Tuesday, March 5, 2013

Recent Decisions from the First Circuit regarding: (a) Ethics, (b) Foreclosure, (c) Taxes & (d) Discovery.

Be careful what you say about opposing counsel:
Gilberti v. Coppola, No. 12-1302 (1st Cir. 2/27/13).
District court's decision admonishing interested party-attorney for unprofessional conduct in his representation of a junior mortgagor related to the sale of the foreclosed property, is affirmed, where: 1) attorney's claim that opposing attorney converted funds was never supported by any evidence; 2) attorney's allegation that opposing attorney violated the criminal usury statute was frivolous; and 3) attorney turned what seemed to be innocent misunderstandings into claims of perjury in his allegations of false statements.

Timing for challenge to lender's good faith and fair dealing: 
Latson v. Plaza Home Mortgage, Inc., No. 12-1462 (1st Cir. 2/27/13).
Dismissal of plaintiffs' suit against defendant-mortgage lender alleging state common law and statutory violations in making two house loans is affirmed, where: 1) the good faith and fair dealing claim was properly dismissed because the allegedly wrongful conduct all occurred before the contracts existed, not in violation of their terms after formation, and the covenant only governs conduct of parties after they have entered into a contract; and 2) the statutory claim is time-barred - the statute of limitations for a 93A action is four years, which had  elapsed prior to suit.The specific allegations were that prior to closing Plaza failed to provide Latson with a proper commitment letter, good-faith estimate, or other documents required by the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. §§ 2601–2617, and gave them insufficient opportunity to review the terms of the loans. They also claimed that Plaza either "knew or should have known" that an appraisal of the property that the Latsons obtained at Plaza's request was "too high." The Latsons asserted that all these acts and omissions were actionable under both their common-law and statutory claims.
LATSON:  Click here: USCA1 Opinion

Challenge to IRS' "failure to pay" penalty fails:
Shafmaster v. US, No. 12-1726 (1st Cir. 2/11/13).
Summary judgment was properly granted to defendant on plaintiffs' claim for refund of a failure-to-pay penalty imposed on them by the Internal Revenue Service, where: 1) equitable estoppel does not apply because plaintiffs fail to allege affirmative misconduct on the part of defendant, and none of the documents promised to waive the penalty, and some explicitly warned of the penalty, so there was no definite misrepresentation of fact contained therein as to whether the penalty would be assessed; 2) since plaintiffs did not show inability to pay or undue hardship, they cannot seek refuge in the "reasonable cause" exception; and 3) plaintiff's arguments regarding notice and demand all fail.
Shafmaster:   Click here: USCA1 Opinion

Alleged mortgagee needed to posses the "power of sale" at the time they foreclosed; thus mortgagor's questioning the the assignment did not take place prior to the foreclosure was proper; one who exercises power of sale must strictly follow its terms:
Juarez v. Select Portfolio Servicing, No. 11-2431 (1st Cir. 2/12/13):
Judgment dismissing complaint alleging defendants illegally foreclosed on her home is reversed and remanded, where the complaint states plausible claims for relief and that the district court abused its discretion in deciding that it would be futile to allow an amendment to the complaint. Juarez properly alluded to a challenge that the assignment did not take place prior to the foreclosure thus, the foreclosing entity did not have the "power of sale" at the time they exercised it - which is a different challenge than a mortgagor's challenge to the validity of a third-party assignment.  The issue of whether a "confirmatory assignment" cured the alleged defect was properly the subject of discovery and the complaint should have proceeded on that point.  One who exercises the power of sale must strictly follow its terms. In this Massachusetts case, an assignment of the mortgage must take place before the foreclosure begins. Further, in light of this, the plaintiff should be allowed to amend and re-plead her fraud and Section 93A claims (Mass. Consumer Protection Statute).  Massachusetts covenant of good faith and fair dealing is taken to be implied in every contract, and provides "that neither party shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract" - the covenant only "governs conduct of parties after they have entered into a contract.

In a case of first impression, mortgagor has standing to challenge assignment of mortgage if to do so renders the assignment void, rather than voidable:
Culhane v. Aurora Loan Services of Nebraska, No. 12-1285 (1st Cir. 2/15/13).
In a case of first impression, the court held that the mortgagor possesses standing to challenge the assignment of its mortgage to another entity.  "Withal, a mortgagor does not have standing to challenge shortcomings in an assignment that render it merely voidable at the election of one party but otherwise effective to pass legal title." - thus, making the distinction that the challenge must be that the assignment is "void", rather than "voidable". Thus, here, the mortgagor (namely the borrower or home owner at issue) has standing to contest the validity of the mortgage assignment made by Mortgage Electronic Registration Systems, Inc. (MERS), to defendant, the foreclosing entity; however, the MERS framework and defendant's foreclosure of plaintiff's property complied with the requirements of Massachusetts mortgage law, and thus the foreclosure was lawful. Applying Massachusetts law, the court noted that in Massachusetts, the note and mortgage may be held by separate entities. Further, the terms of the mortgage (contract) authorized the transfer at issue. 

"[I]n Massachusetts, a mortgagor has a legally cognizable right to challenge a foreclosing entity's status qua mortgagee. This may, in certain instances, require challenging the validity of an assignment that purports to transfer the mortgage to a successor mortgagee.  Standing doctrine is meant to be a shield to protect the court from any role in the adjudication of disputes that do not measure up to a minimum set of adversarial requirements.  There is no principled basis for employing standing doctrine as a sword to deprive mortgagors of legal protection conferred up them under state law.  We hold, therefore, that a mortgagor has standing to challenge the assignment of a mortgage on her home to the extent tat such a challenge is necessary to context a foreclosing entity's status qua mortgagee.  We caution that our hold, narrow to begin with, is further circumscribed.  We hold only that a mortgagor has standing to challenge a mortgage assignment as invalid, ineffective, or void (if, say, the assignor had nothing to assign or had not authority to make an assignment to a particular assignee).  If successful, a challenge of this sort would be sufficient to refute an assignee's status qua mortgagee . . . Withal, a mortgagor doe not have standing to challenge shortcomings in an assignment that render it merely voidable at the election of one party but otherwise effective to pass legal title."

Click here: USCA1 Opinion

Discovery, Work-product & Waiver:
Walker v. NH AOC, 2013 DNH 025 (D.N.H. 2013)(Magistrate McCafferty)(court reviewed discovery materials in camera, and determined many must be produced, articulating the parameters of work-product, privilege and waiver).

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