Macera v. Pawtucket Credit Union

• Court: Court of Appeals for the First Circuit
• Decided: June 14, 2013
• Docket: 12-1795
• Status: Published

Opinion

United States Court of Appeals For the First Circuit

No. 12-1526

RUDOLF F. FRYZEL AND RUTH E. FRYZEL,

Plaintiffs, Appellees,

v.

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., ET AL.,

Defendants, Appellants.

No. 12-1563

IN RE: CERTAIN DEFENDANTS TO THE IN RE: MORTGAGE FORECLOSURE CASES, ET AL.,

Petitioners.

No. 12-1720 THOMAS D. GAMMINO,

Plaintiff, Appellee,

Defendants, Appellants. No. 12-1721 JULIO FONSECA, ET AL.,

No. 12-1768 FRITZ BARIONNETTE, ET AL.,

No. 12-1839 COLLETTE P. FITZPATRICK,

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND [Hon. John J. McConnell, Jr., U.S. District Judge]

Before

Howard, Circuit Judge, Souter,* Associate Justice, and Lipez, Circuit Judge.

* Hon. David H. Souter, Associate Justice (Ret.) of the Supreme Court of the United States, sitting by designation. Maura K. McKelvey, with whom Richard E. Brianksy and Amy B. Hackett were on brief, for appellants. Mark Ladov, with whom Matthew Menendez, Steven Fischbach, John Rao, and Geoff Walsh were on brief, for amici curiae Rhode Island Legal Services, Inc., Brennan Center for Justice at New York University School of Law, National Consumer Law Center, Inc., Direct Action for Rights and Equality, and Housing Network of Rhode Island. Corey J. Allard, with whom George Babcock was on brief, for appellees.

June 14, 2013 SOUTER, Associate Justice. The plaintiff-appellees in

this consolidated interlocutory appeal are defaulted mortgagors of

Rhode Island real estate. They have brought suit to prevent

foreclosure or eviction, on the shared ground that ostensible

assignments of their mortgagees’ legal titles are invalid, leaving

the assignees without the right to foreclose. In most cases, the

assigning mortgagee was the Mortgage Electronic Registration

System, Inc. (MERS).1 The defendant-appellants are the

corresponding mortgagees, their agents or assignees (“mortgagees”),

who apparently hold Rhode Island mortgagees’ legal titles and

assert the right to foreclose for default on mortgage terms. By

appeal and mandamus petition, they claim error in the district

court’s failure to provide notice and hearing before issuing

successive orders imposing a stay in the nature of a preliminary

injunction against foreclosure and possessory proceedings, and in

its failure to set limits of time and cost when referring the

mortgagors’ cases challenging foreclosure to a Special Master for

mandatory mediation. We remand with instructions to hold a prompt

hearing with reasonable notice on the question whether the

injunction should be continued, in belated compliance with Federal

1 See Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282 (1st Cir. 2013), for a description of MERS’s structure and function. There is no need to go into such background in detail here, for this appeal is about judicial procedure, not about the substantive rights of mortgage parties or their assignees, as contested in these consolidated cases.

-4- Rule of Civil Procedure 65(a)(1), and to establish specific limits

of time and expense if the reference for mediation is to remain in

effect.

I

Although at the time of briefing there were nearly 700

cases in the district court subject to the challenged orders (not

all of them subject to this appeal), they began in the state courts

with a trickle, from which some of them were removed to federal

court based on diversity jurisdiction. In 2011, a magistrate

recommended dismissal in two of those cases on the ground that the

mortgagors had no standing to challenge the assignments of the

original mortgagees’ interests, see J.A. 226-27, 264-65, but the

district court has not to this day acted on the recommendations,2

and instead has established a Foreclosure Docket for managing the

cases in what has become a deluge of those removed to the district

court or originally brought there in the aftermath of the court’s

orders staying the foreclosures and appointing the Special Master

to mediate the claims.

The orders imposing a stay did not in terms forbid

non-judicial foreclosure by mortgagees acting under a power of sale

mortgage contract as authorized by Rhode Island law, but when one

2 One of these cases was subsequently dismissed for reasons not pertinent here. The other remains in mediation. We note that the issue raised is not about a mortgagor’s general standing to challenge foreclosure, but about standing to challenge a mortgagee’s assignment of its interest.

-5- of them took that action in a case on the docket, the court issued

an order in that case providing that the stay “prevents defendants

from foreclosing on properties that are subject of a pending

complaint in the In Re: Mortgage Foreclosure Master Docket.” J.A.

367. When a new docket-wide order was then issued continuing the

“stay” in effect in all cases, it was clear from the sequence of

the orders that the stay was meant to bar power of sale

foreclosures otherwise requiring no prior judicial approval, or any

other foreclosure or possessory action for that matter. This

consolidated appeal by some of the defendant mortgagees followed,

objecting to that order and to the failure of the mandatory

mediation order to set limits of time and expense.

II

The first contested issue here is over the jurisdiction

of this court to review what the district court calls the stay

order, although on the face of the record jurisdiction seems

obvious. 28 U.S.C. § 1292(a)(1) provides a court of appeals with

authority to entertain appeals from “interlocutory orders of the

district courts . . . granting . . . or refusing to dissolve . . .

injunctions,” and the sequence of orders already quoted shows that

the “stay” “prevents [mortgagees] from foreclosing.”

In attempting to support their contrary position that the

stay is not an injunction, the mortgagors rely repeatedly on the

district court’s choice of a word in calling the order a “stay,”

-6- which they describe as one that merely “halts and delays”

foreclosure or eviction by process outside this litigation.

Appellee’s Br. 4. But these are not substantial arguments. The

nature of an order is the product of its operative terms and

effect, not its vocabulary and label. See Gulfstream Aerospace

Corp. v. Mayacamas Corp., 485 U.S. 271, 287-88 (1988); Manchester

Knitted Fashions, Inc. v. Amalgamated Cotton Garment & Allied

Indus. Fund, 967 F.2d 688, 690 (1st Cir. 1992). As against a stay,

which is “simply related to court procedures,” an injunction, by

whatever name, directs or forbids a party to act, with serious

consequences, enforceable by the contempt power, and it grants some

or all of the relief requested by the favored party. Bogosian v.

Woloohojian Realty Corp., 923 F.2d 898, 901, 903-04 (1st Cir.

1991). The order here can only be read as forbidding mortgagees to

foreclose even in the exercise of a statutorily sanctioned power of

sale that requires no authorizing court order. To enforce its ban

on mortgagees’ obtaining a remedy agreed upon (or provided by state

law) for the purpose of securing mortgage indebtedness, the court

has explicitly threatened sanctions for violations, and in halting

foreclosure for whatever the duration of the mediation process may

turn out to be, the order grants some of what the plaintiff

mortgagors seek. Its character as an injunction is unmistakable,

and obviously it is no answer to say that it merely halts or delays

the course of action a mortgagee means to take; this is the sort of

-7- thing that a preliminary injunction under Fed. R. Civ. P. 65(a)

does.

The only remaining question is timeliness of the appeal

under Federal Rule of Appellate Procedure 4(a), requiring a notice

of appeal to be filed within 30 days of an order such as this.

Although the court issued two generally applicable stay orders

whose 30 day appeal periods expired long before the mortgagees’

notice of appeal was filed, the notice was filed within the

allowable period after issuance of the new general order that

followed the definition of “stay” to mean “injunction.” From the

issuance of the new general order in which “stay” clearly meant

“preliminary injunction,” then, the appeal of the injunction was

timely, and that is not denied.

As for our jurisdiction to consider an interlocutory

appeal to review the mortgagees’ objection to the want of time and

expense limits on the reference for mandatory mediation, the briefs

have addressed the applicability of the collateral order doctrine

under Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949),

as well as jurisdiction conferred by the mandamus petition

consolidated here. The more straightforward basis for review,

however, is the close concordance of the injunction and the

mediation order, which places the latter within pendent

jurisdiction that follows from the authority to review the

injunction. As will be seen when we reach the issues of this

-8- appeal, the district court has postponed consideration of the

merits of the mortgagees’ suits while mediation continues, with the

purpose of channeling the parties’ energies toward reaching

settlements of the underlying default claims, an object that would

be defeated if the mortgagees were free to proceed with

foreclosures and thus pretermit the mediation. Thus, the

injunction has so far had no point except to keep mediation alive

while allegedly defaulting borrowers remain in their mortgaged

houses. Hence, the subjects of the two orders may fairly be

described as “inextricably intertwined,” see Limone v. Condon, 372

F.3d 39, 50-51 (1st Cir. 2004), with the consequence that

jurisdiction over the one interlocutory order extends to the other

as well, under the pendency doctrine.

III

With this analysis of jurisdiction as a preface, the

merits of the appeal can be resolved with economy. On each issue

the standard of review is abuse of discretion, Peoples Fed. Sav.

Bank v. People’s Un. Bank, 672 F.3d 1, 9 (1st Cir. 2012)

(preliminary injunction); In re Atl. Pipe Corp., 304 F.3d 135, 145

(1st Cir. 2002) (mediation), with error of law constituting abuse.

Each order suffers from error.

As for the injunction, Fed. R. Civ. P. 65(a)(1) provides

that a preliminary injunction may be imposed “only on notice to the

adverse party,” a requirement that has been held to include a

-9- hearing followed by findings that the party to be favored has a

substantial likelihood of success in the pending action, would

otherwise suffer irreparable harm and can claim the greater

hardship in the absence of an order, which will not disserve the

public interest if imposed. See TEC Eng’g Corp. v. Budget Molders

Supply, Inc., 82 F.3d 542, 545 (1st Cir. 1996). There is no claim

that formal notice was ever given here, and although there is no

dispute that mortgagors will suffer greatly from any foreclosure

and dispossession, that conclusion says nothing about the other

necessary conditions, especially the critical requirement of the

mortgagors’ likelihood of success in challenging foreclosure. See

Borinquen Biscuit Corp. v. M.V. Trading Corp., 443 F.3d 112, 115

(1st Cir. 2006). These conditions were ignored and must be

addressed promptly, along with any defenses to the injunction that

the mortgagees may raise. In the course of dealing with these

matters, the court will reach the subject of the magistrate’s

year-old recommendation to dismiss the specific case for the

mortgagors’ lack of standing to object to the assignment to the

named foreclosing party.

The mortgagors’ attempts to excuse these lapses have no

merit. While they say that the mortgagees have had opportunities

for hearings and were in fact heard at every mediation session,

they fail to point to any indication from the court that the

Special Master was authorized to consider the propriety of the

-10- global injunction or, in particular, to address the mortgagors’

standing to object to assignments and general probability of

success in attempting to block foreclosures by the assignees.

Indeed, the district court’s refusal to address the mortgagors’

jurisdictional standing, despite the magistrate’s conclusion that

they have none, is candidly shown in the court’s express

instruction to the Special Master to avoid the issue. In an order

dated January 7, 2013, the judge referred to a class of potentially

dispositive matters open to the master’s consideration, being

those that relate to a specific case, based on case-specific facts that are not shared with the collective docket . . . . [T]he parties should note that they all are fact specific to a given case and do not raise claims common to the complaints . . . . The Court will not grant relief from the stay at this time for any legal issues related to the common claims made in any Complaint, raised in any common defense, or those intertwined with the “global” issues of standing, jurisdiction and the like. The narrow exception from the stay is not intended to provide a “back door” mechanism for litigating the substantive claims or defenses.

Order, In re: Mortgage Foreclosure Cases, No. 11-mc-88-M, at 1-2

(D. R.I. Jan. 7, 2013). The terms of this order confirm the

mortgagees’ claims that generally applicable findings (including

the mortgagors’ class-wide probability of success) have not been

made even implicitly (let alone expressly, as required by Fed. R.

Civ. P. 52(a)(2)), and they provide beyond any question that the

-11- mortgagees may not presently address the subjects of required Rule

65(a)(1) findings on grounds common to all parties.

Nor is there any substance to the mortgagors’ suggestion

that the Rule 65 failure is cured by record documentation

supporting the injunction; we have not been directed to any

documents supporting the injunction requirement of probable

success, for example. Finally, it is enough to say that there is

likewise nothing to the mortgagors’ claim that the “openness” of

the injunction and mediation plan is any answer to Rule 65. The

issuance of an unauthorized injunction does not validate it.

In sum, the imposition of the injunction was error for

failing to satisfy Rule 65. As a consequence, the terms of the

mandatory mediation, which the injunction protects from mootness,

need not be addressed in detail except to note its failure to

conform to the standard of reasonable trial court discretion as

explained in In re Atl. Pipe Corp., 304 F.3d 135. That case

resembled this one in its complexity, which was the premise for

holding it “appropriate” to provide prospective limits on the

period within which mediation must be completed and on the costs to

which the parties may be subjected, id. at 147. Conversely, this

court rejected the sufficiency of the trial court’s general

oversight as a safeguard against unreasonable delay and expense

that might be imposed before moving on to the customary judicial

process in the event that the mediation failed. The omission of

-12- these safeguards from the successive mediation orders here was

error.

Although it would be open to this court simply to vacate

the injunction and mediation orders, we fear that the practical

effect of requiring such immediate action on a docket currently the

size of this one would be chaos. If the issues resolved here had

been addressed by the district court when the volume of cases was

at the trickle stage, correction of the errors would have been

fairly simple. As the docket now stands, however, nearly 150 cases

are consolidated in this appeal, and we are told that at the time

of briefing another 550 or so were governed by the orders reviewed

here and subject to being affected by this court’s action and by

the district court’s ensuing proceedings on remand. We therefore

think the prudent course is to tolerate the status quo long enough

to give the parties time to plan for contingencies. Accordingly,

we remand with instructions to take steps expeditiously to correct

the errors.

The district court will schedule a hearing at the

earliest reasonable date to determine whether the existing

injunction against foreclosure and possessory action should be

continued. The burden of demonstrating entitlement to any

injunctive relief will rest on the mortgagors as it would have if

a timely hearing had been held in compliance with Rule 65, and the

district court’s conclusions must be stated as Rule 52 requires.

-13- Although this court has not held that a jurisdictional issue must

always be resolved before issuing a mediation order, see In re Atl.

Pipe Corp., 304 F.3d at 145, the jurisdictional standing objection

raised by the mortgagees here is (as we have said) necessarily

implicated in the mortgagors’ burden to show probable success as a

condition of continuing the injunction. If we are correct in our

understanding that the same issue is the subject of the magistrate

judge’s recommended disposition in the specific case remaining

before the district court, that recommendation should be acted upon

no later than the order continuing or lifting the injunction.

If the district court determines that the currently

consolidated cases, or some of them, are to remain on the docket,

a second hearing should then be scheduled promptly to decide

whether the mediation order should be continued and, if so, what

time and cost limits should be set and what the allocation formula

should be. Given the extent of the current docket, it will

doubtless be difficult to confine time and cost with assurance, but

at the very least such limits as the court does set (though not

immune to revision, see ibid.), will require formal, periodic

reconsideration if any further mediation is not concluded within

them. The amicus brief has called our attention to a Special

Master’s estimate that all current cases will have been treated

with to some degree by Autumn of 2013, an estimate that may be

considered in presently setting a time limit, though of course we

-14- do not mean to rule out augmenting the Special Master’s personnel

and acting faster if that can reasonably be done at this point.

The consolidated cases under appeal are remanded for

further proceedings consistent with this opinion. The parties will

bear their own respective costs.

It is so ordered.

-15-