Dernier v. Mortgage Network, Inc., Mortgage Electronic Systems, Inc., and U.S. Bank National Association
2013 Vt. 96
Vt.2013Background
- Peter and Nicole Dernier executed a 2005 promissory note and mortgage to Kittredge Mortgage Corp.; the instruments were subsequently transferred through the secondary market and ended up in a trust administered by U.S. Bank.
- Plaintiffs fell behind on payments; U.S. Bank (through counsel) asserted it possessed the original note and had standing to foreclose; plaintiffs then sued seeking (a) declaratory relief that U.S. Bank cannot enforce the note or mortgage due to alleged fraudulent/irregular transfers and PSA violations; (b) a Consumer Fraud Act (CFA) claim; and (c) attorneys’ fees under the CFA.
- Plaintiffs alleged (i) defects and forged endorsements on the negotiable note, (ii) problematic assignments of the mortgage (wrong nominee language, servicer employee signing, assignment after trust closing), and (iii) PSA noncompliance (trust acquisition rules and timing).
- The trial court denied leave to file a second amended complaint and dismissed the amended complaint for failure to state a claim, holding (inter alia) no standing to enforce PSA terms, fraud-based declaratory relief premature pre-foreclosure, and CFA claim inadequately pleaded as to injury.
- On appeal the Vermont Supreme Court (1) treated the proposed amendment as the operative complaint, (2) held plaintiffs lack standing to challenge PSA breaches because such breaches render assignments voidable (not void), (3) reversed dismissal insofar as plaintiffs alleged fraud/forgery in the note/mortgage chain (those claims are sufficiently pleaded and justiciable), (4) affirmed dismissal of the CFA claim for failure to allege cognizable injury, and (5) affirmed denial of default judgment against MERS.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to challenge assignments based on PSA violations | Dernier: as mortgagors they can invalidate assignments that contravene the PSA and thus preclude U.S. Bank’s enforcement rights | U.S. Bank: Plaintiffs are not parties or third‑party beneficiaries to the PSA and so lack standing; PSA breaches do not affect enforceability against mortgagors | Held: Plaintiffs lack standing to enforce PSA terms because PSA violations render assignments voidable not void; mortgagors cannot attack assignments on PSA grounds (affirmed) |
| Ripeness / justiciability of fraud/irregularity challenge to chain of title pre-foreclosure | Dernier: letter from U.S. Bank’s counsel and default/acceleration create an immediate justiciable controversy; declaratory relief is appropriate to avoid uncertainty and risk of wrongful payment/double payment | U.S. Bank: premature—no foreclosure filed so dispute is not ripe; plaintiff seeks advisory opinion | Held: Claims of fraud/forgery in transfer of the note/mortgage are justiciable now; dismissal for prematurity was erroneous as to those allegations (reversed as to Counts 1 & 2) |
| Consumer Fraud Act claim based on U.S. Bank’s representation of enforcement rights | Dernier: the representation that U.S. Bank possessed the note and could enforce it was deceptive and thus violated Vermont CFA | U.S. Bank: statement was either true or not materially deceptive to plaintiffs; no concrete injury alleged; no reliance | Held: CFA claim dismissed—plaintiffs failed to allege the statutory prerequisite (reliance or ascertainable injury); dismissal of CFA counts affirmed |
| Default judgment against MERS for failure to answer | Dernier: MERS defaulted; default judgment appropriate | U.S. Bank/MERS: case is declaratory and interdependent among parties; court should not enter default before all parties are joined and served | Held: Trial court did not err in denying default; plaintiffs never renewed motion after parties were joined (affirmed) |
Key Cases Cited
- Prive v. Vermont Asbestos Group, 992 A.2d 1035 (Vt. 2010) (standard on motion to dismiss after amended complaint)
- Kaplan v. Morgan Stanley & Co., 987 A.2d 258 (Vt. 2009) (motion to dismiss standard)
- Mahoney v. Tara, LLC, 15 A.3d 122 (Vt. 2011) (pleading and inference rules on dismissal)
- Gifford Memorial Hosp. v. Town of Randolph, 118 A.2d 480 (Vt. 1955) (purpose of declaratory judgment act; early relief to avoid prejudice)
- U.S. Bank Nat’l Ass’n v. Kimball, 27 A.3d 1087 (Vt. 2011) (holder must prove enforceability when bringing foreclosure)
- Wells Fargo Bank, N.A. v. Rouleau, 46 A.3d 905 (Vt. 2012) (holder can enforce guaranty; discussion of proof of status)
- Jordan v. Nissan N. Am., Inc., 853 A.2d 40 (Vt. 2004) (tests for consumer fraud claims and prerequisites for private action)
- Culhane v. Aurora Loan Servs., 708 F.3d 282 (1st Cir. 2013) (mortgagor has standing to challenge assignment to contest foreclosing entity’s status)