MARK B. GALVIN; JENNY G. GALVIN, Plaintiffs, Appellants,
U.S. BANK, N.A., as Trustee Relating to Chevy Chase Funding, LLC Mortgage Back Certificates Series 2007-1; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; CAPITAL ONE, N.A., a/k/a CAPITAL ONE BANK, f/k/a CHEVY CHASE BANK, FSB, Defendants, Appellees.
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS [Hon. Richard G. Stearns, U.S. District Judge]
T. Ranney for appellants.
P. Polansky, with whom Christine M. Kingston and Nelson
Mullins Riley Scarborough LLP were on brief, for appellees.
Thompson and Kayatta, Circuit Judges, and Barbadoro,
KAYATTA, Circuit Judge.
appeal arises out of a suit by defaulting borrowers who seek
to assign fault to the manner in which a creditor foreclosed
on its collateral, in this instance a multi-million dollar
home located on Martha's Vineyard. For the following
reasons, we reject the borrowers' fusillade of challenges
to the creditor's conduct, except that we find that the
creditor waived its rights to a deficiency judgment by
failing to comply with a Massachusetts statute that regulates
the availability of actions for such judgments.
summarize the uncontested facts, reserving further discussion
of the facts alleged in the complaint for the section on the
motion to dismiss and further discussion of the evidentiary
facts in the summary judgment record for the section on the
motion for summary judgment.
November 15, 2006, the plaintiffs, Mark and Jenny Galvin,
took out a loan to buy a property in Tisbury, Massachusetts,
and executed a mortgage naming the Mortgage Electronic
Registration Systems, Inc. ("MERS") as the
mortgagee "acting solely as a nominee for [Chevy Chase
Bank, FSB] and [its] successors and assigns." On the
same day, Mark Galvin executed a promissory note in the
amount of $2, 385, 000 to Chevy Chase Bank, FSB (now known as
Capital One, N.A.--for our purposes, "Capital
One"). In late 2009, the Galvins fell behind on their
mortgage payments. On March 2, 2011, their loan servicer,
Specialized Loan Servicing ("SLS"), sent them a
"Notice of Default and Notice of Intent to
point prior to August 3, 2012, U.S. Bank as Trustee Relating
to Chevy Chase Funding, LLC Mortgage Back Certificates Series
2007-1 ("U.S. Bank") came into physical possession
of the note, which was indorsed from "Chevy Chase Bank,
F.S.B." to "U.S. Bank, N.A. as
Trustee." In July 2012, MERS assigned the mortgage
to U.S. Bank. On October 2, 2012, this assignment was
recorded in the town land records.
December 2011 to November 2014, employees of a company hired
by SLS entered onto the Galvins' property
roughly once per month to perform inspections. In February
2012 and November 2012, these individuals entered the house
to inspect and winterize it. During the November 2012
interior inspection, they also changed the lock on the rear
door. On September 7, 2012, the Galvins sent SLS a letter
demanding that no one trespass on their property. On April
17, 2013, the Galvins sent a thirty-day demand letter to U.S.
Bank regarding these "unreasonable" inspections and
any related fees, pursuant to Chapter 93A of the
Massachusetts General Laws.
Bank conducted a foreclosure sale of the property on November
18, 2014, four days after the Galvins filed their complaint
in this action. U.S. Bank itself was the purchaser.
Galvins' complaint contained six counts relevant to this
appeal: a claim against all defendants for a declaratory
judgment that the foreclosure was invalid (count I); a claim
against U.S. Bank and MERS for breach of contract (count II);
a claim against U.S. Bank and MERS for breach of the implied
covenant of good faith and fair dealing (count III); a claim
against U.S. Bank for trespass (count IV); a claim against
U.S. Bank for a Chapter 93A violation (count VI); and a claim
against all defendants for intentional and/or negligent
infliction of emotional distress (count VII). U.S. Bank filed
an answer and asserted counterclaims for deficiency, unjust
enrichment, and possession.
district court disposed of the Galvins' complaint in
three separate rulings. In the first ruling, the district
court granted the defendants' partial motion to dismiss
several counts under Federal Rule of Civil Procedure
12(b)(6). In the second ruling, it granted summary judgment
to U.S. Bank on its counterclaim for possession. The district
court entered a separate judgment (the "first
judgment") on this counterclaim for possession pursuant
to Rule 54(b) of the Federal Rules of Civil Procedure. In the
third ruling, the district court granted summary judgment to
the defendants on the Galvins' remaining claims and to
U.S. Bank on its counterclaim for deficiency (the
"second judgment"). Between the ruling on the partial
motion to dismiss and the ruling on the counterclaim for
possession, the district court granted in part U.S.
Bank's motion for a preliminary injunction and
"enjoin[ed] and prevent[ed] the short term
occupancies" of fourteen parties who had entered into
leases with the Galvins to occupy their home during the
summer of 2015.
review the motion to dismiss and motion for summary judgment
rulings de novo, see Gorski v. N.H.
Dep't of Corrs., 290 F.3d 466, 471 (1st Cir. 2002),
and the grant of the preliminary injunction for abuse of
discretion, see Waldron v. George
Weston Bakeries Inc., 570 F.3d 5, 8 (1st Cir. 2009). The
parties agree that we apply Massachusetts substantive law.
See Wilson v. HSBC Mortg. Servs.,
Inc., 744 F.3d 1, 7 (1st Cir. 2014).
neither party raised this issue, "we have an independent
obligation to confirm our jurisdiction to hear this
dispute." Me. Med. Ctr. v.
Burwell, 841 F.3d 10, 15 (1st Cir. 2016). The
district court had jurisdiction over this case under 28
U.S.C. § 1332 based on diversity of citizenship. The
only arguable basis for our jurisdiction over these appeals
is 28 U.S.C. § 1291, which grants this court
"jurisdiction of appeals from all final decisions of the
district courts." See also Guillemard-Ginorio
v. Contreras-Gómez, 490 F.3d 31, 37
n.4 (1st Cir. 2007) (noting that "[i]n the ordinary
course, our jurisdiction extends only to appeals from
'final decisions of the district courts' (quoting 28
U.S.C. § 1291)). Thus, we must determine whether the
second judgment entered by the district court was a
"final decision." When dealing with a
"garden-variety" civil judgment like this one,
"a final decision is one 'that disposes of all
claims against all parties.'" Me. Med.
Ctr., 841 F.3d at 15 (quoting Bos. Prop. Exch.
Transfer Co. v. Iantosca, 720 F.3d 1,
6 (1st Cir. 2013)). There are three defendants in this
action: U.S. Bank, MERS, and Capital One. We pause to
consider whether the second judgment was a final decision as
to Capital One.
record is somewhat ambiguous on this point. All three
defendants were named in the original complaint filed in
state court. In the notice of removal, U.S. Bank and MERS
noted that Capital One had not provided consent to removal
because, as far as the state court docket showed, the
plaintiffs had not served it with process. After the case was
removed to federal court, Capital One never filed an
appearance. The district court noted this fact in its ruling
on the partial motion to dismiss. Following that ruling, the
parties filed a "Joint Statement" pursuant to Local
Rule 16.1(d), in which they stated that "according to
the Court's docket, it does not appear that Defendant
Capital One, N.A., a/k/a Capital One Bank, f/k/a Chevy Chase
Bank, FSB ('Capital One') has yet been served with
the complaint." The district court subsequently ordered
that "Amended Pleadings & Joinder of Parties"
would be "due by 5/15/2015, " but that date passed
without action or comment.
counts in the complaint named Capital One as a defendant: the
declaratory judgment count (count I) and the intentional
infliction of emotional distress count (count VII). The
district court disposed of these counts at different times.
It dismissed the declaratory judgment count in its entirety
when ruling on the partial motion to dismiss. It dismissed
the intentional infliction of emotional distress count as to
MERS only in the same ruling. The district court later
allowed U.S. Bank's motion for summary judgment as to the
intentional infliction of emotional distress count and
instructed the clerk of court to "close the case."
conclude that the court disposed of both claims against
Capital One. The ruling dismissing the declaratory judgment
count was not limited to the two defendants who had appeared.
The ruling on U.S. Bank's motion for summary judgment is
a closer question. However, in granting that motion and
ordering the clerk to close the case, the district court
effectively granted summary judgment to Capital One on the
intentional infliction of emotional distress claim against
it. Between that ruling and the ruling on the partial motion
to dismiss, the district court held that the factual basis
for the intentional infliction of emotional distress claim
against Capital One was insufficient as a matter of
Neither party contended otherwise in the district court or on
appeal. The district court's order and its instruction to
the clerk to close the case therefore constituted a final
decision. See Mohawk Indus., Inc. v.
Carpenter, 558 U.S. 100, 106 (2009) ("A
'final decisio[n]' is typically one 'by which a
district court disassociates itself from a case.'"
(alteration in original) (quoting Swint v.
Chambers Cty. Comm'n, 514 U.S. 35, 42
(1995))). Having concluded that we have jurisdiction
over this appeal, we proceed to the merits.
Motion to Dismiss
Galvins challenge the district court's dismissal of the
counts for declaratory judgment, breach of contract, breach
of the covenant of good faith and fair dealing, negligent
infliction of emotional distress as to MERS, and intentional
infliction of emotional distress as to MERS. We review these
decisions under the usual Rule 12(b)(6) standard.
"Setting aside any statements that are merely
conclusory, we construe all factual allegations in the light
most favorable to the non-moving party to determine if there
exists a plausible claim upon which relief may be
granted." Woods v. Wells Fargo
Bank, N.A., 733 F.3d 349, 353 (1st Cir. 2013).
Declaratory Judgment of Invalid Foreclosure (All
appeal, the Galvins advance two arguments as to why the
foreclosure on their property was invalid. First, they argue
that U.S. Bank lacked standing to foreclose because it did
not own both the note and the mortgage at the time of
foreclosure. Second, they argue that U.S. Bank could not
exercise the statutory power of sale because it had failed to
adhere strictly to the terms of the mortgage, in particular
Massachusetts law, the note and the mortgage are separate
legal instruments and, under the common law, they can travel
separately. See Eaton v. Fed. Nat'l
Mortg. Ass'n, 969 N.E.2d 1118, 1124 (Mass. 2012).
However, "where a note has been assigned but there is no
written assignment of the mortgage underlying the note . . .
the holder of the mortgage holds the mortgage in trust for
the purchaser of the note, who has an equitable right to
obtain an assignment of the mortgage." U.S. Bank
Nat'l Ass'n v. Ibanez, 941
N.E.2d 40, 53-54 (Mass. 2011) (citing Barnes
v. Boardman, 21 N.E. 308, 309 (Mass.
note and mortgage may be transferred using different legal
mechanisms. The note may be transferred by indorsement and
delivery. Eaton, 969 N.E.2d at 1121 n.5. The
Massachusetts Appeals Court has applied the provisions of the
Uniform Commercial Code ("UCC") to the transfer of
a mortgage note. See First Nat'l Bank of Cape
Cod v. N. Adams Hoosac Sav. Bank, 391
N.E.2d 689, 693 (Mass. App. Ct. 1979); cf. Eaton,
969 N.E.2d at 1131 n.26 (reserving borrower's argument
based on the UCC, but noting that the court "perceive[d]
nothing in the UCC inconsistent with [its] view that in order
to effect a valid foreclosure, a mortgagee must either hold
the note or act on behalf of the note holder"). By
contrast, the mortgage is an interest in land, which for our
purposes can only be transferred by written assignment.
See Mass. Gen. Laws ch. 183, § 3;
Ibanez, 941 N.E.2d at 51. Although assignments may
be recorded, "[a] valid assignment of a mortgage gives
the holder of that mortgage the statutory power to sell after
a default regardless whether the assignment has been
recorded." Ibanez, 941 N.E.2d at 55.
case, as in many others, the mortgage names MERS as the
mortgagee "acting solely as a nominee for [the lender]
and [the lender's] successors and assigns."
MERS is mortgagee of record for mortgage loans registered on
[its] system, which tracks servicing rights and beneficial
ownership interests in those loans . . . . [W]hen the
beneficial interest in a loan is sold, the note is
transferred by indorsement and delivery between the parties,
and the new ownership interest is reflected in the MERS
system. MERS remains the mortgagee of record so long as the
note is sold to another MERS member; no aspect of such a
transaction is publicly recorded.
Eaton, 969 N.E.2d at 1121 n.5. Although MERS holds
mortgages as a "nominee, " MERS has the authority
to assign the mortgage without authorization from the holder
of the note. Sullivan v. Kondaur
Capital Corp., 7 N.E.3d 1113, 1118 (Mass. App. Ct.),
rev. denied, 15 N.E.3d 761 (Mass. 2014).
is a nonjudicial foreclosure state, so banks generally
foreclose by exercising the statutory power of sale.
See Mass. Gen. Laws ch. 183, § 21; Mass. Gen.
Laws ch. 244, §§ 11-17C; Pinti v.
Emigrant Mortg. Co., 33 N.E.3d 1213, 1221 (Mass.
2015). In order to exercise this statutory power of sale, the
bank must satisfy a number of requirements. Two of these
requirements are relevant here. First, the foreclosing bank
must hold both the note and the mortgage in order to have
standing to sell the property at a foreclosure sale. See
Eaton, 969 N.E.2d at 1125, 1129-30; Ibanez, 941
N.E.2d at 50 (citing Mass. Gen. Laws ch. 183, § 21;
Mass. Gen. Laws ch. 244, § 14). If it does not, the
foreclosure is void. See Galiastro v.
Mortg. Elec. Registration Sys., Inc., 4
N.E.3d 270, 276 (Mass. 2014); Eaton, 969 N.E.2d at
1131; Ibanez, 941 N.E.2d at 50. Second, the
foreclosing bank must strictly comply with the default notice
provisions in paragraph 22 of the mortgage. Pinti,
33 N.E.3d at 1221 n.16, 1222-24. Again, failure to do so
renders the foreclosure void. Id. at
borrowers challenge an entity's standing to foreclose,
they often assert defects in the chain of mortgage
assignments that ends with that entity. Under Massachusetts
law, the borrowers themselves have standing to press such
challenges to the validity of a mortgage assignment when a
defect renders the assignment void, but not when it renders
the assignment merely voidable by one of the parties to the
assignment. See Bank of N.Y. Mellon Corp.
v. Wain, 11 N.E.3d 633, 638 (Mass. App. Ct.
2014); Sullivan, 7 N.E.3d at 1116 & n.7; see
also Culhane v. Aurora Loan Servs.
of Neb., 708 F.3d 282, 291 (1st Cir. 2013).
Whether U.S. Bank was Holder of the Note and
Galvins argue that they adequately pled that U.S. Bank lacked
standing to foreclose because it did not hold both the note
and the mortgage at the time of the foreclosure sale. They
pled a number of different bases for this argument, but
advance just three on appeal: (1) the initial mortgage and
all subsequent assignments of the mortgage were invalid
because paragraph 20 of the mortgage did not allow it to be
held and assigned separately from the note; (2) MERS could
not hold the mortgage or assign the interest in the mortgage
because doing so violated its internal "Rules of
Membership, " and therefore the assignment to U.S. Bank
was invalid; and (3) U.S. Bank does not hold the note because
it was indorsed to "U.S. Bank as ...