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1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
2 U.S. BANK NATIONAL ASSOCIATION,
3 as TRUSTEES for PRIME MORTGAGE
4 TRUST 2005-5,
5 Plaintiff-Appellant,
6 v. No. 35,096
7 PAUL A. RODRIGUEZ, NORTHERN
8 NEW MEXICO SCHOOL EMPLOYEES
9 FEDERAL CREDIT UNION, and
10 the UNKNOWN SPOUSE of PAUL A.
11 RODRIGUEZ, if any,
12 Defendants-Appellees.
13 APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY
14 Raymond Z. Ortiz, District Judge
15 Rose Little Brand, & Associates, P.C.
16 Eraina M. Edwards
17 Albuquerque, NM
18 for Appellant
19 Walcott, Henry & Winston, P.C.
20 Donald A. Walcott
21 Santa Fe, NM
22 for Appellees
1 MEMORANDUM OPINION
2 BOHNHOFF, Judge.
3 {1} Plaintiff U.S. Bank National Association (U.S. Bank), as Trustee for Prime
4 Mortgage Trust 2005-5, seeks to enforce a promissory note given by Defendant Paul
5 Rodriguez and foreclose on a mortgage granting it a security interest in his residence.
6 The district court dismissed U.S. Bank’s complaint with prejudice, ruling that the bank
7 lacked standing and, moreover, the complaint was barred by the doctrine of claim
8 preclusion based on the dismissal with prejudice of an earlier complaint on standing
9 grounds. U.S. Bank appeals, contending that the dismissal was not on the merits and
10 should have been without prejudice. We agree. We reverse the dismissal with
11 prejudice and remand to the district court with instructions to dismiss the complaint
12 without prejudice.
13 BACKGROUND
14 {2} The record either establishes or, alternatively, does not reflect any dispute
15 regarding the following background information:
16 A. The Rodriguez Loan
17 {3} On December 5, 2000, Rodriguez borrowed $280,000 from Express Capital
18 Lending (ECL), a California corporation. The loan was evidenced by a note that
19 Rodriguez executed and gave ECL, and secured by a mortgage on Rodriguez’s
2
1 residential property in Santa Fe.
2 B. The First Foreclosure Action
3 {4} In April 2009, U.S. Bank filed a complaint against Rodriguez in district court
4 (Foreclosure I). U.S. Bank alleged that Rodriguez had defaulted on the loan and
5 sought to enforce Rodriguez’s note and foreclose on the mortgage. In April 2011,
6 Rodriguez moved to dismiss Foreclosure I, arguing that, because the note was given
7 to ECL and had not been indorsed in favor of, and the mortgage had not been assigned
8 to, U.S. Bank, U.S. Bank had no standing, i.e., it had no right to enforce the note and
9 foreclose on the mortgage.
10 {5} U.S. Bank did not file a response to Rodriguez’s motion to dismiss. Instead, in
11 a series of email exchanges, the parties’ counsel discussed how to address the fact that
12 U.S. Bank did not appear to be a holder of the note. U.S. Bank’s counsel provided
13 copies of the note and mortgage reflecting that ECL had indorsed the note to Impac
14 Funding Corporation (Impac), which in turn had indorsed the note to Bankers Trust
15 Company of California, N.A. (Banker’s Trust), “as trustee of the Pooling and
16 Servicing Agreement relating to Impac Secured Assets Corp., Mortgage Pass-Through
17 Certificates, Series 2000-1” and that the mortgage similarly had been indorsed first
18 to Impac and then to Banker’s Trust. The note indorsements were undated; the
19 mortgage assignments were dated December 5, 2000, the date of the original
3
1 transaction. U.S. Bank’s counsel proposed stipulating to dismiss the complaint
2 without prejudice so the proper party could re-file the complaint in its name once it
3 had been determined who was the holder of the note. Rodriguez’s counsel, however,
4 insisted that the dismissal be with prejudice. On July 12, 2011, after advising U.S.
5 Bank’s counsel what he intended to do, Rodriguez’s counsel submitted a proposed
6 order to the district court, providing for dismissal of the complaint with prejudice.
7 Rodriguez’s counsel’s transmittal letter to the court, a copy of which was sent to U.S.
8 Bank’s counsel, noted U.S. Bank’s opposition and that, pursuant to the court’s local
9 rule, it had five days to file its objection to the order. U.S. Bank’s counsel did not file
10 anything in response. On July 25, 2011, the district court entered Rodriguez’s
11 proposed order dismissing the complaint with prejudice. The district court added the
12 following handwritten note to the order: “No objections were filed to the order.”
13 C. The Second Foreclosure Action
14 {6} U.S. Bank did not move to reconsider or otherwise request the district court to
15 vacate, and also did not appeal, the July 25, 2011 order. Instead, represented by new
16 counsel, on October 17, 2011, U.S. Bank filed a second action against Rodriguez in
17 district court to enforce and foreclose on, respectively the December 2000 note and
18 mortgage (Foreclosure II). U.S. Bank attached to its complaint the same copies of the
19 note and mortgage, showing indorsement of the note and assignment of the mortgage
4
1 to Banker’s Trust, that its first counsel had provided to Rodriguez’s counsel. In
2 addition, U.S. Bank attached a copy of an October 6, 2011 assignment of the mortgage
3 from Impac to U.S. Bank; no explanation was given for the apparent fact that Impac
4 had assigned the mortgage to Banker’s Trust approximately eleven years earlier.
5 {7} On December 1, 2014, Rodriguez moved for summary judgment. He advanced
6 two arguments. First, citing our Supreme Court’s decision in Bank of New York v.
7 Romero (Romero I), 2014-NMSC-007, 320 P.3d 1, Rodriguez urged that U.S. Bank
8 had no standing to enforce the note and foreclose on the mortgage, because the note
9 still was not indorsed in U.S. Bank’s favor. Second, he maintained that, in any event,
10 the dismissal with prejudice of Foreclosure I barred Foreclosure II based on principles
11 of res judicata, i.e., claim preclusion. In response to the claim preclusion argument,
12 U.S. Bank argued only that the district court previously denied Rodriguez’s motion
13 to dismiss on the same grounds, ignoring that the district court’s ruling in that context
14 apparently was limited to a review of the four corners of the complaint. In response
15 to the standing argument, U.S. Bank argued that Romero I should not be applied
16 retroactively, and that it was in the process of obtaining an “allonge”1 or indorsement
1
18 An allonge is “[a] slip of paper sometimes attached to a negotiable instrument
19 for the purpose of receiving further indorsements when the original paper is filled with
20 indorsements. . . . [A] paper affixed to the instrument is part of the instrument.”
5
1 that would show that it was the holder of the note. At the conclusion of a hearing on
2 February 5, 2015, the district court orally ruled that it would grant summary judgment
3 on the grounds that U.S. Bank lacked standing to enforce the note. The court did not
4 address the claim preclusion argument.
5 {8} Eight days after the summary judgment hearing, on February 13, 2015,
6 U.S. Bank filed a “Notice of Filing Certificate of Possession of Original Note.” In the
7 certificate, a representative of Ocwen Loan Servicing, LLC, which was identified as
8 a “Servicer” for U.S. Bank, stated that U.S. Bank was currently, as well as at the time
9 of the filing of the October 17, 2011 complaint, in possession of the original
10 December 5, 2000 note; and that a true and correct copy of the note together with all
11 indorsements and/or allonges was attached to the certification. Attached to the
12 certification was the same copy of the note, showing the undated indorsements from
13 ECL to Impac and then from Impac to Banker’s Trust, that had been attached to the
14 October 17, 2011 complaint; also attached, however, was a copy of an undated
15 “Allonge to Note,” showing an indorsement from “Deutsche Bank National Trust
16 Company f/k/a Bankers Trust Company of California, N.A. as Trustee under the
17 Pooling and Servicing Agreement Related to Impac Secured Assets Corp., Mortgage
18 Pass-Through Certificates, Series 2001-1” to U.S. Bank. No explanation was given
19 Black’s Law Dictionary 92 (10th ed. 2014) (internal quotation marks and citation
20 omitted).
6
1 for the discrepancy between U.S. Bank’s status as Plaintiff (as Trustee for Prime
2 Mortgage Trust 2005-5) and the status of Banker’s Trust and then U.S. Bank in
3 receiving their purported special indorsements from Impac (as trustee under the
4 Pooling and Servicing Agreement related to Impac Secured Assets Corp. Mortgage
5 Pass-Through Certificates, Series 2000-1).
6 {9} On March 10, 2015, the district court entered its order granting summary
7 judgment for Rodriguez and dismissing U.S. Bank’s second complaint with prejudice.
8 The court reiterated its oral ruling that, pursuant to Romero I, which was entitled to
9 retroactive application, U.S. Bank did not have standing. But, noting that
10 Foreclosure I was dismissed with prejudice, the district court also ruled, as an
11 independent basis for granting summary judgment, that Foreclosure II was barred by
12 claim preclusion principles.
13 {10} Following entry of the order dismissing Foreclosure II, U.S. Bank filed a
14 motion to reconsider. Effectively conceding that the allonge was provided at some
15 later point in time, U.S. Bank argued that, even if it was not a holder of the note as of
16 the date it filed the second complaint, it had “transferee” standing to enforce it because
17 it was in possession of the note. U.S. Bank argued claim preclusion was not
18 applicable, because the dismissal of Foreclosure I was not on the merits. Rejecting
19 both arguments, the district court denied the motion. The court expressly found that
7
1 the allonge was created in 2015 and did not cure the standing problem. The court also
2 entered a separate order awarding Rodriguez $9,335.10 in attorney’s fees.
3 {11} U.S. Bank filed a timely notice of appeal. On appeal, U.S. Bank does not
4 dispute the dismissal of either Foreclosure I or Foreclosure II for lack of standing, or
5 the subsidiary finding that the allonge was not given to the bank until 2015. U.S. Bank
6 also does not challenge the attorney’s fee award. Instead, U.S. Bank seeks reversal
7 only of the district court’s determination that Foreclosure II would be dismissed with
8 prejudice. U.S. Bank challenges the district court’s determination that Foreclosure I
9 had res judicata or claim preclusive effect, and similarly that the alternative dismissal
10 of Foreclosure II for lack of standing was on the merits
11 ANALYSIS
12 {12} The principles announced in Romero I, Deutsche Bank Nat’l Trust Co. v.
13 Johnston, 2016-NMSC-013, 369 P.3d 1046, and Bank of New York v. Romero, 2016-
14 NMCA-091, 382 P.3d 991 (Romero II), are largely dispositive of the arguments
15 advanced by the parties in this appeal.
16 A. Standard of Review
17 {13} “Summary judgment is appropriate where there are no genuine issues of
18 material fact and the movant is entitled to judgment as a matter of law.” Montgomery
19 v. Lomos Altos, Inc., 2007-NMSC-002, ¶ 16, 141 N.M, 21, 150 P.3d 971(internal
8
1 quotation marks and citation omitted). In the case at bar, the parties’ dispute focuses
2 on the legal significance of documentary evidence of U.S. Bank’s status as a holder
3 of Rodriguez’s note and assignee of his mortgage, and the legal consequences of the
4 dismissal of Foreclosure I. We review the district court’s summary judgment rulings
5 on those legal issues de novo. Summers v. Ardent Health Servs., L.L.C., 2011-NMSC-
6 017, ¶ 10, 150 N.M. 123, 257 P.3d 943.
7 B. Romero I
8 {14} In Romero I, the Romeros gave a promissory note to Equity One, Inc., in
9 exchange for funds that they used to refinance their home. At the same time, they
10 signed a mortgage giving Mortgage Electronic Registration Systems (MERS), as
11 nominee for Equity One, a security interest in the home. After the Romeros defaulted
12 on their loan payments, Bank of New York filed a complaint to enforce the note and
13 foreclose on the mortgage. 2014-NMSC-007, ¶ 5.
14 {15} Bank of New York alleged in its complaint that it was the holder of the note.
15 However, the evidence established only that it was in physical possession of the note
16 and the mortgage prior to filing the complaint. The mortgage was assigned to it only
17 after the filing date, and the bank never established that the note was indorsed over to
18 it. Id. ¶ 6.
19 {16} Our Supreme Court articulated several principles that led it to conclude that
9
1 Bank of New York failed to establish its standing to enforce the note and foreclose on
2 the mortgage. First, under Section 3-301 of the Uniform Commercial Code, codified
3 at NMSA 1978, § 55-3-301 (1992), a person generally has standing, i.e., the right, to
4 enforce a note if it is the “holder” or “transferee” of the note. A “holder” is “the
5 person in possession of a negotiable instrument that is payable either to bearer or to
6 an identified person that is the person in possession[.]” NMSA 1978, § 55-1-
7 201(b)(21)(A) (2005). An instrument is payable to bearer if it is written or indorsed
8 as such or is indorsed in blank. NMSA 1978, Section 55-3-205(b) (1992). An
9 instrument is payable to an identified person if that person is the original payee, or is
10 specifically identified in an indorsement (a “special indorsement”). Section 55-3-
11 205(a). Thus, and importantly, mere possession of a note does not suffice to establish
12 standing as a holder unless the note originally identified the person in possession as
13 the payee or is made payable to bearer. Romero I, 2014-NMSC-007, ¶ 21. If not, the
14 person in possession of the note also must establish that the note is indorsed to bearer
15 (or in blank) or specifically to that person in possession. Id. Because the Romero note
16 was neither a bearer note or specially indorsed to the Bank of New York, it lacked
17 standing as a holder to enforce the note. Id., ¶¶ 19-28. The bank also could not
18 establish that it was a transferee under Section 55-3-301, i.e., “a nonholder in
19 possession of the instrument who has the rights of a holder.” Romero I,
10
1 2014-NMSC-007, ¶¶ 29-33.
2 {17} Second, while a person must be either the original mortgagee or the
3 mortgagee’s assignee to have standing to foreclose on a mortgage, the mortgagee or
4 its assignee also must have standing to enforce the underlying note. Id. ¶ 35. Thus,
5 Bank of New York’s status as assignee of the Equity One mortgage did not suffice to
6 give it standing to enforce the note or foreclose on the mortgage. Id. ¶¶ 34-36.
7 {18} Third, a plaintiff seeking to enforce a note and foreclose on a mortgage must
8 establish its standing to do so at the time it files suit. Id. ¶ 17. Even assuming Bank of
9 New York otherwise could have established at the time of trial that it was a holder of
10 the note, because it clearly was neither a holder of the note nor an assignee of the
11 mortgage at the time it filed the complaint, it did not have standing to sue.
12 C. Johnston
13 {19} In Johnston, like Romero I, the borrower, Johnston, refinanced his home. In
14 exchange for the funds, he executed a note made payable to, and a mortgage in favor
15 of, New Century Mortgage Corporation, both dated in 2006. Johnston, 2016-NMSC-
16 013, ¶ 2. After Johnston defaulted on his payment obligations, in early 2009 Deutsche
17 Bank National Trust Company filed suit to enforce the note and foreclose on the
18 mortgage. Deutsche Bank attached to the complaint a copy of the original, unindorsed
19 note and the original mortgage. However, Deutsche Bank alleged that it was the
11
1 holder of the note and that it owned the mortgage through assignment. Id. ¶ 3. In
2 response to Johnston’s motion to dismiss, Deutsche Bank attached an assignment of
3 the mortgage in its favor, dated seven days after execution of the original note and
4 mortgage but recorded after the date of the complaint. Id. ¶ 4. Then at trial, Deutsche
5 Bank proffered a copy of the 2006 note that was indorsed by New Century, in blank
6 but without a date. Id. ¶ 6.
7 {20} On appeal, our Supreme Court clarified that standing to enforce a note and
8 foreclose on a mortgage is not a matter of jurisdiction, but only jurisprudential.
9 Id. ¶¶ 10-14. The Court then reiterated its holding in Romero I that such standing must
10 be established as of the date the complaint is filed. Johnston, 2016-NMSC-013 ¶¶ 20-
11 27. A lender may simply allege in its complaint that it is the holder of the note, id. ¶
12 27, but on summary judgment or at trial, it must present evidence that proves holder
13 status or other basis for standing as of the date of the complaint. Id. ¶ 26. In particular,
14 unless it is attached to the complaint, an indorsement must be dated to satisfy this
15 requirement. Id. ¶ 24.
16 D. Romero II
17 {21} In Romero I, our Supreme Court had “remand[ed] to the district court with
18 instructions to vacate its foreclosure judgment and to dismiss the Bank of New York’s
19 . . . foreclosure action for lack of standing.” 2014-NMSC-007, ¶ 1. Upon remand, the
12
1 district court entered an order that not only dismissed the Bank of New York’s
2 complaint but also barred it from refiling a new action. The district court stated the
3 following:
4 It is the opinion of the court that by reason of issue preclusion the Bank
5 is precluded from raising in the future the issue that it is entitled to
6 enforce the Romeros’ note and foreclose on the Romeros’ mortgage . . . .
7 [T]he complaint for foreclosure is dismissed with prejudice and the Bank
8 cannot refile a complaint to enforce the Romeros’ note and foreclose on
9 the Romeros’ mortgage.
10 Romero II, 2016-NMCA-091, ¶ 6 (alterations, emphases, and internal quotation marks
11 omitted).
12 {22} On the Bank of New York’s appeal of the dismissal, this Court reversed. Id. ¶ 2.
13 We considered both the claim and the issue preclusive effects of the dismissal order,
14 given that the district court had dismissed the foreclosure claim based on the Supreme
15 Court’s decision on the standing issue. Id. ¶ 8.
16 1. Claim Preclusion
17 {23} Under the doctrine of claim preclusion a judgment will bar a subsequent action
18 if the parties are the same in both actions, the cause of action is the same, the decision
19 in the earlier action was a final judgment, and the first decision was on the merits. See
20 Tunis v. Country Club Estates Homeowners Ass’n, 2014-NMCA-025, ¶ 24, 318 P.3d
21 713. In Romero II, this Court determined that the order dismissing the Bank of New
22 York’s complaint had no claim preclusive effect because it was not final and because
13
1 the merits of the foreclosure claim had not been litigated. See Romero II, 2016-
2 NMCA-091, ¶ 16. This was consistent with decisions in other jurisdictions that a
3 dismissal of a mortgage foreclosure case for lack of standing is not an adjudication on
4 the merits that bars future claims. See id. As was reflected in one of the decisions that
5 we cited, id. ¶ 17, this would be the case notwithstanding that the dismissal order
6 provided that it was “with prejudice.” U.S. Bank Nat’l Ass’n v. Kimball, 2011 VT 81,
7 ¶ 22, 190 Vt. 210, 27 A.3d 1087 (“[D]espite the court’s invocation of ‘with prejudice’
8 in its dismissal order, U.S. Bank cannot be precluded from pursing foreclosure on the
9 merits should it be prepared to prove the necessary elements.”). This is also consistent
10 with New Mexico jurisprudence, which makes clear that courts will look behind “with
11 prejudice” language to determine whether a judgment is on the merits and thus entitled
12 to issue preclusive effect. Trujillo v. Acequia de Chamisal, 1968-NMCA-015, ¶ 10,
13 79 N.M. 39, 439 P.2d 557 (“Although the order of dismissal stated that it was on the
14 merits, it becomes incumbent on us to inspect the record to ascertain if the recitals in
15 the order are supported thereby.”). Thus, the district court’s dismissal of Bank of New
16 York’s complaint against the Romeros did not have claim preclusion effect.
14
1 2. Issue Preclusion
2 {24} Under the doctrine of issue preclusion, or collateral estoppel, a judgment will
3 bar re-litigation of a factual or legal issue if the party to be barred was a party in the
4 prior action, the claims in the new action are different from those advanced in the
5 prior action, and the issue was actually litigated and necessarily decided in the prior
6 action. See Ideal v. Burlington Res. Oil & Gas Co., 2010-NMSC-022, ¶ 9, 148 N.M.
7 228, 233 P.3d 362. In Romero II, we emphasized that issue preclusion cannot be
8 invoked to bar further litigation of an entire claim, as was suggested by the district
9 court’s order. See 2016-NMCA-091, ¶ 24. We also noted that changes in the facts
10 between the first and the second actions can operate to negate the issue preclusive
11 effect of the first action. Id. ¶ 25. For example, it is not inconceivable that a lender
12 who has been shown to have no interest in a note and mortgage in an early proceeding
13 could subsequently obtain an interest in those instruments, entitling the lender to then
14 collect under the note and foreclose the mortgage. This consideration would explain
15 why, as shown by the case law that we cited, id. ¶¶ 16-17, courts in other jurisdictions
16 repeatedly have permitted lenders to re-file foreclosure proceedings following
17 dismissals for lack of standing. For that reason, we concluded that it would be
18 premature to address whether the district court’s dismissal order would bar, on issue
19 preclusion grounds, Bank of New York from filing a second foreclosure action against
15
1 the Romeros and properly establishing its standing in that proceeding: “[R]uling on
2 issue preclusion at this point is premature insofar as there may be additional facts
3 presented or ways of evaluating the standing issue in the second case that re-frame the
4 issue.” Id. ¶ 25. Accordingly, we “reverse[d] the district court’s dismissal of the
5 foreclosure action with prejudice” and “the court’s ruling that the Bank is precluded
6 from raising in the future the issue that it is entitled to enforce the Romeros’ note and
7 foreclosure on the Romeros’ mortgage.” Id. ¶ 27 (internal quotation marks and citation
8 omitted).
9 E. Application of These Principles to the Case at Bar
10 {25} The foregoing precedent mandates reversal. As U.S. Bank appears to concede,
11 under the rules articulated in Romero I, U.S. Bank failed to establish its standing in
12 both Foreclosure I and Foreclosure II. The district court properly determined that
13 neither the mere possession of the note that Rodriguez gave to ECL, nor the
14 indorsements to Impac and then to Bankers Trust, sufficed to establish U.S. Bank’s
15 standing. Further, the undated allonge indorsement in favor of U.S. Bank could not
16 establish standing, because, among other possible reasons, U.S. Bank did not receive
17 it until long after Foreclosure II was filed.
18 {26} However, in Foreclosure II, as well as Foreclosure I, the district court erred in
19 dismissing U.S. Bank’s complaints with prejudice. In neither case did the court reach
16
1 the merits of the claims raised in the complaint, including both the Bank’s substantive
2 right to enforce the note and mortgage and Rodriguez’s alleged default. Thus, any
3 dismissal on grounds of standing should have been without prejudice. Further, the
4 alternative claim preclusion ground for dismissal of Foreclosure II was in error: the
5 dismissal of Foreclosure I for lack of standing also was not on the merits and therefore
6 it could not have claim preclusive effect notwithstanding that it was denominated
7 “with prejudice.” We therefore reverse the dismissal of Foreclosure II, and remand to
8 the district court with instructions to dismiss the case without prejudice. Consistent
9 with our decision in Romero II and the case law cited therein, 2016-NMCA-091, ¶¶
10 23-26, we decline to address the remaining question, whether a third action by U.S.
11 Bank against Rodriguez to enforce the note and foreclose on the mortgage would be
12 barred on issue preclusion grounds.
13 CONCLUSION
14 {27} We reverse the district court’s dismissal of U.S. Bank’s complaint with
15 prejudice and remand with instructions to dismiss it without prejudice.
16 {28} IT IS SO ORDERED.
17 ______________________________
18 HENRY M. BOHNHOFF, Judge
17
1 WE CONCUR:
2 ___________________________________
3 MICHAEL E. VIGIL, Judge
4 ___________________________________
5 JULIE J. VARGAS, Judge
18