FYI: 8th Cir Holds Civil Procedure Rules Could Not Extend Minnesota Foreclosure Deadlines

Answering a certified question from the U.S. Court of Appeals for the Eighth Circuit, the Minnesota Supreme Court recently held that a rule of civil procedure cannot be used to modify deadlines in the state's foreclosure statute.  In so ruling, the Minnesota Supreme Court concluded that to allow a rule of procedure to extend a deadline contained in the Minnesota foreclosure statute would alter the substantive rights of the litigants. 

 

At issue in the case was the borrowers' argument that the loan servicer violated the statutory requirements for handling foreclosures under Minn. Stat. § 582.043.  The statute at issue required the borrowers to file a lis pendens within the statutory redemption period, but the borrowers failed to do so. 

 

The loan servicer challenged the claim based on the borrowers' failure to timely file the lis pendens, and the borrowers asserted Minnesota Rule of Civil Procedure 6.02 allowed the court to extend the deadline for filing the lis pendens. 

 

The trial court granted the servicer's motion for summary judgment, and the Eighth Circuit certified the following question to the Minnesota Supreme Court:  "May the lis pendens deadline contained in Minn. Stat. § 582.043, subpart 7(b) be extended upon a showing of excusable neglect pursuant to Minn. R. Civ. P. 6.02?" 

 

The Minnesota Supreme Court answered the question in the negative, and the Eighth Circuit accepted the answer and affirmed the district court's conclusion. 

 

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

 

The borrowers' home was sold to the mortgagee at a sheriff's sale in November of 2014.  The period in which borrowers could pay off their debt and redeem their home expired on March 1, 2015.  On March 2, 2015, borrowers sued the loan servicer for breach of contract, unjust enrichment, and injunctive relief.  On May 6, 2015, borrowers filed a lis pendens on the property.

 

The loan servicer removed the matter to federal court, where the borrowers amended their complaint to add a claim that the servicer violated Minn. Stat. § 582.043.  The borrowers also added the mortgagee as a party.  In federal court, borrowers pursued only their claim under § 582.043 and abandoned the others.

 

As you may recall, Minn. Stat. § 582.043, subpart 7(a), gives mortgagors a cause of action to set aside a foreclosure sale if the loan servicer violated the section's substantive provisions. Section 582.043, subpart 7(b), however, requires a mortgagor bringing an action under subpart 7(a) to file a lis pendens within the mortgagor's redemption period.  "The failure to record the lis pendens creates a conclusive presumption that the servicer has complied with this section."  See Minn. Stat. § 582.043, subpart 7(b).

 

Here, borrowers filed the lis pendens two months after their redemption period expired.  Therefore, the normal operation of § 582.043, subpart 7(b), would create the conclusive presumption that the servicer complied with the statute and borrowers did not have any relief.

 

Minn. R. Civ. P. 6.02, however, authorizes courts in their discretion to extend a deadline in certain circumstances. As relevant here, Rule 6.02 provides: "When by statute . . . an act is required or allowed to be done at or within a specified time, the court for cause shown may . . . upon motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect . . . ."

 

The borrowers argued that if Rule 6.02 was used to extend the deadline in § 582.043, subpart 7(b), then the failure to file the lis pendens within the redemption period would not automatically trigger the provision's conclusive presumption, and the borrowers would still have a viable claim for relief.

 

The loan servicer and mortgagee moved for summary judgment on the ground that borrowers failed to timely file their lis pendens.  The borrowers admitted they were late in filing the lis pendens, but urged the trial court to extend the deadline for "excusable neglect" under Rule 6.02.  The trial court concluded that Rule 6.02 could not be used to extend the lis pendens deadline, and granted summary judgment in favor of the servicer and the mortgagee.

 

The borrowers appealed to the U.S. Court of Appeals for the Eighth Circuit.  Because the issue on appeal addressed the application of Rule 6.02, the Eighth Circuit certified the following question to the Minnesota Supreme Court: "May the lis pendens deadline contained in Minn. Stat. Sec. 582.043, subpart 7(b) be extended upon a showing of excusable neglect pursuant to Minn. R. Civ. P. 6.02?"

 

The Minnesota Supreme Court accepted the certified question and issued an opinion answering the question in the negative.

 

The Supreme Court explained that Minnesota 's Rules of Civil Procedure cannot modify substantive law, and determined that "extending the deadline in Section 582.043, subpart 7(b), would alter the substantive rights of the litigants."  Thus, the Minnesota Supreme Court concluded that "Rule 6.02 may not be used to extend this deadline."

 

The Eighth Circuit accepted the Minnesota Supreme Court's opinion.  Because Rule 6.02 could not be used to extend the deadline to file the lis pendens, and because it was undisputed that the borrowers had not timely filed their lis pendens, the Eighth Circuit held that the trial court correctly concluded borrowers were not entitled to relief under Section 582.043.  Accordingly, the Eighth Circuit affirmed the trial court's judgment.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

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FYI: 8th Cir BAP Rules No Bankruptcy Jurisdiction Over Third-Party Challenge to Validity of Mortgage

The U.S. Bankruptcy Appellate Panel for the Eight Circuit recently applied the "conceivable effect" test in holding that a bankruptcy court lacked jurisdiction over a state law fraud claim raised by a third-party regarding the validity of a lender's lien, and therefore, declined to consider the issue on appeal.

 

In so ruling, the Panel ruled that the state law fraud claim did not invoke "arising under" or "arising in" jurisdiction of the bankruptcy court because the state law fraud claim was not created or determined by the Bankruptcy Code, and could exist outside of bankruptcy.

 

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

 

Debtors were farmers and ranchers who purchased 880 acres of land in North Dakota under a contract for deed.  Debtors lived on 160 acres of the parcel ("Home Parcel") which was later sold to defendant ranchers ("Ranchers").

 

Debtors borrowed nearly $400,000 from lender ("Lender") to pay their operating expenses under eight separate loans, two of which were secured.  In March 2016, Lender approved short term loan extensions for Debtors in exchange for them providing a security interest in additional real estate. 

 

Debtors executed eight promissory notes and loan modification agreements, as well as a mortgage to secure payment of the notes.  Although the legal description of the mortgage included the Home Parcel, Ranchers owned the Home Parcel at the time the mortgage was executed. On April 5, 2016, Ranchers conveyed the Home Parcel back to Debtors because they believe it would help them qualify for an operating loan. The mortgage was recorded the same day.

 

However, once Debtors discovered Lender would not loan any more funds, they conveyed the Home Parcel back to Ranchers on April 7, 2016. At that time, the Home Parcel was already encumbered by Lender's mortgage.

 

Debtors later filed a voluntary petition for relief under Chapter 12 of the Bankruptcy Code and an adversary proceeding naming Ranchers and Lender as defendants. In their answer, Ranchers asked the bankruptcy court to invalidate Lender's lien on the Home Parcel based on a state law fraud claim. 

 

The bankruptcy court entered judgment in the adversary proceeding for Lender and against Debtors.  In doing so, it examined North Dakota law with reference to the transfer of the Home Parcel to Debtors and the grant of the mortgage to Lender, and stated that Debtors did not meet their burden of showing actual fraud.  As a result, Lender was found to have a valid and enforceable mortgage lien against the Home Parcel.

 

The bankruptcy case was later converted to Chapter 7. Thereafter, the bankruptcy court denied a motion to reconsider the judgment in the adversary proceeding. Debtors, Ranchers, and the Chapter 7 Trustee ("Trustee") appealed the judgment in the adversary proceeding and the denial of the motion to reconsider.

 

Initially, the Panel granted Lender's motion to dismiss Debtors' appeal based on lack of standing, and held that the Trustee's appeal because it was untimely. However, Lender's request to dismiss Ranchers' appeal was denied.

 

On appeal, Ranchers challenged the bankruptcy court's judgment against Debtors in favor of Lender by arguing state law fraud and sought a determination as to whether Lender held a valid lien on the Home Parcel. 

 

The Panel first explained that Ranchers failed to assert a cross-claim or counterclaim in the adversary proceeding regarding the validity of Lender's lien on the Home Parcel, and therefore, it would not consider a matter that was not properly brought before the bankruptcy court.

 

Nevertheless, to the extent the Ranchers did assert a claim regarding the validity of the lien below, the Panel found that the bankruptcy court had no jurisdiction over the dispute between Ranchers and Lender. The Panel noted that bankruptcy courts have "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." See 28 U.S.C. § 1334(b); 28 U.S.C. § 157(a). The Panel then explained that the Eighth Circuit uses the "conceivable effect" test to determine the existence of "related to" jurisdiction for non-core proceedings.

 

Under this test, courts consider whether the outcome of the civil proceeding would conceivably have any effect on the estate being administered in the bankruptcy.  In other words, "[a]n action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action ... and which in any way impacts upon the handling and administration of the bankruptcy estate. Dogpatch Props., Inc. v. Dogpatch U.S.A., Inc. (In re Dogpatch U.S.A., Inc.), 810 F.2d 782, 786 (8th Cir. 1987) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984), overruled on other grounds by Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 129 (1995)).

 

The Panel further explained that "related to" jurisdiction is broad but has limits, and therefore, "bankruptcy courts have no jurisdiction over proceedings that have no effect on the estate of the debtor." Celotex Corp. v. Edwards, 514 U.S. 300, 308 n.6 (1995)). 

 

Applying the "conceivable effect" test, the Panel determined that Ranchers' claim involved a state law fraud dispute between Lender and Ranchers, both non-debtors, concerning property that was not part of the bankruptcy estate.  Indeed, the transfer of the Home Parcel to Ranchers was completed prior to the filing of debtors' petition. Thus, the outcome of the dispute would not have an effect on the bankruptcy estate. 

 

Further, the Panel noted that when questioned on the issue of jurisdiction at oral argument, the parties were unable to satisfactorily explain how the outcome of the dispute between Ranchers and Lender could have a conceivable effect on the bankruptcy estate.

 

Thus, the Panel found that it could not consider the merits of Ranchers and Lenders dispute because the bankruptcy court would not have had jurisdiction.  Accordingly, the Panel remanded the case to the bankruptcy court with instructions to dismiss Ranchers' claim regarding the validity of Lender's lien against the Home Parcel.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 7th Cir Holds Pl's Recovery of Less Than Pre-Trial Settlement Offers Does Not Justify Denying Atty Fees

The U.S. Court of Appeals for the Seventh Circuit recently held that a trial court abused its discretion in denying attorney's fees to a prevailing plaintiff despite the plaintiff's failure to recover an award which exceeded the pre-trial settlement offers. 

 

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

 

The plaintiff filed suit against multiple law enforcement officers pursuant to 42 U.S.C. § 1983 asserting a number of claims for unlawful search and use of excessive force. At various points during litigation, the parties engaged in settlement discussions with the plaintiff demanding $3.5 million and rejecting an ultimate offer of $200,000 by the defendants. 

 

At the trial, the jury found in favor of the plaintiff on the majority of his claims and awarded plaintiff $22,000 in compensatory damages and $10,092 in punitive damages.  Following the trial, plaintiff moved for an award of attorneys' fees per 42 U.S.C. § 1988(b), but the trial court denied that petition. 

 

The plaintiff appealed the trial court's denial of attorneys' fees.

 

The Seventh Circuit begins its analysis with a brief overview of the fee shifting provision of section 1988(b) which provides that "the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney's fee."  As noted in the opinion, the Supreme Court of the United States has clarified that even a plaintiff who receives only a nominal award may be considered a prevailing party but that it is reasonable for a court to refuse to award fees if the damages awarded are merely technical or de minimis.  See Farrar v. Hobby, 506 U.S. 103 (1992). 

 

The Seventh Circuit further explained that a denial of fees may also be appropriate where the plaintiff in a matter was "aiming high and fell short, and in the process inflicted heavy costs on his opponent and wasted the time of the court."  But, the Court noted, this does not apply to cases where the claim is small and tried accordingly. 

 

In rejecting the trial court's determination that the plaintiff in this matter "aimed high and fell short", the Seventh Circuit first noted that it "doubt[s] an award including punitive damages can be considered technical or de minimis."  The Court further explained that the trial record reflected that damages sought by the plaintiff was not his primary focus and instead he was more interested in an adjudication of his claims and the acceptance of responsibility by the defendants.  The Court commented that section 1988 was enacted for precisely this type of situation where the primary goal is the vindication of rights.

 

Importantly, the Seventh Circuit noted that the defendants never made a proper pre-trial offer of judgment under Federal Rule of Civil Procedure 68.  

 

The Court also criticized the trial court judge for appearing to punish the plaintiff for purported inappropriate conduct by his attorney in the litigation.  Further, the Seventh Circuit determined that a potentially unenforceable fee arrangement between the plaintiff and his counsel was not a basis to deny the fee petition, but that even if it is unenforceable, this alone would "not justify denying outright the petition for fee."

 

In sum, the Seventh Circuit reiterated that the plaintiff had a right to reject the settlement offers by defendants – which were not made as proper Rule 68 offers of judgment - and proceed to trial. The case was remanded to the trial court for additional hearing on the proper fee amount to be awarded.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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and

 

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