Note Capital Group, Inc. v. Michele Perretta

Supreme Court

No. 2017-7-Appeal.
(PC 14-5678)

Note Capital Group, Inc., et al. :

v. :

Michele Perretta et al. :

NOTICE: This opinion is subject to formal revision before
publication in the Rhode Island Reporter. Readers are requested to
notify the Opinion Analyst, Supreme Court of Rhode Island,
250 Benefit Street, Providence, Rhode Island 02903, at Telephone
222-3258 of any typographical or other formal errors in order that
corrections may be made before the opinion is published.
 Supreme Court

No. 2017-7-Appeal.
(PC 14-5678)

Note Capital Group, Inc., et al. :

v. :

Michele Perretta et al. :

Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.

OPINION

Justice Indeglia, for the Court. In this foreclosure action, the defendants, Michele

Perretta1 and Anna M. Perretta (the Perrettas), appeal from a Superior Court order granting partial

summary judgment in favor of the plaintiff, Note Capital Group, Inc. (Note Capital). First, the

Perrettas argue that their appeal from the Superior Court’s interlocutory order is appropriate

because the grant of partial summary judgment had an element of finality, as that order allowed

Note Capital to foreclose on the Perrettas’ property. Second, the Perrettas contend that Note

Capital was not entitled to enforce the note because the chain of title to the note was tainted by an

improper transfer. Third, the Perrettas aver that Note Capital was not entitled to enforce the note

secured by a mortgage on their property because the note had been lost by the previous holder of

the note, American Residential Equities, LIX, LLC (ARELIX),2 prior to the assignment of the

mortgage to Note Capital. This matter came before the Supreme Court on March 28, 2019, after

1
The record contains various spellings of defendant Michele Perretta’s first name. However, for
purposes of this opinion we shall use the spelling found on the mortgage and other relevant
documents in this case.
2
ARELIX, which was added as a plaintiff in the instant matter pursuant to Rule 15 of the Superior
Court Rules of Civil Procedure, was defaulted in the Superior Court for failing to comply with
discovery orders and is not a party to this appeal.
-1-
full briefing of the issues. Upon due consideration of the parties’ arguments, the order of the

Superior Court is vacated, and we remand the case for further proceedings consistent with this

opinion.

I

Facts and Travel

The pertinent facts of this case are as follows. In 1984, the Perrettas obtained title to

property located at 380 Pippin Orchard Road in Cranston, Rhode Island (the property). On October

25, 2006, they executed and delivered a promissory note to Zurich Mortgage Solutions, LLC

(Zurich), in the amount of $971,750 (the note). To secure the note, the Perrettas executed a

mortgage on the property in favor of Zurich. On November 28, 2006, Zurich transferred the note

and mortgage to American Residential Equities (American Residential)3 through an allonge and

assignment.4 See In re Perretta, No. 10-13531, 2011 WL 6305552, at *1 (Bankr. D.R.I. Dec. 16,

2011). However, two weeks prior to the transfer from Zurich to American Residential, on

November 14, 2006, American Residential assigned the note and mortgage to GMAC Mortgage,

LLC (GMAC). Id.

The Perrettas eventually defaulted on the note, and, on July 29, 2009, GMAC instructed its

attorneys at the law firm of Orlans Moran PLLC (Orlans Moran) to foreclose on the mortgage.

This action was stayed when the Perrettas filed for bankruptcy in the United States Bankruptcy

Court for the District of Rhode Island. See In re Perretta, 2011 WL 6305552, at *1. Later, on May

4, 2010, GMAC transferred the note and mortgage to ARELIX via an allonge and assignment

3
American Residential is a different, but related entity to ARELIX.
4
An allonge is defined as “[a] slip of paper sometimes attached to a negotiable instrument for the
purpose of receiving further indorsements when the original paper is filled with indorsements.”
Black’s Law Dictionary 92 (10th ed. 2014).
-2-
recorded in the Cranston land evidence records. Despite vigorous opposition from the Perrettas,

ARELIX sought and obtained relief from the temporary stay in the Bankruptcy Court to enforce

its interest in the property.5 Id. at *3.

In July 2013, ARELIX discovered that the note had become lost after ARELIX had given

the note to Orlans Moran for purposes of prosecuting the foreclosure.6 On July 30, 2013, ARELIX

purported to assign its interest in the mortgage and lost note to Note Capital, and an assignment

was recorded in the Cranston land evidence records on August 5, 2013. Additionally, Orlans

Moran prepared and delivered a lost note affidavit in accordance with G.L. 1956 § 6A-3-301,

outlining the steps it had taken to attempt to recover the note. On November 11, 2014, Note Capital

filed a complaint in Providence County Superior Court seeking to foreclose on the Perrettas’

mortgage, naming the Perrettas, among others, as defendants.7 Note Capital also joined ARELIX

as a plaintiff in the matter.

On June 24, 2015, Note Capital filed a motion for partial summary judgment to allow it to

foreclose on the property. In support of its motion, Note Capital attached an affidavit executed by

Jeffrey Kirsch (Kirsch), who identified himself as an authorized signatory of ARELIX and

someone familiar with the company’s business records. In that affidavit, Kirsh detailed the chain

of assignments of the mortgage loan from Zurich to Note Capital. Additionally, Kirsch averred

5
The Perrettas argued, inter alia, that ARELIX had no interest in the note because the chain of
title had been tainted by the assignment from American Residential to GMAC, which occurred
two weeks before American Residential had any interest in the note. See In re Perretta, No. 10-
13531, 2011 WL 6305552, at *3 (Bankr. D.R.I. Dec. 16, 2011).
6
Note Capital states in its brief to this Court that Orlans Moran mistakenly sent the note elsewhere.
7
In its complaint, Note Capital alleged: “As of October 10, 2014, the sum of $1,605,870.29 is due
and owing to [p]laintiff from [d]efendants, Michele Perretta and Anna M. Perretta, in connection
with the [n]ote.”
-3-
that ARELIX had given Note Capital express authority to act on its behalf in the foreclosure

process.

In their opposition to Note Capital’s motion, the Perrettas claimed that the chain of title to

the note and mortgage was defective because American Residential had no interest in the note and

mortgage on November 14, 2006, when the assignment from American Residential to GMAC was

executed. The Perrettas also claimed that an issue of fact existed because different versions of the

promissory note had been provided to them or filed in various courts. As to the lost note, the

Perrettas argued that § 6A-3-309 prevents the transferee or assignee of a lost note from enforcing

the note.8 The Perrettas also filed a motion for summary judgment or, in the alternative, motion

for judgment on the pleadings.

Subsequently, the Perrettas served a subpoena duces tecum upon Orlans Moran, seeking to

depose a person with knowledge of the lost note. Orlans Moran designated Erika Hoover

(Hoover), a senior operations attorney at Orlans Moran, as its agent for purposes of the deposition.

After taking Hoover’s deposition, the Perrettas submitted a supplemental memorandum, attaching

the deposition. In response, Note Capital filed a memorandum attaching a separate affidavit

executed by Hoover, along with numerous pages of documentation. The Perrettas objected to the

filing of the documents, contending that Note Capital should have been prohibited from presenting

additional material within ten days of the summary-judgment hearing, pursuant to Rule 56 of the

Superior Court Rules of Civil Procedure.

A hearing on Note Capital’s motion for partial summary judgment was held on May 10,

2016. After the parties had presented their arguments, the hearing justice observed that Note

8
The parties filed supplemental memoranda regarding the issue of whether a lost note may be
enforced by a party other than the entity in possession of the note at the time of loss.
-4-
Capital was essentially seeking judicial foreclosure of the mortgage on the Perrettas’ property and

found that the Perrettas’ default on the note was not in dispute. The hearing justice next addressed

the issue of the lost note and whether Note Capital was entitled to enforce the note. Because this

Court had not yet ruled on the issue of whether the assignee of a lost note may enforce the note,

the hearing justice surveyed cases from other jurisdictions, determining that there was a split of

authority.9

Eventually, the hearing justice found that “[i]t would be inequitable for the plaintiff as a

valid assignee not to stand in the shoes of the assignor. To hold otherwise would unjustly enrich

the defendants because the note could never be enforced.” He pointed to G.L. 1956 § 34-11-24,

finding that the rights that the note granted to assignees of mortgages were not in conflict with the

provisions of § 6A-3-309 and that an assignee of a lost note could enforce the note as a successor-

in-interest to the assignor. In conclusion, the hearing justice found that there was “no genuine

issue of fact that [ARELIX] was in possession and had the right to enforce it at the time the note

was lost and that it validly assigned the note and mortgage to Note Capital.” In addition, in order

to protect the Perrettas’ interests, the hearing justice stated that the order would “terminate any

rights of [ARELIX] and any other person to the note other than Note Capital and Note Capital will

indemnify the defendants against any claims made pursuant to the note by anyone other than it.”

After granting Note Capital’s motion for partial summary judgment, the hearing justice

determined that it was “not a final judgment[,]” and he stayed the order for forty days to afford the

Perrettas time to file a petition for writ of certiorari with this Court. On June 5, 2016, the Perrettas

filed an objection to the proposed order granting partial summary judgment in the Superior Court,

9
On June 21, 2018, this Court decided SMS Financial XXV, LLC v. Corsetti, 186 A.3d 1060, 1066
(R.I. 2018), holding that an entity was not entitled to enforce a lost note unless it was in possession
of the note when it was lost.
-5-
and they also moved for entry of final judgment in accordance with Rule 54(b) of the Superior

Court Rules of Civil Procedure. On July 12, 2016, an order entered granting partial summary

judgment in favor of Note Capital and, inter alia, authorizing Note Capital to foreclose on the

property; the order also defaulted ARELIX for failure to comply with discovery. The next day, on

July 13, 2016, an order was entered denying the Perrettas’ motion for entry of final judgment in

accordance with Rule 54(b). Eschewing the writ, the Perrettas instead filed a timely notice of

appeal on August 1, 2016.

II

Standard of Review

“A motion for summary judgment ‘is designed to decide in an expeditious fashion cases

presenting groundless claims.’” Hexagon Holdings, Inc. v. Carlisle Syntec Incorporated, 199 A.3d

1034, 1038 (R.I. 2019) (deletion omitted) (quoting Gallo v. National Nursing Homes, Inc., 106

R.I. 485, 487, 261 A.2d 19, 21 (1970)). “When we review a hearing justice’s grant of a motion

for summary judgment, we conduct our analysis de novo.” Id. “If we determine that ‘there exists

no genuine issue of material fact and the moving party is entitled to judgment as a matter of law,’

then we will affirm the grant of the motion.” Id. (alteration omitted) (quoting Sisto v. America

Condominium Association, Inc., 68 A.3d 603, 611 (R.I. 2013)). “In this endeavor, ‘we view the

evidence in the light most favorable to the nonmoving party.’” Id. (alteration omitted) (quoting

Narragansett Indian Tribe v. State, 81 A.3d 1106, 1109 (R.I. 2014)). “However, once the moving

party establishes ‘the absence of a material factual issue, the party opposing the motion has an

affirmative duty to establish either by affidavit or by other means the material issue of fact to be

decided.’” Id. (quoting Grissom v. Pawtucket Trust Co., 559 A.2d 1065, 1066 (R.I. 1989)).

-6-
 III

Discussion

We begin with a recital of the overriding principles of law applicable to the transaction in

this case. “Generally, there are two operative documents to a real estate loan transaction—a

promissory note and a mortgage.” Bucci v. Lehman Brothers Bank, FSB, 68 A.3d 1069, 1077 (R.I.

2013). “The promissory note evidences the obligation of the borrower to repay the monies that

have been lent, and the mortgage (or mortgage deed) acts as security for that debt.” Id. A

promissory note is a type of negotiable instrument, which is governed by Rhode Island’s Uniform

Commercial Code (Rhode Island UCC).10 SMS Financial XXV, LLC v. Corsetti, 186 A.3d 1060,

1066 (R.I. 2018). “Additionally, ‘Rhode Island is a title-theory state, in which a mortgagee not

only obtains a lien upon the real estate by virtue of the grant of the mortgage deed but also obtains

legal title to the property subject to defeasance upon payment of the debt.’” Bucci, 68 A.3d at 1078

(quoting 140 Reservoir Avenue Associates v. Sepe Investments, LLC, 941 A.2d 805, 811 (R.I.

2007)).

10
General Laws 1956 § 6A-3-104 defines a “negotiable instrument,” in pertinent part, as:

“an unconditional promise or order to pay a fixed amount of money,
with or without interest or other charges described in the promise or
order, if it:
“(1) Is payable to bearer or to order at the time it is issued or
first comes into possession of a holder;
“(2) Is payable on demand or at a definite time; and
“(3) Does not state any other undertaking or instruction by
the person promising or ordering payment to do any act in
addition to the payment of money, but the promise or order
may contain (i) an undertaking or power to give, maintain,
or protect collateral to secure payment, (ii) an authorization
or power to the holder to confess judgment or realize on or
dispose of collateral, or (iii) a waiver of the benefit of any
law intended for the advantage or protection of an obligor.”
-7-
 A

Appellate Jurisdiction

As an initial matter, we must address whether the Perrettas’ appeal is properly before this

Court. The Superior Court granted partial summary judgment in favor of Note Capital and denied

the Perrettas’ motion to enter final judgment pursuant to Rule 54(b). Accordingly, the order

granting partial summary judgment in favor of Note Capital, from which the Perrettas now appeal,

was interlocutory in nature.11

We have held that “[g]enerally, interlocutory orders are not subject to review unless the

order or decree falls within one of the exceptions set forth in G.L. 1956 § 9-24-7.”12 Cayer v. Cox

Rhode Island Telecom, LLC, 85 A.3d 1140, 1146 (R.I. 2014) (deletion omitted) (quoting Chiaradio

v. Falck, 794 A.2d 494, 496 (R.I. 2002)). One such exception is where “a sale of real or personal

property [is] ordered[.]” Section 9-24-7. “Additionally, ‘an order may fall within the ambit of our

judicially created rule that permits review of an interlocutory order that has such an element of

finality as to require immediate review by this Court to avoid possible injurious consequences.’”

Cayer, 85 A.3d at 1146 (quoting Chiaradio, 794 A.2d at 496); see also McAuslan v. McAuslan,

34 R.I. 462, 472, 83 A. 837, 841 (1912). “We have said that ‘consequences become injurious

11
Note Capital does not challenge the propriety of the Perrettas’ appeal, but instead invites us to
accept appellate jurisdiction over this case because “the dismissal of the appeal would cause a
substantial delay in justice.”
12
General Laws 1956 § 9-24-7 provides:

“Whenever, upon a hearing in the [S]uperior [C]ourt, an injunction
shall be granted or continued, or a receiver appointed, or a sale of
real or personal property ordered, by an interlocutory order or
judgment, or a new trial is ordered or denied after a trial by jury, an
appeal may be taken from such order or judgment to the [S]upreme
[C]ourt in like manner as from a final judgment, and the appeal shall
take precedence in the [S]upreme [C]ourt.”
-8-
when their occurrence is imminent and the damage they will work irreparable.’” Id. (brackets and

deletion omitted) (quoting Chiaradio, 794 A.2d at 496).

The order granting partial summary judgment states, in pertinent part: “Partial Summary

Judgment is granted authorizing Note Capital Group, Inc. to exercise its remedies as permitted by

the Mortgage recorded in the City of Cranston in Book 3520, page 165, including, without

limitation foreclosure in accordance with the statutory power of sale.” (Emphasis added.) This

order can be interpreted as one ordering the sale of real property, because it authorized Note Capital

to sell the property. See § 9-24-7. Therefore, we hold that the Perrettas’ appeal from the Superior

Court’s interlocutory order is properly before this Court under the exception in § 9-24-7 permitting

interlocutory appeals where “a sale of real or personal property [is] ordered[.]”

B

Chain of Title

The Perrettas maintain that Note Capital does not hold title to the note and mortgage

because the chain of title was tainted by an improper transfer. They contend that, because

American Residential did not yet have an interest in the note and mortgage when it purported to

transfer its interest in those instruments to GMAC on November 14, 2006, any subsequent

assignments were void. On the other hand, Note Capital claims that the Perrettas lack standing to

challenge the assignments because the transfer from American Residential to GMAC was not void,

but was merely voidable. We agree with Note Capital; the Perrettas lack standing to challenge the

validity of the assignment from American Residential to GMAC.

This Court has held that “[s]tanding is a threshold inquiry into whether the party seeking

relief is entitled to bring suit.” Cruz v. Mortgage Electronic Registration Systems, Inc., 108 A.3d

992, 996 (R.I. 2015) (quoting Narragansett Indian Tribe, 81 A.3d at 1110). “When one party

-9-
challenges standing, ‘the focal point shifts to the claimant, not the claim, and a court must

determine if the plaintiff whose standing is challenged is a proper party to request an adjudication

of a particular issue and not whether the issue itself is justiciable.’” Id. (deletion omitted) (quoting

Narragansett Indian Tribe, 81 A.3d at 1110). “The essence of the question of standing is whether

the party seeking relief has alleged such a personal stake in the outcome of the controversy as to

ensure concrete adverseness that sharpens the presentation of the issues.” Id. (brackets and deletion

omitted) (quoting Narragansett Indian Tribe, 81 A.3d at 1110).

Further, this Court has held that “homeowners [have] standing to ‘challenge the assignment

of mortgages on their homes to the extent necessary to contest the foreclosing entity’s authority to

foreclose.’” Cruz, 108 A.3d at 996 (quoting Mruk v. Mortgage Electronic Registration Systems,

Inc., 82 A.3d 527, 536 (R.I. 2013)). “We cautioned, however, that this holding should be narrowly

construed to encompass only those situations where a mortgagor challenges an ‘invalid,

ineffective, or void assignment of the mortgage.’” Id. at 996-97 (quoting Mruk, 82 A.3d at 536).

“Moreover, we agreed that mortgagors do ‘not have standing to challenge shortcomings in an

assignment that render it merely voidable at the election of one party but otherwise effective to

pass legal title.’” Id. at 997 (quoting Mruk, 82 A.3d at 536). “A void contract is one that cannot

be enforced, and in the mortgage context, a void assignment ‘is one in which the putative assignor

never properly held the mortgage and, thus, had no interest to assign.’” Id. (quoting Wilson v.

HSBC Mortgage Services, Inc., 744 F.3d 1, 10 (1st Cir. 2014)).

The doctrine of estoppel by deed is dispositive on the issue of the Perrettas’ standing in

this case because it renders the assignment from American Residential to GMAC merely voidable,

rather than void. See IDC Properties, Inc. v. Goat Island South Condominium Association, Inc.,

128 A.3d 383, 391 (R.I. 2015). In essence, that doctrine provides that an assignor of an interest in

- 10 -
property (such as a mortgage), despite lacking an actual interest in the property at the time of the

transfer, is prevented from denying the validity of the transfer if the assignor later acquires an

interest in the property. See id. (“Generally, the doctrine of estoppel by deed provides that equity

will not permit a grantor, or one in privity with him or her, to assert anything in derogation of an

instrument concerning an interest in real or personal property as against the grantee or his or her

successors.”) (quoting 28 Am. Jur. 2d Estoppel and Waiver § 5 at 469 (2011)).

In this case, as between American Residential and GMAC, American Residential would

have been estopped from denying the validity of the assignment to GMAC, which occurred on

November 14, 2006, after American Residential obtained title to the note and mortgage on

November 28, 2006. Accordingly, the assignment from American Residential to GMAC was

merely voidable, because American Residential did eventually obtain an interest in the note and

mortgage; GMAC would have been able to enforce that transfer through the doctrine of estoppel

by deed. As such, the Perrettas lack standing to challenge the assignment from American

Residential to GMAC because the assignment was not void.

C

Enforcement of the Note and Mortgage

The Perrettas raise two other arguments in support of vacating the grant of partial summary

judgment in favor of Note Capital. The Perrettas first maintain that there were genuine issues of

material fact that should have precluded the grant of summary judgment. We agree with this

assertion. In rendering his decision below, the hearing justice stated: “[P]laintiffs are able to

enforce the note under Section 3-309 as written because the [c]ourt finds there is competent

evidence in the record that [ARELIX] was in possession of the note and entitled to enforce it when

it was lost * * *.” However, in doing so, the hearing justice made an impermissible factual

- 11 -
determination regarding the validity of the note that Note Capital is attempting to enforce. In

discovery, the Perrettas presented their own affidavit, along with several versions of the note that

had been sent to them throughout the bankruptcy and foreclosure proceedings. This fact alone

calls into question ARELIX’s (and, by extension, Note Capital’s) authority to enforce the lost note,

because it is not clear which version of the note, if any, is authentic.

This Court has stated that “[t]he purpose of the summary-judgment procedure is to identify

disputed issues of fact necessitating trial, not to resolve such issues.” Plainfield Pike Gas &

Convenience, LLC v. 1889 Plainfield Pike Realty Corp., 994 A.2d 54, 58 (R.I. 2010) (quoting

Rotelli v. Catanzaro, 686 A.2d 91, 93 (R.I. 1996)). “Further, ‘summary judgment is an extreme

remedy that should be applied cautiously.’” Id. (brackets omitted) (quoting Sjogren v.

Metropolitan Property and Casualty Insurance Company, 703 A.2d 608, 610 (R.I. 1997)).

Reviewing the evidence in the light most favorable to the Perrettas, as we must, we hold that they

have raised a genuine issue of material fact regarding the validity of the note. Therefore, we vacate

the grant of partial summary judgment in favor of Note Capital, and we remand this case to the

Superior Court for a proper determination of this material factual issue.

The Perrettas next argue that the “lost note statute,” § 6A-3-309 of the Rhode Island UCC,

prevents Note Capital from foreclosing on the property because Note Capital was not in possession

of the note when it was lost.13 In SMS Financial XXV, LLC, an opinion that was not available to

13
Section 6A-3-309 states, in pertinent part:

“A person not in possession of an instrument is entitled to enforce
the instrument if (i) the person was in possession of the instrument
and entitled to enforce it when loss of possession occurred, (ii) the
loss of possession was not the result of a transfer by the person or a
lawful seizure, and (iii) the person cannot reasonably obtain
possession of the instrument because the instrument was destroyed,
its whereabouts cannot be determined, or it is in the wrongful
- 12 -
the hearing justice at the time he decided Note Capital’s motion, we interpreted § 6A-3-309 and

adopted the opinion of the United States District Court for the District of Columbia in Dennis

Joslin Co., LLC v. Robinson Broadcasting Corp., 977 F. Supp. 491 (D.D.C. 1997), restricting the

ability to enforce a lost note to the entity that was in possession of the note and entitled to enforce

the note when it was lost. See SMS Financial XXV, LLC, 186 A.3d at 1066, 1067. We pointed out

that this outcome was dictated by the fact that the Legislature had not adopted the amended version

of Uniform Commercial Code § 3-309, which was enacted in the wake of Joslin.14 See id. at 1067

(“Under the amended version of § 3-309, ‘a transferee of a lost instrument need prove only that its

transferor was entitled to enforce, not that the transferee was in possession at the time the

instrument was lost.’”) (brackets omitted) (quoting U.C.C. § 3-309 cmt. 2). However, we observe

that there was no mortgage involved in that case as there is here. See id. at 1062.

Accordingly, as part of the above-ordered remand, the Superior Court may consider, inter

alia, our opinion in SMS Financial XXV, LLC.

IV

Conclusion

For the reasons stated herein, we vacate the order of the Superior Court and remand for

further proceedings consistent with this opinion.

possession of an unknown person or a person that cannot be found
or is not amenable to service of process.”

This statute harkens back to a day when a singular lending institution held the note and mortgage
throughout the entirety of the life of the loan. However, in view of the frequency with which notes
and mortgages are transferred from one entity to another today, there is little surprise that the note
in this case was lost.
14
There, we concluded by stating: “The remedy for situations such as the instant matter, where a
party to an instrument can ‘escape liability,’ falls squarely within the purview of the Legislature.”
SMS Financial XXV, LLC, 186 A.3d at 1067.
- 13 -
STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS

SUPREME COURT – CLERK’S OFFICE

OPINION COVER SHEET

Note Capital Group, Inc., et al. v. Michele Perretta et
Title of Case
al.
No. 2017-7-Appeal.
Case Number
(PC 14-5678)
Date Opinion Filed May 23, 2019
Suttell, C.J., Goldberg, Flaherty, Robinson, and
Justices
Indeglia JJ.
Written By Associate Justice Gilbert V. Indeglia

Source of Appeal Providence County Superior Court

Judicial Officer From Lower Court Associate Justice Richard A. Licht
For Plaintiff:

Michael R. Hagopian, Esq.
Attorney(s) on Appeal For Defendants:

John B. Ennis, Esq.
Bernard J. Lemos, Esq.

SU‐CMS‐02A (revised June 2016)