Archive for January 18th, 2012

Ex Parte Motions to Substitute Party Plaintiff

I’m not very happy right now as I read a 2-1 decision from a three-judge panel from Florida’s Third District Court of Appeal.  The decision stems from an involuntary dismissal entered in favor of a homeowner, at trial, because the plaintiff failed to prove the requisite elements of its case.  In the words of the trial court judge, dismissal of the foreclosure case was required “as a result of Plaintiff’s failure to establish its status as the owner and holder of the applicable Note and Mortgage with standing to bring suit.”

In the appellate court, however, two judges decided the lower court erred by so ruling.  The third judge on the three-judge panel vehemently disagreed, but his opinion was relegated to a dissent. 

Oddly, the majority began its analysis of whether the plaintiff proved its case at trial by discussing an interlocutory Order which permitted the plaintiff to substitute as the plaintiff in the lawsuit.  That Order provided:

The Bank of New York Trust Company, N.A., as successor to JPMorgan Chase Bank, N.A., as trustee, is the real party in interest and proper Plaintiff in this action, and;

The Bank of New York Trust Company, N.A., as successor to JPMorgan Chase Bank, N.A., as trustee, is hereby substituted for JPMorgan Chase Bank, formerly known as Chase Manhattan, as trustee, residential funding corporation, as attorney in fact, as the proper Plaintiff in this action and the style is amended as reflected on this Order.

In the view of the majority, “because there was no denial or defense raised in defendants’ pleadings concerning this finding, the judgment under review cannot be permitted to stand for that reason alone.” 

This is an absolute bombshell, folks.  It’s a major, major trap for unsuspecting homeowners (especially those proceeding without counsel), one that the Florida courts have, perhaps unwittingly, been routinely and systematically permitting for many years.  Before I explain why that is, and what we must all do to avoid it, let’s start out by explaining why the majority’s opinion is, respectfully, misguided. 

First off, I struggle to see how the majority can confuse an interlocutory Order granting a motion to substitute party plaintiff, which does nothing more than allow the new plaintiff to bring suit, with proof that said plaintiff was the owner and holder of the Note and Mortgage and was entitled to foreclose.   This isn’t like confusing apples and oranges; this is mistaking apples and lawnmowers. 

Leave to amend is granted on a regular basis, almost as a matter of course.  When that happens, it means the plaintiff is entitled to bring suit against the defendant (and prove its case at trial).  It does NOT mean the plaintiff has proven the elements of his/her case (without proof at trial) – it only means the plaintiff can assert the claims.  To blend these two concepts together, and confuse permission to bring a claim and proof of that claim, is, frankly, quite misguided.   In fact, by my research, this is the first Florida case which in any way suggests that an Order substituting a party plaintiff not only allows the new plaintiff to bring suit, but also operates as some sort of finding that the new plaintiff is the correct plaintiff. 

Many Florida cases have explicitly rejected this sort of rationale.  For instance, there are legions of cases in the context of leave to amend which make it clear that an Order granting leave to amend does not mean the plaintiff’s claims have merit, but merely that the plaintiff is permitted to bring them.  (I’m so confident in this argument it doesn’t even need a case cite.)  Similarly, a plaintiff who has procured a money judgment and wants to collect against a different defendant (not named in the original suit) can initiate proceedings supplementary against that party pursuant to Fla. Stat. 56.29.  To do so, the plaintiff must file a motion and procure an order from the court allowing it to sue the new defendant.  When that happens, Florida courts have explained that such an Order, if granted, does not mean the plaintiff’s complaint against the new defendant has merit, only that the plaintiff is allowed to bring the suit.  See Machado v. Foreign Trade, Inc., 544 So. 2d 1061 (Fla. 3d DCA 1989).  Proving the allegations in the suit is, of course, a matter for trial. 

Here, the situation is the same.  When a party seeks to substitute in as the new plaintiff, it is only entitled to a ruling that it can bring suit (in place of the original plaintiff) – not a determination that the new plaintiff is actually the correct plaintiff, has standing, or is entitled to any relief.  Apparently, the majority concludes otherwise based on that portion of the Order which says the plaintiff is the “real party in interest and proper Plaintiff.”  In other words, as the majority would have it, the lower court concluded the new plaintiff was the correct Plaintiff when it entered that Order, even without proof at trial.  

What’s the big deal about that, you ask?  Well, it would be one thing if the Order concluding the Plaintiff was the correct Plaintiff was entered after an evidentiary hearing, where the homeowner had a chance to object, present evidence, and cross-examine the plaintiff’s witnesses.  Unfortunately, that virtually *never* happens, at least not in Florida.  Instead, Orders substituting a party plaintiff are routinely entered by Florida judges ex parte, without notice, and without hearing. 

Let’s repeat that: 

Orders substituting a party plaintiff are routinely entered by Florida judges ex parte, without notice, and without hearing.

Hence, what makes the majority’s reliance on the Order substituting plaintiff (in lieu of evidence at trial) so troubling is that said Order was undoubtedly entered without giving the homeowner a chance to be heard.   

Think about this for a minute.  This was a foreclosure case that advanced to trial.  The presiding judge thought the bank presented insufficient evidence at trial to prevail.  But two appellate judges disagreed based on an Order substituting plaintiff that was entered ex parte, without notice, and without hearing.  Hence, according to these two judges, evidence to justify foreclosure is unnecessary – the plaintiff obtained the Order of substitution, and since the Order included gratuitious fact-findings (included by the plaintiff’s attorney), the plaintiff need not present evidence at trial. 

I could blog all day long about the erroneous nature of this ruling.  In a way, that’s really not the point.  The point is this … if any judges think, rightly or wrongly, that an Order substituting party plaintiff can ever replace proof at trial, it is absolutely imperative that every Florida homeowner contest each and every motion to substitute party plaintiff.  Let’s say that again: 

Every Florida homeowner must challenge every motion to substitute party plaintiff in every foreclosure case.

After all, according to these two judges, the failure to challenge that motion can mean the plaintiff doesn’t have to present evidence at trial, and obviously we can’t let that happen. 

Given the now-obvious risk that Florida courts will accept Orders of substitution in lieu of evidence at trial, it is imperative that all Florida judges give homeowners a chance to object to all such motions and stop entering these orders ex parte, without notice, and without hearing.  In other words, it’s past time that these ex parte Orders stop being entered. 

Procedurally, there’s no way anyone could disagree.  The rule on substitution of parties is clear.  Fla.R.Civ.P. 1.260 explicitly requires a “notice of hearing” be filed along with the motion to substitute.  Where the Rule mandates a hearing, it is legal error to enter such Orders without a hearing.  See Metcalf v. Lee, 952 So. 2d 624 (Fla. 4th DCA 2007). 

Substantively, the need for a hearing is apparent.  If judges are going to use the Order of substitution in place of evidence at trial, all homeowners should be entitled to a hearing prior to such an Order being entered.  That means, of course, that all homeowners must request such a hearing and object to all motions to substitute party plaintiff.  After all, as the majority ruled, if you don’t object, you could be deemed to waive your right to complain later. 

So what should homeowners do to avoid this trap?  I see a few solutions. 

First, and perhaps most obvious – challenge the Motion to Substitute Party Plaintiff!  Make it clear, in writing, that you oppose the substitution.  Make it clear, in writing, that you want a hearing.  Force the new plaintiff to explain, in writing (and, ideally, under oath) why it is entitled to the substitution.  If the issue is that the Note/Mortgage were transferred after suit was filed, Rule 1.260 probably authorizes the substitution.  But if the issue is that the original plaintiff never had standing, and a new plaintiff is trying to cure the original plaintiff’s standing deficiencies by a motion to substitute party plaintiff, then the requested substitution should be denied.  And if the basis for the substitution is unclear, it should be denied until the plaintiff so clarifies. 

Second, even if an Order of substitution is granted, make sure the Order does not contain any sort of finding that the new Plaintiff is the “correct” Plaintiff.  By granting a substitution, all the court is doing is giving that party permission to bring a case, not making a fact-finding that the new Plaintiff has standing.  Quite frankly, I don’t think any Florida judge is intending to rule that the new Plaintiff is the “correct” Plaintiff (and need not present evidence at trial) by entering an Order substituting party plaintiff, so I think most judges will be happy to so clarify.  However, it’s obviously important that the written Order so reflect.  For instance, I’d envision something like this:

The Motion to Substitute Party Plaintiff is granted, and XYZ Plaintiff may prosecute this case in place of the original Plaintiff. In so ruling, this Court does not pass on the question of whether XYZ Plaintiff is the correct Plaintiff or has standing to foreclose; the Court is merely giving Plaintiff leave to plead a claim against Defendants. 

If the Order is worded like that, it should prevent any problems. 

Third, if an Order substituting party plaintiff is granted, I’d argue the new Plaintiff should have to file an Amended Complaint, enabling the homeowner to plead in response thereto.  After all, the majority makes it clear that the homeowner has to plead its standing defenses, and that being the case, the new plaintiff should have to plead its claims as well.  In other words, the homeowner should get to plead in response to a complaint brought by the new plaintiff (with allegations that the new plaintiff is the owner and holder of the Note and Mortgage), not be in a position of answering a Complaint brought by the original plaintiff when a new plaintiff is in place. 

Fourth, regardless of whether the presiding judge requires an Amended Complaint, all Florida homeowners should make sure they obtain leave to amend, particularly if they’ve already filed an Answer.  That way, it will be impossible for any judge to conclude the homeowner waived defenses by failing to plead them.  Obtaining leave to amend shouldn’t be difficult, either – it’s freely given, and it would have to be given if the court just allowed the substitution of a new plaintiff. 

For what it’s worth, Stopa Law Firm has been challenging Motions to Substitute Party Plaintiff – systematically, in every case – for a long time.  There are two ways to do so, i.e. by written objection (if an Order hasn’t been entered), or by a Motion to Vacate Order (if an ex parte Order was signed).  Frankly, I saw this trap coming a long time ago, and I’ve been trying to prevent it from prejudicing my clients.  It’s a touchy issue, though, one that I couldn’t imagine pro se homeowners handling without counsel. 

Before concluding, there are four other things about the majority’s ruling that really bother me which merit discussion:

1.  I am well aware of the line of cases cited by the majority for the proposition that standing is an affirmative defense which must be pled.  However, the majority overlooks the fact that the plaintiff being the “owner and holder” is an element of the plaintiff’s case, not a defense by the homeowner.  See Fla.R.Civ.P. Form 1.944.  As such, unless the homeowner admitted the plaintiff was the “owner and holder” in his/her Answer (which I highly doubt, lest the majority would have said as much), then the plaintiff proving it is the owner and holder is not something the homeowner could have waived – it’s something the plaintiff must prove at trial, like any element of a plaintiff’s case in any lawsuit.  

2.  The majority acts as if this interlocutory Order which substituted the plaintiff was set in stone and that a contrary finding was impossible.  In other words, the majority would have you believe that once the trial court signed an Order saying the plaintiff was “the real party in interest and proper Plaintiff in this action” that it could not, even in the face of evidence at trial, conclude otherwise.  Respectfully, that is simply not true.  As with any interlocutory Order, the judge had the discretion to reconsider that Order prior to the conclusion of the case.  See Fla.R.Civ.P. 1.530.  Hence, if the court conducted the trial and concluded based on the evidence presented that the plaintiff was not the correct plaintiff, nothing about the prior, interlocutory order prevented it from so ruling. 

Without mentioning it, the majority seems to rely on a legal doctrine called “law of the case.”  Under this legal principle, once an appellate court rules on an issue in a given case, the lower court is prohibited from ruling otherwise in that case.  Many lawyers cite this doctrine in support of an argument that a court cannot change its prior rulings.  However, that is not how it works.  “Law of the case” only applies when an appellate court makes a ruling, binding a lower court to that ruling; law of the case does not apply to rulings by the trial court.  Here, the lower court’s Order substituting the plaintiff, even to the extent it contained fact-findings, was not ”law of the case,” so the court was free to disregard or reconsider said Order as it saw fit.  To rule otherwise is to fly in the face of years of established precedent enabling trial court judges to reconsider interlocutory orders at any time prior to entry of final judgment.   

3.  The majority characterizes the assignments of mortgage as “self-authenticating.”  Respectfully, this is a false statement of law.  A Note is self-authenticating under the UCC, as are the indorsements on a Note.  However, assignments of mortgage are not negotiable instruments, are not subject to the UCC, and are not self-authenticating.  Tellingly, the majority cites no case law otherwise, as no such case law exists.  (To the extent the majority cites Riggs, that decision discusses Notes, not assignments.

Respectfully, it is very disappointing to see such a glaring misstatement of the law in a Florida appellate decision, particularly one that touches on novel issues that have not previously been addressed.  What’s more troubling is that I can’t help but wonder if the majority cited the law in this manner because it was looking for an excuse to rule against the homeowner.  That may sound harsh, but for those who know this area of law, it is troubling to see a statement that an assignment of mortgage is self-authenticating, without any legal citations, when I know that statement is false. 

4.  The majority makes conclusory assertions that the plaintiff presented sufficient evidence to re-establish a lost note, yet it cites no facts to support such a conclusion.  This failure is particularly troubling when I read the dissent, which explains that the plaintiff had no idea when the Note was lost or who lost it. 

Florida courts are inundated with foreclosure cases.  We are all dying for insightful, detailed opinions from our appellate courts, giving us guidance on the law and how to apply the law to a given set of facts.  Respectfully, citing a statute and saying the plaintiff complied is of little value. 

Here, for instance, is the majority trying to say the plaintiff need not show when the Note was lost or who lost it?  Frankly, I have no idea, because the majority does not elaborate.  As a result, lawyers like myself and the many able trial court judges before whom I appear will continue to decide for themselves, with little direction or insight, exactly what proof is required in a foreclosure case. 

Unfortunately, this is why Florida judges have such disparate views on how to rule on such issues – we have, quite frankly, very little guidance from our appellate courts.  What’s good about this, though, is that this shows why lawyers can be so beneficial for homeowners facing foreclosure.  There is a LOT of gray area in foreclosure cases, so having a lawyer who knows the ins and outs, and can avoid falling into the traps like the one in this opinion, can make all the difference.

Mark Stopa

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