, 886 (Fla.Dist.Ct.App.1990) (per curiam) (foreclosure action could not be based on assignment of mortgage dated four months after commencement of foreclosure proceeding).

The plaintiffs claim that the securitization documents they submitted establish valid assignments that made them the holders of the Ibanez and LaRace mortgages before the notice of sale and the foreclosure sale. We turn, then, to the documentation submitted by the plaintiffs to determine whether it met the requirements of a valid assignment.

Like a sale of land itself, the assignment of a mortgage is a conveyance of an interest in land that requires a writing signed by the grantor. See G.L. c. 183, § 3; Saint Patrick’s Religious, Educ. & Charitable Ass’n v. Hale, 227 Mass. 175, 177 (1917). In a “title theory state” like Massachusetts, a mortgage is a transfer of legal title in a property to secure a debt. See Faneuil Investors Group, Ltd. Partnership v. Selectmen of Dennis, 458 Mass. 1, 6 (2010). Therefore, when a person borrows money to purchase a home and gives the lender a mortgage, the homeowner-mortgagor retains only equitable title in the home; the legal title is held by the mortgagee. See Vee Jay Realty Trust Co. v. DiCroce, 360 Mass. 751, 753 (1972), quoting Dolliver v. St. Joseph Fire & Marine Ins. Co., 128 Mass. 315, 316 (1880) (although “as to all the world except the mortgagee, a mortgagor is the owner of the mortgaged lands,” mortgagee has legal title to property); Maglione v. BancBoston Mtge. Corp., 29 Mass.App.Ct. 88, 90 (1990). Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone’s home or farm and must be treated as such.

Focusing first on the Ibanez mortgage, U.S. Bank argues that it was assigned the mortgage under the trust agreement described in the PPM, but it did not submit a copy of this trust agreement to the judge. The PPM, however, described the trust agreement as an agreement to be executed in the future, so it only furnished evidence of an intent to assign mortgages to U.S. Bank, not proof of their actual assignment. Even if there were an executed trust agreement with language of present assignment, U.S. Bank did not produce the schedule of loans and mortgages that was an exhibit to that agreement, so it failed to show that the Ibanez mortgage was among the mortgages to be assigned by that agreement. Finally, even if there were an executed trust agreement with the required schedule, U.S. Bank failed to furnish any evidence that the entity assigning the mortgage–Structured Asset Securities Corporation–ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale. [FN19] Thus, based on the documents submitted to the judge, Option One, not U.S. Bank, was the mortgage holder at the time of the foreclosure, and U.S. Bank did not have the authority to foreclose the mortgage.

Turning to the LaRace mortgage, Wells Fargo claims that, before it issued the foreclosure notice, it was assigned the LaRace mortgage under the PSA. The PSA, in contrast with U.S. Bank’s PPM, uses the language of a present assignment (“does hereby … assign” and “does hereby deliver”) rather than an intent to assign in the future. But the mortgage loan schedule Wells Fargo submitted failed to identify with adequate specificity the LaRace mortgage as one of the mortgages assigned in the PSA. Moreover, Wells Fargo provided the judge with no document that reflected that the ABFC (depositor) held the LaRace mortgage that it was purportedly assigning in the PSA. As with the Ibanez loan, the record holder of the LaRace loan was Option One, and nothing was submitted to the judge which demonstrated that the LaRace loan was ever assigned by Option One to another entity before the publication of the notice and the sale.

Where a plaintiff files a complaint asking for a declaration of clear title after a mortgage foreclosure, a judge is entitled to ask for proof that the foreclosing entity was the mortgage holder at the time of the notice of sale and foreclosure, or was one of the parties authorized to foreclose under G.L. c. 183, § 21, and G.L. c. 244, § 14. A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title. See In re Schwartz, supra at 266 (“When HomEq [Servicing Corporation] was required to prove its authority to conduct the sale, and despite having been given ample opportunity to do so, what it produced instead was a jumble of documents and conclusory statements, some of which are not supported by the documents and indeed even contradicted by them”). See also Bayview Loan Servicing, LLC v. Nelson, 382 Ill.App.3d 1184, 1188 (2008) (reversing grant of summary judgment in favor of financial entity in foreclosure action, where there was “no evidence that [the entity] ever obtained any legal interest in the subject property”).

We do not suggest that an assignment must be in recordable form at the time of the notice of sale or the subsequent foreclosure sale, although recording is likely the better practice. Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder. However, there must be proof that the assignment was made by a party that itself held the mortgage. See In re Samuels, 415 B.R. 8, 20 (Bankr.D.Mass.2009). A foreclosing entity may provide a complete chain of assignments linking it to the record holder of the mortgage, or a single assignment from the record holder of the mortgage. See In re Parrish, 326 B.R. 708, 720 (Bankr.N.D.Ohio 2005) (“If the claimant acquired the note and mortgage from the original lender or from another party who acquired it from the original lender, the claimant can meet its burden through evidence that traces the loan from the original lender to the claimant”). The key in either case is that the foreclosing entity must hold the mortgage at the time of the notice and sale in order accurately to identify itself as the present holder in the notice and in order to have the authority to foreclose under the power of sale (or the foreclosing entity must be one of the parties authorized to foreclose under G.L. c. 183, § 21, and G.L. c. 244, § 14).

The judge did not err in concluding that the securitization documents submitted by the plaintiffs failed to demonstrate that they were the holders of the Ibanez and LaRace mortgages, respectively, at the time of the publication of the notices and the sales. The judge, therefore, did not err in rendering judgments against the plaintiffs and in denying the plaintiffs’ motions to vacate the judgments. [FN20]

We now turn briefly to three other arguments raised by the plaintiffs on appeal. First, the plaintiffs initially contended that the assignments in blank executed by Option One, identifying the assignor but not the assignee, not only “evidence[ ] and confirm[ ] the assignments that occurred by virtue of the securitization agreements,” but “are effective assignments in their own right.” But in their reply briefs they conceded that the assignments in blank did not constitute a lawful assignment of the mortgages. Their concession is appropriate. We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment. See Flavin v. Morrissey, 327 Mass. 217, 219 (1951); Macurda v. Fuller, 225 Mass. 341, 344 (1916). See also G.L. c. 183, § 3.

Second, the plaintiffs contend that, because they held the mortgage note, they had a sufficient financial interest in the mortgage to allow them to foreclose. In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage. Barnes v. Boardman, 149 Mass. 106, 114 (1889). Rather, the holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage, which may be accomplished by filing an action in court and obtaining an equitable order of assignment. Id. (“In some jurisdictions it is held that the mere transfer of the debt, without any assignment or even mention of the mortgage, carries the mortgage with it, so as to enable the assignee to assert his title in an action at law…. This doctrine has not prevailed in Massachusetts, and the tendency of the decisions here has been, that in such cases the mortgagee would hold the legal title in trust for the purchaser of the debt, and that the latter might obtain a conveyance by a bill in equity”). See Young v. Miller, 6 Gray 152, 154 (1856). In the absence of a valid written assignment of a mortgage or a court order of assignment, the mortgage holder remains unchanged. This common-law principle was later incorporated in the statute enacted in 1912 establishing the statutory power of sale, which grants such a power to “the mortgagee or his executors, administrators, successors or assigns,” but not to a party that is the equitable beneficiary of a mortgage held by another. G.L. c. 183, § 21, inserted by St.1912, c. 502, § 6.

Third, the plaintiffs initially argued that postsale assignments were sufficient to establish their authority to foreclose, and now argue that these assignments are sufficient when taken in conjunction with the evidence of a presale assignment. They argue that the use of postsale assignments was customary in the industry, and point to Title Standard No. 58(3) issued by the Real Estate Bar Association for Massachusetts, which declares: “A title is not defective by reason of … [t]he recording of an Assignment of Mortgage executed either prior, or subsequent, to foreclosure where said Mortgage has been foreclosed, of record, by the Assignee.” [FN21] To the extent that the plaintiffs rely on this title standard for the proposition that an entity that does not hold a mortgage may foreclose on a property, and then cure the cloud on title by a later assignment of a mortgage, their reliance is misplaced because this proposition is contrary to G.L. c. 183, § 21, and G.L. c. 244, § 14. If the plaintiffs did not have their assignments to the Ibanez and LaRace mortgages at the time of the publication of the notices and the sales, they lacked authority to foreclose under G.L. c. 183, § 21, and G.L. c. 244, § 14, and their published claims to be the present holders of the mortgages were false. Nor may a postforeclosure assignment be treated as a pre-foreclosure assignment simply by declaring an “effective date” that precedes the notice of sale and foreclosure, as did Option One’s assignment of the LaRace mortgage to Wells Fargo. Because an assignment of a mortgage is a transfer of legal title, it becomes effective with respect to the power of sale only on the transfer; it cannot become effective before the transfer. See In re Schwartz, supra at 269.

However, we do not disagree with Title Standard No. 58(3) that, where an assignment is confirmatory of an earlier, valid assignment made prior to the publication of notice and execution of the sale, that confirmatory assignment may be executed and recorded after the foreclosure, and doing so will not make the title defective. A valid assignment of a mortgage gives the holder of that mortgage the statutory power to sell after a default regardless whether the assignment has been recorded. See G.L. c. 183, § 21; MacFarlane v. Thompson, 241 Mass. 486, 489 (1922). Where the earlier assignment is not in recordable form or bears some defect, a written assignment executed after foreclosure that confirms the earlier assignment may be properly recorded. See Bon v. Graves, 216 Mass. 440, 444-445 (1914). A confirmatory assignment, however, cannot confirm an assignment that was not validly made earlier or backdate an assignment being made for the first time. See Scaplen v. Blanchard, 187 Mass. 73, 76 (1904) (confirmatory deed “creates no title” but “takes the place of the original deed, and is evidence of the making of the former conveyance as of the time when it was made”). Where there is no prior valid assignment, a subsequent assignment by the mortgage holder to the note holder is not a confirmatory assignment because there is no earlier written assignment to confirm. In this case, based on the record before the judge, the plaintiffs failed to prove that they obtained valid written assignments of the Ibanez and LaRace mortgages before their foreclosures, so the postforeclosure assignments were not confirmatory of earlier valid assignments.

Finally, we reject the plaintiffs’ request that our ruling be prospective in its application. A prospective ruling is only appropriate, in limited circumstances, when we make a significant change in the common law. See Papadopoulos v. Target Corp., 457 Mass. 368, 384 (2010) (noting “normal rule of retroactivity”); Payton v. Abbott Labs, 386 Mass. 540, 565 (1982). We have not done so here. The legal principles and requirements we set forth are well established in our case law and our statutes. All that has changed is the plaintiffs’ apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.

Conclusion. For the reasons stated, we agree with the judge that the plaintiffs did not demonstrate that they were the holders of the Ibanez and LaRace mortgages at the time that they foreclosed these properties, and therefore failed to demonstrate that they acquired fee simple title to these properties by purchasing them at the foreclosure sale. Judgments affirmed.

VI. Conclusion

The technical application of Ibanez is limited only to foreclosures in The Commonwealth of Massachusetts. However, given that the market value of foreclosing banks fell shortly after Ibanez was issued, it is a state legal opinion of national importance. If Ibanez makes it to Georgia or impacts a significant number of other non-judicial foreclosure states, it will either cause a slowdown of all non-judicial foreclosures or spark the U.S. Congress to step into this fray and settle this economic dispute. That is, we as a nation are going to have to decide whether we want the speed of quick, sloppy secured home sales or, the slower, time tried, transfer of real property titles by filing with the local county clerk of court. Ibanez is not the last word in this gargantuan fight over mindboggling sums of money.

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

www.woodandmeredith.com
hwood@woodandmeredith.com
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Fax: 404-633-0068
&&&

[1]
The true separation of judicial and non-judicial states is misleading since 25 of states allow both judicial and non-judicial foreclosures. Georgia allows both, but lenders only resort to a judicial foreclosure if they are forced into due to a defect in the non-judicial paperwork or an inability to proceed on the courthouse steps.

[2]
If a vendor convey land to a purchaser before he acquire title himself, and he subsequently acquire the title, does such title enure to the benefit of the vendee as against subsequent purchasers or mortgagees? We think it does, and such subsequent mortgagee and those holding under him by subsequent conveyances, hold subordinate to the title which vested in his first vendee the moment the vendor himself got it.’ Parker v. Jones, 57 Ga. 204; Terry v. Rodahan, 79 Ga. 278, 292, 5 S.E. [217 Ga. 183] 38; Lathrop v. White, 81 Ga. 29, 35, 6 S.E. 834; Hill v. O’Bryan Brothers, 104 Ga. 137, 30 S.E. 996; Donalson v. Yeates, 173 Ga. 30(7), 159 S.E. 856; Guy v. Poss, 212 Ga. 724, 95 S.E.2d 682. JL Dillard v. Christine Crane Brannan, et al., 217 Ga. 179, 122 SE 2d 768, 771 (1961).
[3]

Scott v. Cushman & Wakefield of Georgia, Inc., 249 Ga. App. 264, 547 SE 2d 794 (2001). The brokers Cushman & Wakefield brought suit to enforce real estate commissions. The Court of Appeals found that they “lack standing” to bring the action and reverse the trial court. Standing arose out of privity of contract.
The doctrine of privity of contract requires that only parties to a contract may bring suit to enforce it. Decatur North Assoc. v. Builders Glass, 180 Ga.App. 862, 863(1), 350 S.E.2d 795 (1986); see OCGA § 9-2-20(a). Cushman Georgia invoked a recognized exception to the requirement of immediate contractual privity between the parties to an action, specifically, that a party may assign to another a contractual right to collect payment, including the right to sue to enforce the right. Decatur North Assoc., 180 Ga.App. at 863(1), 350 S.E.2d 795; Chancellor v. Gateway Lincoln-Mercury, 233 Ga.App. 38, 41(1), 502 S.E.2d 799 (1998) (choses in action, including accounts receivable, may be assigned); Paulsen Street Investors v. EBCO Gen. Agencies, 224 Ga.App. 507, 509, 481 S.E.2d 246 (1997) (choses in action include the [249 Ga.App. 266] proceeds from a contract performance and are assignable). See OCGA §§ 44-12-20 (chose in action defined); 44-12-22 (assignment of choses in action arising upon contracts). To be enforceable by the assignee, such an assignment must be in writing. Levinson v. American Thermex, 196 Ga.App. 291, 292(1), 396 S.E.2d 252 (1990). Cushman Georgia relies on the affidavit of its senior counsel, a sharing agreement, and two notices of assignment to show that Royal Georgia assigned to it the right to collect commissions from Scott
The parties to the 1992 “sharing agreement” which assigned certain commission receivables were Royal LePage Real Estate Services Limited, an Ontario corporation (“Royal Ontario”), and Cushman & Wakefield, Inc., a New York corporation (“Cushman New York”). The record shows that Royal Georgia ceased to exist as a Georgia corporation in June 1993 when it merged with Royal LePage Real Estate Services United States, Inc., a Delaware corporation (“Royal Delaware”). Cushman Georgia, however, has not identified any document purporting to memorialize an assignment of the right to receive the commissions from Scott by Royal Georgia (or Royal Delaware) to Royal Ontario, or from Cushman New York to Cushman Georgia. In notices Royal Ontario sent to clients responsible for commissions receivable, it stated that it “and its affiliates” entered into a sharing agreement with Cushman New York “and its affiliates” and directed questions to an employee of Cushman Georgia. The face of the sharing agreement, however, shows that neither Royal Georgia nor its successor, Royal Delaware, was a signatory to the agreement. Nor did the affidavit of Cushman Georgia’s senior counsel refer to any written agreements which could complete the chain of assignments from Cushman New York to Cushman Georgia. Therefore, Cushman Georgia failed to come forward with evidence supporting its allegation that it was the successor in interest to Royal Georgia’s right to receive the commissions from Scott. Levinson, 196 Ga.App. at 292(1), 396 S.E.2d 252. Because Cushman Georgia failed to show it was entitled to file suit to recover the commissions Scott owed to Royal Georgia, Scott is entitled to summary judgment on Cushman Georgia’s claim. Lau’s Corp., 261 Ga. at 491, 405 S.E.2d 474; Benton v. Gaudry, 230 Ga.App. 373, 376(2), 496 S.E.2d 507 (1998). The judgment is reversed and the case is remanded for entry of judgment in favor of Scott on Cushman Georgia’s claim. Judgment reversed and case remanded.

[4]
While avoiding taxation at the county level is beyond the scope of this article, much of the securitization process is designed inherently to skip all recording taxation and recording fees at the county recording filing desk. That is, under the current securitization, in cooperation with MERS, the initial Trust Deed, Security Deed, Mortgage is filed with the local County Clerk holding the land records of the County. The filing fee/tax is paid at the time of filing. The loan/mortgage is then registered with MERS. The mortgage is (it may or may not be) uploaded into a securitized instrument that may be sold in the financial markets. Assignments are made and, as in the Ibanez case, are available in blank after the sale of the security underpinned by the mortgage. While this vehicle allows for the quick and easy sale of the mortgage in a “pool” of similar mortgages, it seems to violate all locale state recording statutes and recordation of assignment statutes. The industry’s response is that they are exempt from these state filing fee requirements, because the mortgage merely backs the security and the security is exempt from state law. 15 U.S.C. § 77r. The sale and issuance, etc. of securities is exempt from all state law requirements – such as intervening assignment transfer fees. However, one must ask the ultimate question, how is the secured party to enforce its security interest, if it refuses to comply with the requirements of state law. It needs the state to enforce its security interest. This question is driving issue in all cases similar to Ibanez.

[5]
Massachusetts has a specialized division of its plenary Court system referred to by Massachusetts statute as the “Land Court.” Georgia has no such administrative designation. “The Land Court Department of the Trial Court has statewide jurisdiction. While the court has jurisdiction throughout the Commonwealth, the justices of the Land Court normally sit in Boston. However, it is usual, where the circumstances warrant and counsel request, for the court to hold trials in other locations within the state. The court has exclusive, original jurisdiction over the registration of title to real property and over all matters and disputes concerning such title subsequent to registration. The court also exercises exclusive original jurisdiction over the foreclosure and redemption of real estate tax liens. The court shares, with certain other court departments, jurisdiction over other property matters. Effective January 1, 2003, the court has concurrent jurisdiction over specific performance of contracts relating to real estate and over petitions for partitions of real estate. Under G.L. c.40A and 41, the court shares jurisdiction over matters arising out of decisions by local planning boards and zoning boards of appeal. Both the Land Court and the Superior Court Department have jurisdiction over the processing of mortgage foreclosure cases, determining the military status of the mortgagor. Additionally, the court has superintendency authority over the registered land office in each registry of deeds.” http://www.mass.gov/courts/courtsandjudges/courts/landcourt/jurisdiction.html

END

Friday, August 12th, 2011 Category: 2011 No Comments

Wood & Meredith Representation

Hugh C. Wood

Areas of Expertise:

Real Estate Litigation
Construction Litigation
Foreclosure Litigation (Lender)
Lender Defense
Condemnation Litigation
Complex Civil Litigation
Probate Litigation
Mineral Law

Email hwood@woodandmeredith.com

PRACTICE PROFILE

AV rating Martindale-Hubbell

EDUCATION

LL.M., in Litigation, Emory University, Atlanta, Georgia, 1986.
J.D., University of Alabama, Tuscaloosa, Alabama, 1983. PAD
B.S.B.A., (Marketing/Finance) Auburn University, Auburn, Alabama, 1980, (with honors) (SGA, Senator, Phi Eta Sigma, Lamda Sigma, Squires).

ADMISSIONS

FEDERAL United States Supreme Court, United States Circuit Court for the 11th Circuit (Atlanta, Georgia), United States Circuit Court for the 4th Circuit (Richmond, Virginia), United States District Courts, Northern & Middle District of Georgia, Southern District of West Virginia, United States Tax Court.
GEORGIA Georgia Supreme Court and Court of Appeals.
VIRGINIA Virginia Supreme Court and Circuit Courts.
WEST VIRGINIA Supreme Court of Appeals and Circuit Courts.

FOCUS OF PRACTICE

Civil Litigation

In 2005, the firm settled tax claims associated with commercial property exceeding 30 million dollars of property value..
In 2004, the firm settled tax claims associated with commercial property exceeding 200 million dollars of property value
In 2002, (and again in 2003) the firm obtained a multi-million dollar mineral law judgment.
In 1998, the firm resolved one of the largest multi-million dollar prefiling personal injury settlements in Georgia.
1995, the firm completed the then largest partition of real property in Georgia — 7,000 acres.

Real Estate Disputes

Complex Civil Litigation
Lender Defense; Foreclosure Defense
Partition of Lands, Co-Tenancy, Co-Ownership and Boundary Disputes.
General Contractor defense concerning shopping center buildout in: Georgia, Maryland, Florida, California, Missouri and Minnesota.
Foreclosure Disputes.
Condemnation Litigation for the Georgia Power Company.
Representation of Landowners in Condemnation Disputes
Landlord Representation
Title Defects and Disputes, Restrictive Covenant Disputes
Commercial and Residential Evictions
Mineral Law, Opinions, Representation
Trespass, Water & Flooding Problems and Conversion of Property
Active Georgia Real Estate License.

Probate Disputes

Will and Trust Litigation.
Probate and Estate Administration.
Probate and Estate Litigation.
Caveat Litigation.

Mineral Law

Extensive Mineral Representation in Georgia.
Extensive Knowledge of Marble, Kaolin, and Aggregates in Georgia.
Extensive Representation of Landowners Concerning the Subsurface Partition of Mineral Lands.

PROFESSIONAL LEADERSHIP

President, Real Estate Section, Atlanta Bar, 2002, Vice President, 2001, Treasurer, 2000; (Member at Large, 1998-1999); Member Real Estate Section State Bar of Georgia, Real Estate Section Atlanta Bar and Litigation Section of the Atlanta Bar.
Commissioner to Sell Real Property per Court Order, Appointed by Superior Court of Fulton County
Fiduciary Law Section of the Georgia State Bar.
Represented Landowners in the largest court supervised partition of Real Estate in Georgia history — 7,000 acres. Obtained and Managed valuations on the subsurface minerals, fee simple surface and timber rights on 7,000 acres.
Editor, Georgia Law Monitor, an online publication dedicated to monitoring issues on appeal before the Georgia Supreme Court in the areas of real estate ownership, management, transactions and property taxation.
Avoiding Civil And Criminal Involvement for Real Estate Appraisers. NBI, April 2004. Atlanta, Georgia.
Foreclosure Law: Current Legal Issues; Presented to the Georgia Real Property Law Institute, Ameila Island Plantation, Florida. May 9-11, 2002
City Attorney, City of Lithonia. (2001 to 2003)
2004 Resolved property tax claims in excess of 50 Million Dollars.
2003 Managed successful annexation of DeKalb County property into the corporate limits of the City of Lithonia.
American Trial Lawyers Association (ATLA)
Presiding Judge and Evaluator, Georgia Mock Trial Competition. (1998 – 2001).
Hugh C. Wood, “Recent ‘Pro Se’ Ruling Affects Most Courts,” Fulton County Daily Reporter, March 27, 1997.
Co-Chair, Author and Lecturer, Abusive Litigation, ICLE, February 1997, Atlanta, GA; Author and Lecturer, Abusive Litigation, ICLE, February 2002 and February 2003. Presentation of: Rule 11: Landmines for Lawyers in the 11th Circuit. 2003 Rule 11 Update.
Author, Update on Eckles: Major Changes in “Pro Se” Representation, The Litigator, May 1997.
Author, Metro Probate: Navigating the Jurisdictional Maze, The Litigator, November, 1996.
Author and Lecturer, 1996 Annual Start to Finish Seminar, “How to Get Around Defendant’s Refusal to Turnover Requested Documents,” GTLA, Atlanta, 1996.
Co-Author, Residential and Commercial Evictions in Georgia, NBI, Eau Claire, Wisconsin, (1998); CLE, Atlanta, 1998. (Co-Authors: James A. Gober, Arnall, Golden & Gregory, Atlanta, GA; John J. Wiles, Wiles & Wiles, Marietta, GA).
Author and Lecturer, Handling Problem Tenants and Evictions in Georgia, NBI, Eau Claire, Wisconsin, (1996); CLE, Atlanta, 1996.
Author and Lecturer, Unintended Mischief: The New Workers Compensation Assignment Statute O.C.G.A. § 34-9-11.1, Ga State Bar Journal, Spring 1995. See, 47 Mercer L. Rev. 405.
General Counsel, (GFYRC), Georgia Republican Party, 1993 – 1996.
Co-Author, Textbook, Advanced Trial Problems and Case File, 1st Ed, (NITA, 1988). ISBN 1-55681-121-7.
Author and Lecturer, Worker’s Compensation for the GP, (Atlanta and Savannah, April 1995) (Lectured on the Statute of Limitation Effects of O.C.G.A. § 34-9-11.1).
Represented Clients in the first case to apply the offensive use of collateral estoppel in a wrongful death action, Winding River, et al. v. Barnett, 218 Ga. App. 35, 459 S.E.2d 569 (1995), cert. denied.
Counsel, Co-Counsel or Appellate Counsel on many major cases cited in Georgia with regard to the interpretation of partition of real property, O.C.G.A. § 44-6-166.1.
Litigation occurs on an event by event basis in the economic life of clients. Litigation representation now, or in the past, has been provided to:
• Chase Manhattan Bank
• JPMorgan Chase
• NationsBank Trust
• Bank of America
• BankBoston Mortgage
• Fannie Mae
• GE Capital Mortgage
• Georgia Power Company (Transmission and Condemnation)• Washington Mutual, Inc.
• Wells Fargo

• Homeside Lending

• EquiCredit

• Countrywide

• Fleet Mortgage, etc.

• Alliance Mortgage Company

• Charter One Mortgage

• MidAmericaApartmentCommunities

• for Trust Company Bank

• United General Title

• Sumitomo Corp. of America (Realty)

CIVIC AND PERSONAL

Board of Directors: Northlake Commons (1994 – 2004).
2000 Atlanta Half Marathon
Intern, Hon. Edward Johnson (1986).

Notice: Disclaimer of Attorney Client Relationship by mere use of this website. The mere reading or accessing this website does not create an attorney client relationship. Emailing the firm or using the legal forms posted does not constitute and create an attorney client relationship. If you would like to inquire about possible legal representation, please be aware that we cannot represent you until we know that doing so will not create a conflict of interest for you or our present clients. If you wish to initiate an attorney client relationship, we need the opportunity to conduct a conflict search, review your case and materials and, if appropriate in your situation, complete an engagement letter. Additionally, any information presented on this site is the opinion of the author and does not necessarily reflect the opinions of Wood & Meredith, LLP. These articles posted are not intended to provide specific legal or tax advice, but are intended only to generally familiarize the reader with the subject matter. Matters of specific legal or tax nature should be discussed with a competent attorney or tax professional specializing in that particular field or practice. All use of this website is subject to the Contract of Terms.

Monday, August 8th, 2011 Category: 2011 No Comments

About W&M

Wood & Meredith, LLP, is an AV rated Atlanta law firm with expertise and concentration in complex civil litigation. The firm has extensive expertise in real estate litigation, construction litigation, general contractor defense, condemnation litigation and litigation concerning real property. In 2005, the firm settled tax claims assoicated with commercial property exceeding 30 million dollars of property value; in 2004, the firm settled 200 million dollars of property value. In 2002 (and again in 2003), the firm obtained a multimillion dollar mineral law judgment. In 1998, the firm resolved one of the largest prefiling personal injury settlements in Georgia. In 1995, the firm resolved the largest court ordered partition of real property in Georgia history – in excess of 7,000 acres.

Mr. Wood & Mr. Meredith have published a casebook on complex civil litigation and their appellate decisions have made law in the areas of wrongful death, collateral estoppel, real property rights and mineral law. They currently publish an online magazine devoted to following certain civil issues pending before the Georgia Supreme Court. The firm’s attorneys are frequent speakers and lecturers in the areas of real property litigation, civil litigation, civil procedure and wrongful death.

Friday, July 22nd, 2011 Category: Main Flash No Comments