Desmond A. Leone v. Mortgage Electronic Registration Systems,et al. , 101 A.3d 869 ( 2014 )

Supreme Court
No. 2013-59-Appeal.
(PC 10-801)
Desmond A. Leone :
v. :
Mortgage Electronic Registration Systems :
et al.
NOTICE: This opinion is subject to formal revision before publication in
the Rhode Island Reporter. Readers are requested to notify the Opinion
Analyst, Supreme Court of Rhode Island, 250 Benefit Street, Providence,
Rhode Island 02903, at Tel. 222-3258 of any typographical or other
formal errors in order that corrections may be made before the opinion is
published.
Supreme Court
No. 2013-59-Appeal.
(PC 10-801)
Desmond A. Leone :
v. :
Mortgage Electronic Registration Systems :
et al.
Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.
OPINION
Justice Flaherty, for the Court. The plaintiff, Desmond A. Leone, appeals from
summary judgment entered against him and in favor of the defendants Mortgage Electronic
Registration Systems (MERS),1 Equity One, Inc. (Equity One), and Assets Recovery Center
Investments, LLC (ARC). This case came before the Supreme Court for oral argument on
September 24, 2014, pursuant to an order directing the parties to appear and show cause why the
issues raised in this appeal should not be summarily decided. After hearing the arguments and
examining the memoranda filed by the parties, we are of the opinion that cause has not been
shown, and we proceed to decide the appeal at this time, without further briefing or argument.
For the reasons set forth in this opinion, we affirm the judgment of the Superior Court.
1
For a detailed explanation on the function of MERS in the mortgage industry, see Bucci v.
Lehman Brothers Bank, FSB, 68 A.3d 1069, 1072-73 (R.I. 2013).
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I
Facts and Travel
On December 8, 2006, plaintiff Desmond Leone borrowed the sum of $241,000 from
Equity One pledging the home he had owned since 1998 as collateral.2 Equity One was the
lender on the promissory note that Leone signed as maker. The note stated in relevant part, “I
understand that the Lender may transfer this Note. The Lender or anyone who takes this Note by
transfer and who is entitled to receive payments under this Note is called the ‘Note Holder.’”
The note was secured by a mortgage on the Auburn Avenue property. The mortgage deed
denominated Leone as the borrower and mortgagor and specified that MERS was the mortgagee,
acting as nominee for lender, Equity One, and lender’s successors and assigns. The mortgage
deed included the statutory power of sale in favor of MERS as well as “to the successors and
assigns of MERS.” Finally, it was provided that MERS had the right to enforce its interests,
“including, but not limited to, the right to foreclose and sell the property,” in the event Leone
failed to fulfill his obligation to pay the note. The mortgage deed was duly executed and
recorded in the Land Evidence Records for the Town of Johnston on December 11, 2006.
On April 24, 2009, Equity One executed a notarized limited power of attorney enabling
ARC to act on its behalf. ARC’s power of attorney extended to the Leone mortgage that it
purchased from Fulcrum Chicago Corporation (Fulcrum).3 The power of attorney authorized
ARC to act on behalf of the successor to Leone’s note and “use or take any lawful means for
2
The plaintiff’s home was located at 24 Auburn Avenue in Johnston, Rhode Island.
3
On the same day, April 24, 2009, ARC purchased assets from Fulcrum that Fulcrum had
acquired from Equity One via a loan sale agreement, also executed on April 24, 2009. The
limited power of attorney confirmed ARC’s ability to assert the rights, if any, of Equity One in
the assets ARC now held.
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recovery by legal process * * * and generally, to do and perform any and all things necessary and
appropriate in connection with the [loan sale agreement].”
On April 27, 2009, MERS assigned its interest in the Leone mortgage to ARC via an
assignment of mortgage. That assignment was recorded in the Land Evidence Records for the
Town of Johnston on December 4, 2009. Unfortunately, Leone failed to make timely payments
to the lender. As a result of Leone’s default with respect to his obligations, ARC initiated
foreclosure proceedings. In November of 2009, the property was sold at a foreclosure sale
conducted by ARC.
On February 5, 2010, Leone filed an action for declaratory relief in Providence County
Superior Court. His complaint sought a declaration that the assignment from MERS to ARC was
invalid, and it also sought to quiet title to the property. On October 21, 2010, defendants,
without having filed an answer to plaintiff’s complaint, filed a motion to dismiss the complaint
under Rule 12(b)(6) of the Superior Court Rules of Civil Procedure. Attached to the
memorandum in support of the motion to dismiss were two documents that had not been
incorporated in plaintiff’s initial pleading: the note and the limited power of attorney. Leone
filed an objection to the motion to dismiss, attaching to his memorandum a document that was
not part of his complaint. This document, entitled “Consent Order,” was issued by the United
States Department of the Treasury; it concerned MERS’s business practices. After several
continuances, the motion to dismiss was argued on May 24, 2011.4
On April 12, 2012, the hearing justice issued a written decision after having considered
materials outside of the pleadings. As a result, the motion to dismiss was converted to a motion
for summary judgment. In his decision, the hearing justice found that plaintiff had failed to
4
The plaintiff provided no transcript of that hearing to this Court.
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demonstrate the existence of a genuine dispute of material fact. The justice further found that, at
the time of foreclosure, ARC was a valid assignee of the mortgage from MERS and that as a
result, ARC had the statutory power of sale. Additionally, the justice found that ARC held the
power of attorney for the holder of the note. The justice also found that Leone was in default of
his obligations under the note because he had failed to make payments which had precipitated
the foreclosure proceedings. Therefore, the hearing justice granted summary judgment in favor
of defendants. The plaintiff filed a timely appeal to this Court.
II
Standard of Review
When ruling on a motion to dismiss, Rule 12(b) states if “matters outside the pleading are
presented to and not excluded by the court, the motion shall be treated as one for summary
judgment and disposed of as provided in Rule 56 * * *.” Further, this Court has held that “when
the [hearing] justice receives evidentiary matters outside the complaint and does not expressly
exclude them in passing on the motion, then Rule 12(b)(6) specifically requires the motion to be
considered as one for summary judgment.” Multi-State Restoration, Inc. v. DWS Properties,
LLC, 61 A.3d 414, 417 (R.I. 2013) (quoting Martin v. Howard, 784 A.2d 291, 298 (R.I. 2001)).
When a Rule 12(b)(6) motion is converted to a motion for summary judgment, this Court
reviews a plaintiff’s appeal de novo. Multi-State Restoration, Inc., 61 A.3d at 417 (citing
DeSantis v. Prelle, 891 A.2d 873, 876-77 (R.I. 2006)). We employ the same standard as that of
the hearing justice: “[i]f we conclude, after viewing the evidence in the light most favorable to
the nonmoving party, that there is no genuine issue of material fact to be decided and that the
moving party is entitled to judgment as a matter of law, we will affirm the grant of summary
judgment.” Pereira v. Fitzgerald, 21 A.3d 369, 372 (R.I. 2011) (quoting Lacey v. Reitsma, 899
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A.2d 455, 457 (R.I. 2006)). “Moreover, the nonmoving party bears the burden of proving by
competent evidence the existence of a disputed issue of material fact and cannot rest upon mere
allegations or denials in the pleadings, mere conclusions or mere legal opinions.” Daniels v.
Fluette, 64 A.3d 302, 304 (R.I. 2013) (quoting Great American E & S Insurance Co. v. End Zone
Pub & Grill of Narragansett, Inc., 45 A.3d 571, 574 (R.I. 2012)).
III
Discussion
On appeal, plaintiff advances a number of arguments. First, plaintiff contests the hearing
justice’s conversion of the motion to dismiss to a motion for summary judgment. He argues that
the complaint would have survived a motion to dismiss. The plaintiff contends that summary
judgment, even if properly converted, was nonetheless incorrectly granted to defendants. The
plaintiff posits that the assignment of the mortgage from MERS to ARC was invalid, that the
foreclosure by ARC was improper, and that the hearing justice improperly relied on other
Superior Court decisions. We conclude that these arguments are without merit and we will
address them in turn.
A. Conversion of Rule 12(b)(6) Motion
The plaintiff first argues that the conversion of defendants’ Rule 12(b)(6) motion to
dismiss into a motion for summary judgment under Rule 56 of the Superior Court Rules of Civil
Procedure was improper. Specifically, the plaintiff argues that he was not afforded proper notice
of the conversion in accordance with Rule 12(b). Based on our review of the record, we
disagree.
A motion to dismiss under Rule 12(b)(6) allows a court to dispose of a proceeding at an
early stage if the complaint fails to set forth provable facts under which relief could be granted.
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Mendes v. Factor, 41 A.3d 994, 1000 (R.I. 2012). However, it is noteworthy that Rule 12(b) also
provides that,
“[i]f on a motion asserting the defense numbered (6) to
dismiss for failure of the pleading to state a claim upon which
relief can be granted, matters outside the pleading are
presented to and not excluded by the court, the motion shall be
treated as one for summary judgment and disposed of as
provided in Rule 56, and all parties shall be given reasonable
opportunity to present all material made pertinent to such
motion by Rule 56.” (Emphasis added.)
Here, both parties presented materials that had not been included or attached to the
verified complaint when they filed their memoranda in support of and opposition to defendants’
motion to dismiss. The defendants included the note that plaintiff had signed when he executed
the mortgage and the limited power of attorney that bestowed the rights of the note holder on
ARC. In his reply, plaintiff submitted a consent order from several federal agencies that
pertained to the practices of MERS in the mortgage market. The hearing justice, in his sound
discretion, considered those documents in addition to the pleading and “[u]nder these
circumstances, conversion of the dismissal motion to one for summary judgment was automatic
under the rules.” Bowen Court Associates v. Ernst & Young, LLP, 818 A.2d 721, 726 (R.I.
2003). Indeed, a party who supplies matters outside of the pleadings to a judge who is
considering a motion to dismiss cannot complain of a lack of notice that such materials would be
considered and a conversion to a motion for summary judgment would result. See Ingram v.
Mortgage Electronic Registration Systems, Inc., 94 A.3d 523, 527 (R.I. 2014) (citing Ouimette v.
Moran, 541 A.2d 855, 856 (R.I. 1988)).
The parties disagree on whether the hearing justice advised the parties that he would
consider the additional documents that were submitted to him. However, no transcript of that
hearing was provided to this Court. “[T]he deliberate decision to prosecute an appeal without
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providing the Court with a transcript of the proceedings in the trial court is risky business.”
Sentas v. Sentas, 911 A.2d 266, 270 (R.I. 2006) (quoting 731 Airport Associates, LP v. H & M
Realty Associates, LLC, 799 A.2d 279, 282 (R.I. 2002)). Nonetheless, the submission of
additional materials outside the pleadings is sufficient to constitute notice. Ingram, 94 A.3d at
527. Further, in the absence of a documented request by plaintiff to exclude such materials, we
can discern no error in the hearing justice’s action. Both parties submitted materials outside the
pleadings for the hearing justice to consider before he ruled on the motion to dismiss.
Accordingly, we are satisfied that plaintiff was not denied notice or the opportunity to present
additional material and that the Superior Court justice properly converted the motion to dismiss
to one for summary judgment.
B. Motion for Summary Judgment
The plaintiff next argues that the hearing justice erred when he determined that no
genuine dispute of material fact existed and when he granted summary judgment in favor of
defendants. The plaintiff argues that the assignment of the mortgage from MERS to ARC was
invalid, that the foreclosure sale by ARC was not proper, and that the hearing justice improperly
relied on previously decided Superior Court cases in making his decision. However, after
reviewing the record, we are of the opinion that the arguments plaintiff advances concern the
hearing justice’s conclusions of law and not matters of fact.
“Summary judgment is appropriate when no genuine issue of material fact is evident
from ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with
the affidavits if any,’ and the motion justice finds that the moving party is entitled to prevail as a
matter of law.” Swain v. Estate of Tyre ex rel. Reilly, 57 A.3d 283, 288 (R.I. 2012) (quoting
Beacon Mutual Insurance Co. v. Spino Brothers, Inc., 11 A.3d 645, 648 (R.I. 2011)). The
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plaintiff has failed to meet his burden of showing the existence of a disputed issue of material
fact. In our opinion, the authority of MERS, as named mortgagee, to foreclose or to assign the
mortgage are questions of law, not questions of fact to be determined by the hearing justice.
Mruk v. Mortgage Electronic Registration Systems, Inc., 82 A.3d 527, 532 (R.I. 2013). In so
concluding, we note that we do not write on a blank slate and that we have addressed the issues
raised by plaintiff in previous opinions. See Mruk, 82 A.3d at 532; Bucci v. Lehman Brothers
Bank, FSB, 68 A.3d 1069, 1085 (R.I. 2013).
The plaintiff argues that MERS lacks the statutory power of sale because it held the
mortgage only as nominee of the lender, Equity One, but this argument is without merit. In a
case where the mortgage used identical language to the one in question, this Court held that
MERS was the mortgagee with statutory power of sale. See Bucci, 68 A.3d at 1085. Here, as in
Bucci, the mortgage language said, “[b]orrower 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, with Mortgage Covenants upon the Statutory Condition and
with the Statutory Power of Sale * * *.” Id. at 1081. When plaintiff executed the mortgage
containing this explicit language, he gave to MERS the contractual authority to exercise its right
to foreclose.
Further, plaintiff argues that MERS did not validly assign the mortgage to ARC because
it did not hold the note, but again, this Court has disposed of this argument. In a similar case, we
have held that MERS, as mortgagee and nominee of the lender, could validly assign the
mortgage and invest its assignee with the statutory power of sale. Mruk, 82 A.3d at 537. In
Mruk, MERS assigned its interest in the mortgage to the Federal National Mortgage Association
(FNMA), which later began foreclosure proceedings. Id. at 530-31. We held that, based on the
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reasoning in Bucci, the same entity need not hold the mortgage and the note, MERS was a valid
mortgagee despite not holding the note, and its assignment to FNMA was therefore consistent
with Rhode Island law. Mruk, 82 A.3d at 537. Similarly, the assignment of Leone’s mortgage to
ARC was valid because MERS was the mortgagee and nominee for the original lender, Equity
One and its successors and assigns. Upon the execution of the assignment, ARC held the
statutory power of sale with the ability to foreclose.
The plaintiff next argues that the power of attorney that was issued to ARC by the note’s
named lender, Equity One, is invalid or not authentic. The hearing justice accepted its
authenticity and found that it credibly demonstrated that ARC held the power of attorney for the
lender, in addition to being the assignee of the mortgage via MERS. We can divine no error by
the hearing justice in construing the document within the context of a proceeding for summary
judgment.
With respect to the remaining essential facts, the plaintiff does not show the existence of
a genuine dispute; “[o]nce ‘the moving party establishes grounds for [summary] judgment, the
opposing party, who counters that there is a material factual dispute, * * * must set forth specific
facts that would constitute a genuine issue for resolution at trial.’” McGovern v. Bank of
America, N.A., 91 A.3d 853, 858 (R.I. 2014) (quoting Riel v. Harleysville Worcester Insurance
Co., 45 A.3d 561, 570 (R.I. 2012)). In his filings, the plaintiff never disputed that he was in
default of his obligations under the promissory note, never disputed the mortgage deed and
assignment, which he included with his verified complaint, and accepted that the note provided
by the defendants was an accurate copy. Accordingly, we agree with the hearing justice that no
genuine issues of material fact existed and that the matter was ripe for summary judgment in
favor of the defendants.
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IV
Conclusion
For the reasons set forth above, the judgment of the Superior Court is affirmed and the
record may be remanded thereto.
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RHODE ISLAND SUPREME COURT CLERK’S OFFICE
Clerk’s Office Order/Opinion Cover Sheet
TITLE OF CASE: Desmond A. Leone v. Mortgage Electronic Registration Systems et
al.
CASE NO: No. 2013-59-Appeal.
(PC 10-801)
COURT: Supreme Court
DATE OPINION FILED: October 20, 2014
JUSTICES: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.
WRITTEN BY: Associate Justice Francis X. Flaherty
SOURCE OF APPEAL: Providence County Superior Court
JUDGE FROM LOWER COURT:
Associate Justice Allen P. Rubine
ATTORNEYS ON APPEAL:
For Plaintiff: Mindy C. Montecalvo, Esq.
For Defendant: William M. Walsh, Esq.