mortgages and condos


I am back from vacation in lovely Florida (gee, did we get any snow up here in Maine while I was gone?) and while I was away, the Maine SJC has been as busy as beavers.  Since this is Cathy's blog, let's talk about the two recent cases in which she participated.

1.  Bank of America v. Cloutier, 2013 ME 17

This was before the Court on a question reported from the Superior Court (Fritzsche, J.), asking about the meaning of language in 14 M.R.S. s. 6321, added in 2009, providing that "[t]he mortgagee shall certify proof of ownership of the mortgage note …."  in a judicial foreclosure.  We represented the Federal Home Loan Corporation (Freddie Mac), which had purchased the note in question.  Bank of America serviced the loan, and at the time of the foreclosure suit was filed also possessed the note, which had a blank endorsement.  BOA filed the foreclosure suit, and the homeowner argued that the cited statutory language meant Freddie Mac had to be the plaintiff, i.e. only the economic beneficiary could sue.  We filed an amicus brief in support of BOA's position that Freddie Mac did not have to be the plaintiff. 

After accepting the reported question, the Court started, as always, with the plain language of the statute.  Section 6321 expressly provides that "after breach of condition in a mortgage of first priority, the morgagee or any person claiming under the mortgagee may proceed for the purpose of foreclosure …." This language, as the Court noted, shows that the "certify proof of ownership" language isn't a standing requirement, so the homeowner's interpretation was rejected.  There is no definition of "ownership" in the statute, so the Court interpreted the language "to require the plaintiff to identify the owner or economic beneficiary of the note and, if the plaintiff is not the owner, to indicate the basis for the plaintiff's authority to enforce the note pursuant to Article 3-A of the UCC," citing previous caselaw connecting a party's right to bring an action for foreclosure to its right to enforce under 11 M.R.S. s 3-1301.  BOA can enforce under the UCC as the holder, meeting the standing requirement.  Because the relevant statutory language was plain, the Court did not have to probe further.  

Kudos to Elizabeth Papez at Winston & Strawn for a very good oral argument representing BOA.

2.  America v. Sunspray Condominium Association, 2013 ME 19

In this case, a condominium owner sued his association, some of the directors and others asserting that the defendants, whom we represented, were not adequately enforcing a smoking ban.  The Business and Consumer Court (Horton, J.) granted our motion to dismiss and the SJC affirmed.

The decision is full of useful rulings relating to the Maine Condominium Act and other points. To wit:

(a) Justice Horton had rejected the plaintiff's second motion to amend his complaint.  In not finding the abuse of discretion needed to reverse the Superior Court's decision, the SJC noted that at that point in the proceedings when the second amendment was sought, there were other claims remaining scheduled for trial (dropped by the plaintiff after the motion to amend was denied to allow appeal of the dismissed claims), and that Justice Horton said it was time to get a move on.  Also, nothing foreclosed the plaintiff from filing a new action based on the nuisance claims he wanted to add, so that no injustice would occur by denying the amendment.

Hence, this part of the ruling is a useful cite, inter alia, for the points that (1) slowing down the trial can be a reasonable basis to deny a motion to amend; and (2) there are two requirements to flip a denial of a motion to amend, abuse of discretion and that the amendment is necessary to prevent injustice, and if there are no significant impediments to a separate suit the latter requirement isn't met.                     

(b) The plaintiff sought to sue derivatively.  The Court rejected this argument.  Hence, this ruling holds that one cannot sue a condominium association derivatively under the Maine Condominum Act and the Maine Non-Profit Corporation Act.  In the absence of a specific provision in a statute providing for a derivative action, the Court said it would not infer that one was authorized.

(c) The Court found that the business judgment rule applied.  This meant that the plaintiff had to allege that the challenged action was taken in bad faith.  The plaintiff had made a conclusory allegation of "bad faith," but the conduct alleged in the complaint was not a blanket refusal to enforce the ban, but rather that the ban was not enforced in the way the plaintiff wanted.  That's not bad faith as a matter of law.  Hence, this part of the decision shows that a conclusory recitation of the phrase "bad faith" is insufficient to overcome a motion to dismiss when the factual allegations indicate otherwise.  Disagreement, the Court noted, is not bad faith – "bad faith imports a dishonest purpose and implies wrongdoing or some motive of self-interest."

(d) Finally, the court also affirmed the Superior Court's ruling that the allegations of injury were insufficient.  The relevant allegation was that the plaintiff "cannot enter or leave his unit without passing the exhaust of a unit in which tobacco is being smoked in violation of the Smoking Ban."  The Condominium Act allows "adversely affected" members to pursue relief, and the relevant condominium Declaration similarly referenced the right of an "aggrieved" unit owner to sue.  Again, the allegation was insufficient to withstand a motion to dismiss – a complaint "must … allege facts sufficient to demonstrate that the complaining party has been injured in a way that entitles him or her to relief."  An allegation of exposure to secondhand smoke was not enough.  Even under the common law negligence count, there needed to be "actual" injury, beyond "the typical annoyances or inconveniences that are a part of everyday life."  Hence, this part of the decision supports the point that a complaint must have some allegation showing a palpable, actual injury. 

I could go on, but, as this short summary indicates, the decision is an important one in the area of condominium owner rights and director and association duties.

Finally, it is notable that the Court made these decisions fast - the condo case was argued January 15, and the decision issued February 12; the BOA case was argued January 16, and decided February 7.  No justice denied through delay in the SJC, which we can all applaud.