Wednesday, January 27, 2016

FYI: Fla App Ct (2nd DCA) Holds Voluntary Dismissal of Foreclosure Based on Mistaken Advice of Counsel Could Not Be Undone

The District Court of Appeal of Florida, Second District, recently reversed a trial court's order vacating a voluntary dismissal based on mistaken advice from counsel regarding the statute of limitations, holding that the voluntary dismissal was the result of a deliberate judgment by counsel, and not the type of non-judgmental, clerical mistake that Florida law recognizes as a basis to undo a voluntary dismissal.


A copy of the opinion is available at:  Link to Opinion  


In March of 2013, borrowers created a land trust, naming their attorney as trustee. They then transferred to the trustee real property encumbered by a mortgage.  In July of 2013, the mortgagee sued to foreclose, naming borrowers and the trustee as defendants.


Based on advice of counsel that the foreclosure claim was likely barred by the statute of limitations, the plaintiff mortgagee voluntarily dismissed the foreclosure in August of 2014.  The mortgagee later learned that one of the borrowers was on active duty in the U.S. military "and that his service may have tolled the statute of limitations in accord with the Servicemembers Civil Relief Act."


In September of 2014, the mortgagee filed a motion under Florida Rule of Civil Procedure 1.540(b) seeking to vacate the voluntary dismissal. The Motion did not explain the reasons for the relief sought or provide any evidence in support, and was denied.


The mortgagee renewed its Motion in October of 2014, this time supported by an affidavit explaining that had it known that one of the borrowers was in active military service, the foreclosure case would not have been dismissed. The Motion cited Rule 1.540, "but did not identify the specific subsection of the rule upon which it relied."


At the hearing, mortgagee argued that the voluntary dismissal was a mistake based on the borrower's military service and thus fell within subsection 1.540(b)(1). In response, the borrowers argued that "the intentional filing of a voluntary dismissal was a tactical mistake that could not provide the trial court with jurisdiction to reinstate the case…."  Without taking evidence, the trial court granted the Motion and the trustee and borrowers appealed.


On appeal, the borrowers and trustee argued both that the voluntary dismissal based on an incorrect assumption as to the borrower's military service could not be undone under Rule 1.540(b)(1), and in any event that they were entitled to an evidentiary hearing.


The Appellate Court noted that a voluntary dismissal under Rule 1.420(a)(1) ends a trial court's jurisdiction over a case. "The [Florida Supreme] court has recognized only one exception to the rule that a notice of dismissal terminates a trial court's jurisdiction with 'absolute finality'—the existence of grounds justifying relief under rule 1.540(b)."


The Court explained that "[b]ecause a trial court necessarily has jurisdiction to determine whether it has jurisdiction, the filing of a rule 1.540(b) motion after a case has been voluntarily dismissed vests the trial court with the limited authority to determine whether the grounds asserted by the movant justify relief under the rule. … Where a motion under rule 1.540(b) sets forth 'a colorable entitlement to relief,' the trial court should conduct an evidentiary hearing to determine whether such relief should be granted."


However, the Appellate Court continued, "[i]t follows that where the allegations of a rule 1.540(b) motion do not give rise to a right to relief, an evidentiary hearing on those allegations is not required and the trial court's jurisdiction is limited to the entry of an order denying the motion."


The Court reasoned that "rule 1.540(b)(1) provides relief from an improvidently filed notice of voluntary dismissal on grounds of mistake. In determining whether relief is warranted on this basis, the [Florida] supreme court has distinguished between judgmental or tactical errors by a party or its counsel and other types of errors that do not involve the deliberate exercise of judgment. … Judgmental or tactical errors are not regarded as mistakes within the meaning of rule 1.540(b)(1)—and thus will not relieve a party from a voluntary dismissal—while nonjudgmental errors do qualify for relief under the rule."


Stated differently, according to the Appellate Court, trial courts only have jurisdiction to correct clerical or administrative errors, not errors of law based on misjudgment or miscalculation.


Based on the allegations in the renewed Motion to Vacate, the Appellate Court concluded that "the filing of the notice of voluntary dismissal in this case was a judgmental or tactical error." The Motion alleged that the dismissal was filed because the mortgagee's counsel believed the statute of limitations had run. It also alleged that the tactical reason for the dismissal was to try to collect the note outside of court.  The Court noted that, just because the dismissal was based on a mistaken assumption of fact regarding military service, which was in turn based on a decision not to conduct a military search because it received the file from prior counsel, "does not change the character as a judgmental or tactical decision."


The Appellate Court distinguished those cases where "courts have used rule 1.540(b)(1) to grant relief from voluntary dismissals. The common thread in those cases is that the basis for relief was a mistake in execution of a party's or lawyer's decision regarding voluntary dismissal, not a decision to voluntarily dismiss that a party or lawyer later concluded was ill-advised."


The Court cited the situation where an attorney intends to dismiss a case without prejudice, but an assistant mistakenly drafts the notice with prejudice, as a "classic example" of this type of mistake for which the rule provides relief.


Because the Appellate Court found that the renewed Motion on its face indicated that the attorney's mistake was judgmental rather than clerical in nature, the Court ruled that subsection 1.540(b)(1) did not apply and there was no other basis alleged in the Motion — such as newly discovered evidence that could not have been discovered by due diligence or fraud, misrepresentation or other misconduct of the adverse party — the trial court lacked jurisdiction to do anything besides deny the Motion. An evidentiary hearing was not required.


The Court reversed the trial court's order granting the renewed Motion to Vacate and remanded with instructions for the trial court to enter an order denying the Motion and reinstating the voluntary dismissal without prejudice. 




Ralph T. Wutscher
Maurice Wutscher LLP
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Chicago, Illinois 60602
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