Castagnaro v. Bank of New York Mellon , 772 F.3d 734 ( 2014 )

United States Court of Appeals
For the First Circuit
No. 14-1195
JOSEPH CASTAGNARO,
Plaintiff, Appellant,
v.
THE BANK OF NEW YORK MELLON,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Joseph A. DiClerico, Jr. U.S. District Judge]
Before
Howard, Lipez and Barron,
Circuit Judges.
Stephen T. Martin, with whom The Law Offices of Martin &
Hipple, PLLC was on brief, for appellant.
Elizabeth T. Timkovich, with whom Phoebe N. Coddington and
Winston & Strawn LLP were on brief, for appellee.
Stephanie A. Bray and New Hampshire Legal Assistance on brief,
amicus curiae in support of appellant.
November 20, 2014
HOWARD, Circuit Judge. This case presents the
labyrinthine question of whether New Hampshire law requires a
foreclosing entity to hold both mortgage and note before it can
exercise a power of sale under N.H. Rev. Stat. Ann. ("RSA") §
479:25. In turn, that issue splinters into two distinct inquiries:
whether either the common law or state statute mandates the unity
of the two and, if so, whether parties can override that baseline
rule by agreement. Because controlling state precedent does not
provide definitive guidance on how to resolve these queries, and
since consequential federalism interests are implicated, we will
certify the questions to the New Hampshire Supreme Court. N.H.
Sup. Ct. R. 34.
I.
In April 2007, Plaintiff-Appellant Joseph Castagnaro
executed a promissory note in favor of Regency Mortgage Corporation
("Regency") and a mortgage to Mortgage Electronic Registration
Systems, Inc. ("MERS") as nominee for the lender and lender's
successors and assigns. From that point forward, the mortgage
document (evidencing the security interest in the property) and the
note (evidencing the underlying agreement to repay the loan on the
property secured by the mortgage) traveled different routes.
On December 3, 2010, MERS assigned the mortgage to BAC
Home Loan Servicing ("BAC"). Subsequently, it was assigned to
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Defendant-Appellee Bank of New York Mellon ("BNYM"). BNYM is the
current mortgagee.
Two versions of the note are found in the record. The
first shows an undated indorsement from Regency to American
Residential Mortgage. The phrase "certified true copy" has been
excised in this version. The second version includes an undated
assignment from Regency to American Residential Mortgage, and an
undated indorsement to Countrywide Bank FSB. An allonge (in
essence, an attachment) to this note reveals an undated assignment
from Countrywide Bank FSB to Countrywide Home Loans, followed by an
undated indorsement in blank.
After Castagnaro failed to make certain mortgage
payments, BNYM moved to foreclose. Just days before the scheduled
foreclosure sale, however, Castagnaro obtained an ex parte
injunction in New Hampshire state court. Invoking diversity
jurisdiction, BNYM removed the case.
Once in federal court, Castagnaro amended his complaint,
which BNYM swiftly moved to dismiss. In January 2014, the district
court allowed BNYM's motion. It concluded that the parties' intent
to separate the mortgage and note at the onset of the transaction
trumped any common law rule requiring unity. The court based this
decision on analogous cases from the federal district court of New
Hampshire, see, e.g., Galvin v. EMC Mortg. Corp., No. 12-cv-320-JL,
2013 WL 1386614 (D.N.H. Apr. 4, 2013)("Galvin I"), and a state
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superior court decision, Dow v. Bank of N.Y. Mellon Trust Co., No.
218-2011-cv-1297, 2012 N.H. Super. LEXIS 52 (N.H. Super. Ct.
Rockingham Cnty. Feb. 7, 2012). As mortgagee, BNYM could thus
proceed with the foreclosure under RSA § 479:25, which authorizes
"mortgagee[s]" to conduct non-judicial foreclosures where, as here,
the mortgage document contains a clause allowing them.
Castagnaro timely appealed, and he requests that we
certify the issues to the New Hampshire Supreme Court.
II.
We may certify a question to the New Hampshire Supreme
Court when the issue of state law "may be determinative" of the
case, and if "it appears [that] . . . there is no controlling
precedent in the decisions of" the New Hampshire Supreme Court.
N.H. Sup. Ct. R. 34. Though we are generally reluctant to do so
when a party requests certification for the first time on appeal,
see Boston Car Co., v. Acura Auto. Div., Am. Honda Motor Co., 971
F.2d 811, 817 n.3 (1st Cir. 1992), that delay alone does not tie
our hands, see Easthampton Sav. Bank v. City of Springfield, 736
F.3d 46, 50 n.4 (1st Cir. 2013) (referencing our sua sponte
authority to certify questions of law).
Here, the relevant requirements are satisfied such that
the New Hampshire Supreme Court is "better suited to address the
issue[s]," Pagán-Colón v. Walgreens of San Patricio, Inc., 697 F.3d
1, 18 (1st Cir. 2012). Definitive answers to the certified
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questions will either resolve the entire case or position us to
wrap up this appeal. Yet, existing New Hampshire law does not
forecast the answers to the questions as they have emerged in the
context of the modern real-estate market. A brief discussion shows
why.
A. Must an entity foreclosing under RSA § 479:25 hold both
the mortgage and note?
Though BNYM held the mortgage when the foreclosure was
initiated, it is unclear who held the underlying promissory note.
Thus, the baseline issue in this case is whether, as a general
rule, a party must possess both instruments in order to foreclose
under RSA § 479:25. Two sources of law may affect the resolution
of this question: the common law and New Hampshire's statutory
regime. Neither, however, permits us as a federal court to answer
the question with confidence.
The relevant case law dates back to the nineteenth and
early twentieth centuries. These cases suggest that the mortgage
and note are inseparable and thus a party would need both to
foreclose. See Platts v. Auclair, 108 A. 167, 168 (N.H. 1919)
("This evidence was sufficient to sustain the plaintiff's burden of
proof to establish his ownership of the note and mortgage."); see
also Page v. Pierce, 26 N.H. 317, 322 (1853); Smith v. Moore, 11
N.H. 55, 62 (1840). Indeed, several New Hampshire superior court
decisions have invoked the common law to hold just that. See,
e.g., Deutsche Bank Nat'l Trust Co. v. Monchgesang, No. 09-C-00200,
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2012 N.H. Super. LEXIS 56 (N.H. Super. Ct. Hillsborough Cnty. Mar.
27, 2012); Newitt v. Wells Fargo Bank N.A., No. 213-2011-cv-00173,
2011 N.H. Super. LEXIS 60 (N.H. Super. Ct. Chesire Cnty. July 14,
2011); Zecevic v. U.S. Bank, Nat'l Ass'n, No. 10-E-196, 2011 WL
7110237 (N.H. Super. Ct. Belknap Cnty. Jan. 20, 2011).
Yet, there exists another interpretation of the common
law that may reconcile those cases with modern market practices.
The early decisions emphasize the debt (rather than the note) as
being tethered to the mortgage. See, e.g., Southerin v. Mendum, 5
N.H. 420, 430 (1831) ("Unless he [or she] at the same time
transfers the debt, nothing will pass by his [or her] deed.")
Though the note may serve as evidence of that debt, see Howland v.
Spencer, 14 N.H. 580, 584 (1844), according to BNYM, it is the
mortgagee's connection to the debt, rather than to the note, that
permits the mortgagee to move forward with a foreclosure. BNYM
goes on to argue that if a mortgagee retains legal title to the
mortgage, while the note holder possesses an equitable interest in
the mortgage, see, e.g., Culhane v. Aurora Loan Servs. of
Nebraska, 708 F.3d 282, 291-92 (1st Cir. 2013)(stating that, under
Massachusetts law, "[t]he noteholder possesses an equitable right
to demand and obtain an assignment of the mortgage"), then the
mortgage and debt are inexorably tied together (regardless of where
the note may travel), and the mortgage alone should be sufficient
to foreclose. This is true even if the mortgagee then has an
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obligation to account to the note-holder. This perspective, BNYM
proffers, is the one that best comports with a real-estate market
in which instruments are routinely divided and sold off.
Even if the New Hampshire Supreme Court rejected that
argument, it might view this question (as the Massachusetts Supreme
Judicial Court did) as one governed by "principles of agency." See
Eaton v. Fed. Nat'l Mortg. Ass'n, 969 N.E.2d 1118, 1129 n.20 (Mass.
2012). It could therefore hold that although a mortgagee must
generally possess the note to foreclose under RSA § 479:25, it can
also foreclose "as the agent of the note holder." Id. If the New
Hampshire court were to follow that approach, it would also need to
decide whether language in the mortgage document in this case
naming MERS "nominee for lender and lender's successors and
assigns" creates an agency relationship allowing foreclosure under
RSA § 479:25. Id. at 1134 n.29 (noting that possibility but not
resolving it). It would further need to resolve whether the use of
the term "nominee" to describe that relationship imposes any burden
on the mortgagee to show specific authorization from the note
holder before foreclosing. Cf. Dwire v. Sullivan, 642 A.2d 1359,
1360 (N.H. 1994)("Unlike in a 'true trust,' the trustees of a
nominee trust have no power, as such, to act in respect of the
trust property but may only act at the direction of (in effect, as
agents for) the beneficiaries." (internal quotation marks
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omitted)). We see nothing in existing New Hampshire precedent that
provides a clear answer to these questions.
Even if the common law were clear a cogent argument can
be made that, regardless of the common law, the statute governing
non-judicial foreclosures independently requires an entity to hold
both the mortgage and note. RSA § 479:25. Though the law itself
does not explicitly address the rights or responsibilities of the
note-holder, several provisions assume that the borrower will be
paying the mortgagee; in other words, it presumes that the
mortgagee and note-holder would be one in the same. See, e.g., RSA
§§ 479:7a, 479:10, 479:13, 479:18. This could theoretically imply
that the legislature intended to impose this requirement, and
considered the proposition so obvious that it had no need to state
it.
Of course, that argument is somewhat undercut by the
statute's plain language. Indeed, one could read the term
"mortgagee" as referring solely to the holder of the mortgage. See
Galvin v. EMC Mortg. Corp., ___ F. Supp. 3d ___, 2014 WL 4823657 at
*10 (D.N.H. Sept. 25, 2014)(examining the plain meaning of the word
"mortgagee" at the time that § 479:25 was enacted)("Galvin II").
Equally problematic, neither party points us to authority that
illuminates the legislature's intent.
On balance, we are left with cases that tend to suggest
that the two instruments are inseparable, but which may not have
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foreseen (or been responsive to) modern market practices. We also
have an arguably ambiguous statute without the benefit of
associated, interpretive case law. The New Hampshire Supreme Court
has not expressed its views on either in the context of the
contemporary marketplace, and, therefore, the most appropriate
course of action is to seek its guidance.
B. Can the parties' intent override the unity rule
and, if so, does separating the note and mortgage at
the onset of the transaction indicate such an intent?
If in fact possession of the note is generally required
to foreclose under RSA § 479:25 -- either by statute, common law,
or both -- we are still left with a perplexing issue that has
divided courts within New Hampshire: whether the parties can
contract around that rule. Several New Hampshire state courts have
said no. See, e.g., Zecevic, 2011 WL 7110237. These courts simply
ask whether the mortgagee also possesses the note; the parties'
intent is irrelevant.
Yet, at least one state superior court has diverged from
the others. In Dow v. Bank of New York Mellon Trust Co., the
court, focusing extensively on the common law, held that even if
ownership of the note is generally required to foreclose, the
parties' intent can override that obligation. 2012 N.H. Super
LEXIS. at *21-28. Moreover, the litigants' decision to separate
the two instruments at the beginning of the transaction manifested
their desire to bypass that rule. Id. This interpretation, the
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court reasoned, avoided the possibility that the mortgage was void
ab initio. Id. at *9-10. Notably, decisions from the federal
District of New Hampshire have consistently considered Dow to be
the most persuasive state authority. See, e.g., Worrall v. Fed.
Nat'l Mortg. Ass'n, No. 13-cv-330-JD, 2013 WL 6095119, at *4
(D.N.H. Nov. 20, 2013); Galvin I, 2013 WL 1386614 at *7-8.
Embedded here is an additional dispute about how best to
determine the parties' intent. The Dow approach, finding the
initial separation of the two instruments to be dispositive, is
easy to administer. But, it is also not inevitable. The question
of intent could also easily turn on further factual findings or
involve an analysis of the plain terms of the mortgage agreement.
See, e.g., Littlefield v. Acadia Ins. Co., 392 F.3d 1, 10 (1st Cir.
2004). For instance, it is conceivable that the parties separated
the instruments at the beginning of the transaction solely to
permit MERS to act as the recording agent for the lender, but with
an expectation that the two instruments would be reunited at the
time of any foreclosure. Cf. Bank of Am. v. Greenleaf, 96 A.3d 700
(Me. 2014)(finding MERS to only have the right to record a mortgage
as nominee for the lender). Although the law may require us to
sift through the parties' shared intent, no controlling authority
from New Hampshire conveys how to properly do so in this situation.
Finally, even if we were able to answer those questions
with respect to New Hampshire common law, the exercise could be
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academic if the foreclosure statute (previously discussed)
independently requires possession of both the mortgage and note.
RSA § 479:25. That is, even if parties can circumvent the common
law rule, it is unclear whether they could do the same with respect
to the statute. On one hand, section 479 permits parties to waive
certain aspects of the law or to alter them through explicit terms
in the mortgage. See, e.g., RSA § 479:25(IV) (permitting waiver of
notice prerequisites). This logic could theoretically apply to the
putative requirement at issue here. Conversely, the fact that the
legislature expressly provided for waivers or exceptions in certain
circumstances, but may have failed to do so in this context, could
signify that the rule is immutable. Without controlling case law
on point, we simply cannot settle this question.
After considering the arguments from all angles, only one
thing is clear: the law is not. Such uncertainty animates us to
certify this case to the state Supreme Court.1
III.
In addition to satisfying the technical requirements of
New Hampshire Supreme Court Rule 34, this case implicates
1
If one must possess the mortgage and note, an additional
issue is whether the note must be the "blue-ink" original. The
district court had no reason to tackle that question and reasonably
sidestepped it. For us, it only becomes relevant if remand to the
district court is necessary. If that path is required, our review
would benefit from the district court's consideration of the
question in the first instance. See Montalvo v. Gonzalez-Amparo,
587 F.3d 43, 49 nn.5-6 (1st Cir. 2009). Thus, we will neither
resolve nor certify this question.
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compelling federalism considerations which strongly militate
towards certification. See, e.g., United States v. Howe, 736 F.3d
1, 5 (1st Cir. 2013). Though we have recently had occasion to
traverse the muddled world of MERS, this case, unlike our recent
decisions, presents a question of first principles respecting how
New Hampshire will address the ongoing foreclosure saga. It is one
with significant implications for the state of New Hampshire, and
thus should ultimately be decided by its Supreme Court. See, e.g.,
Bucci v. Lehman Bros. Bank FSB, 68 A.3d 1069 (R.I. 2013); Eaton,
969 N.E.2d 1118.
IV.
Accordingly, we certify the following questions to the
New Hampshire Supreme Court:
1) Does New Hampshire common law and/or RSA § 479:25
require a foreclosing entity to hold both the mortgage
and note at the time of a nonjudicial foreclosure? If
so, can an agency relationship between the note
holder and the mortgage holder meet that requirement,
and does language in the mortgage naming the mortgagee
"nominee for lender and lender's successors and
assigns" suffice on its own to show an adequate agency
relationship?
2) Assuming that the common law and/or RSA § 479:25
requires a unity of the mortgage and note at the time
of a nonjudicial foreclosure, and that an agency
relationship between the note holder and the mortgage
holder does not satisfy such a requirement, can the
parties' intent to separate the two overcome the unity
rule? If so, does separating the mortgage and
note at the onset of the transaction indicate such
intent as a matter of law?
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We are cognizant that the New Hampshire Supreme Court
currently may be considering similar issues in Bergeron v. New York
Community Bank, (14-0185) (N.H. argued Oct. 15, 2014) (another
reason why we should not be too quick to act). We defer to that
court on how it chooses to handle the logistics of resolving the
overlapping questions. We would also welcome any other comments on
relevant points of state law that the New Hampshire Supreme Court
should wish to share.
The clerk of this court is instructed to transmit to the
New Hampshire Supreme Court, under the official seal of this court,
a copy of the certified questions and our opinion in this case,
along with copies of the parties' briefs, appendix, and
supplemental filings under Rule 28(j) of the Federal Rules of
Appellate Procedure. We retain jurisdiction over this appeal.
So Ordered.
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