Opinion
13-P-1891
07-29-2015
RIVERVIEW APARTMENTS, LLC v. CITY NATIONAL BANK & another.
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Riverview Apartments, LLC (Riverview), having defaulted on its note secured by a mortgage on its three apartment buildings (property) in Springfield, surrendered possession upon request to the then holder of the note and mortgagee, Imperial Capital Bank (Imperial), on November 1, 2009. In this action, Riverview seeks to hold City National Bank (CNB), Imperial's successor (Imperial and CNB are referred to collectively as bank), and CRE Management, LLC, a property manager hired by the bank, accountable for waste and mismanagement of the property and damages pursuant to G. L. c. 93A while the bank controlled the property.
After Riverview filed its complaint, the record reflects that the city of Springfield (city) completed a tax foreclosure of the property and thereby extinguished Riverview's right of redemption. Finding that Riverview, having lost all rights of redemption, lacks standing to pursue a claim for damage to the property, a judge of the Superior Court granted the bank's motion for judgment on the pleadings and CRE Management's motion to dismiss. Although we agree with the judge that Riverview is not entitled to bring a claim of waste or an accounting, we hold that Riverview, at this early stage of the proceedings, has arguably stated a claim under c. 93A arising from the bank's alleged breach of its duties as mortgagee in possession. As a result, we reverse so much of the judgments as dismiss the G. L. c. 93A claims, and affirm the judgments in all other respects.
Our order previously issued on December 10, 2014, has been withdrawn, and this new decision follows that action.
Background. According to the complaint, on April 25, 2005, Riverview purchased the property for $2.4 million financed by a mortgage note to LaSalle Bank in the principal amount of $1,920,000 and secured by a first mortgage on the property. Riverview defaulted on its note and upon the bank's demand, surrendered possession on November 1, 2009. At that time, according to the complaint, the property had a fair market value of $2.3 million and was generating income of approximately $234,000 per year.
"In evaluating a [Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974)] motion, we take into consideration the allegations in the complaint, although matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint, also may be taken into account." Lalchandani v. Roddy, 86 Mass. App. Ct. 819, 824 (2015), quoting from Schaer v. Brandeis Univ., 432 Mass. 474, 477 (2000). In addition to the complaint, the judge and the parties relied on decisions in related court proceedings contained in the record, and we do the same.
The complaint alleges on "information and belief" that LaSalle Bank assigned the mortgage to Imperial. Imperial failed and as of December 18, 2009, CNB became the mortgagee through a purchase and assumption agreement with the Federal Deposit Insurance Corporation. Litigation continued in Imperial's name as well as in CNB's name.
Riverview made substantial improvements to the property, including restoration after significant damage from fires in 2007 and 2008.
The judge found that on November 9, 2009, the bank issued a notice of sale of the property pursuant to a power of sale contained in the mortgage, but that no actual foreclosure sale ever took place. The bank retained CRE Management for the purpose of collecting rents. The complaint further alleges that shortly after the bank took possession, an oil delivery ordered by the bank or CRE Management resulted in oil flooding the basement of one of the property's buildings, triggering a response order by the Massachusetts Department of Environmental Protection. The complaint contends that only a partial clean-up was performed. There is no assertion that the bank pursued claims against responsible parties or insurance carriers.
The judge noted that there was a dispute between the parties as to whether the sale was completed but concluded that the bank was judicially estopped by its position in a prior action from asserting in this action that it had completed a foreclosure sale. Had the bank completed a foreclosure sale, it would have been obligated to account to Riverview pursuant to G. L. c. 183, § 27, and it would have had no ground for moving to dismiss the accounting claim.
In addition to taking control of the property, the bank commenced an action to collect on the mortgage note. On February 12, 2010, noting that Riverview had failed to appear and defend in that action but noting that the guarantors on the mortgage note had appeared, a judge of the Superior Court (not the judge who entered the judgments in the present case) granted summary judgment to the bank in the amount of $1,901,856.84. On March 8, 2010, the bank and the guarantors entered in the record a "stipulation regarding offset to the judgment of February 12, 2010," which provided that the judgment "in the amount of $1,901,856.84 shall be offset by the amount of the sale of the property." Still, no foreclosure sale was conducted and ten months later, on December 31, 2010, separate and final judgment entered against Riverview and the guarantors in the amount of $1,901,856.84 plus per diem interest and attorney's fees in the amount of $26,000.
Alexander Schmidt and Anna Pyatigorskaya.
It is not apparent from the record that Riverview was aware of any waste that had occurred at the property before this date.
Although the guarantors opposed entry of final judgment, the bank took the position that it never agreed in the stipulation to sell the property, "but only that the judgment defendants [Riverview and the guarantors] would be entitled to a credit owed on the judgment amount in the event of a sale."
According to the complaint, the property was further damaged by fire in May of 2010 and no repairs were made. Tenants were lost and the property became unproductive. The city condemned the property and ordered its demolition. In addition, neither Riverview nor the bank paid taxes on the property during the bank's control and tax liens accrued. On December 8, 2011, the city commenced tax foreclosure proceedings and service was made on Riverview on May 23, 2012, and on the bank on November 29, 2012.
On August 20, 2012, prior to final judgment in the city's tax foreclosure action, Riverview commenced this action seeking an accounting and/or damages for mismanagement and waste of the property. It also asserted a c. 93A claim. The bank filed an answer on or about September 26, 2012. On November 14, 2012, the bank filed a motion for judgment on the pleadings and CRE Management filed a motion to dismiss, both arguing that in the absence of a claim for redemption, Riverview had no standing to bring a claim for an accounting or for waste. On November 20, 2012, Riverview moved to amend its complaint to add a claim for redemption. On March 13, 2013, a final judgment entered in the city's foreclosure action, expressly eliminating Riverview's right of redemption. The bank supplemented its opposition to the motion to amend with this information.
The judge heard all of the motions together and on July 24, 2013, entered a memorandum and order (i) allowing the bank's motion for judgment on the pleadings, (ii) allowing CRE Management's motion to dismiss, and (iii) denying as moot Riverview's motion to amend its complaint to add a claim for redemption. Judgments entered accordingly on July 29, 2013.
A single justice of this court allowed Riverview's motion to file a late notice of appeal from the underlying judgments. The bank's appeal from the single justice's decision was consolidated with the underlying appeal. We discern no abuse of discretion by the single justice.
Discussion. To survive a motion to dismiss, the plaintiff must allege facts "'plausibly suggesting (not merely consistent with)' an entitlement to relief." Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008), quoting from Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level." Ibid. "We review the allowance of a motion to dismiss de novo, accepting as true all well-pleaded facts in the complaint and favorable inferences drawn therefrom. We also may take into account the materials attached thereto." Cook v. Patient Edu, LLC, 465 Mass. 548, 549 (2013). Dismissal is not warranted if it appears that the plaintiff has stated a plausible claim for relief even though he has failed to identify the appropriate legal theory. See Eigerman v. Putnam Invs., Inc., 450 Mass. 281, 285-286 (2007).
A motion for judgment on the pleadings is governed by the same standard as a motion to dismiss. Welch v. Sudbury Youth Soccer Assn., 453 Mass. 352, 353-354 (2009).
It has long been the rule that upon default, a mortgagee may pursue its multiple remedies concurrently or successively until the debt is repaid. Trustees of Smith Charities v. Connolly, 157 Mass. 272, 276 (1892). Thus, one who has entered to foreclose may also bring a suit on the note. Ibid. See Burtis v. Bradford, 122 Mass. 129, 131 (1877). The bank, therefore, was well within its rights to both obtain a judgment on the note and also take control with intent to foreclose on the property.
"Where, as here, entry is made after and because of a breach of the mortgage conditions, the entry is presumed to be for the purpose of foreclosure." Santiago v. Alba Mgmt., Inc., 77 Mass. App. Ct. 46, 51 n.9 (2010).
"Of course the mortgagee can have but one satisfaction of his debt." Trustees of Smith Charities v. Connolly, 157 Mass. at 276. Thus, where a mortgagee forecloses by entering and possessing for three years, "the mortgage debt is discharged . . . 'to the extent of the value of the [mortgaged land] at that time.'" Santiago v. Alba Mgmt., Inc., 77 Mass. App. Ct. 46, 51 (2010), quoting from Boston v. Gordon, 342 Mass. 586, 593 (1961). Similarly, when a bank has "entered and taken possession of the plaintiff's property and [has] sold it," the bank becomes "obligated to account for all moneys received and expenses incurred by it in dealing with the mortgaged property." Davis v. Newburyport Five Cents Savs. Bank, 311 Mass. 377, 386 (1942). See G. L. c. 244, § 20.
Here, while the bank took steps early on to conduct a foreclosure sale, the sale was never completed. Thus, the bank's duty to account for the period of its control and the value it received at foreclosure never arose. Also, the record does not reflect that the bank recorded a notice pursuant to G. L. c. 244, §§ 1 & 2, when it took control in 2009 or at any time thereafter. Accordingly, although the bank held the property for more than three years, the record does not reflect that it effectively completed a foreclosure such that the mortgage debt had to be discharged to the value of the property. Moreover, so far as an accounting claim pursuant to G. L. c. 244, § 20, is concerned, we agree that in the absence of a completed foreclosure sale or viable redemption claim, Riverview lacks standing. See Krikorian v. Grafton Co-op. Bank, 312 Mass. 272, 276-277 (1942); Strong v. Merchants Mut. Ins. Co., 2 Mass. App. Ct. 142, 151 (1974), S.C., 366 Mass. 751 (1975). See also G. L. c. 183, § 27. In addition, Place v. Sawtell, 142 Mass. 477, 478 (1886), strongly suggests that the interest of a mortgagor out of possession is not strong enough to support a claim for waste.
Despite the lack of filing a certificate pursuant to G. L. c. 244, §§ 1 & 2, the bank admits it became mortgagee in possession on December 18, 2009.
We also agree that even if we were to ignore that the city ultimately eliminated Riverview's right of redemption, in the absence of an assertion by Riverview that it would pay whatever amount was deemed to be due, Riverview's efforts to amend the complaint to add a redemption claim correctly was denied. Lynch v. Newburyport Five Cents Savs. Bank, 293 Mass. 129, 131-132 (1936).
Having said this, the c. 93A claim is a closer question. We understand the judge's rationale that with the failure of the claims for waste and an accounting, Riverview's c. 93A claim followed suit. However, c. 93A, § 11, provides an independent cause of action for a business entity that "engages in the conduct of any trade or commerce and [that] suffers any loss of money or property, real or personal, as a result of . . . an unfair or deceptive act or practice" of another business entity engaged in trade or commerce. G. L. c. 93A, § 11, as amended by St. 1986, c. 363, § 1. See Auto Flat Car Crushers, Inc. v. Hanover Ins. Co., 469 Mass. 813, 822 (2014). Chapter 93A does not define "unfair or deceptive act or practice," but courts look to the circumstances of each case. Kattar v. Demoulas, 433 Mass. 1, 13-14 (2000).
"Chapter 93A is 'a statute of broad impact which creates new substantive rights and provides new procedural devices for the enforcement of those rights.'" Id. at 12, quoting from Slaney v. Westwood Auto, Inc., 366 Mass. 688, 693 (1975). "It 'makes conduct unlawful which was not unlawful under the common law or any prior statute.'" Id. at 12-13, quoting from Commonwealth v. DeCotis, 366 Mass. 234, 244 n.8 (1974). "Although whether a particular set of acts, in their factual setting, is unfair or deceptive is a question of fact . . . the boundaries of what may qualify for consideration as a c. 93A violation is a question of law." Milliken & Co. v. Duro Textiles, LLC, 451 Mass. 547, 563 (2008), quoting from Schwanbeck v. Federal-Mogul Corp., 31 Mass. App. Ct. 390, 414 (1991), S.C., 412 Mass. 703 (1992).
Here, that the bank had a legal right to enter is not necessarily a defense to a claim under c. 93A. Kattar, 433 Mass. at 13-14. It is well settled that when a mortgagee makes the decision to take possession of the property, it assumes certain responsibilities. It takes on a duty to deal with the property as a reasonably prudent owner would. Altobelli v. Montesi, 300 Mass. 396, 400 (1938). See Miller v. Lincoln, 72 Mass. 556, 557 (1856) ("[A] mortgagee, by taking possession for the purpose of foreclosure, imposes upon himself the duty of a provident owner, and is bound to recover where such an owner would, with reasonable diligence, have recovered"); Fletcher v. Bass River Savs. Bank, 182 Mass. 5, 7 (1902) (mortgagee, while in possession, bound to use reasonable means to preserve estate from loss or injury); Negron v. Gordon, 373 Mass. 199, 206 n.6 (1977) ("An entry into possession, even where ineffective to foreclose a mortgage, may nevertheless give the mortgagee possession of the property, as well as the right to collect rents and the duty to make necessary repairs"); Eno & Hovey, Real Estate Law § 10.19 (2014-2015 Supp.) ("Once a mortgagee has entered into possession prior to a sale, and continues in possession, the mortgagee is liable as an owner for paying real estate taxes, for violating statutes protecting tenants, and for maintaining hazardous waste and violating the lead paint law and is subject to zoning by-laws"). It has been said that "[a]s a quasi trustee of the property it was plainly [the mortgagee in possession's] duty to relieve the trust estate from the lien of the taxes if the funds in his possession could be so used without detriment to the administration of that estate." Sibley v. Garland, 239 Mass. 20, 30 (1921).
Indeed, although the record does not reveal to whom the taxes were assessed, it very well may be that they were assessed to the mortgagee in possession as the "owner." G. L. c. 59, §§ 11 & 12B.
The complaint alleges specific facts plausibly suggesting that the bank, as mortgagee in possession, and CRE Management, as the bank's agent, breached their duties to Riverview and arguably acted unfairly or deceptively within the scope of c. 93A. See Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 474-475 (1991). During the time the bank acted in a manner suggesting it had taken possession and Riverview had a right to expect the bank to act prudently with regard to the property, the property allegedly deteriorated to the point that the city condemned and demolished it. Despite collecting rents for some period of time, it appears no taxes were paid and no maintenance was performed on the property. A reasonable inference from the complaint is that there may have been liable parties or insurance proceeds the bank could have pursued in relation to the errant oil delivery and/or the May, 2010, fire. It is not apparent on the record that a reasonable owner would not have taken steps to protect the property and pursue liable parties. Where, as here, a bank has taken control of a mortgagor's property to collect rents and presumably to foreclose by sale, advertises but fails to complete the sale, and during its continued admitted possession, arguably in violation of its duty to treat the property as an ordinary prudent owner would, allows the property to deteriorate to the extent it is condemned and demolished by the city, we cannot say Riverview has failed to make a claim for relief pursuant to c. 93A.
We reverse so much of the judgments as dismiss Riverview's complaint with regard to the c. 93A claims and remand for further proceedings consistent with this memorandum and order. We affirm the judgments in all other respects. We do not intimate at all how the matter should be resolved.
To the extent that we have stated facts, we are mindful that any such facts remain merely alleged at this stage.
So ordered.
By the Court (Kantrowitz, Grainger & Hanlon, JJ.),
The panelists are listed in order of seniority. --------
Clerk Entered: July 29, 2015.