SUPREME COURT – STATE OF NEW YORK
I.A.S. PART XIII SUFFOLK COUNTY

HON. MELVYN TANENBAUM
Justice

US BANK N.A.,
-against-
ORLANDO BORJA ET AL.,

ORDERED that this motion by plaintiff seeking an order granting summary judgment, amending the caption of the action and appointing a referee to compute the sums due and owing to plaintiff in this mortgage foreclosure action is granted.

The Court has repeatedly directed plaintiffs counsel, Steven J. Baum, P.c., to submit proposed orders of reference in proper form and counsel’s office has repeatedly failed to comply.

Accordingly, plaintiff’s counsel is hereby directed to submit a proposed order for the appointment of a referee in the forn required by this Court. Any further failure to comply with this order shall be deemed wilful.

Dated: July 30, 2010

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© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

Supreme Court of the State of New York, held
in and for the County of Kings, at the
courthouse at 360 Adams Street

David Schmidt
Justice of the Supreme Court

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC.,

v.

Bibi Roopen

To cancel the claim for the surplus monies on the above Index Number 1694 1/04 by the Claimant Merrill Lynch Mortgage Lending, Inc. Attorney Steven J. Baum. P.C. and to grant me, Bibi Roopan, the surplus monies on deposit in this matter. for the reasons that Neither Wilshire Credit Corporation, who owned the second mortgage to the premise commonly known as 14 Cypress Court Brooklyn, NY 11208, nor its parent company, Merrill Lynch Mortgage Lending. were present at the foreclosure and therefore did not claim their share of the foreclosure at that time (Notice of Appearance). En addition. Wilshire Credit Corporation transferred the mortgage loan to Strategic Recovery Group, LLC, db Aquara Loan Services, Its Successors and/or Assigns, P.O. Box 61026 Anaheim, CA 92803-6126 on October 29.2008 and on July 6,2010, Strategic Recovery Group sent me a letter to settle in full for $30,497.10.

Pending the hearing of this motion it is ordered that to cancel & stop the claim for the surplus monies on the above index Number 16941/04 by Claimant Merrill Lynch Mortgage Lending, Inc, Attorney Steven J. Baum, PC and for the surplus monies to stay at the courts until judgement by the judge and also that Merrill Lynch Mortgage Lending

DO NOT GET ME SURPLUS MONIES.

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© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

Class Action Attorney Susan Chana Lask targets Foreclosure Mill Attorneys as source of foreclosure crisis.

This is the amended complaint against Foreclosure Mill Steven J. Baum and MERSCORP.

Want to join the Class? No problem!

Please contact: SUSAN CHANA LASK, ESQ.

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Related posts:

CLASS ACTION | Connie Campbell v. Steven Baum, MERSCORP, Inc

_________________________

CLASS ACTION AMENDED against MERSCORP to include Shareholders, DJSP

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

I go through hundreds of cases each week and I have been saving this one for a rainy day. We’ll it’s raining today.

SUPREME COURT – STATE OF NEW YORK I.A.S. PART XXXVI SUFFOLK COUNTY PRESENT: HON. PAUL J. BAISLEY, JR., J.S.C.

DATED: MAY 10. 2010

The Court is at a loss to understand how a purported “correcting assignment” can be executed eight days before the assignment it is purporting to correct. Moreover, the Court is at a loss as to the identity of the true holder of the mortgage at the time of the commencement of the action (irrespective of any arguments regarding the validity of the purported assignment(s) by MERS as nominee of the original mortgagee; see, for example, US Bank, N.A. II Collymore, 200 NY Slip Op 09019 [2d Dept 2009]), While it is well established that any issues as to a plaintiff’s standing to commence a foreclosure action are waived by the defendant-mortgagor’s failure to appear and answer (HSBC Bank v Dammond, 59 A03d 679 l2d Sept 2009]), the contradictory and conflicting submissions on this motion implicate far more than the more issue of “standing.” Indeed, the submissions appear to have been drafted with utter disregard for the facts, or for counsel’s responsibilities as an officer of the Court, and border on the fraudulent.

In the the circumstances, the motion, which is unsupported either factually or legally, is denied in all respects. Moreover, in light of the failure of the movant to establish that any party was in fact the holder of the mortgage (and the underlying note, see KLuge v Fugm:y, 145 AD2d [2d Sept 1988J) at the time of the commencement of this action – an omission that in the circumstances may not be corrected by mere amendment — the Court, on its own motion, hereby directs the plaintiff to show cause why the complaint should not be dismissed; and further directs Steven J. Baum, P.c. and Heather A. Johnson, Esq., the attorney of record for the plaintiff in this action and the scrivener of the affirmation referred to above, to appear before the undersigned on June 24, 2010 at II :00 a.m. to show cause why sanctions should not be imposed on plaintiff and/or its attorney(s) for frivolous conduct pursuant to 22 NYCRR §130-1.1 (c).

Dated: May 10. 2010

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© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

Hat tip to Jeffrey Miller…

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© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

The court held that it “will hold a hearing to determine what sanctions if any, that may be imposed upon Steven J. Baum, P.C. for the false representations made in the petition,” as counsel for Federal Home Loan Mortgage Corp.

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© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

DING DING DING…Let the fight begin!

GMAC faces New York foreclosure brawl

By RICHARD WILNER
Last Updated: 1:36 AM, July 6, 2010
Posted: 1:31 AM, July 6, 2010

A Bronx homeowner is scheduled for a courtroom battle royale later this month — facing off in Manhattan bankruptcy court against the largest foreclosure mill in the state to see if the firm’s client, GMAC Mortgage, has the right to toss her from her Pelham Gardens home.

Also at issue is whether the law firm, Steven J. Baum PC, may have a conflict of interest problem.

The lawyer for the homeowner, David Shaev, claims in recently filed court papers that a Baum lawyer allegedly represented GMAC without disclosing she worked for Baum.

The thorny issue is of growing interest to New York judges — who last year faced more than 50,350 foreclosure actions, according to RealtyTrac, many of which were brought by banks that have sold or securitized the loans. Such actions make proving which entity owns the loan difficult.

That issue is key — banks that can’t prove they own a loan can’t legally foreclose. At times, lenders and law firms have been chastised for taking short cuts to gloss over the ownership issue.

Complicating matters is that most delinquent homeowners battle foreclosure actions without a lawyer and get steamrolled.

But that may be changing.

On June 3, Bankruptcy Judge Allan Gropper denied a bank’s attempt to move against a homeowner because it couldn’t prove it owned a mortgage.

Five days later, Brooklyn state court Judge Wayne P. Saitta, citing a bank’s “egregious” misrepresentation, awarded a homeowner $10,000 in sanctions when the bank tried to evict knowing it didn’t own the mortgage.

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

2010 NY Slip Op 50927(U)

HSBC BANK USA, N.A. AS TRUSTEE FOR NOMURA ASSET-BACKED CERTIFICATE SERIES

2006-AF1,, Plaintiff,
v.
LOVELY YEASMIN, ET. AL., Defendants.

34142/07

Supreme Court, Kings County.

Decided May 24, 2010.

Steven J Baum, PC, Amherst NY, Plaintiff — US Bank.

ARTHUR M. SCHACK, J.

Plaintiff’s renewed motion for an order of reference, for the premises located at 22 Jefferson Street, Brooklyn, New York (Block 3170, Lot 20, County of Kings), is denied with prejudice. The instant action is dismissed and the notice of pendency for the subject property is cancelled. Plaintiff HSBC BANK USA, N.A. AS TRUSTEE FOR NOMURA ASSET-BACKED CERTIFICATE SERIES 2006-AF1 (HSBC) failed to comply with my May 2, 2008 decision and order in the instant matter (19 Misc 3d 1127 [A]), which granted plaintiff HSBC leave:

to renew its application for an order of reference for the premises located at 22 Jefferson Street, Brooklyn, New York (Block 3170, Lot 20, County of Kings), upon presentation to the Court, within forty-five (45) days of this decision and order of:

(1) a valid assignment of the instant mortgage and note to plaintiff, HSBC . . .;

(2) an affirmation from Steven J. Baum, Esq., the principal of Steven J. Baum, P.C., explaining if both MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. [MERS], the assignor of the instant mortgage and note, and HSBC . . . the assignee of the instant mortgage and note, pursuant to 22 NYCRR § 1200.24, consented to simultaneous representation in the instant action, with “full disclosure of the implications of the simultaneous representation and the advantages and risks involved” explained to them;

(3) compliance with the statutory requirements of CPLR § 3215 (f), by an affidavit of facts executed by someone with authority to execute such an affidavit, and if the affidavit of facts is executed by a loan servicer, a copy of a valid power of attorney to the loan servicer, and the servicing agreement authorizing the affiant to act in the instant foreclosure action; and

(4) an affidavit from an officer of plaintiff HSBC . . . explaining why plaintiff HSBC . . . purchased a nonperforming loan from MERS, as nominee for CAMBRIDGE HOME CAPITAL, LLC [CAMBRIDGE].

[Emphasis added]

Plaintiff made the instant motion on January 6, 2009, 249 days subsequent to the May 2, 2008 decision and order. Thus, the instant motion is 204 days late. Plaintiff’s unavailing lateness explanation, in ¶ 16 of plaintiff’s counsel’s January 6, 2009 affirmation of regularity, states:

A previous application has been made for this or like relief but was subsequently denied without prejudice with leave to renew upon proper papers. By Decision and Order of this court dated the 2nd day of May 2008, plaintiff had 45 days to renew its application.

However on June 29, 2008 the Plaintiff permitted the mortgagor to enter into a foreclosure forbearance agreement. Said agreement was entered into with the hope that the Defendant would be able to keep her home. The agreement was not kept by the mortgagor and Plaintiff has since resumed the foreclosure action. The defects of the original application are addressed in the Affirmation attached hereto at Tab F [sic].

June 29, 2008 was 58 days subsequent to May 2, 2008. This was 13 days subsequent to the Court ordered deadline for plaintiff to make a renewed motion for an order of reference. While it’s laudatory for plaintiff HSBC to have granted defendant a forbearance agreement, plaintiff HSBC never notified the Court about this or sought Court approval of extending the 45-day deadline to make the instant motion. However, even if the instant motion was timely, the documents plaintiff’s counsel refers to at Tab F [exhibit F of motion] do not cure the defects the Court found with the original motion and articulated in the May 2, 2008 decision and order.

Background

Defendant LOVELY YEASMIN borrowed $624,800.00 from CAMBRIDGE on May 10, 2006. The note and mortgage were recorded by MERS, as nominee for CAMBRIDGE, for purposes of recording the mortgage, in the Office of the City Register, New York City Department of Finance, on May 23, 2006, at City Register File Number (CRFN) XXXXXXXXXXXXX. Then, MERS, as nominee for CAMBRIDGE, assigned the mortgage to plaintiff HSBC on September 10, 2007, with the assignment recorded in the Office of the City Register, on September 20, 2007, at CRFN XXXXXXXXXXXXX. The assignment was executed by “Nicole Gazzo, Esq., on behalf of MERS, by Corporate Resolution dated 7/19/07.” Neither a corporate resolution nor a power of attorney to Ms. Gazzo were recorded with the September 10, 2007 assignment. Therefore, the Court found the assignment invalid and plaintiff HSBC lacked standing to bring the instant foreclosure action. Ms. Gazzo, the assignor, according to the Office of Court Administration’s Attorney Registration, has as her business address, “Steven J. Baum, P.C., 220 Northpointe Pkwy Ste G, Buffalo, NY 14228-1894.” On September 10, 2008, the same day that Ms. Gazzo executed the invalid assignment for MERS, as nominee for CAMBRIDGE, plaintiff’s counsel, Steven J. Baum, P.C., commenced the instant action on behalf of purported assignee HSBC by filing the notice of pendency, summons and complaint in the instant action with the Kings County Clerk’s Office. The Court, in the May 2, 2008 decision and order, was concerned that the simultaneous representation by Steven J. Baum, P.C. of both MERS and HSBC was a conflict of interest in violation of 22 NYCRR § 1200.24, the Disciplinary Rule of the Code of Professional Responsibility entitled “Conflict of Interest; Simultaneous Representation,” then in effect. Further, plaintiff’s moving papers for an order of reference and related relief failed to present an “affidavit made by the party,” pursuant to CPLR § 3215 (f). The instant application contained an “affidavit of merit and amount due,” dated November 16, 2007, by Cathy Menchise, “Senior Vice President of WELLS FARGO BANK, N.A. D/B/A AMERICA’S SERVICING COMPANY, Attorney in Fact for HSBC BANK USA, N.A. AS TRUSTEE FOR NOMURA ASSET-BACKED CERTIFICATE SERIES 2006-AF1.” Ms. Menchise stated “[t]hat a true copy of the Power of Attorney is attached hereto.” Actually attached was a photocopy of a “Limited Power of Attorney,” dated July 19, 2004, from HSBC, appointing WELLS FARGO BANK, N.A. as its attorney-in-fact to perform various enumerated services, by executing documents “if such documents are required or permitted under the terms of the related servicing agreements . . . in connection with Wells Fargo Bank, N.A.[‘s] . . . responsibilities to service certain mortgage loans . . . held by HSBC . . . as Trustee of various trusts.” The “Limited Power of Attorney” failed to list any of these “certain mortgage loans.” The Court was unable to determine if plaintiff HSBC’s subject mortgage loan was covered by this “Limited Power of Attorney.” The original motion stated that defendant YEASMIN defaulted on her mortgage payments by failing to make her May 1, 2007 and subsequent monthly loan payments. Yet, on September 10, 2007, 133 days subsequent to defendant YEASMIN’S alleged May 1, 2007 payment default, plaintiff HSBC took the ssignment of the instant nonperforming loan from MERS, as nominee for CAMBRIDGE. Thus, the Court required, upon renewal of the motion for an order of reference, a satisfactory explanation of why HSBC purchased a nonperforming loan from MERS, as nominee for CAMBRIDGE.

Plaintiff HSBC needed “standing” to proceed in the instant action. The Court of Appeals (Saratoga County Chamber of Commerce, Inc. v Pataki, 100 NY2d 801, 912 [2003]), cert denied 540 US 1017 [2003]), held that “[s]tanding to sue is critical to the proper functioning of the judicial system. It is a threshold issue. If standing is denied, the pathway to the courthouse is blocked. The plaintiff who has standing, however, may cross the threshold and seek judicial redress.” In Carper v Nussbaum, 36 AD3d 176, 181 (2d Dept 2006), the Court held that “[s]tanding to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant’s request.” If a plaintiff lacks standing to sue, the plaintiff may not proceed in the action. (Stark v Goldberg,297 AD2d 203 [1d Dept 2002]). “Since standing is jurisdictional and goes to a court’s authority to resolve litigation [the court] can raise this matter sua sponte.” (Axelrod v New York State Teachers’ Retirement System, 154 AD2d 827, 828 [3d Dept 1989]).

In the instant action, the September 10, 2007 assignment from MERS, as nominee for CAMBRIDGE, to HSBC was defective. Therefore, HSBC had no standing to bring this action. The recorded assignment by “Nicole Gazzo, Esq. on behalf of MERS, by Corporate Resolution dated 7/19/07,” had neither the corporate resolution nor a power of attorney attached. Real Property Law (RPL) § 254 (9) states: Power of attorney to assignee. The word “assign” or other words of assignment, when contained in an assignment of a mortgage and bond or mortgage and note, must be construed as having included in their meaning that the assignor does thereby make, constitute and appoint the assignee the true and lawful attorney, irrevocable, of the assignor, in the name of the assignor, or otherwise, but at the proper costs and charges of the assignee, to have, use and take all lawful ways and means for the recovery of the money and interest secured by the said mortgage and bond or mortgage and note, and in case of payment to discharge the same as fully as the assignor might or could do if the assignment were not made. [Emphasis added]

To have a proper assignment of a mortgage by an authorized agent, a power of attorney is necessary to demonstrate how the agent is vested with the authority to assign the mortgage. “No special form or language is necessary to effect an assignment as long as the language shows the intention of the owner of a right to transfer it [Emphasis added].” (Tawil v Finkelstein Bruckman Wohl Most & Rothman, 223 AD2d 52, 55 [1d Dept 1996]). (See Suraleb, Inc. v International Trade Club, Inc., 13 AD3d 612 [2d Dept 2004]). To foreclose on a mortgage, a party must have title to the mortgage. The instant assignment was a nullity. The Appellate Division, Second Department (Kluge v Fugazy, 145 AD2d 537, 538 [2d Dept 1988]), held that a “foreclosure of a mortgage may not be brought by one who has no title to it and absent transfer of the debt, the assignment of the mortgage is a nullity.” Citing Kluge v Fugazy, the Court inKatz v East-Ville Realty Co. (249 AD2d 243 [1d Dept 1998]), held that “[p]laintiff’s attempt to foreclose upon a mortgage in which he had no legal or equitable interest was without foundation in law or fact.” Plaintiff HSBC, with the invalid assignment of the instant mortgage and note from MERS, lacked standing to foreclose on the instant mortgage. The Court, in Campaign v Barba (23 AD3d 327 [2d Dept 2005]), held that “[t]o establish a prima facie case in an action to foreclose a mortgage, the plaintiff must establish the existence of the mortgage and the mortgage note, ownership of the mortgage, and the defendant’s default in payment [Emphasis added].” (See Household Finance Realty Corp. of New York v Wynn, 19 AD3d 545 [2d Dept 2005]; Sears Mortgage Corp. v Yahhobi, 19 AD3d 402 [2d Dept 2005]; Ocwen Federal Bank FSB v Miller, 18 AD3d 527 [2d Dept 2005]; U.S. Bank Trust Nat. Ass’n v Butti, 16 AD3d 408 [2d Dept 2005]; First Union Mortgage Corp. v Fern, 298 AD2d 490 [2d Dept 2002]; Village Bank v Wild Oaks Holding, Inc., 196 AD2d 812 [2d Dept 1993]). Even if plaintiff HSBC can cure the assignment defect, plaintiff’s counsel has to address his conflict of interest in the representation of both assignor MERS, as nominee for CAMBRIDGE, and assignee HSBC. 22 NYCRR § 1200.24, of the Disciplinary Rules of the Code of Professional Responsibility, entitled “Conflict of Interest; Simultaneous Representation,” states in relevant part: (a) A lawyer shall decline proffered employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under subdivision (c) of this section. (b) A lawyer shall not continue multiple employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the lawyer’s representation of another client, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under subdivision (c) of this section. (c) in the situations covered by subdivisions (a) and (b) of this section, a lawyer may represent multiple clients if a disinterested lawyer would believe that the lawyer can competently represent the interest of each and if each consents to the representation after full disclosure of the implications of the simultaneous representation and the advantages and risks involved. [Emphasis added]

The Court, upon renewal of the instant motion for an order of reference wanted to know if both MERS and HSBC were aware of the simultaneous representation by plaintiff’s counsel, Steven J. Baum, P.C., and whether both MERS and HSBC consented. Upon plaintiff’s renewed motion for an order of reference, the Court required an affirmation by Steven J. Baum, Esq., the principal of Steven J. Baum, P.C., explaining if both MERS and HSBC consented to simultaneous representation in the instant action with “full disclosure of the implications of the simultaneous representation and the advantages and risks involved.” The Appellate Division, Fourth Department, the Department, in which both Ms. Gazzo and Mr. Baum are registered (In re Rogoff, 31 AD3d 111 [2006]), censured an attorney for, inter alia, violating 22 NYCRR § 1200.24, by representing both a buyer and sellers in the sale of a motel. The Court, at 112, found that the attorney “failed to make appropriate disclosures to either the sellers or the buyer concerning dual representation.” Further, the Rogoff Court, at 113, censured the attorney, after it considered the matters submitted by respondent in mitigation, including: that respondent undertook the dual representation at the insistence of the buyer, had no financial interest in the transaction and charged the sellers and the buyer one half of his usual fee. Additionally, we note that respondent cooperated with the Grievance Committee and has expressed remorse for his misconduct. Then, if counsel for plaintiff HSBC cures the assignment defect and explains his simultaneous representation, plaintiff HSBC needs to address the “affidavit of merit” issue. The May 2, 2008 decision and order required that plaintiff comply with CPLR § 3215 (f) by providing an “affidavit made by the party,” whether by an officer of HSBC, or someone with a valid power of attorney from HSBC, to execute foreclosure documents for plaintiff HSBC. If plaintiff HSBC presents a power of attorney and it refers to a servicing agreement, the Court needs to inspect the servicing agreement. (Finnegan v Sheahan, 269 AD2d 491 [2d Dept 2000];Hazim v Winter, 234 AD2d 422 [2d Dept 1996]; EMC Mortg. Corp. v Batista, 15 Misc 3d 1143 [A] [Sup Ct, Kings County 2007]; Deutsche Bank Nat. Trust Co. v Lewis, 4 Misc 3d 1201 [A] [Sup Ct, Suffolk County 2006]).

Last, the Court required an affidavit from an officer of HSBC, explaining why, in the middle of our national mortgage financial crisis, plaintiff HSBC purchased from MERS, as nominee for CAMBRIDGE, the subject nonperforming loan. It appears that HSBC violated its corporate fiduciary duty to its stockholders by purchasing the instant mortgage loan, which became nonperforming on May 1, 2007, 133 days prior to its assignment from MERS, as nominee for CAMBRIDGE, to HSBC, rather than keep the subject mortgage loan on CAMBRIDGE’s books.

Discussion

The instant renewed motion is dismissed for untimeliness. Plaintiff made its renewed motion for an order of reference 204 days late, in violation of the Court’s May 2, 2008 decision and order. Moreover, even if the instant motion was timely, the explanations offered by plaintiff’s counsel, in his affirmation in support of the instant motion and various documents attached to exhibit F of the instant motion, attempting to cure the four defects explained by the Court in the prior May 2, 2008 decision and order, are so incredible, outrageous, ludicrous and disingenuous that they should have been authored by the late Rod Serling, creator of the famous science-fiction televison series, The Twilight Zone. Plaintiff’s counsel, Steven J. Baum, P.C., appears to be operating in a parallel mortgage universe, unrelated to the real universe. Rod Serling’s opening narration, to episodes in the 1961-1962 season of The Twilight Zone (found at www.imdb.com/title/tt005250/quotes), could have been an introduction to the arguments presented in support of the instant motion by plaintiff’s counsel, Steven J. Baum, P.C. — “You are traveling through another dimension, a dimension not only of sight and sound but of mind. A journey into a wondrous land of imagination. Next stop, the Twilight Zone.” With respect to the first issue for the renewed motion for an order of reference, the validity of the September 10, 2007 assignment of the subject mortgage and note by MERS, as nominee for CAMBRIDGE, to plaintiff HSBC by “Nicole Gazzo, Esq., on behalf of MERS, by Corporate Resolution dated 7/19/07,” plaintiff’s counsel claims that the assignment is valid because Ms. Gazzo is an officer of MERS, not an agent of MERS. Putting aside Ms. Gazzo’s conflicted status as both assignor attorney and employee of assignee’s counsel, Steven J. Baum, P.C., how would the Court have known from the plain language of the September 10, 2007 assignment that the assignor, Ms. Gazzo, is an officer of MERS? She does not state in the assignment that she is an officer of MERS and the corporate resolution is not attached. Thus, counsel’s claim of a valid assignment takes the Court into “another dimension” with a “journey into a wondrous land of imagination,” the mortgage twilight zone. Next, plaintiff’s counsel attached to exhibit F the July 17, 2007 “Agreement for Signing Authority” between MERS, Wells Fargo Home Mortgage, a Division of Wells Fargo Bank NA (WELLS FARGO), a MERS “Member” and Steven J. Baum, P.C., as WELLS FARGO’s “Vendor.” The parties agreed, in ¶ 3, that “in order for Vendor [Baum] to perform its contractual duties to Member [WELLS FARGO], MERS, by corporate resolution, will grant employees of Vendor [Baum] the limited authority to act on behalf of MERS to perform certain duties. Such authority is set forth in the Resolution, which is made a part of this Agreement.” Also attached to exhibit F is the MERS corporate resolution, certified by William C. Hultman, Corporate Secretary of MERS, that MERS’ Board of Directors adopted this resolution, effective July 19, 2007, resolving:

that the attached list of candidates are employee(s) of Steven J. Baum, P.C. and are hereby appointed as assistant secretaries and vice presidents of Mortgage Electronic Registration Systems, Inc., and as such are authorized to: Execute any and all documents necessary to foreclose upon the property securing any mortgage loan registered on the MERS System that is shown to be registered to the Member . . . Take any and all actions and execute all documents necessary to protect the interest of the Member, the beneficial owner of such mortgage loan, or MERS in any bankruptcy proceedings . . . Assign the lien of any mortgage loan registered on the MERS System that is shown to be registered to Wells Fargo.

Then, the resolution certifies five Steven J. Baum, P.C. employees [all currently admitted to practice in New York and listing Steven J. Baum, P.C. as their employer in the Office of Court Administration Attorney Registry] as MERS officers. The five are Brian Kumiega, Nicole Gazzo, Ron Zackem, Elpiniki Bechakas, and Darleen Karaszewski. The language of the MERS corporate resolution flies in the face of documents recorded with the City Register of the City of New York. The filed recordings with the City Register show that the subject mortgage was owned first by MERS, as nominee for CAMBRIDGE, and then by HSBC as Trustee for a Nomura collateralized debt obligation. However, if the Court follows the MERS’corporate resolution and enters into a new dimension of the mind, the mortgage twilight zone, the real owner of the subject mortgage is WELLS FARGO, the MERS Member and loan servicer of the subject mortgage, because the corporate resolution states that the Member is “the beneficial owner of such mortgage loan.” The MERS mortgage twilight zone was created in 1993 by several large “participants in the real estate mortgage industry to track ownership interests in residential mortgages. Mortgage lenders and other entities, known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages. Members contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system.” (MERSCORP, Inc. v Romaine, 8 NY3d 90, 96 [2006]). Next, with respect to Ms. Gazzo’s employer, Steven J. Baum, P.C, and its representation of MERS, through Ms. Gazzo, the Court continues to journey through the mortgage twilight zone. Also, attached to exhibit F of the instant motion is the August 11, 2008 affirmation of Steven J. Baum, Esq., affirmed “under the penalties of perjury.” Mr. Baum states, in ¶ 3, that “My firm does not represent HSBC . . . and MERS simultaneously in the instant action.” Then, apparently overlooking that the subject notice of pendency, summons, complaint and instant motion, which all clearly state that Steven J. Baum, P.C. is the attorney for plaintiff HSBC, Mr. Baum states, in ¶ 4 of his affirmation, that “My firm is the attorney of record for Wells Fargo Bank, N.A., d/b/a America’s Servicing Company, attorney in fact for HSBC Bank USA, N.A., as Trustee for Nomura Asset-Backed Certificate Series 2006-AF1. My firm does not represent . . . [MERS] as an attorney in this action.” In the mortgage world according to Steven J. Baum, Esq., there is a fine line between acting as an attorney for MERS and as a vendor for a MERS member. If Mr. Baum is not HSBC’s attorney, but the attorney for WELLS FARGO, why did he mislead the Court and defendants by stating on all the documents filed and served in the instant action that he is plaintiff’s attorney for HSBC? Further, in ¶ 6 of his affirmation, he states “Nowhere does the Resolution indicate that Ms. Gazzo, or my firm, or any attorney or employee of my firm, shall act as an attorney for MERS. As such I am unaware of any conflict of interest of Steven J. Baum, P.C. or any of its employees, in this action.” While Mr. Baum claims to be unaware of the inherent conflict of interest, the Court is aware of the conflict. ¶ 3 of the MERS “Agreement for Signing Authority,” cited above, states that “in order for Vendor [Baum] to perform its contractual duties to Member [WELLS FARGO], MERS, by corporate resolution, will grant employees of Vendor [Baum] the limited authority to act on behalf of MERS to perform certain duties. Such authority is set forth in the Resolution, which is made a part of this Agreement.” As the Court continues through the MERS mortgage twilight zone, attached to exhibit F is the June 30, 2009-affidavit of MERS’ Secretary, William C. Hultman. Mr. Hultman claims, in ¶ 3, that Steven J. Baum, P.C. is not acting in the instant action as attorney for MERS and, in ¶ 4, Ms. Gazzo in her capacity as an officer of MERS executed the September 10, 2007 subject assignment “to foreclose on a mortgage loan registered on the MERS System that is being serviced by Wells Fargo Bank, N.A.” Thus, Mr. Hultman perceives that mortgages registered on the MERS system exist in a parallel universe to those recorded with the City Register of the City of New York. While Mr. Hultman waives, in ¶ 9, any conflict that might exist by Steven J. Baum, P.C. in the instant action, neither he nor Mr. Baum address whether MERS, pursuant to 22 NYCRR § 1200.24, consented to simultaneous representation in the instant action, with “full disclosure of the implications of the simultaneous representation and the advantages and risks involved” explained to MERS. Then, attached to exhibit F, there is the June 11, 2008-affidavit of China Brown, Vice President Loan Documentation of WELLS FARGO. This document continues the Court’s trip into “a wondrous land of imagination.” Despite the affidavit’s caption stating that HSBC is the plaintiff, Mr. or Ms. Brown (the notary public’s jurat refers several times to China Brown as “he/she”), states, in ¶ 4, that “Steven J. Baum, P.C. represents us as an attorney of record in this action.” The Court infers that “us” is WELLS FARGO. Moving to the third issue that plaintiff was required to address in the instant motion, compliance with the statutory requirements of CPLR § 3215 (f) with an affidavit of facts executed by someone with authority to execute such an affidavit, plaintiff’s instant motion contains an affidavit of merit, attached as exhibit C, by Kim Miller, “Vice President of Wells Fargo Bank, N.A. as Attorney in Fact for HSBC,” executed on December 8, 2008, 220 days after my May 2, 2008 decision and order. The affidavit of merit is almost six months late. Again, plaintiff attached a photocopy of the July 19, 2004 “Limited Power of Attorney” from HSBC [exhibit D], which appointed WELLS FARGO as its attorney-in-fact to perform various enumerated services, by executing documents “if such documents are required or permitted under the terms of the related servicing agreements . . . in connection with Wells Fargo[‘s] . . . responsibilities to service certain mortgage loans . . . held by HSBC . . . as Trustee of various trusts.” Further, the “Limited Power of Attorney” fails to list any of these “certain mortgage loans.” Therefore, the Court is unable to determine if the subject mortgage loan is one of the mortgage loans that WELLS FARGO services for HSBC. The “Limited Power of attorney” gives WELLS FARGO the right to execute foreclosure documents “if such documents are required or permitted under the terms of the related servicing agreements.” Instead of presenting the Court with the “related servicing agreement” for review, plaintiff’s counsel submits copies of the cover page and redacted pages 102, 104 and 105 of the October 1, 2006 Pooling and Servicing Agreement between WELLS FARGO, as Master Servicer, HSBC, as Trustee, and other entities. This is in direct contravention of the Court’s May 2, 2008-directive to plaintiff HSBC that it provides the Court with the entire pooling and servicing agreement upon renewal of the instant motion. Thomas Westmoreland, Vice President Loan Documentation of HSBC, in ¶ 10 of his attached June 13, 2008-affidavit, also in exhibit F, claims that the snippets of the pooling and servicing agreement provided to the Court are “a copy of the non-proprietary portions of the Pooling and Servicing Agreement that was entered into when the pool of loans that contained the subject mortgage was purchased.” The Court cannot believe that there is any proprietary or trade secret information in a boilerplate pooling and servicing agreement. If plaintiff HSBC utilizes an affidavit of facts by a loan servicer, not an HSBC officer, to secure a judgment on default, pursuant to CPLR § 3215 (f), then the Court needs to examine the entire pooling and servicing agreement, whether proprietary or non-p

roprietary, to determine if the pooling and servicing agreement grants authority, pursuant to a power of attorney, to the affiant to execute the affidavit of facts.

Further, there is hope that Mr. Westmoreland, unlike Steven J. Baum, Esq., is not in another dimension. Mr. Westmoreland, in ¶ 1 of his affidavit, admits that HSBC is the plaintiff in this action. However, with respect to why plaintiff HSBC purchased the subject nonperforming loan, Mr. Westmoreland admits to a lack of due diligence by plaintiff HSBC. His admissions are straight from the mortgage twilight zone. He states in his affidavit, in ¶’s 4-7 and part of ¶ 10: 4. The secondary mortgage market is, essentially, the buying and selling of “pools” of mortgages. 5. A mortgage pools is the packaging of numerous mortgage loans together so that an investor may purchase a significant number of loans in one transaction. 6. An investigation of each and every loan included in a particular mortgage pool, however, is not conducted, nor is it feasible. 7. Rather, the fact that a particular mortgage pool may include loans that are already in default is an ordinary risk of participating in the secondary market . . . 10. . . . Indeed, the performance of the mortgage pool is the measure of success, not any one individual loan contained therein. [Emphasis added] The Court can only wonder if this journey through the mortgage twilight zone and the dissemination of this decision will result in Mr. Westmoreland’s affidavit used as evidence in future stockholder derivative actions against plaintiff HSBC. It can’t be comforting to investors to know that an officer of a financial behemoth such as plaintiff HSBC admits that “[a]n investigation of each and every loan included in a particular mortgage pool, however, is not conducted, nor is it feasible” and that “the fact that a particular mortgage pool may include loans that are already in default is an ordinary risk of participating in the secondary market.”

Cancelling of notice of pendency

The dismissal with prejudice of the instant foreclosure action requires the cancellation of the notice of pendency. CPLR § 6501 provides that the filing of a notice of pendency against a property is to give constructive notice to any purchaser of real property or encumbrancer against real property of an action that “would affect the title to, or the possession, use or enjoyment of real property, except in a summary proceeding brought to recover the possession of real property.” The Court of Appeals, in 5308 Realty Corp. v O & Y Equity Corp. (64 NY2d 313, 319 [1984]), commented that “[t]he purpose of the doctrine was to assure that a court retained its ability to effect justice by preserving its power over the property, regardless of whether a purchaser had any notice of the pending suit,” and, at 320, that “the statutory scheme permits a party to effectively retard the alienability of real property without any prior judicial review.” CPLR § 6514 (a) provides for the mandatory cancellation of a notice of pendency by: The Court, upon motion of any person aggrieved and upon such notice as it may require, shall direct any county clerk to cancel a notice of pendency, if service of a summons has not been completed within the time limited by section 6512; or if the action has beensettled, discontinued or abated; or if the time to appeal from a final judgment against the plaintiff has expired; or if enforcement of a final judgment against the plaintiff has not been stayed pursuant to section 551. [emphasis added] The plain meaning of the word “abated,” as used in CPLR § 6514 (a) is the ending of an action. “Abatement” is defined (Black’s Law Dictionary 3 [7th ed 1999]) as “the act of eliminating or nullifying.” “An action which has been abated is dead, and any further enforcement of the cause of action requires the bringing of a new action, provided that a cause of action remains (2A Carmody-Wait 2d § 11.1).” (Nastasi v Natassi, 26 AD3d 32, 40 [2d Dept 2005]). Further, Nastasi at 36, held that the “[c]ancellation of a notice of pendency can be granted in the exercise of the inherent power of the court where its filing fails to comply with CPLR § 6501 (see 5303 Realty Corp. v O & Y Equity Corp., supra at 320-321; Rose v Montt Assets, 250 AD2d 451, 451-452 [1d Dept 1998]; Siegel, NY Prac § 336 [4th ed]).” Thus, the dismissal of the instant complaint must result in the mandatory cancellation of plaintiff HSBC’s notice of pendency against the property “in the exercise of the inherent power of the court.”

Conclusion

Accordingly, it is ORDERED, that the renewed motion of plaintiff, HSBC BANK USA, N.A. AS TRUSTEE FOR NOMURA ASSET-BACKED CERTIFICATE SERIES 2006-AF1, for an order of reference, for the premises located at 22 Jefferson Street, Brooklyn, New York (Block 3170, Lot 20, County of Kings), is denied with prejudice; and it is further

ORDERED, that the instant action, Index Number 34142/07, is dismissed with prejudice; and it is further

ORDERED that the Notice of Pendency in this action, filed with the Kings County Clerk on September 10, 2007, by plaintiff, HSBC BANK USA, N.A. AS TRUSTEE FOR NOMURA ASSET-BACKED CERTIFICATE SERIES 2006-AF1, to foreclose a mortgage for real property located at 22 Jefferson Street, Brooklyn New York (Block 3170, Lot 20, County of Kings), is cancelled.

This constitutes the Decision and Order of the Court.

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

Here it goes Lasalle Bank V Smith on March 22, 2010. We need Judges like this all over the US who understand the fraud behind these foreclosures! Why oh Why does the same Baum Law Firm go before this Judge when they know they are going up against one Wise Man?

Judge Schack is asking for valid proof MERS and Lasalle has the authority to be nominated as part of the Note/Mortgage via a Power Of Attorney before he can issue a Judgment. LOL We know this will be impossible. This is off MERS website:

Question:

Do we need to file a power of attorney and what do we do if we are asked to produce a power of attorney?

Being appointed as a MERS Certifying Officer means that the employee is an officer of MERS and can sign as a MERS officer. A power of attorney is not needed because that is not the capacity of how a certifying officer is signing. A power of attorney would be necessary if an employee is signing as an employee of the Lender on behalf of MERS. The Corporate Resolution does not need to be recorded and is appointing the employee as an officer of MERS. In essence, the employee is a dual officer of the lender and MERS.

He also asks for the “Servicing Pool Agreement” that even permits them into the equation. I BET THERE IS NONE! Why because MERS nominates itself to speak onbehalf of many banks. This is an issue that should be raised.

As in most foreclosure cases, Judge Schack is questioning Baum Law Firm how they are representing both the Plaintiff and the Defendant in this case and seeks an explanation. I think this is the question for most of where [1] VP for [2] seperate “banks” sign multiple Assignment of Mortgages and Affidavits.

[ipaper docId=29001315 access_key=key-1ovdg3puqsfan53jqeu7 height=600 width=600 /]

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

NY POST ARTICLE

LivingLies by Neil Garfield opinion (I urge everyone to bookmark this website)

TRUSTEE SAYS “Chase filed documents that appear to be patently false or misleading”

As pointed out in this article, 95% of foreclosures are NOT scrutinized. This is why homeowners need to go to forensic analysts, experts and lawyers. Most people are walking away from homes they still own on the basis of a claim by a party who is NOT a creditor. The TILA Audit, if it includes conclusions drawn from an analysis of the securitization of the transaction, will provide the homeowner with ample ammunition to raise issues of fact and require proof from the pretender lender.

As in many cases, careful scrutinization will reveal that the assignment and other documents are fabricated, forged and/or improperly notarized. The most obvious example is shown here where the document was signed in Florida and notarized in Buffalo, NY at the offices of the foreclosure mill (Baum law offices).

This type of scrutiny and research on the securitization of the loan is an essential part of the forensic analysis. If ignored, the “audit” becomes a vehicle for potential recovery of a minor amount of damages, plus attorney fees. If used properly the damages rise and the potential for principal reduction or even elimination of the obligation, note and mortgage if the other side can’t come up with the real party in interest.

By RICHARD WILNER, NY POST

Last Updated: 12:01 PM, February 28, 2010

Posted: 12:54 AM, February 28, 2010

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

Three Northeastern Iowa family members were sentenced recently in federal court for their respective roles in crop loan and bankruptcy fraud schemes.

Aimee Lynn Rosenbaum, formerly known as Aimee Lynn Flatjord, age 53, from Lawler, Iowa, was sentenced to 78 months of imprisonment on April 28, 2022.  She was ordered to make $165,592.21 in restitution to the United States Department of Agriculture-Farm Services Agency (“USDA-FSA”) and $4,796 in restitution to a bank, to pay a $5,000 fine, and to repay $7,086.74 in attorney fees for her prior court-appointed counsel.  She must also serve a three-year term of supervised release after the prison term.  Aimee Lynn Rosenbaum received the prison term after a June 14, 2021 guilty plea to one count of conversion of property pledged to a farm credit agency and one count of bankruptcy fraud.

Donald Eugene Rosenbaum, age 58, from Cresco, Iowa, was sentenced to two years of probation on May 2, 2022.  He was also ordered to pay a $1,000 fine.  Donald Eugene Rosenbaum received the probation term after a June 10, 2021 guilty plea to one count of bankruptcy fraud.

To continue reading the rest of the article, please click on the source link below:

https://www.justice.gov/usao-ndia/pr/three-family-members-sentenced-usda-crop-loan-and-bankruptcy-fraud-schemes

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

• ‘Vulnerable’ homeowners request committee to protect interests
•  Ditech seeks plan that would release firm from legal liability

Bloomberg-

Homeowners in Chicago cheated by a mortgage fraud scheme are seeking to form a committee to protect their interests in the bankruptcy of Ditech Holding Corp., the company that owns their loans.

Ditech, the mortgage lender and servicer led by Tom Marano, filed for bankruptcy in February and has proposed a plan to restructure its debt that would release it from liabilities such as lawsuits filed by consumer borrowers. J. Samuel Tenenbaum, a professor of law at Northwestern, said the homeowners he helps represent will be harmed by such a release of liabilities.

[BLOOMBERG]

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

 

U.S. BANK NATIONAL ASSOCIATION, AS SUCCESSOR (WELLS FARGO BANK, NA), AS TRUSTEE (REGISTERED HOLDERS OF CITIGROUP COMMERCIAL MORTGAGE TRUST 2007-C6, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-C6), ACTING BY AND THROUGH SPECIAL SERVICER CWCAPITAL ASSET MANAGEMENT LLC, Plaintiff-Appellant,
v.
BANK OF AMERICA N.A., Defendant-Appellee.

Docket No. 16-3560-cv.United States Court of Appeals, Second Circuit.Argued: November 8, 2017.Decided: February 15, 2019.On Appeal from the United States District Court for the Southern District of New York.

Appeal by Plaintiff U.S. Bank National Association from orders of the United States District Court for the Southern District of New York (Paul G. Gardephe, J.) denying Plaintiff’s motion to retransfer the suit to the United States District Court for the Southern District of Indiana, where it was instituted, and granting judgment on the pleadings in favor of Defendant Bank of America N.A., by reason of untimeliness under the laws of New York. The district court in Indiana had transferred the case to New York under 28 U.S.C. § 1631 based on its conclusion that the defendant was not subject to personal jurisdiction in Indiana. Although we disagree with that conclusion (and therefore with the propriety of the transfer under § 1631), we affirm the New York district court’s denial of the motion to retransfer to Indiana, treat the original transfer as one made under 28 U.S.C. § 1404(a) (rather than § 1631), and vacate the judgment that the suit was untimely under the laws of New York. The judgment is VACATED and the case is REMANDED for further proceedings.

Judge CHIN concurs in a separate opinion.

COLLEEN M. MALLON (Gregory A. Cross, on the brief), Venable LLP, Baltimore, Maryland, for Plaintiff-Appellant.

ELIZABETH P. PAPEZ (Luke A. Connelly, Stephanie A. Maloney, on the brief),Winston & Strawn LLP, Washington, D.C. and New York, New York, for Defendant-Appellee.

Before: LEVAL, LIVINGSTON, and CHIN, Circuit Judges.

LEVAL, Circuit Judge.

In this suit for breach of contract, Plaintiff U.S. Bank National Association appeals from orders of the United States District Court for the Southern District of New York (Paul G. Gardephe, J.) denying its motion to retransfer the suit to the United States District Court for the Southern District of Indiana, where it was instituted, and granting judgment on the pleadings in favor of Defendant Bank of America N.A., by reason of the untimeliness of the suit under New York’s statute of limitations. The district court in Indiana had transferred the case to New York under 28 U.S.C. § 1631, based on its conclusion that the suit could not be brought in Indiana because the Defendant (a nationally chartered bank and citizen of North Carolina) was not subject to personal jurisdiction in Indiana.

We disagree with the Indiana district court’s conclusion that the Defendant was not subject to the jurisdiction of the Indiana court, and therefore we necessarily conclude that the Indiana court’s transfer to New York was not authorized by § 1631. We nonetheless affirm the New York district court’s denial of Plaintiff’s motion to retransfer to Indiana, treat the original transfer as one made under 28 U.S.C. § 1404(a) (rather than § 1631), and vacate the judgment of dismissal rendered on the ground that the suit was untimely under the laws of New York.

BACKGROUND

I. The Mortgage Loan Purchase Agreement

In 2007, Defendant Bank of America’s predecessor, LaSalle Bank N.A.,^[1] entered into a Mortgage Loan Purchase Agreement (the “MLPA”), for the sale of a portfolio (of approximately 100 commercial mortgage loans) to an entity^[2] acting for the benefit of an investment trust (the “Trust”), for which Plaintiff U.S. Bank (a nationally chartered bank and citizen of Ohio) serves as Trustee. The MLPA was supplemented by a Pooling and Servicing Agreement (the “PSA”), which provided that the purchaser would deposit the loans into the Trust and assign all of its rights under the MLPA to the Trust.

In the MLPA, the seller made representations and warranties regarding the loans. These included Representation No. 8 (set forth in the margin),^[3] which effectively represented the absence of any restrictions that would interfere with the mortgagor’s ability to pay its obligations under the mortgage loan or would materially and adversely affect the value of the mortgaged property.

The MLPA prescribes specific remedies available to the mortgagee in the event of a “Document Defect or a Breach” of a representation. App. 79. Pursuant to Section 3(c), the seller of the loan portfolio (Defendant’s predecessor) undertook a commitment that, upon receipt of notice of a Document Defect or Breach, it would:

cure such Document Defect or Breach . . . in all material respects, or, if such Document Defect or Breach . . . cannot be cured . . ., (i) repurchase the affected Mortgage Loan at the applicable Purchase Price . . ., or (ii) substitute a Qualified Substitute Mortgage Loan for such affected Mortgage Loan. . . .

App. 79.

The PSA, in Section 2.03, similarly provides that, after receiving timely notice of a Document Defect or Breach, the seller shall:

(i) cure such Document Defect or Breach, as the case may be, in accordance with Section 3 of the applicable [MLPA], (ii) repurchase the affected Trust Mortgage Loan in accordance with Section 3 of the related [MLPA], or (iii) within two (2) years of the Closing Date, substitute a Qualified Substitute Mortgage Loan for such affected Trust Mortgage Loan. . . .

App. 247.

II. The Indiana Loan

One of the items in the portfolio sold pursuant to the MLPA, was a $9 million loan (the “Loan”), which is the subject of this litigation, made in 2007 to Women’s Physicians Group, LLC. Repayment of the Loan was secured in part by a mortgage on a two-story commercial building (the “Property”) (then owned by the borrower/mortgagor Women’s Physicians Group), which was located on a hospital campus in Indiana. Women’s Physicians Group had purchased the Property from Galen Hospital Corporation (the “Hospital”) pursuant to a special warranty deed. The deed includes two title exceptions that run with the property: (1) a use restriction, which, absent the consent of the Hospital, prohibits use of the Property otherwise than as an ambulatory surgery center and medical offices, and (2) a right of first refusal in favor of the Hospital for any sale, transfer, or assignment.

In 2012, Women’s Physicians Group lost the major tenant for the Property, was unable to secure a new tenant that would use the Property in a manner that conformed to the use restriction, and consequently defaulted on the Loan. On December 13, 2012, the Trust, which had acquired the Loan pursuant to the MLPA, commenced a foreclosure action in Indiana state court against Women’s Physicians Group. The foreclosure court appointed a receiver, who similarly failed to secure either a tenant or a waiver or modification of the deed restrictions.

On October 18, 2013, Plaintiff-Trustee notified Bank of America that it had violated MLPA Representation No. 8 and demanded that Bank of America cure the violation or repurchase the Loan, as provided in the MLPA. Bank of America did not do so.

III. The Proceedings Below

On September 12, 2014, Plaintiff, as Trustee, brought this action against Bank of America in the Indiana district court, alleging breach of Representation No. 8. Bank of America moved to dismiss the suit, or alternatively to transfer it to the Southern District of New York, asserting that it was not subject to personal jurisdiction in Indiana. The Indiana district court ruled that Bank of America was not subject to personal jurisdiction in Indiana. The Indiana district court transferred the case to the New York district court pursuant to 28 U.S.C. § 1631, which authorizes a federal district court, on the basis of a “want of jurisdiction, . . . if it is in the interest of justice, [to] transfer such action . . . to any other such court . . . in which the action . . . could have been brought.”^[4] It is undisputed that venue and jurisdiction are proper in the Southern District of New York.

Following the transfer, Plaintiff moved in the New York district court to retransfer the case to the Indiana district court, arguing that, contrary to the Indiana district court’s ruling, Bank of America was subject to the court’s personal jurisdiction in Indiana on several different bases. The New York district court denied the motion. In the meantime, Bank of America had moved in the New York district court for judgment on the pleadings. The district court granted that motion, concluding that Plaintiff’s claim for breach of contract was time-barred under New York’s six-year statute of limitations. The court entered judgment in favor of Defendant Bank of America on September 22, 2016. This appeal followed.

DISCUSSION

Plaintiff raises a number of arguments on appeal, including that the Indiana district court erred in finding that Bank of America was not subject to its jurisdiction, that the New York district court erred in refusing to retransfer the case to Indiana, and that the New York district court accordingly should not have entered judgment in favor of Defendant. We address these issues in turn.

I. Was Defendant Subject to the Personal Jurisdiction of the Indiana District Court?

Plaintiff contends that, contrary to the Indiana district court’s ruling, Bank of America was subject to personal jurisdiction in Indiana, both on the basis of general jurisdiction (because of either its waiver or its extensive activities in Indiana) and specific jurisdiction (because of the contractual representations it undertook concerning real property in Indiana and the commitments it undertook in the terms of the MLPA to perform acts in Indiana). We are persuaded that Bank of America made itself subject to Indiana personal jurisdiction in this case.Accordingly, we have no need to consider Plaintiff’s less persuasive arguments that Bank of America was also subject to general Indiana jurisdiction.

To determine personal jurisdiction, a federal district court applies the long-arm statute of the state in which it sits. See Chloé v. Queen Bee of Beverly Hills, LLC,616 F.3d 158, 163 (2d Cir. 2010). Indiana’s long-arm statute authorizes courts to exercise jurisdiction on any basis permitted by the U.S. Constitution. Advanced Tactical Ordnance Sys., LLC v. Real Action Paintball, Inc., 751 F.3d 796, 800 (7th Cir. 2014) (“Under Indiana’s long-arm statute, Indiana state courts may exercise personal jurisdiction on a number of prescribed bases, as well as `on any basis not inconsistent with the Constitution of this state or the United States.'”) (quoting Ind. R. Trial P. 4.4(A)). To comport with due process, a forum state may exercise jurisdiction over an out-of-state corporate defendant only if the defendant has “certain minimum contacts with [the State] such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'” Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 923 (2011) (alteration in original) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). Specific jurisdiction over an out-of-state defendant “is available when the cause of action sued upon arises out of the defendant’s activities in a state.” Brown v. Lockheed Martin Corp., 814 F.3d 619, 624 (2d Cir. 2016).

When deciding whether personal jurisdiction over a defendant exists in a district court that falls outside this Circuit, we need not predict how our sister circuit would decide the question, “since we are at liberty to decide for ourselves what the Due Process Clause requires to sustain personal jurisdiction.” Chew v. Dietrich, 143 F.3d 24, 30 (2d Cir. 1998); see also SongByrd, Inc. v. Estate of Grossman, 206 F.3d 172, 180-81 (2d Cir. 2000) (applying this circuit’s case law to decide whether Louisiana could exercise personal jurisdiction over a defendant). Although we consider the decisions of our sister circuits, “we are permitted — indeed, required — to reach our own conclusions” on issues of federal law. Desiano v. Warner-Lambert & Co., 467 F.3d 85, 90 (2d Cir. 2006); see also Rates Tech. Inc. v. Speakeasy, Inc., 685 F.3d 163, 173-74 (2d Cir. 2012) (“[O]ur court is not bound by the holdings — much less the dicta — of other federal courts of appeal.”). But we “defer conclusively” to another circuit’s decision when it addresses a question of state law from a state within that circuit. Desiano, 467 F.3d at 90.

1. Applicable Law of Specific Personal Jurisdiction

The Supreme Court has set out three conditions for the exercise of specific jurisdiction over a nonresident defendant. See Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco Cty., 137 S. Ct. 1773, 1785-86 (2017). “First, the defendant must have purposefully availed itself of the privilege of conducting activities within the forum State or have purposefully directed its conduct into the forum State.” Id. at 1785 (quoting J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. 873, 877 (2011) (plurality opinion)). “Second, the plaintiff’s claim must arise out of or relate to the defendant’s forum conduct.” Id. at 1786 (quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984)). “Finally, the exercise of jurisdiction must be reasonable under the circumstances.” Id. (citing Asahi Metal Industry Co. v. Superior Court of Cal., Solano Cty., 480 U.S. 102, 113-114 (1987)).

At the first step, the minimum contacts inquiry is “satisfied if the defendant has `purposefully directed’ his activities at residents of the forum.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985) (quoting Keeton v. Hustler Magazine, Inc.,465 U.S. 770, 774 (1984)); see also Charles Schwab Corp. v. Bank of Am. Corp.,883 F.3d 68, 82 (2d Cir. 2018) (“[M]inimum contacts . . . exist where the defendant purposefully availed itself of the privilege of doing business in the forum and could foresee being haled into court there.”).

To meet the minimum contacts requirement, “the defendant’s suit-related conduct must create a substantial connection with the forum State” — that is, the “defendant [it]self” must create those contacts, and those contacts must be with the “forum State itself,” not simply with persons who reside there. Walden v. Fiore,134 S. Ct. 1115, 1121-22 (2014) (citation omitted). Thus, although a defendant’s contacts with the forum state may be “intertwined with [its] transactions or interactions with the plaintiff or other parties . . .[,] a defendant’s relationship with a . . . third party, standing alone, is an insufficient basis for jurisdiction.” Id. at 1123; see also Bristol-Myers Squibb, 137 S. Ct. at 1783 (2017) (same). It is “insufficient to rely on a defendant’s random, fortuitous, or attenuated contacts or on the unilateral activity of a plaintiff with the forum to establish specific jurisdiction.” Waldman v. Palestine Liberation Org., 835 F.3d 317, 337 (2d Cir. 2016) (quoting Walden, 134 S. Ct. at 1123) (internal quotation marks omitted).

Nor is it sufficient for a plaintiff to show simply that a defendant’s actions caused an “effect” in the forum state where the defendant has not “expressly aimed its conduct at the forum.” Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161, 173 (2d Cir. 2013). And “mere injury to a forum resident” is insufficient. Walden, 134 S. Ct. at 1125; see also SongByrd, 206 F.3d at 181 (rejecting specific personal jurisdiction over a defendant even if defendant’s action could be viewed as a “but for” cause of relevant events in forum state); accord Noboa v. Barceló Corporación Empresarial, SA, 812 F.3d 571, 572 (7th Cir. 2016) (“[T]he pertinent question is whether the defendant has links to the jurisdiction in which the suit was filed, not whether the plaintiff has such links — or whether the loss flowed through a causal chain from the plaintiff’s contacts with the jurisdiction of suit.”). Similarly, “the fact that harm in the forum is foreseeable . . . is insufficient for the purpose of establishing specific personal jurisdiction over a defendant.” In re Terrorist Attacks on Sept. 11, 2001, 714 F.3d 659, 674 (2d Cir. 2013).

Where the underlying dispute involves a contract, we use a “highly realistic” approach and evaluate factors such as “prior negotiations and contemplated future consequences, along with the terms of the contract and the parties’ actual course of dealing.” Burger King, 471 U.S. at 479.

At the second step, we must be satisfied that “the litigation results from alleged injuries that `arise out of or relate to’ those activities.” Id. at 472 (quoting Helicopteros, 466 U.S. at 414). We have found that a claim arises out of forum contacts when defendant’s allegedly culpable conduct involves at least in part financial transactions that touch the forum. Licci, 732 F.3d at 169-70. And finally, for the third step, once it is established that the defendant has minimum contacts with the forum and the cause of action relates to or arises from those contacts, “a court considers those contacts `in light of other factors to determine whether the assertion of personal jurisdiction would comport with fair play and substantial justice.'” Charles Schwab, 883 F.3d at 82 (quoting Licci, 732 F.3d at 170).^[5]

2. Application

We conclude that Plaintiff met the requirements summarized above for establishing specific Indiana jurisdiction over Defendant in this case. The central tenets of Plaintiff’s theory of liability are that (i) Defendant breached Representation No. 8 of the MLPA that there were no restrictions on the use of the Indiana Property that would interfere with the mortgagor’s ability to make its payments or adversely affect the value of the Property and (ii) Defendant failed to comply with its contractual commitment to cure the breach. The restrictions imposed by the Hospital included the clause forbidding use of the Property except for in a specified manner (which allegedly prevented the mortgagor from obtaining a new tenant and thus caused it to default on payment of the Loan), as well as the right of first refusal in favor of the Hospital (which allegedly interfered with the mortgagor’s ability to pay the Loan and adversely affected the value of the Property). Plaintiff alleges that Bank of America then breached its commitments under Section 3(c) of the MLPA to either “cure such . . . Breach. . . or, if such . . . Breach . . . cannot be cured, [to] (i) repurchase the affected Mortgage Loan at the applicable Purchase Price . . . or (ii) substitute a Qualified Substitute Mortgage Loan for such affected Mortgage Loan.” App. At 79. Bank of America’s obligation to “cure” the breach, according to Plaintiff’s theory, required it, among other possibilities, to perform some act in Indiana such as obtaining the Indiana Hospital’s consent to relinquish the deed restrictions that prevented the mortgagor from meeting its Loan obligations.

Defendant’s alleged breach of its contractual representations involved the existence of restrictions on the use and value of Indiana Property. In addition, the obligations expressly undertaken by Defendant under the MLPA were purposefully directed toward residents of Indiana, and the suit arose from and related directly to those Indiana contacts. In view of Defendant’s undertaking of those commitments in the terms of the contract here in question, we see no reason why obliging Defendant to litigate this claim in Indiana would offend traditional notions of fair play or substantial justice, or be unreasonable.

II. Was the New York District Court Correct to Deny Plaintiff’s Motion to Retransfer?

Plaintiff contends that if, as we have concluded, Bank of America was subject to personal jurisdiction in the Indiana court, the Indiana court could not lawfully transfer the venue of the action to New York under § 1631, because that statute authorizes transfer only for “want of jurisdiction.” Plaintiff contends accordingly that the New York district court should have granted its motion to send the case back to Indiana and that we should direct that this be done. We disagree.

Such a ruling would fail to heed the Supreme Court’s sagacious warning in Christianson v. Colt Indus. Operating Corp., 486 U.S. 800 (1988). Confronting a similar circumstance, the Court cautioned, “[T]ransferee courts that feel entirely free to revisit transfer decisions of a coordinate court threaten to send litigants into a vicious circle of litigation,” culminating in a “perpetual game of jurisdictional ping-pong.” Id. at 816, 818. Although Christianson differed slightly in that the potentially dueling transfer orders were entered by coordinate courts of appeals, as opposed to a court of appeals reviewing of a transfer order of a district court in another circuit, that distinction does not lessen the pertinence or importance of the Supreme Court’s observation.

If we were to direct that the case be retransferred to Indiana, eventual review by the Seventh Circuit might well result in a ruling that that circuit, and not ours, is authoritative on the reach of jurisdiction of the Indiana courts, a reaffirmance of the Indiana district court’s original ruling that Bank of America is not subject to personal jurisdiction in Indiana, and a reinstitution of the original transfer to the district court in New York. Whether and where it would end could not be predicted. Such a scenario would be intolerable. Regardless of which court is correct in its appraisal of the jurisdiction question, such a duel between courts of transfers and retransfers would subject the parties to unacceptably mounting expenses and delays. If such occurs, the federal court system abjectly fails to perform its mission of deciding cases with reasonable speed and efficiency at reasonable cost to the parties.

The New York district court was sensitive to the Supreme Court’s warning in rejecting Plaintiff’s motion for retransfer to Indiana. Citing Christianson, it ruled that it would treat the Indiana court’s transfer of venue as the law of the case. It reviewed the Indiana court’s decision with respect to the absence of personal jurisdiction over Defendant in Indiana to the extent of ruling that it found no clearerror in that ruling, and thus denied the motion. While we are not in completeagreement with the New York district court’s ruling (as explained below) we entirely approve of its rejection of the motion to retransfer to Indiana.

Arguably, the standard for this court’s review of a transfer order of a district court in a different circuit differs from the standard to be exercised by the transferee district court. As we noted in SongByrd, 206 F.3d at 178 n.7, it would be rare for the doctrine of the law of the case to commit a higher court to adhere to a ruling of a lower court. Nonetheless, as noted above, for this court to require retransfer to the Indiana district court based on our conclusion that the Indiana court erred would give rise to the same unacceptable use of the parties as a ping-pong ball as if the retransfer order were made by the transferee district court. Plaintiff has not shown that litigating in New York would subject it to any great inconvenience or unfairness. Allowing the case to remain in the Southern District of New York, notwithstanding that the Indiana court’s transfer order was based on a mistake of law, is a far lesser evil than subjecting the parties to the further expense and delay of a retransfer, with the attendant risk of still further rounds of transfers.

Because the transfer of venue was not available under § 1631, which authorizes transfers only for want of jurisdiction, we think it is our best course to treat the erroneous § 1631 transfer as a transfer under 28 U.S.C. § 1404(a) “[f]or the convenience of [the] parties and witnesses, in the interest of justice.”^[6] The interest of justice and the convenience of the parties are served by a transfer under § 1404(a) in that it spares the parties from the intolerable expenses, delays, and attendant burdens that would result from having the case batted back and forth from district to district, and that it positions a court to fulfill the mission of the judicial system by deciding the case.

The New York district court denied the Plaintiff’s motion to retransfer on the ground that the Indiana court’s transfer under § 1631 for want of jurisdiction was not clearly erroneous. We see the issue somewhat differently. To say that the Indiana court’s transfer order was not clearly erroneous does not say it was not erroneous. Because Bank of America was subject to personal jurisdiction in the Indiana court, that court’s transfer of venue under § 1631 was not in accordance with law. Nonetheless, transfer of venue to the Southern District of New York would have been appropriate under § 1404(a). Giving regard to Plaintiff’s failure to show that it would suffer great harm in being compelled to litigate its case in New York instead of in the forum it chose, the unjust burdens that the courts would inflict on the parties by shuttling them back and forth between Indiana and New York, and the Supreme Court’s warnings in Christianson, we find it preferable to affirm the New York district court’s denial of retransfer on a different basis than that court relied on. Accordingly, we affirm the New York district court’s denial of Plaintiff’s motion for retransfer to Indiana, treating the Indiana transfer order as if issued under § 1404(a) and finding such a transfer to be lawful.

III. Did the New York District Court Err in Granting Defendant’s Motion for Judgment on the Pleadings under Rule 12(c)?

In denying Plaintiff’s motion to retransfer to Indiana, the New York district court treated the Indiana court’s transfer order as lawful and efficacious not only as a transfer of venue to New York, but also as a determination that Bank of America was not subject to personal jurisdiction in the Indiana court and that the case would accordingly be decided under the laws of New York, the transferee state. The court explained, “If a district court receives a case pursuant to a transfer under . . . 28 U.S.C. § 1631, for want of jurisdiction, it logically applies the law of the state in which it sits, since the original venue, with its governing laws, was never a proper option.” U.S. Bank Nat’l Ass’n v. Bank of America N.A., No. 15 Civ. 8153, 2016 WL 5118298, at *12 (S.D.N.Y. Sept. 20, 2016) (quoting Gerena v. Korb, 617 F.3d 197, 204 (2d Cir. 2010)). While we agree with that proposition, we find it has no application to this case because, in our view, Bank of America was subject to personal jurisdiction in the Indiana district court, and the original venue, with its governing laws, was a proper option. While we affirm the New York district court’s denial of Plaintiff’s motion to retransfer to Indiana, we do not affirm the propriety of the original transfer for want of jurisdiction under § 1631. We instead affirm the transfer as if made under § 1404(a) by a court that had jurisdiction of the case.

A transfer under § 1404(a) by a court that has jurisdiction of the case has different consequences from a transfer under § 1631 by a court that lacks jurisdiction of the case. Transfers under § 1404(a) by a court that has jurisdiction are adjudicated in the transferee state under the law of the transferor state. This is to avoid the unfairness of having a discretionary transfer done for convenience change the law under which the case will be decided. See Van Dusen v. Barrack, 376 U.S. 612, 633-34 (1964); 17 Moore’s Federal Practice § 111.20[b] (3d ed. 2018) (“[W]hen a case is transferred under Section 1404(a), Van Dusen requires the same choice of law analysis that would have been applied in the transferor court to be conducted in the transferee court, which may require the transferee court to apply its own law, the law of the transferor court, or some other state’s law.”).

Under the New York district court’s analysis, Indiana’s 10-year statute of limitations and its choice of law rules had no pertinence because the case was never properly lodged in the Indiana court. The transfer under § 1631 to New York mandated the application of New York’s six-year statute of limitations, under which the suit was untimely. Our disposition requires that the New York district court treat the case as one properly filed in Indiana, applying Indiana’s choice of law rules to determine whether the suit was timely filed. We therefore vacate the New York district court’s grant of Bank of America’s motion for judgment on the pleadings. We express no view on the question whether the suit was timely filed, when that question is judged under Indiana’s choice-of-law rules, as appropriate for a suit properly brought in Indiana and subsequently transferred to New York under § 1404(a).

IV. Response to Judge Chin’s Concurrence

Judge Chin’s concurring opinion expresses doubt whether Bank of America, as the successor entity following its merger with LaSalle, is subject to personal jurisdiction where LaSalle’s activities in relation to the events giving rise to liability would have subjected LaSalle to specific jurisdiction in a suit alleging breach of LaSalle’s contracts. Our first answer is that this issue is not in the case, having been forfeited, and/or waived, by Bank of America. See United States v. Quiroz, 22 F.3d 489, 490-91 (2d Cir. 1994) (argument not raised on appeal is deemed abandoned, unless manifest injustice otherwise would result); see also Fed. R. Civ. P. 12(h)(1) (“A party waives a[] defense [of lack of personal jurisdiction] by . . . failing to either: (i) make it by motion . . . or (ii) include it in a responsive pleading. . . .”). Bank of America has not argued in this appeal that it is not subject to personal jurisdiction in Indiana for that reason. Indeed, so far as we are aware, Bank of America has never raised that argument in this litigation, notwithstanding its persistent objection, based on other grounds, to personal jurisdiction in Indiana. Its argument has been that it is not subject to Indiana jurisdiction because LaSalle, in negotiating and entering the contract in New York, did not subject itself to Indiana jurisdiction. In fact, in framing its arguments against Indiana jurisdiction, Bank of America has repeatedly acknowledged that LaSalle’s actions in negotiating, drafting, and entering into the MLPA are imputed to Bank of America for the purpose of analyzing where Bank of America is subject to personal jurisdiction, effectively conceding that if LaSalle’s actions would make it subject to personal jurisdiction in Indiana, Bank of America is also subject. See, e.g., Br. of Def.-Appellee at 33; Def.’s Memo. Opp. Pl.’s Mot. Retransfer (App. 2772-73); Def.’s Reply Memo. Supp. Mot. Transfer (App. 2191); Def.’s Memo. Supp. Mot. Transfer (App. 46); see also Def.’s Memo. Opp. Pl.’s Mot. Retransfer (App. at 2784) (recognizing that “[t]he Transferor Court correctly focused its analysis on [Bank of America’s] (and LaSalle’s) activities with respect to the MLPA and PSA” in determining whether it had specific jurisdiction over Bank of America) (emphasis added).

Because the issue is forfeited, we do not rule on it. We nonetheless observe that we can see no reason why, in a suit to enforce a merger partner’s contract, the entity that survives the merger should not be subject to personal jurisdiction in whatever court the actions of the merger partner in relation to the contract would have made the merger partner subject. Upon a merger between two (or more) corporations, each of the merger partners is deemed to survive in the merged entity, and the surviving entity is therefore liable for the liabilities of the corporations that joined in the merger. According to James D. Cox & Thomas Lee Hazen, 4 Treatise of the Law of Corporations § 22:8, “A distinguishing feature of a business combination carried out as a merger or consolidation is that by operation of law the surviving corporation is subject to all the liabilities of the acquired companies.” “In contrast,” the treatise explains, “when the combination is structured as an asset or stock purchase-sale, absent special circumstances, the acquiring company is subject only to those liabilities it has agreed to assume.” Id.Because a successor by merger is deemed by operation of law to be both the surviving corporation and the absorbed corporation, subject to all the liabilities of the absorbed corporation, we see no reason to doubt that Bank of America, as the surviving entity, would be subject to jurisdiction in Indiana in a suit based on breach of LaSalle’s contract if LaSalle’s Indiana-directed actions in relation to the contract would have made Lasalle subject to Indiana jurisdiction. (In contrast, the theory of general jurisdiction would allow the suit against the successor by merger only in those jurisdictions where the defendant corporation at the time of filing is “essentially at home,” see Daimler AG v. Bauman, 517 U.S. 117, 122 (2014) and not in places where, prior to the merger, the absorbed merger partner was at home.)

Furthermore, if the rule were as Judge Chin suggests, the rule would be subject to serious abuse: a corporation liable to suit in a state in which it does not wish to be sued could simply arrange a merger with a dummy corporation and thus avoid being subject to an undesired jurisdiction in the state where its actions incurred the liability.

We think Judge Chin has misread the New York precedent he cites. He relies on a short passage from BRG Corp. v. Chevron U.S.A., Inc., 82 N.Y.S.3d 798, 799 (N.Y. App. Div. 2018), which quotes from and adopts the rule stated in Semenetz v. Sherling v. Walden Inc., 801 N.Y.S.2d 78 (N.Y. App. Div. 2005), aff’d on other grounds 851 N.E.2d 1170 (N.Y. 2006). The line of authority Judge Chin cites does not apply to successor liability that results from a merger.

What those New York decisions reveal is that the answer to our question— whether liability as a successor in interest also entails being subject to personal jurisdiction where the actions of the predecessor would have made the predecessor subject—depends on the basis of the successor liability. The fair inference of the precedents is that, while successor liability based on acquisition of a predecessor’s assets does not necessarily make the defendant also amenable to jurisdiction where the predecessor’s actions would have made the predecessor subject to specific jurisdiction, the rule is different where the successor liability of the defendant derives from a merger with the predecessor. So far as appears from the decisions, none of Judge Chin’s cases involves successor liability based on merger; nonetheless, these decisions imply, indeed virtually state, that where the successor status is based on merger, the merged entity is subject to jurisdiction wherever its merger partner’s actions would have made the merger partner subject in a suit based on the merger partner’s liability.

In Semenetz, the plaintiff, who was injured in New York while operating a sawmill brought a New York personal injury action for products liability against an Alabama corporation (identified as “Sawmills”), which had purchased the assets of the company (“Edger”) that had sold the sawmill to plaintiff’s New York employer. The plaintiff sought to impose both New York jurisdiction and liability on Sawmills based on the argument that Sawmills, having purchased the assets of Edger, was subject to “successor liability” under either the so-called “product line” or “continuing enterprise” exceptions to “the general rule [that] a corporation which acquires the assets of another is not liable for the torts of its predecessor.” Semenetz, 801 N.Y.S.2d at 80. The Appellate Division ruled, “[T]he `product line’ and `continuing enterprise’ exceptions [to nonliability of successor entities] deal with the concept of tort liability, not jurisdiction.” Id. at 81. Therefore, even assuming that Sawmills was liable under a products liability claim for the tort of Edger, whose assets it had purchased, its successor liability did not render it subject to New York jurisdiction, as Edger would have been. However, in the very next sentence, the decision explicitly “recognize[d]” that, in contrast, “in certain circumstances the successor corporation `may inherit its predecessor’s jurisdictional status,'” and cited to a number of cases addressing those circumstances. Id. Among the cases cited by Semenetz with approval as discussing circumstances where the successor to the predecessor’s liability also “inherits” the predecessor’s jurisdictional status is Schenin v. Micro Copper Corp., 272 F. Supp. 523, 526 (S.D.N.Y. 1967), which recognized that, had the successor liability been based on merger (as opposed to successor liability based on purchase of assets), the successor would “inherit” the predecessor’s jurisdictional status.

The Schenin suit was brought in New York against an out-of-state corporation, Micro Copper Corporation (“Micro”), as successor to the liability of Vanura Uranium (“Vanura”), on the theory that Micro, having purchased the assets of Vanura, was not only liable for Vanura’s liabilities but also subject to jurisdiction where Vanura would have been subject. The court ruled that where the theory of successor liability is based on the successor’s purchase of the predecessor’s assets, the successor is not rendered subject to jurisdiction where the predecessor would have been subject in such a suit. The court, however, explicitly contrasted successor liability based on purchase of the predecessor’s assets with successor liability based on a merger with the predecessor, stating, “The insurmountable hurdle in plaintiff’s path [in seeking to subject the defendant to New York jurisdiction on the basis of its successor liability] is the sound distinction in law between a statutory merger and an acquisition of assets.” Schenin, 272 F. Supp. at 526. The court observed that the plaintiff “has sought through ambiguous rhetoric and disproven implication” to represent Micro’s acquisition as a merger, but had “failed to adduce a single shred of probative evidence that the transaction . . . was anything but an acquisition of assets. . . .” Id.

In other words, while the holding of Semenetz was that successor liability on the basis of the “product line” or “continuing enterprise” exceptions to successor-nonliability does not confer on the successor the jurisdictional status of the predecessor, the decision explicitly recognizes that the rule is otherwise when the successor status results from merger with the predecessor.

As noted, Judge Chin cites a sentence from BRG, which relies on, and substantially quotes from, the Semenetz precedent. In BRG, the plaintiff brought a New York suit against Valero Energy Corporation (“Valero”), a foreign corporation, asserting liability to recover the costs of remediating environmental contamination that was caused by Valero’s “predecessor[] in interest.” BRG, 82 N.Y.S.3d at 798. The court of first instance had denied Valero’s motion to dismiss for lack of jurisdiction, reasoning that Valero “was the successor in interest to a company that was itself subject to personal jurisdiction in New York.” Id. at 799. The Appellate Division reversed explicitly basing its decision on the Semenetz precedent, ruling that while Valero’s status as a successor might make it liable for its predecessor’s tort, its successor status did not subject it to personal jurisdiction in New York merely because its predecessor was so subject. BRG did not explain the basis for deeming Valero a successor in interest to the tortfeasor. The decision says nothing to suggest that Valero had merged with the predecessor. Because (a) the BRGcourt deemed the Semenetz precedent to be controlling, (b) the Semenetz court had distinguished successorship resulting from merger from the successorship involved in that case, and (c) nothing in the BRG decision indicated that the defendant’s successor status resulted from merger with the obligor, BRG’s ruling expressed in its quotation from Semenetz presumably did not involve successorship through merger. If it had, the BRG ruling would have been contrary to the rule expressed by the Semenetz decision, which BRG purported to follow. Indeed, BRG recognized as per Semenetz that in some circumstances (unlike the facts of BRG) a successor entity does “inherit jurisdictional status.” Id. at 799. BRGtherefore does not support the proposition that a successor by merger is not subject to jurisdiction where its merger partner’s actions would have subjected the merger partner to jurisdiction for breach of its contracts.

Judge Chin may have been misled by the BRG‘s slight misquotation of the Semenetz precedent. In its critical sentence that was quoted in the BRG opinion, the Semenetz court had made clear that it was “[t]he `product line’ and `continuing enterprise’ exceptions to the [nonliability of a successor that] deal with the concept of tort liability, not jurisdiction.” Semenetz, 801 N.Y.S.2d at 81. In quoting that sentence from Semenetz, however, BRG changed Semenetz‘s sentence to say, “The `successor liability rule[s]’ deal with the concept of tort liability, not jurisdiction.” BRG, 82 N.Y.S.3d at 799 (emphasis added). The alteration of the Semenetz sentence, if considered out of context, could suggest that successor liability never entails successorship to the predecessor’s jurisdictional status. If that had been BRG‘s meaning, its rule would have been contrary to the Semenetzholding. BRG, however, made clear that it was adopting Semenetz‘s rationale. Id.(“Plaintiffs do not challenge Semenetz‘s holding or its rationale, nor do they ask us to chart our own course on this novel and unsettled jurisdictional issue.”).

Nor is Judge Chin’s speculation supported by the Seventh Circuit case he cites. See Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773 (7th Cir. 2003). In Purdue Research, the plaintiff sued a French corporation in Indiana for breach of contract. The plaintiff’s contract, however, was not originally with the French defendant. The contract had been assigned by the plaintiff’s contractual counterpart to the French defendant in an asset purchase. The plaintiff sought to justify subjecting the French defendant to Indiana jurisdiction on a successor-in-interest theory by reason of its purchase of the contract in question from an entity that was subject to suit in Indiana. The Seventh Circuit upheld the District Court’s dismissal for want of personal jurisdiction in Indiana. The court ruled that the French defendant’s purchase of limited assets including the breached contract from an entity that was subject to suit in Indiana did not render it subject to Indiana jurisdiction as a successor. The court explicitly noted that the defendant “did not merge with [the seller of the assets] nor did it purchase all (or substantially all) of [the seller’s] assets,” implying that the result would be otherwise had either of these been true. Id. at 785.

CONCLUSION

For the reasons set forth above, we hereby (i) REVERSE the Indiana district court’s ruling that it lacked personal jurisdiction over Defendant; (ii) AFFIRM the New York district court’s denial of Plaintiff’s motion for retransfer to Indiana (treating the transfer order as one made under § 1404(a) of Title 28, rather than under § 1631); (iii) VACATE the judgment rendered in favor of Defendant on the basis of the untimeliness of the suit as judged under New York choice of law rules; and (iv) REMAND to the district court to adjudicate under the choice-of-law rules of Indiana.

CHIN, Circuit Judge, concurring:

I concur in the majority’s decision to affirm the denial of the motion to retransfer, and agree that the case should be remanded for further proceedings.

I am not persuaded, on the present record, that Indiana had specific personal jurisdiction over Bank of America. Bank of America’s contacts with respect to the relevant contracts were in New York only. The MLPA and PSA were negotiated, drafted, and executed in New York, and include New York choice-of-law clauses. Bank of America is subject to personal jurisdiction in Indiana, if at all, only because it is a successor-by-merger to LaSalle. While a successor-by-merger is “subject to all the liabilities of the acquired compan[y],” James D. Cox & Thomas Lee Hazen, 4 Treatise of the Law of Corporations § 22:8 (3d ed.), it is not always the case that an acquired company’s jurisdictional contacts can be imputed to the successor-by-merger. Even though Bank of America is liable on the agreements, that does not mean that Bank of America is necessarily subject to suit in Indiana because of LaSalle’s jurisdictional contacts. Compare BRG Corp. v. Chevron U.S.A., Inc., 82 N.Y.S.3d 798, 799 (App. Div. 4th Dep’t 2018) (“The successor liability rule[s] deal with the concept of tort liability, not jurisdiction. When and if [successor liability] is found applicable, the corporate successor would be subject to liability for the torts of its predecessor in any forum having in personam jurisdiction over the successor, but the [successor liability rules] do not and cannot confer such jurisdiction over the successor in the first instance.” (alteration in original) (internal quotation marks omitted)), with Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 783 (7th Cir. 2003) (recognizing a predecessor’s jurisdictional contacts may be imputed to a successor corporation where the successor corporation is a mere continuation of the predecessor or where the forum’s successor liability laws would hold the successor liable for the predecessor’s actions).

I do not believe, on the record before us, that it is clear that Indiana has specific personal jurisdiction over Bank of America. I would, therefore, leave the question of personal jurisdiction to the district court in the first instance to decide after it determines the choice of law question. See 4A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1069.4 (4th ed. April 2018 Update) (“[S]pecial problems are presented when [personal] jurisdiction over a defendant is justified by a related entity’s contacts with the forum. . . . The very nature of these often difficult issues makes their resolution extremely fact dependent.”).

Accordingly, I would remand for the district court to resolve the question of specific personal jurisdiction, in addition to the choice-of-law and statute of limitations issues.

[1] LaSalle Bank later merged with Defendant Bank of America.

[2] Citigroup Commercial Mortgage Securities, Inc. was the purchaser under the MLPA for the benefit of the Trust.

[3] “Each related Mortgage is a valid and enforceable first lien on the related Mortgaged Property subject only to . . . [exceptions not relevant here] and the following title exceptions . . . (b) covenants, conditions and restrictions, rights of way, easements and other matters of public record, none of which,individually or in the aggregate, materially and adversely interferes with the current use of the Mortgaged Property or the security intended to be provided by such Mortgage or with the Mortgagor’s ability to pay its obligations under the Mortgage Loan when they become due or materially and adversely affects the value of the Mortgaged Property. . . .” App. 93. (emphasis added)

[4] 28 U.S.C. § 1631 provides for transfers to cure want of jurisdiction, as follows:

Whenever a civil action is filed in a court . . . and that court finds that there is a want of jurisdiction, the court shall, if it is in the interest of justice, transfer such action or appeal to any other such court . . . in which the action or appeal could have been brought at the time it was filed or noticed, and the action or appeal shall proceed as if it had been filed in or noticed for the court to which it is transferred on the date upon which it was actually filed in or noticed for the court from which it is transferred.

[5] Under the reasonableness inquiry, we evaluate the following factors: (1) the burden on the defendant, (2) the interests of the forum state, (3) the plaintiff’s interest in obtaining relief, (4) the “interstate judicial system’s interest in obtaining the most efficient resolution of controversies,” and (5) “the shared interests of the several States in furthering fundamental substantive social policies.” Asahi,480 U.S. at 113 (citations omitted). Although we consider a variety of factors, “the `primary concern’ is `the burden on the defendant.'” Bristol-Myers Squibb, 137 S. Ct. at 1780 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980)).

[6] “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.” 28 U.S.C. § 1404(a). While the Indiana district court expressly relied on § 1631 as authority for the transfer, see U.S. Bank Nat’l Ass’n v. Bank of America N.A., No. 1:14-cv-01492, 2015 WL 5971126, at *10 (S.D. Ind. Oct. 14, 2015) (“[T]he Court concludes that it does not have personal jurisdiction over Bank of America. As a result, the Court TRANSFERS this case to the Southern District of New York, pursuant to 28 U.S.C. § 1631.”), the court also observed, although making no findings relating to the convenience of the parties and witnesses or the interest of justice, that transfer would also be appropriate under § 1404(a). Id.

 

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In Re: BERESFORD BRYAN BERTRAM, THERESA BERTRAM, Debtors.
BERESFORD BRYAN BERTRAM, THERESA BERTRAM, Plaintiffs-Appellants,
v.
HSBC MORTGAGE SERVICES, INC., Defendant-Appellee.

No. 17-11774, Non-Argument Calendar.United States Court of Appeals, Eleventh Circuit.November 5, 2018.Daniel C. Shatz, for Defendant-Appellee.

Brendan S. Everman, for Defendant-Appellee.

Brian C. Frontino, for Defendant-Appellee.

Appeal from the United States District Court for the Southern District of Florida, D.C. Docket Nos. 0:16-cv-61582-CMA; 16-bkc-01154-RBR.

Before MARCUS, ROSENBAUM and JILL PRYOR, Circuit Judges.

DO NOT PUBLISH

PER CURIAM.

This appeal primarily presents an issue about the scope of the Rooker-Feldmandoctrine, which bars a plaintiff from challenging in federal court the validity of a state court judgment. Defendant HSBC Mortgage Services, Inc., (“HMSI”) filed a foreclosure action in Broward County Circuit Court related to real property owned by plaintiffs Beresford and Theresa Bertram. After the state court entered a final judgment in favor of HMSI, Beresford petitioned for Chapter 7 bankruptcy. In an adversary proceeding in bankruptcy court, the Bertrams sued HMSI, claiming that the foreclosure judgment was invalid because the debt they owed HMSI was unsecured and, alternatively, that even if HMSI had properly foreclosed on the mortgage, the subsequent sale of their property was improper.

HMSI moved to dismiss the Bertrams’ complaint, arguing that the bankruptcy court lacked subject matter jurisdiction because the Rooker-Feldman doctrine barred their claims. The bankruptcy court agreed with HMSI and dismissed the complaint. The district court affirmed the bankruptcy court’s judgment.

We agree that the Rooker-Feldman doctrine bars the Bertrams’ claims challenging the validity of the state court’s foreclosure judgment. But the Rooker-Feldmandoctrine does not bar the Bertrams’ claims challenging the foreclosure sale, which were not actually raised or inextricably intertwined with the issues resolved in the state court’s final judgment. We thus affirm in part and reverse in part.

I. FACTUAL BACKGROUND

The Bertrams owned property in Broward County, Florida, secured by a mortgage. When the Bertrams defaulted on the mortgage, HMSI filed an action in state court seeking to foreclose on the mortgage. The trial court granted summary judgment to HMSI and entered a final judgment in its favor foreclosing the mortgage (the “final foreclosure judgment”). The Bertrams did not appeal the final foreclosure judgment.

Instead, the Bertrams filed in the trial court a motion to aside the final foreclosure judgment, which was denied. After their motion was denied, the Bertrams filed an interlocutory appeal with Florida’s Fourth District Court of Appeal. While the appeal was pending, a foreclosure sale of the property moved forward. The sale was scheduled, and the Clerk of Court for Broward County purported to sell the property. A few days after the sale, the Bertrams filed in the trial court an objection to the foreclosure sale. In their objection, the Bertrams requested that the trial court invalidate the final foreclosure judgment it had previously entered in favor of HMSI. They also alleged that HMSI failed to follow proper procedures in conducting the foreclosure sale. After a hearing, the trial court overruled the Bertrams’ objection and directed the Clerk to issue a certificate of title and writ of possession.

Shortly after the sale, the Fourth District Court of Appeal affirmed the trial court’s earlier order denying the Bertrams’ motion to set aside the final judgment. The Bertrams did not appeal the decision to the Florida Supreme Court. Instead, they filed another interlocutory appeal with the Fourth District Court of Appeal— this time seeking review of the trial court’s order overruling their objection to the foreclosure sale. The Fourth District Court of Appeal affirmed the trial court. Under the rules of Florida’s appellate courts, the mandate from the Fourth District Court of Appeal would issue 15 days after the decision. See Fla. R. App. P. 9.340(a). Because the decision was released on October 22, 2015, the mandate was set to issue on November 6, 2015. But, on November 4, Beresford filed a Chapter 7 bankruptcy petition. The Florida appellate court then stayed issuance of the mandate pending resolution of Beresford’s bankruptcy.

After the bankruptcy court entered an order granting Beresford a discharge, the Bertrams commenced a pro se adversary proceeding against HMSI. In the adversary proceeding, the Bertrams brought claims challenging the validity of the final foreclosure judgment and the subsequent sale of the property. The Bertrams alleged that the sale of the property was invalid because, among other reasons, HMSI allegedly had transferred its interest in the property to another entity after the final foreclosure judgment was entered but before the sale was completed.

HMSI moved to dismiss the Bertrams’ complaint, claiming that the Rooker-Feldman doctrine barred the action. HMSI attached to its motion a certificate of service indicating that it had “filed” the motion “via CM/ECF.” Doc. 11-2 at 341.^[1]The certificate included a “service list” for the motion that listed the Bertrams’ address as well as an email address but did not identify how HMSI had served the Bertrams. Id. The Bertrams admit that they received a copy of the motion via email.

The bankruptcy court then noticed a hearing on the motion to dismiss and directed HMSI to serve a copy of the notice on the Bertrams. HMSI filed a certificate of service indicating that it had served the Bertrams with a copy of the notice setting the hearing via Federal Express and email.

Beresford appeared at the hearing on the motion to dismiss but claimed that he had received no notice of the hearing and only happened to learn of it when he asked the clerk’s office about the status of HMSI’s motion to dismiss. To give the Bertrams time to prepare, the bankruptcy court rescheduled the hearing on the motion to dismiss. The Bertrams subsequently filed their opposition to the motion to dismiss.

The Bertrams then filed a motion to strike the certificate of service attached to HMSI’s motion to dismiss as well as the certificate showing that HMSI had notified them of the original hearing on the motion to dismiss. They asserted that the certificate of service attached to the motion to dismiss was insufficient because it failed to identify how HMSI had served them. The Bertrams also challenged the accuracy of the certificate of service for the notice of hearing. And they contended that their address on both certificates of service was incorrect because the wrong zip code was listed. Because HMSI had failed to effectuate proper service, the Bertrams asked the bankruptcy court not to consider HMSI’s motion to dismiss.

The bankruptcy court held a hearing on the motions to strike and to dismiss. The court denied the motion to strike because the Bertrams admitted they received a copy of the motion to dismiss via email and had adequate time to prepare for the hearing. The court granted the motion to dismiss, concluding that the Bertrams’ claims were, in effect, challenging the validity of a state court judgment and barred by the Rooker-Feldman doctrine.

The Bertrams appealed the bankruptcy court’s order denying the motion to strike and granting the motion to dismiss to the district court. The district court affirmed the bankruptcy court. This is the Bertrams’ appeal from the district court’s decision.

II. STANDARD OF REVIEW

When we review an order of a district court entered in its role as an appellate court reviewing a bankruptcy court’s decision, we “independently examine[] the factual and legal determinations of the bankruptcy court, applying the same standards of review as the district court.” In re FFS Data, Inc., 776 F.3d 1299, 1303 (11th Cir. 2015). We review de novo determinations of law whether from the bankruptcy court or district court, and we review a bankruptcy court’s factual findings under a clearly erroneous standard. See In re Bilzerian, 100 F.3d 886, 889 (11th Cir. 1996). We further review de novo a bankruptcy court’s application of the Rooker-Feldmandoctrine. See Lozman v. City of Riviera Beach, 713 F.3d 1066, 1069 (11th Cir. 2013). And we review for abuse of discretion the bankruptcy court’s denial of a motion to strike. See Telfair v. First Union Mortg. Corp., 216 F.3d 1333, 1337 (11th Cir. 2000).

III. DISCUSSION

The Bertrams contend that the bankruptcy court erred in denying their motion to strike and granting HMSI’s motion to dismiss. We address these arguments in turn.

A. The Motion to Strike

The Bertrams argue that the bankruptcy court erred when it denied their motion to strike. They contend that they were never properly served with a copy of the motion to dismiss or given notice of the first hearing and that they were denied due process.

Before we can address this issue, we must consider whether we have jurisdiction to review it. HMSI argues that we lack jurisdiction to review the bankruptcy court’s order denying the motion to strike because it was a non-final order. “A court of appeals has jurisdiction over only final judgments and orders arising from a bankruptcy proceeding, whereas the district court may review interlocutory judgments and orders as well.” In re Donovan, 532 F.3d 1134, 1136 (11th Cir. 2008); see 28 U.S.C. § 158(a), (d). A bankruptcy court order is final if it “completely resolve[s] all of the issues pertaining to a discrete claim.” Donovan,532 F.3d at 1137 (internal quotation marks omitted). HMSI reasons that because the bankruptcy court’s order denying the motion to strike was not a final order, we may not review it.

Even if the bankruptcy court’s order denying the motion to strike was not final on its own, we conclude that we have jurisdiction because the bankruptcy court entered a final order when it granted HMSI’s motion to dismiss, which completely resolved all of the issues pertaining to the Bertrams’ claims in the adversary proceeding. We have recognized, outside the bankruptcy context, that “review of the final judgment opens for consideration the prior interlocutory orders.” Barfield v. Brierton, 883 F.2d 923, 931 (11th Cir. 1989). Put differently, “the doctrine of cumulative finality allows an appeal from a non-final order to be `saved’ by subsequent events that establish finality.” In re Rimstat, Ltd., 212 F.3d 1039, 1044 (7th Cir. 2000). And we have applied the doctrine of cumulative finality in the bankruptcy context. See In re Valone, 784 F.3d 1398, 1401 (11th Cir. 2015)(concluding that we had jurisdiction to review bankruptcy court order disallowing an exemption, even though the order was not final, because the bankruptcy court had subsequently confirmed the Chapter 13 plan and thus entered a final order). Applying the doctrine of cumulative finality, we conclude that we have jurisdiction to review the order denying the motion to strike.

Turning now to the merits of the Bertrams’ arguments regarding the motion to strike, we cannot say that the bankruptcy court abused its discretion. We assume for purposes of this appeal that the certificate of service attached to HMSI’s motion to dismiss did not strictly comply with the bankruptcy court’s local rules because it failed to identify how HMSI had served the Bertrams. See Bankr. S.D. Fla. L.R. 2002-1(F), 9013-3. We also assume for purposes of this appeal that HMSI failed to properly serve the Bertrams with the notice about the first hearing. See Bankr. S.D. Fla. L.R. 9073-1(B). We acknowledge that the bankruptcy court had discretion to impose sanctions for HMSI’s failure to comply with the local rules. See Bankr. S.D. Fla. L.R. 1001-1(D). But we disagree that the court abused its discretion in declining to impose sanctions here, given that the Bertrams actually received a copy of the motion to dismiss from HMSI via email and had sufficient time to prepare for the hearing.

The Bertrams nevertheless contend that the lack of proper service denied them due process. Again, we disagree. Procedural due process guarantees a person notice and an opportunity to be heard “at a meaningful time and in a meaningful manner.” Catron v. City of St. Petersburg, 658 F.3d 1260, 1266 (11th Cir. 2011). We see no due process violation here. Even if HMSI’s certificates of service were technically deficient, the Bertrams admit that they actually received a copy of the motion to dismiss, meaning they received actual notice. Although the Bertrams contend that they failed to receive adequate notice of the first hearing on the motion to dismiss, they were not prejudiced because the bankruptcy court rescheduled the hearing. At the subsequent hearing, the Bertrams confirmed they had had adequate time to prepare and were able to present oral argument. The bankruptcy court did not violate the Bertrams’ due process rights given that they actually received a copy of HMSI’s motion to dismiss when it was filed, had the opportunity to submit a written opposition to the motion, and were heard on the merits.

B. The Motion to Dismiss

We now turn to the bankruptcy court’s decision to dismiss the Bertrams’ claims based on the Rooker-Feldman doctrine. The Rooker-Feldman doctrine takes its name from two Supreme Court cases, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). These decisions collectively hold that a federal district court may not review and reverse a state court civil judgment, because only the United States Supreme Court has appellate jurisdiction over judgments of state courts in civil cases. See 28 U.S.C. § 1257; Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 292 (2005).

The Rooker-Feldman bars litigation in federal court of claims that were actually raised in the state court and those “inextricably intertwined” with the state court judgment. Casale v. Tillman, 558 F.3d 1258, 1260 (11th Cir. 2009). “A claim is inextricably intertwined if it would effectively nullify the state court judgment, or it succeeds only to the extent that the state court wrongly decided the issues.” Id.(internal quotation marks and citation omitted). The doctrine does not apply, however, where “the plaintiff had no reasonable opportunity to raise his federal claim in state proceedings.” Powell v. Powell, 80 F.3d 464, 467 (11th Cir. 1996)(internal quotation marks omitted). We have explained that “[a] claim about conduct occurring after a state court decision cannot be either the same claim or one `inextricably intertwined’ with that state court decision, and thus cannot be barred under Rooker-Feldman.” Target Media Partners v. Specialty Mktg. Corp.,881 F.3d 1279, 1286 (11th Cir. 2018).

The Supreme Court has cautioned that the scope of the Rooker-Feldman doctrine is narrow and “confined to cases of the kind from which the doctrine acquired its name: cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.” Exxon Mobil Corp.,544 U.S. at 284. The doctrine is inapplicable if the federal action was commenced before the state proceedings ended. Nicholson v. Shafe, 558 F.3d 1266, 1274-75 (11th Cir. 2009). State proceedings end, for purposes of the Rooker-Feldmandoctrine when: (1) “the highest state court in which review is available has affirmed the judgment below and nothing is left to be resolved,” (2) “the state action has reached a point where neither party seeks further action,” or (3) “the state court proceedings have finally resolved all the federal questions in the litigation, but state law or purely factual questions (whether great or small) remain to be litigated.” Id. at 1275 (internal quotation marks omitted). As to the second scenario, a state proceeding ends when the losing party allows the time for appeal to expire. Id. Conversely, state proceedings remain pending when “the losing party . . . does not allow the time for appeal to expire (but instead, files an appeal).” Id. It follows that state proceedings have not ended if an appeal from the state court judgment remains pending at the time that the plaintiff files the federal case. In this circumstance, if the state appellate court affirms the lower court’s judgment afterthe federal case is filed, the federal court retains jurisdiction. Id. at 1279 n.13.

This case does not fit completely the Rooker-Feldman mold. We agree with the bankruptcy court and district court that the Rooker-Feldman doctrine barred the Bertrams’ claims that sought to invalidate the state court’s final foreclosure judgment. The state proceedings related to the final foreclosure judgment ended for purposes of the Rooker-Feldman doctrine when the state trial court entered the judgment and the Bertrams did not appeal, which was years before the Bertrams filed their adversary proceeding in the bankruptcy court. See id. at 1275. Because the state court proceedings as to the final foreclosure judgment had ended when the adversary proceeding complaint was filed, the Bertrams could not sue in federal court to invalidate that judgment. See id. at 1274-75.

The Rooker-Feldman doctrine does not bar all of the Bertrams’ claims, however. A close reading of their complaint shows that some of the Bertrams’ claims arose out of HMSI’s conduct with regard to the foreclosure sale. Because these claims are about conduct that occurred after the final foreclosure judgment was entered and the time for appeal expired, they cannot be barred under the Rooker-Feldmandoctrine. See Target Media Partners, 881 F.3d at 1286.

We acknowledge that the Bertrams also litigated issues related to the foreclosure sale in state court when they filed an objection to the foreclosure sale. At the time that the Bertrams brought the adversary proceeding, the state court had overruled their objection and the Fourth District Court of Appeal had affirmed the trial court. But the Fourth District Court of Appeal had not yet issued the mandate. Because the mandate had not issued, the state action had not yet reached a point where neither party sought further action, meaning the state court litigation challenging the foreclosure sale had not yet ended. See Nicholson, 558 F.3d at 1275. It is true that this litigation was pending when the Fourth District Court of Appeal issued its mandate, bringing an end to the state court litigation challenging the foreclosure sale. The Rooker-Feldman doctrine does not bar the Bertrams’ claims challenging the foreclosure sale because the doctrine “cannot spring into action and vanquish properly invoked subject matter jurisdiction in federal court when state proceedings subsequently end.” Id. at 1275 n.13.

The Bertrams nonetheless urge us to conclude that the bankruptcy court erred in applying the Rooker-Feldman doctrine because, they contend, the debt they owed to HMSI was discharged in Beresford’s Chapter 7 case. This argument rests on the premise that the debt the Bertrams owed to HMSI was unsecured. The problem is that in raising this argument the Bertrams seek to nullify the state court’s final foreclosure judgment, which necessarily involved a determination that HMSI had a valid mortgage on the property. The Rooker-Feldman doctrine bars this attempt to relitigate issues that were decided by the state court. See Casale,558 F.3d at 1260. Because we must accept that the Bertrams’ debt to HMSI was secured by a mortgage interest, we reject the Bertrams’ argument that the bankruptcy court’s Chapter 7 discharge extinguished HMSI’s right to foreclose on the mortgage debt. See Johnson v. Home State Bank, 501 U.S. 78, 82-83 (1991)(recognizing that a Chapter 7 discharge extinguishes only the debtor’s personal liability on the debt, not the right to foreclose on the mortgage).

The Bertrams also argue that the bankruptcy court erred in relying on the Rooker-Feldman doctrine because a bankruptcy court is authorized to abstain from hearing a case only when abstention is authorized under 28 U.S.C. § 1334(c). This provision states that “nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding under title 11 or arising in or related to a case under title 11.” 28 U.S.C. § 1334(c)(1). We reject the Bertrams’ interpretation because nothing in this provision bars a bankruptcy court from abstaining from hearing a particular proceeding under the Rooker-Feldmandoctrine.^[2]

We thus conclude that the Rooker-Feldman doctrine bars some but not all of the Bertrams’ claims. We emphasize that our opinion today addresses only the applicability of the Rooker-Feldman doctrine, not whether HMSI has other defenses to the Bertrams’ claims, and we offer no opinion about whether the Bertrams’ claims will ultimately succeed on the merits.

IV. CONCLUSION

We hold that the Rooker-Feldman doctrine barred only the Bertrams’ claims related to whether HMSI could foreclose on the mortgage, not their claims related to HMSI’s conduct when the property later was sold. We thus affirm the district court’s order affirming the bankruptcy court’s dismissal of the Bertrams’ claims challenging the final foreclosure judgment. But we reverse the district court’s order affirming the bankruptcy court’s dismissal of the Bertrams’ claims related to the foreclosure sale. We remand the case to the district court for further proceedings consistent with this opinion.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

[1] All citations in the form “Doc. #” refer to the district court docket entries.

[2] The Bertrams raise a litany of other arguments about why the bankruptcy court erred in granting the motion to dismiss. All of these arguments lack merit. For example, they argue that HMSI’s motion to dismiss constituted a non-core matter, meaning the bankruptcy court had to issue proposed findings of fact and conclusions on law on the motion to dismiss. Because the bankruptcy court instead issued an order granting the motion to dismiss, the Bertrams argue that we must vacate. But the Bertrams conceded in the bankruptcy court that their adversary complaint raised a core proceeding. It was thus appropriate for the bankruptcy court to follow the procedures that apply to core proceedings in deciding the motion to dismiss.

 

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A.G. Underwood Announces $65 Million Settlement With Wells Fargo For Misleading Investors Regarding Cross-Sell Scandal

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KELI N. JOHNSON and THOMAS E. JOHNSON, Appellants,
v.
DEUTSCHE BANK NATIONAL TRUST COMPANY AMERICAS, as Trustee RALI 2007-QS1, Appellee.

Case No. 2D16-4262.District Court of Appeal of Florida, Second District.Opinion filed May 11, 2018.Appeal from the Circuit Court for Polk County; Keith P. Spoto, Judge.

Mark P. Stopa of Stopa Law Firm, Tampa, for Appellants.

William L. Grimsley, Kimberly Held Israel, and N. Mark New, II, of McGlinchey Stafford, Jacksonville, for Appellee.

LUCAS, Judge.

Keli and Thomas Johnson appeal the circuit court’s entry of a final summary judgment against them in a residential mortgage foreclosure case brought by Deutsche Bank National Trust Company Americas, as Trustee RALI 2007-QS1 (RALI). They raise five arguments on appeal. We find merit within the fourth—that RALI failed to conclusively establish its standing to enforce the Johnsons’ promissory note—and reverse the summary judgment on that basis.

The Johnsons borrowed $236,000, apparently in connection with a home improvement construction loan, which was memorialized by a promissory note in that amount dated April 28, 2006. The Johnsons’ note was originally payable to National City Mortgage, a division of National City Bank of Indiana, and secured by a mortgage on the Johnsons’ property in Polk County, Florida. The promissory note contained three endorsements, the last of which made the note payable to “Deutsche Bank Trust Company Americas as Trustee,” with no further identifying information of which trust this entity was acting on behalf of.^[1]

When the Johnsons allegedly defaulted on the note in 2011, RALI filed the underlying complaint. It later amended its complaint twice, so that in its final, operative iteration, RALI alleged it had standing to enforce the Johnsons’ note as a holder of the note. The Johnsons generally denied RALI’s allegations in their answer and asserted several affirmative defenses, including lack of standing on the part of RALI to enforce the note. RALI eventually filed the original note, which contained endorsements appearing to match those on the copy attached to its pleading.^[2]

The case proceeded with itinerant discovery and motion practice, and on July 8, 2016, RALI filed a motion for summary judgment. In support of its motion, it also filed an affidavit signed by Sarah Greggerson, an employee of PNC Mortgage, an entity that purported to be servicing the Johnsons’ loan. It appears from the record that RALI relied upon PNC’s status as its servicer as a basis to establish RALI’s status as a holder of the Johnsons’ note (Ms. Greggerson’s affidavit was the only one filed in support of RALI’s motion for summary judgment). In our view, that was insufficient evidence of RALI’s standing for purposes of summary judgment in this case.

We review a summary judgment under a de novo standard of review. Herendeen v. Mandelbaum, 232 So. 3d 487, 489 (Fla. 2d DCA 2017) (citing Volusia County v. Aberdeen at Ormond Beach, L.P., 760 So. 2d 126, 130 (Fla. 2000)).

Summary judgment is proper only where the moving party shows conclusively that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. When the nonmoving party has alleged affirmative defenses, the moving party must conclusively refute the factual bases for the defenses or establish that they are legally insufficient. “The burden of proving the existence of genuine issues of material fact does not shift to the opposing party until the moving party has met its burden of proof.”

Coral Wood Page, Inc. v. GRE Coral Wood, LP, 71 So. 3d 251, 253 (Fla. 2d DCA 2011) (emphasis added) (citations omitted) (quoting Deutsch v. Global Fin. Servs., LLC, 976 So. 2d 680, 682 (Fla. 2d DCA 2008)). “If the record reflects the existence of any genuine issue of material fact or the possibility of any issue, or if the record raises even the slightest doubt that an issue might exist, summary judgment is improper.” Atria Grp., LLC v. One Progress Plaza, II, LLC, 170 So. 3d 884, 886 (Fla. 2d DCA 2015) (quoting Holland v. Verheul, 583 So. 2d 788, 789 (Fla. 2d DCA 1991)).

This court has held that in residential mortgage foreclosure cases, the plaintiff bears the burden of proving its standing at the time of trial and at the time it filed its complaint if the issue of standing is contested. See Corrigan v. Bank of Am., N.A., 189 So. 3d 187, 189 (Fla. 2d DCA 2016) (en banc); see also Winchel v. PennyMac Corp., 222 So. 3d 639, 642-43 (Fla. 2d DCA 2017) (noting the “legal oddity” that standing has become in residential foreclosure cases and summarizing, “[o]nce put at issue by a defendant, then, standing becomes a part of the prima facie case that a foreclosure plaintiff must prove in order to secure a judgment”). The summary judgment evidence regarding RALI’s standing—challenged, as it was, by the Johnsons’ affirmative defense—fell short of what was required for a summary adjudication.

Ms. Greggerson’s affidavit stated only that “Plaintiff has owned and held the Note since prior to the filing of the Complaint in this action.” The problem with that assertion, however, is that Ms. Greggerson was not affiliated in any way with the plaintiff, RALI. The limited facts stated in her affidavit failed to address how she derived this knowledge about RALI’s connection to the Johnsons’ note or how RALI became an owner or holder of the Johnsons’ note; and there was no claim within her affidavit that PNC was holding the Johnsons’ note on behalf of RALI. See, e.g., Peters v. Bank of N.Y. Mellon, 227 So. 3d 175, 180 (Fla. 2d DCA 2017)(finding testimony of “case manager” employed by servicer—who took over servicing after the filing of the lawsuit— was insufficient to establish ownership of the lost note because “Ms. Stevens had no personal knowledge about the Bank’s claim to have acquired ownership of the note in 2006. Moreover, Ms. Stevens’s testimony in this regard was not supported by the limited documentary evidence about the loan that was available. Because Ms. Stevens’s testimony was not based on personal knowledge and was not supported by any documentation, we conclude that the testimony was insufficient to establish the Bank’s ownership of the lost note.”); Rosa v. Deutsche Bank Nat’l Tr. Co., 191 So. 3d 987, 988-89 (Fla. 2d DCA 2016) (holding that “the record in this case does not establish that Deutsche Bank had standing to foreclose at the time it filed its complaint” because its sole witness, an employee of its servicer, Wells Fargo, “was unable to provide any testimony as to Deutsche Bank’s acquisition of the note” and remarking that “[t]he only testimony as to possession of the note suggests that Wells Fargo, not Deutsche Bank, was the last entity to have possession of the note prior to the filing of the complaint”); Stoltz v. Aurora Loan Servs., LLC, 194 So. 3d 1097, 1098 (Fla. 2d DCA 2016) (finding second servicer’s representative’s testimony was insufficient to prove first servicer’s standing at time of inception of suit because “[t]hat testimony established at most that the first servicer was in fact servicing the mortgage when it filed suit, not that the first servicer held the note when it filed suit”); Jaffer v. Chase Home Fin. LLC, 92 So. 3d 240, 242 (Fla. 4th DCA 2012)(“Under [Florida Rule of Civil Procedure 1.510(e)], affidavits must be based on personal knowledge, set forth facts which would be admissible in evidence, and show `the affiant is competent to testify to the matters stated therein.'” (quoting Coleman v. Grandma’s Place, Inc., 63 So. 3d 929, 932 (Fla. 4th DCA 2011))). And in this case, the documents attached to Ms. Greggerson’s affidavit did not dispel the question of this note’s ownership or who was the note’s holder such that there was not “the slightest doubt that an issue might exist” concerning RALI’s standing. See Atria Grp., 170 So. 3d at 886. Indeed, on this record, it is not even clear that PNC had the underlying authority to act as a servicer for RALI or to hold the Johnsons’ note on RALI’s behalf. Cf. Rosa, 191 So. 3d at 988 n.2 (noting that foreclosing plaintiff, Deutsche Bank, did not argue constructive possession of its note by its servicer, Wells Fargo, or that Wells Fargo was acting as Deutsche Bank’s agent that was authorized to hold the note on Deutsche Bank’s behalf (citing Phan v. Deutsche Bank Nat’l Tr. Co., 198 So. 3d 744 (Fla. 2d DCA 2016))). With respect to PNC’s authority, Ms. Greggerson’s affidavit stated only that “PNC is the mortgage servicer for the Plaintiff . . . for the mortgage loan account that is the subject of this litigation (the `Mortgage Loan’). A copy of the Power of Attorney from the Deutsche Bank Trust Company Americas, as Trustee to PNC is attached hereto as Exhibit `A.’ ” The limited power of attorney attached to her affidavit actually named Ocwen Loan Servicing, LLC, as RALI’s servicer, not PNC.^[3]Having elected to rely solely on this affidavit and its attachments, RALI failed to meet its burden of proving there was no material issue of fact concerning RALI’s standing. We must, therefore, reverse the final summary judgment.

In so holding, we do not reach the remaining issues the Johnsons present; first, because we need not do so in order to resolve this appeal, but second, because we are hesitant to do so in a case where we have no transcript from the summary judgment hearing in our record. This latter point is one we believe merits some elucidation.

Some of the arguments raised by the Johnsons in this appeal, while perhaps meritorious, presented the very real potentiality that they were either unpreserved or even waived. To take one example, the first issue the Johnsons advanced in their briefing was that RALI should not have obtained a summary judgment premised upon a loan modification agreement that RALI had neither pleaded nor attached to its operative complaint. We can see from our record that the final summary judgment in this case was indeed based, in part, upon a loan modification agreement that was introduced through Ms. Greggerson’s affidavit. We can also see that that loan modification agreement was not mentioned anywhere within RALI’s second amended complaint or attached as an exhibit to that pleading. See Fla. R. Civ. P. 1.130(a) (“All bonds, notes, bills of exchange, contracts, accounts, or documents on which action may be brought . . . must be incorporated in or attached to the pleading.”); cf. Tracey v. Wells Fargo Bank, N.A., 43 Fla. L. Weekly D652b, D655b (Fla. 2d DCA Mar. 23, 2018) (holding that the trial court erred in permitting a foreclosing lender to amend its complaint to conform to the evidence at trial in order to recover on unpled loan modification agreements). What we cannot see is whether the Johnsons brought that pleading impropriety to the circuit court’s attention at any time prior to or during the summary judgment hearing. See Martinez v. Abraham Chevrolet-Tampa, Inc., 891 So. 2d 579, 581 (Fla. 2d DCA 2004) (holding that employer’s failure to object to the sufficiency of employee’s administrative complaint’s verification during the administrative process “acted as a waiver of any objection” to the pleading’s sufficiency (citing Ingersoll v. Hoffman, 589 So. 2d 223 (Fla. 1991))); Gordon v. Gordon, 543 So. 2d 428, 429 (Fla. 2d DCA 1989) (“An issue that has not been framed by the pleadings, noticed for hearing, or litigated by the parties is not a proper issue for the court’s determination.”). Were we to take up this argument, we would have to tacitly assume that the Johnsons had presented it below in the face of a record that is completely silent on that point.

Florida law calls upon appellate courts to provide a careful de novo scrutiny of summary judgment rulings, given what is at stake. See Bifulco v. State Farm Mut. Auto. Ins. Co., 693 So. 2d 707, 709 (Fla. 4th DCA 1997) (observing that summary judgment “brings a sudden and drastic conclusion to a lawsuit, thus foreclosing the litigant from the benefit of and right to a trial on the merits of his or her claim”). In that spirit, we, along with our sister courts, have occasionally remarked that the lack of a transcript of a summary judgment hearing will not necessarily thwart an appellate review of a summary judgment. See, e.g., Kamin v. Fed. Nat’l Mortg. Ass’n, 230 So. 3d 546, 548 n.2 (Fla. 2d DCA 2017) (“[A] hearing transcript is usually `not necessary for appellate review of a summary judgment.'” (quoting Houk v. PennyMac Corp., 210 So. 3d 726, 730 (Fla. 2d DCA 2017))); Shahar v. Green Tree Servicing LLC, 125 So. 3d 251, 254 (Fla. 4th DCA 2013) (“[H]earing transcripts ordinarily are not necessary for appellate review of a summary judgment.”); Gonzalez v. Chase Home Fin. LLC, 37 So. 3d 955, 958-59 (Fla. 3d DCA 2010) (holding that it was “not necessary to procure a transcript of the summary judgment hearing” where “the [summary judgment] evidence—in the form of the pleadings, [the defendant’s] affidavit, and the county records”—demonstrated that genuine issues of material fact remained (quoting Seal Prods. v. Mansfield, 705 So. 2d 973, 975 (Fla. 3d DCA 1998))).

But the context in which this observation arises is almost universally confined to appeals concerning the sufficiency of the summary judgment evidence before the trial court. See, e.g., Kamin, 230 So. 3d at 548; Shahar, 125 So. 3d at 253-54; Gonzalez, 37 So. 3d at 958-59. That was why in Houk, 210 So. 3d at 731, a case where we devoted a section of analysis to the absence of a summary judgment hearing transcript, we took care to point out that “in this case,” where the summary judgment evidence about enforcement of a lost note included “the operative complaint, . . . [the] answer and affirmative defenses, the motion and the order for substitution of the plaintiff, the amended motion for summary judgment, and the supporting and opposing affidavits, including the affidavit of lost note,” we had “all of the portions of the record necessary for us to determine whether the summary judgment was properly entered.” “Under these circumstances,” we concluded, a hearing transcript would provide no further insight about the evidentiary record’s sufficiency. Id. These kinds of pronouncements, issued within case-specific, de novo reviews of evidentiary records, should not be read to the neglect of securing court reporters to transcribe summary judgment hearings. To the contrary, presenting an adequate record—one that demonstrates not only what evidence was presented below but also which arguments were preserved—remains the appellant’s burden in an appeal of a summary judgment. See Aills v. Boemi, 29 So. 3d 1105, 1109 (Fla. 2010) (“Except in cases of fundamental error, an appellate court cannot consider any ground for objection not presented to the trial court.” (citing Steinhorst v. State, 412 So. 2d 332, 338 (Fla. 1982))); Cagwin v. Thrifty Rents, Inc., 219 So. 3d 1003, 1004 (Fla. 2d DCA 2017) (discussing appellant’s argument that the affiant who executed a summary judgment affidavit did not have sufficient knowledge to attest to the matters in the affidavit but concluding “we cannot determine whether such a challenge was properly raised or addressed at the summary judgment hearing because we have no transcript” (citing Zarate v. Deutsche Bank Nat’l Tr. Co., 81 So. 3d 556, 557-58 (Fla. 3d DCA 2012))); Black Point Assets, Inc. v. Fed. Nat’l Mortg. Ass’n, 220 So. 3d 566, 567 (Fla. 5th DCA 2017) (addressing the sufficiency of a complaint and summary judgment evidence to establish foreclosure and noting “Black Point’s additional objections to the summary judgment were not preserved for appeal”); Rose v. Clements, 973 So. 2d 529, 530 (Fla. 1st DCA 2007) (“Any basis for reversal of summary judgment must be preserved by raising the issue in the trial court.”).

All of which is to say, the de novo review that we employ for summary judgment rulings is not a gateway to reach unpreserved legal arguments, as if they were fundamental error. Cf. Coba v. Tricam Indus., Inc., 164 So. 3d 637, 646 (Fla. 2015)(“[I]n civil cases, reversal based on the concept of `fundamental error’ where a timely objection has not been made is exceedingly rare.”). So while a lack of a transcript, in and of itself, will not necessarily prohibit appellate review of the evidence underlying a summary judgment ruling, it could in some cases stymie the fullness of a legal argument challenging that ruling on appeal if there is a question about whether the argument was preserved. We reiterate, then, what we stated in Houk: while it might not be necessary to procure a transcript from a summary judgment hearing in every case, it is indeed “often helpful to do so,” id. at 731 (quoting Seal Prods., 705 So. 2d at 975), especially in cases where preservation of a legal argument might otherwise be in question.

Here, however, we are satisfied that the record we do have reflects a genuine issue of material fact that was argued below. RALI’s standing was a contested point almost from the beginning of this litigation, and the evidence of its standing as an owner or holder of the Johnsons’ promissory note was insufficient to sustain a summary judgment in its favor. For that reason, we reverse the circuit court’s final summary judgment and remand this case for further proceedings.

Reversed and remanded.

SILBERMAN and SLEET, JJ., Concur.

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DETERMINED.

[1] Independently of the endorsements, RALI also filed a series of assignments, which it maintained established its standing as an owner and a holder of the Johnsons’ note. These assignments would not establish RALI’s standing for purposes of summary judgment, however, because the final assignment in the series only purported to assign the Johnsons’ mortgage to RALI, not the note itself. See, e.g., Houk v. PennyMac Corp., 210 So. 3d 726, 732 (Fla. 2d DCA 2017) (holding that plaintiff “did not acquire standing to foreclose based on an assignment of only the mortgage”); Caballero v. U.S. Bank Nat’l Ass’n ex rel. RASC 2006-EMX7, 189 So. 3d 1044, 1046 (Fla. 2d DCA 2016) (“[A]ssignment was insufficient to show standing because it only purported to assign the mortgage, not the note.”); Lamb v. Nationstar Mortg., LLC, 174 So. 3d 1039, 1041 (Fla. 4th DCA 2015) (“A bank does not have standing to foreclose where it relies on an assignment of the mortgage only.”). RALI’s second amended complaint asserts its standing solely on the theory that it was the holder of the Johnsons’ note.

[2] RALI has not argued, either below or in this appeal, that it was entitled to an inference of possession of the note at the time the complaint was filed under Ortiz v. PNC Bank, National Ass’n, 188 So. 3d 923, 925 (Fla. 4th DCA 2016) (“[I]f the Bank later files with the court the original note in the same condition as the copy attached to the complaint, then we agree that the combination of such evidence is sufficient to establish that the Bank had actual possession of the note at the time the complaint was filed and, therefore, had standing to bring the foreclosure action, absent any testimony or evidence to the contrary.”). Moreover, the trial court never made a finding upon which we could conclude that the Ortiz inference would have been applicable. See, e.g., Bueno v. Workman, 20 So. 3d 993, 998 (Fla. 4th DCA 2009) (“[A]n appellate court cannot employ the tipsy coachman rule where a lower court has not made factual findings on an issue.”).

[3] A separate “certification” of one of Ocwen Loan Servicing, LLC’s assistant secretaries was also attached as an exhibit to Ms. Greggerson’s affidavit, and it appeared to include an enumerated list of certain PNC employees authorized to act on Ocwen’s behalf. Ms. Greggerson’s name did not appear on that list.

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JAMES OBER, Appellant,
v.
TOWN OF LAUDERDALE-BY-THE-SEA a Florida Municipality, Appellee.

No. 4D14-4597.District Court of Appeal of Florida, Fourth District.January 25, 2017.Appeal from the Circuit Court for the Seventeenth Judicial Circuit, Broward County; Thomas M. Lynch, IV, Judge; L.T. Case No. 14-006782(05).

ON MOTION FOR REHEARING

Manuel Farach of McGlinchey Stafford, Fort Lauderdale, for appellant.

Susan L. Trevarthen, Laura K. Wendell, Eric P. Hockman and Adam A. Schwartzbaum of Weiss Serota Helfman Cole & Bierman, P.L., Coral Gables, for appellee.

Heather K. Judd and Jordan R. Wolfgram, Assistant City Attorneys, Office of the City Attorney For The City of St. Petersburg, St. Petersburg, for Amicus Curiae City of St. Petersburg.

Alexander L. Palenzuela of Law Offices of Alexander L. Palenzuela, P.A., for Amicus Curiae City of Coral Gables.

Chris W. Altenbernd, Marty J. Solomon and Nicholas A. Brown of Carlton Fields Jorden Burt, P.A., Tampa, for Amicus Curiae The Florida Land Title Association.

Irwin R. Gilbert of Kelley Kronenberg, West Palm Beach, for Amicus Curiae The Business Law Section of the Florida Bar.

Joseph E. Foster and Carrie Ann Wozniak of Akerman LLP, Orlando, and Richard H. Martin of Akerman LLP, Tampa, for Amicus Curiae Florida Bankers Association.

Kenneth B. Bell and John W. Little, III of Gunster, West Palm Beach, and Robert W. Goldman of Goldman, Felcoski & Stone, P.A., Naples, for Amicus Curiae The Real Property Probate & Trust Law Section of the Florida Bar.

David Rosenberg and Robert R. Edwards of Robertson, Anschutz & Schneid, PL, Boca Raton, Andrea R. Tromberg and Jason Joseph of Gladstone Law Group, P.A., Boca Raton, and David Newman and Ari Miller of Choice Legal Group, P.A., Fort Lauderdale, for Amicus Curiae The American Legal and Financial Network.

Julia C. Mandell, City Attorney, City of Tampa, and Ernest Mueller, Senior Assistant City Attorney, Tampa, and Victoria Méndez, City Attorney, City of Miami, Miami, for Amicus Curiae City of Tampa, and The City, County and Local Government Section of the Florida Bar.

PER CURIAM.

We grant appellant James Ober’s motion for rehearing, withdraw our opinion of August 24, 2016, and substitute the following. This case involves the application of section 48.23, Florida Statutes (2014), the lis pendens statute, to liens placed on property between a final judgment of foreclosure and a judicial sale. We hold that such liens are discharged by section 48.23(1)(d).

Background

On November 26, 2007, a bank, which is not a party in this lawsuit, recorded a lis pendens on certain property as part of a foreclosure lawsuit against a homeowner, also not a party in this case. On September 22, 2008, the bank obtained a final judgment of foreclosure. From July 13, 2009 through October 27, 2011, appellee Town of Lauderdale-by-the-Sea, recorded seven liens on the subject property related to various code violations occurring after the entry of the final judgment.

On September 27, 2012, the bank purchased the property at a foreclosure sale. It later sold the property to Ober. Ober filed suit to quiet title, attempting to strike the liens against his property. The Town’s counterclaim sought to foreclose the liens. The trial court granted the Town’s motion, denied Ober’s motion, and entered a final judgment of foreclosure on the seven liens recorded prior to the judicial sale, as well as on three liens imposed after the sale of the property. Ober does not argue that those three post-judicial sale liens were discharged, and on remand the trial court may enter judgment on them.

Analysis

Insofar as this case concerns the interpretation of a statute, the standard of review is de novo. Brown v. City of Vero Beach, 64 So. 3d 172, 174 (Fla. 4th DCA 2011). Section 48.23(1)(d) states, in pertinent part:

[T]he recording of . . . notice of lis pendens . . . constitutes a bar to the enforcement against the property described in the notice of all interests and liens . . . unrecorded at the time of recording the notice unless the holder of any such unrecorded interest or lien intervenes in such proceedings within 30 days after the recording of the notice. If the holder of any such unrecorded interest or lien does not intervene in the proceedings and if such proceedings are prosecuted to a judicial sale of the property described in the notice, the property shall be forever discharged from all such unrecorded interests and liens.

(Emphasis added).

We reject the Town’s argument that the statute applies only to liens existing or accruing prior to the date of the final judgment. The language of the statute is broad, applying to “all interests and liens.” Significantly, the statute expressly contemplates that its preclusive operation continues through a “judicial sale.” This is consistent with how foreclosure suits operate in the real world. As the amicus brief of the Florida Bankers Association points out, foreclosures are unlike many civil lawsuits in that “much remains to be accomplished after entry of final judgment, including the foreclosure sale, the issuance of certificates of sale and title, and, in many instances, the prosecution of a deficiency claim, all under court supervision.” In a foreclosure lawsuit, the final judgment is not the end of the road, but merely a way station to the final result. See Park Fin. of Broward, Inc. v. Jones, 94 So. 3d 617, 618 (Fla. 4th DCA 2011) (stating that mortgage foreclosure actions are different from typical civil actions).

A proper reading of section 48.23(1)(d) is, as the Florida Land Title Association suggests, that “when a foreclosure action is prosecuted to a judicial sale, that sale discharges all liens, whether recorded before the final judgment or after, if the lienor does not intervene in the action within 30 days” after the recording of the notice of lis pendens.

This view is in accord with Form 1.996(a) of the Florida Rules of Civil Procedure. The form provides a sample foreclosure judgment, with a provision stating:

On filing the certificate of sale, defendant(s) and all persons claiming under or against defendant(s) since the filing of the notice of lis pendens shall be foreclosed of all estate or claim in the property . . ., except as to claims or rights under chapter 718 or chapter 720, Florida Statutes, if any.

As the Business Law Section of the Florida Bar notes, this form reflects the common understanding of the operation of the lis pendens statute. See Hancock Advert., Inc. v. Dep’t of Transp., 549 So. 2d 1086, 1089 (holding that the court is “entitled to consider” the “practical construction which has in fact been adopted by the industry” when dealing with a statutory interpretation issue). The form was first adopted in 1971. See In re Fla. Rules of Civil Procedure, 253 So. 2d 404, 419 (Fla. 1971). It has been reviewed and revised by the Florida Supreme Court since 1971, most recently in January 2016. See In re Amendments to Fla. Rules of Civil Procedure, 190 So. 3d 999 (Fla. 2016). The January 2016 revisions maintained the language quoted above. Id. at 1010.

Conclusion

The practical problem in this case is the long lag time between the foreclosure judgment and the foreclosure sale. Resolution of the competing interests—of the Town, the lending and title insurance industries, property owners, and buyers at foreclosure sales—is in the province of the legislature.

We reverse the final judgment and remand to the circuit court for further proceedings.

GROSS, FORST and KLINGENSMITH, JJ., concur.

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MERTON CAPITAL L.P. and MERTON CAPITAL II L.P., Petitioners,
v.
LENDER PROCESSING SERVICES, INC., Respondent.

C.A. No. 9320-VCL.Court of Chancery of Delaware.Submitted: September 21, 2016.Decided: December 16, 2016.Steven T. Margolin, GREENBERG TRAURIG, LLP, Wilmington, Delaware; Stephen E. Jenkins, Richard D. Heins, Marie M. Degnan, Peter H. Kyle, ASHBY & GEDDES, Wilmington, Delaware; Counsel for Petitioners.

Bradley R. Aronstam, S. Michael Sirkin, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; John A. Neuwirth, Evert J. Christensen, Jr., Matthew S. Connors, Elizabeth Kerwin-Miller, WEIL, GOTSHAL & MANGES LLP, New York, New York; Counsel for Respondent.

MEMORANDUM OPINION

LASTER, Vice Chancellor.

Petitioners Merion Capital L.P. and Merion Capital II L.P. (together, “Merion”) brought this statutory appraisal proceeding to determine the fair value of their shares of stock in Lender Processing Services, Inc. (“LPS” or the “Company”). The valuation date is January 2, 2014, when Fidelity National Financial, Inc. (“Fidelity” or “FNF”) completed the merger by which it acquired the Company (the “Merger”). This post-trial decision determines that the fair value of the Company’s common stock at the effective time of the Merger is $37.14.

I. FACTUAL BACKGROUND

Trial took place over four days. The parties submitted 357 exhibits and lodged eight depositions. Four fact witnesses and two experts testified live. The following facts were proven by a preponderance of the evidence.

A. The Company

At the time of the Merger, the Company provided integrated technology products, data, and services to the mortgage lending industry, and it had a market leading position in mortgage processing in the United States. Its business operated through two principal divisions: Transaction Services (“Services” or “TS”) and Technology, Data & Analytics division (“Analytics” or “TD&A”).

The primary segment within the Services division focused on loan originations. It supported lenders by facilitating many of the steps necessary to originate a loan. Most of the originations, however, were not new loans, but refinancings of existing loans. The Services division also had a segment that supported lenders, servicers, and investors by facilitating many of the steps necessary to foreclose on a property.

The Analytics division focused on providing ongoing support to lenders and loan servicers. Its “MSP platform” automated many of the loan servicing functions performed during the life of a loan. A smaller business segment specialized in troubled loans.

B. The Company’s Origins

The Company started as the financial and mortgage services division of Alltel Information Services. PTO ¶ 11. In 2003, Alltel sold that division to Fidelity, which is a leading provider of (i) title insurance, escrow, and other title-related services, and (ii) technology and transactional services for the real estate and mortgage industries. Id. ¶¶ 6, 11. Thomas H. Lee Partners (“THL”) is a private equity firm that worked with Fidelity on the acquisition but did not co-invest at the time of the deal.

Fidelity reorganized the former Alltel division as part of a subsidiary called FNF National Information Services, Inc. (“FNF Services”). PTO ¶ 11. In 2005, THL invested in FNF Services. In 2006, Fidelity spun off FNF Services. Id.

In 2008, FNF Services spun off the Company. Its shares traded on the New York Stock Exchange until the Merger closed. Id. Because of the Company’s historic ties to Fidelity, the Company continued to share an office campus with its former parent (although occupying separate buildings). The two companies also shared private jets, hangar facilities, and server space.

C. The Effect Of The Great Recession On The Company’s Business

The Company’s spinoff coincided with the Great Recession of 2008. Although devastating to many households, the financial crisis was a boon to the Company, because loan defaults drove key segments of its business. Revenue grew by approximately 80% from pre-recession levels to peak in 2010. JX 111 at 21.

But the Company also was involved in some of the problematic loan protocols that led to the Great Recession, colloquially known as “robo-signing.” In 2010, the United States Department of Justice, the Federal Bureau of Investigation, and attorneys general from all fifty states commenced civil and criminal investigations into the Company’s practices. Stockholders also filed lawsuits. PTO ¶ 12.

D. Fidelity’s Early Overtures

In April 2010, amidst the negative publicity from the robo-signing allegations, Fidelity, THL, and the Blackstone Group made an unsolicited offer to buy the Company. The Company’s board of directors (the “Board”) retained the Goldman Sachs Group, Inc. (“Goldman”) as its financial advisor. The discussions did not go far. PTO ¶ 13.

In early 2011, THL and Blackstone approached the Company again. Goldman continued in its advisory role. Again, no deal was reached. PTO ¶ 14.

In late 2011, the Company’s CEO retired due to medical issues. In October, the Board hired Hugh Harris to serve as President and CEO. He also became a director.

Harris had ties to Fidelity. In 2003, he worked for Fidelity and THL as a consultant on the Alltel deal. Afterwards, Fidelity hired Harris to run one of the new business units. Harris continued to work for FNF Services after its spinoff. He retired in 2007, before the Company’s spinoff in 2008.

Harris also had ties to THL. In addition to consulting on the Alltel deal, he worked with THL for several years in the mid-1990s. Tr. 9 (Harris). He also was a friend of and owned hunting land with one of THL’s principals. Tr. 12 (Harris). Given these relationships, the Board excluded Harris from its deliberations about any potential transaction with THL and Fidelity, and Harris recused himself from voting as a director. The Board determined that Harris could, however, “do all the normal things that the CEO would do as far as presenting the company, the business, what was going on with the company, our projections, our results, et cetera.” Tr. 25 (Harris); see PTO ¶ 7.

In late November 2011, THL reached out to Harris. He referred the call to Lee Kennedy, the Company’s Chairman. This time, the discussions progressed further. In December, the Company and THL signed a confidentiality agreement. In February 2012, after conducting due diligence, THL offered to buy the Company for $26.50 per share. THL’s offer noted that Blackstone and Fidelity would participate in the deal, and THL later explained that Fidelity would contribute its ServiceLink business to the surviving entity. The ServiceLink business competed with LPS and was a source of synergies.

On February 28, 2012, the Board met to discuss the offer. Goldman continued in its advisory role. The Board determined that a transaction was potentially attractive, but not at that price. PTO ¶ 19. The Board decided to explore whether someone might pay more by reaching out to other financial sponsors and strategic buyers. Tr. 27 (Harris).

In March 2012, Goldman reviewed the Company’s financial performance with the Board. After analyzing several market-based metrics, Goldman opined that “the Company was fully valued at current trading prices.” JX 33 at 2. Goldman’s illustrative discounted cash flow analysis, which used LPS’s historical discount rate and assumed a 1% perpetuity growth rate, produced a valuation of $25.91 per share. Id. at 17. The Company’s stock closed at $24.66 that day. Id. at 13.

In April 2012, after additional due diligence, THL, Blackstone, and Fidelity increased their offer to $28.00 per share, comprising $26.00 in cash and $2.00 in Fidelity stock. The Board rejected that price as inadequate. PTO ¶¶ 22-23.

In May 2012, THL, Blackstone, and Fidelity increased their offer to $29 per share, payable entirely in cash or in a combination of $27.00 in cash and $2.00 in Fidelity stock. JX 38 at 2. The bidding group explained that the premium depended in part on anticipated synergies with the ServiceLink business. JX 260 at 53.

By this point, with the country emerging from the Great Recession, management was concerned that the Company’s performance would deteriorate. During a series of meetings in May 2012, management provided the Board with updated financial forecasts that contemplated revenue declining approximately 25% by 2017. JX 44 at 927. The forecasts projected that EBITDA would decrease by 7.2% through 2017 before increasing by 7.5% through 2022. Id. Despite the weaker forecasts, the Board told THL that the proposed consideration “was inadequate and should be raised to a price in the $30s.” JX 44 at 3.

During the last week of May 2012, Goldman contacted three financial sponsors: Texas Pacific Group Capital (“TPG”), Kohlberg Kravis Roberts & Co. L.P. (“KKR”), and Advent International. Goldman also contacted seven potential strategic buyers: Accenture, Berkshire Hathaway, IBM, Infosys, Oracle, Tata Consultancy Services, and Total Systems Services. Several of the parties entered into confidentiality agreements, conducted due diligence, and received management presentations. None made an offer. Five of the strategic buyers had no interest. Two said they needed more time to evaluate the opportunity. KKR and Advent said they could not pay a premium and meet their internal hurdle rates. TPG was only interested if it could be part of the THL/Blackstone/Fidelity consortium.

On June 8, 2012, THL told the Company that the consortium would not offer more than $29.00 per share. PTO ¶ 25. The directors felt that was a good price but remained committed to $30.00 per share. They rejected THL’s offer, but decided to negotiate the terms of the transaction documents in case the consortium changed its collective mind.

In June 2012, two strategic bidders — Total Systems Services and Infosys— expressed interest in buying the Company, only to promptly change their minds. Total Systems wanted to team up with a financial sponsor but said it could not find one. Infosys cited LPS’s size, lack of strategic fit, and legacy issues.

The Board and the consortium negotiated a draft merger agreement that included a go-shop, but neither would budge on price. One critical issue dividing the parties was the extent of the Company’s legal risk due to the pending investigations and lawsuits. In August 2012, discussions terminated. PTO ¶ 27.

E. The Board Hires BCG.

In October 2012, the Board hired the Boston Consulting Group (“BCG”) to evaluate the Company’s core businesses, research market trends, assess the legal and regulatory environment, and test the reliability of management’s projections. The Board also asked BCG to evaluate the Company’s strategic alternatives with a focus on two particular opportunities: (i) continuing to operate the Company in its existing configuration, or (ii) splitting up the Company’s two businesses.

BCG would spend the next six months conducting an in-depth review of the Company’s business that included over 120 interviews with LPS employees, customers, and investors. Based on its work, BCG generated a report that spanned more than 200 pages. See JX 111. Through this process, BCG “pressure tested” each element of the Company’s five-year projections based on macroeconomic factors, industry trends, and the Company’s specific product lines. See Tr. 226 (Schilling); Tr. 19 (Harris).

F. The Company Addresses Its Legal Problems.

On January 31, 2013, the Company announced that it had entered into a settlement agreement with the attorneys general from forty-six states and the District of Columbia. PTO ¶ 31. As part of the settlement, the Company agreed to make a settlement payment of $127 million. The Company also entered into a non-prosecution agreement with the Department of Justice that contemplated a payment of $35 million. The Company settled the outstanding stockholder litigation for a payment of $14 million. Although the regulators charged some of the Company’s employees with criminal activity, they did not charge the Company. The settlement was profoundly good news, and the Company’s shares rose 7.5% to $24.08 on the announcement. JX 71 at 1.

Part of the settlement with the Department of Justice required the Company to operate under the terms of a consent order. Ironically, the consent order gave the Company “a competitive advantage” because many loan servicers were still trying to adjust to the new post-financial crisis regulatory regime. Tr. 61 (Harris). The Company’s settlement signaled that the Company had achieved compliance. Management believed this would result in a “flight to quality” as customers chose the Company over competitors whose systems had not yet been validated. See Tr. 61 (Harris).

Around this time, Harris told the Board he planned to retire at the end of 2013.

G. Offers From Fidelity And Altisource

After the Company announced the settlements, two of the Company’s competitors expressed interest in buying the Company. Fidelity was first out of the gate. On January 31, 2013, Fidelity and THL made a joint proposal to acquire the Company for $30.00 per share, consisting of $13.20 in cash and $16.80 in Fidelity common stock. PTO ¶ 32. The proposal represented a premium of approximately 32% over the Company’s average closing stock price during the five previous trading days. JX 72 at 3.

Four days later, Altisource Portfolio Solutions S.A. (“Altisource”) proposed to acquire the Company in a transaction valued at $31.00 per share, consisting of $21.50 in cash and $9.50 in Altisource common stock. PTO ¶ 33. The offer represented a 28% premium over the Company’s closing price on February 1 and a 32% premium over its trailing 30-day weighted average. JX 74 at 2. Altisource competed with the Company’s Analytics business. Tr. 30 (Harris).

During a meeting on February 6, 2013, the Board received a presentation from the Company’s finance team. They advised the Board that 2013 would “continue to be a challenging year for the mortgage industry and for LPS.” JX 75 at 464. They noted that “new entrants will emerge” and that the Company would face continuing competition from entities like Ocwen and NationStar. Id. They projected that the Company’s revenue for 2013 would be “down about 4% compared to 2012, with a 4% increase in [Analytics] revenue being offset by a 9% decline in [Services] revenue.” Id. They expected EBITDA to be flat, EBITDA margin to increase from 26.7% to 27.5%, and earnings per share to decline from $2.80 to $2.74 due to increased shares outstanding. Id.

The Board also heard from the Company’s investor relations team. Although the Company’s stock had risen by 63% in 2012 versus only a 12% increase for the S&P 500, the investor relations team believed that the market did not appreciate the Company’s strong fundamentals. To address this, the team had launched a strategy to explain to the market that “LPS is a stronger company today” with “[s]ustainable competitive advantages” and “[l]ong-term growth opportunities.” JX 76 at 497. The goal for 2013 was to “Achieve Fair Value of LPS Securities.” Id. at 509; see Schilling Dep. 151; see also Tr. 358 (Schilling).

Against this backdrop, the directors considered the offers from Fidelity and Altisource. In light of Harris’ prior ties to Fidelity and THL, the Board limited his role to responding to the overtures in his capacity as CEO. Lee Kennedy was the Company’s Chairman, had previously served as a director of a THL portfolio company, and had served as CEO of Information Services from 2006 until 2009. The Board determined that he did not have a conflict. James Hunt was a non-management director who had served as an officer of one of THL’s portfolio companies. The Board determined that he should not be involved in any discussions about a sale. The Board decided to tell Fidelity and Altisource that their offers undervalued the Company and that the Company was not interested. PTO ¶¶ 7, 34, 35.

H. More Expressions Of Interest

Over the ensuing weeks, four more unsolicited expressions of interest arrived. One was an increased bid from Fidelity and THL. By letter dated February 26, 2013, they increased their proposal by 7% to $32.00 per share, with $14.72 paid in cash and $17.28 in Fidelity common stock. PTO ¶ 36. Their letter stated that $32.00 was the highest price they would offer. JX 89 at 99.

In March 2013, First American National Financial Corporation expressed interest in a joint venture between its mortgage servicing arm and the Services business. First American’s proposal valued the Services business at $450-$600 million. First American said it could complete diligence in four to six weeks. Also in March, two private equity firms expressed interest in the Services business. Flexpoint Ford LLC proposed to buy the business on a cash-free, debt-free basis for 5.0x-5.5x normalized EBITDA. PTO ¶¶ 41-42. Golden Gate Capital also proposed to buy the business but did not suggest a price. PTO ¶¶ 37, 41-42.

Having received a flurry of proposals, the Board engaged Credit Suisse Securities (USA) LLC (“Credit Suisse”) as a second financial advisor. The Board decided to defer considering the offers until after BCG completed its strategic review.

I. The March 2013 Board Meeting

On March 21, 2013, the Board met to consider the Company’s alternatives. The meeting began with a presentation from BCG. Based on its six months of work, BCG projected that without any new business initiatives, “[m]arket headwinds” would cause the Company’s revenue to decline by $470 to $510 million by 2015 and $580 to $680 million by 2017. JX 111 at 37. BCG attributed the declines to a 75-80% drop in refinancings and a 60-70% drop in defaults. Id. at 31. The declines would affect the Services business disproportionately, which would suffer 95% of the net impact. Id. at 70. The Analytics business would experience slow and steady growth, but not enough to offset the decline in the Services business.

BCG next presented three sets of five-year projections created in collaboration with management: (i) a Reduced Base Case, (ii) a Base Case, and (iii) an Optimistic Case. BCG regarded its Base Case as “the most likely scenario.” Id. at 27. The Base Case started with the macro-economic trend line then added “additional initiatives and opportunities” to increase revenue. Id. at 28. BCG identified ten initiatives, almost all involving the Analytics business, that could generate roughly $350 million in revenue. To succeed, the Company would have to devote resources to all ten and capture market share with new products. Because the Analytics division’s two biggest products already had captured 56% and 80% of their respective markets, the bulk of the Company’s growth would come from new initiatives. See Tr. 20 (Harris); Tr. 511 (Geller); JX 111 at 51, 65. Even then, under the Base Case, 2017 revenue still would be less than 2012 revenue: Projected 6% compound annual growth rate for the Analytics business and -11% compound annual growth rate for the Services business, resulting in combined compound annual growth for the Company of -3%. JX 111 at 66.

The Reduced Base Case contemplated a forecast between doing nothing and the Base Case in which the initiatives did not fully succeed and revenue decreased by $485 million by 2017. JX 196 ¶ 89. The Optimistic Case contemplated that the initiatives would succeed to a greater degree than the Base Case and generate between $651 million to $1 billion in new revenue. JX 111 at 66. BCG believed the Optimistic Case was “achievable” but “not the most likely outcome.” Id. at 66-67. Ultimately, “everyone got comfortable with the [B]ase [C]ase.” Tr. 20 (Harris).

During the same meeting, Credit Suisse and Goldman made a joint presentation. Their view of industry trends matched BCG’s. See JX 114 at 4; JX 113 at 19. They also examined stock market trends and concluded that analysts appeared to understand the Company well because there was little difference between their consensus forecasts and the Company’s actual performance. See JX 113 at 11. The bankers observed that since March 2012, most analysts had maintained a “hold” rating on the Company. The median price target was $25.00 with a high price target of $31.00.

Using the three cases from the BCG Report, the bankers prepared valuation models and analyzed alternatives, including an expanded share repurchase plan, a leveraged recapitalization, a spinoff of the Analytics business, a joint venture involving the Services business, a sale of the Services business, a sale of the entire Company, and a leveraged buy-out. One analysis estimated the present value of the Company’s future stock price. Using an EBITDA multiple of 6.0x, the bankers estimated that if LPS achieved the Base Case, its stock would trade at $29.43 in 2015 and $41.35 in 2017. Discounted at 11%, those figures equated to present values of $23.88 and $28.70 respectively, with the former representing a 3% discount to the Company’s current market price and the latter a 10% premium over market. JX 113 at 23. Using an EBITDA multiple of 7.0x, the Company’s stock would trade at $35.07 in 2015 and $47.76 in 2017. Discounted at 11%, those figures equated to present values of $28.46 and $31.45 respectively, implying a 15% or 28% premium over market. Id.

Another analysis used a discounted cash flow methodology to value the Company using the Base Case. Id. at 25. It generated the following range of values:

   Discount Rate    Terminal Value Next Twelve Month EBITDA Multiple:

                   5.00x      6.00x      7.00x      8.00x

    8.0%          $27.14     $31.78     $36.36     $40.83

    9.0%          $25.76     $30.23     $34.63     $38.93

    10.0%         $24.45     $28.76     $32.96     $37.12

The bankers separately analyzed the ability of strategic bidders and financial sponsors to finance a transaction. For strategic bidders, the bankers examined the level of accretion or dilution that a transaction would involve and the acquirer’s post-transaction debt-to-equity levels, without accounting for synergies, and assuming either an all-cash deal or a transaction involving 50% cash and 50% stock at prices ranging from $30 to $34 per share. Id. at 42. For financial sponsors, the bankers calculated the internal rates of return that a sponsor could expect at prices of $28 to $33 per share, assuming total leverage of 5.0x and a January 1, 2018 exit. They following chart summarizes the results:

                               Illustrative Purchase Price Per Share

   Exit Multiple   $28.00    $29.00   $30.00    $31.00   $32.00   $33.00

   6.0×            20.3%     18.1%    16.2%     14.4%    12.8%    11.3%

   6.5×            23.3%     21.0%    19.0%     17.2%    15.5%    14.0%

   7.0×            26.0%     23.7%    21.6%     19.8%    18.0%    16.5%

   7.5×            28.4%     26.1%    24.0%     22.1%    20.4%    18.8%

   8.0×            30.7%     28.4%    26.2%     24.3%    22.5%    20.9%

Id. at 43. A financial sponsor thus could not pay $33 or more per share and still clear a hurdle rate of 20% unless it projected an exit at 8.0x EBITDA.

At the conclusion of the Board meeting, Credit Suisse and Goldman recommended “in light of the strategic plan review, the indications of interest that the Company had received and the Company’s prior negotiating history with certain of the interested parties, that the Company would be best off if it could proceed with soliciting and evaluating offers for the sale of the Company (or its Transaction Services business).” JX 114 at 5. BCG “concurred that in their view, the best alternative for the Company would be to pursue a potential sale of the Company at an attractive price.” Id. Management agreed, citing the “unfavorable macroeconomic trends and the market and execution risks inherent in the strategic initiatives.” Id.

The directors decided to task Credit Suisse with contacting parties about a sale of the Company or the Services business. They asked the bankers to develop a recommendation for a sale process that the Board could evaluate and approve. PTO ¶ 43.

J. The Recommended Sale Process

To implement the Board’s directive, Company management and the financial advisors developed a list of the most likely bidders. It included six strategic buyers (Fidelity, Altisource, First American, Nationstar, CoreLogix, and IBM) and one financial sponsor (Golden Gate). All had expressed interest earlier in 2013; most had also expressed interest in 2012.

The financial advisors recommended a three-step sale process. They proposed that “given the history of discussions with [Fidelity],” the Company should first reach out to First American, Altisource, Nationstar, and Golden Gate “to create credible competitive tension in the process.” JX 115 at 1. After getting “feedback” from those firms, the bankers would contact Fidelity. Then, after receiving a first round of bids, the bankers would contact CoreLogix and IBM. The bankers also contemplated approaching other parties that were less likely to be interested in or capable of completing a transaction, such as Infosys. Tr. 515 (Geller). The bankers envisioned announcing a deal on June 11, 2013.

On March 25, 2013, the Board approved the process. PTO ¶ 44.

K. The Actual Sale Process

The Company and its bankers did not follow the recommended process. Rather than delaying the approach to Fidelity, management met with Fidelity on April 1, 2013. JX 121 at 3. During the same period, the bankers reached out to the other parties. Everyone but Altisource expressed interest. Altisource said it would not participate, citing the Company’s exposure to declining refinancings and defaults. PTO ¶ 46.

The Company entered into confidentiality agreements with Fidelity, THL, Nationstar, Golden Gate, and First American. Management made presentations to Fidelity and Golden Gate. Management was scheduled to make a presentation to Nationstar, but they dropped out on April 9, 2013. PTO ¶ 51.

Fidelity and THL took less than two weeks to update their analysis of the Company and make a revised offer. By letter dated April 18, 2013, they offered to acquire LPS for $32.00 per share, consisting of $16.00 in cash and $16.00 in Fidelity common stock. PTO ¶ 53. It was the same price they offered in late February, but with more cash. Fidelity and THL made their offer more than a month-and-a-half faster than the timeline that the bankers had recommended.

On April 25, 2013, the Company announced results for the first quarter. Compared to the prior quarter, revenue decreased by 6% and EBITDA decreased by 7%. JX 133 at 3. Year over year, revenue decreased by 3% and EBITDA increased by 7%. As expected, the bulk of the decline came from the Services business. The numbers matched management’s guidance and the analysts’ consensus.

Management updated the Base Case in light of the Company’s first quarter (the “Updated Base Case”). The new projections lowered the numbers for 2013 and 2014 but kept the figures for 2015:

    Revenue:              2013         2014         2015

    Updated Base Case   $1,868.3     $1,789.5     $1,669.7

    Analyst Consensus   $1,861.1     $1,795.7     $1,845.9

    % Difference            0.4%        -0.3%        -9.5%

    EBITDA:

    Updated Base Case     $523.0      $536.9        $506.6

    Analyst Consensus     $493.7      $485.8        $503.1

    % Difference            5.9%       10.5%          0.7%

    EBITDA Margin:

    Updated Base Case      28.0%       30.0%         30.3%

    Analyst Consensus      26.5%       27.1%         27.3%

    %Difference             5.5%       10.9%         11.3%

“[T]he modifications did not result in any significant impact” on the bankers’ valuations of the Company. JX 149 at 2. The Company provided the Updated Base Case to Fidelity, First American, and Golden Gate. PTO ¶ 45; JX 189.

L. The Board Decides To Sell The Company.

On May 1 and 2, 2013, First American and Golden Gate submitted their indications of interest. First American proposed to buy the Services business for $450-550 million in cash. PTO ¶ 55; JX 145. First American said that it preferred a joint venture and would increase its valuation of Services by 15-20% as part of that structure. Golden Gate proposed to have the Company contribute the Services business to a Golden Gate controlled entity in which LPS would retain a “substantial interest.” JX 146 at 2. Golden Gate valued its proposal at $800 million. PTO ¶ 54.

On May 3, 2013, the Board met with its financial advisors to discuss the proposals. The bankers generated a range of values, including:

• Comparable companies: $21.46 to $30.35 per share.

• Precedent transactions: $28.09 to $34.00 per share.

• DCF analysis: $27.95 to $40.11 per share.

JX 147 at 16. At the time, LPS’s stock was trading around $27.28. The Company’s 52-week low was $21.14 and its 52-weeks high was $30.88.

To enable the Board to compare a sale of the Company with a transaction involving the Services business, the bankers analyzed the EBITDA trading multiples that the latter implied for the Analytics business, which ranged from 8.0× to 9.1×. The Fidelity offer implied a range of EBITDA trading multiples for Analytics of 9.3× to 10.4×. The Board concluded that selling the Company as a whole was the better course.

In their original plan for the sale process, the bankers envisioned using a bid from Altisource to create competition for Fidelity. Without Altisource, the Board decided to counter at $34.50 per share and ask Fidelity for a collar to support the stock component. PTO ¶ 56; JX 150. After the Board meeting on May 3, 2013, Credit Suisse conveyed this proposal to Fidelity’s banker.

Instead of having its banker respond, Fidelity’s Chairman called the Company’s Chairman directly. Fidelity’s Chairman was Foley, who previously had served as the Chairman of FNF Services. The Company’s Chairman was Kennedy, who had served as Chairman, President, and CEO of a company that Fidelity acquired in 2006 in connection with the spinoff of FNF Services. Kennedy then served as CEO of FNF Services under Foley from 2006 through 2009. The petitioners perceive Foley’s call as a way for Fidelity to capitalize on Foley’s history with Kennedy and to take advantage more generally of the relationships among Fidelity, THL, and the members of the LPS Board.

The call took place on Sunday, May 5, 2013. Foley proposed to split the difference between Fidelity’s offer and the Company’s counter by increasing the proposed consideration to $33.25 per share. PTO ¶ 57. The composition would remain 50% cash and 50% stock, but with a one-way collar that would provide protection against a decline in Fidelity’s stock price of more than 7.5%. He conveyed that Fidelity wanted the right to increase the cash component to offset the dilutive effect of issuing additional shares.

The next day, after a meeting of the Board, Credit Suisse contacted Fidelity’s banker to ask for a price increase and a reduction in the percentage decline necessary to trigger the collar. Fidelity refused to increase its price but offered to improve the collar. Fidelity also agreed that if the average price of its stock increased by more than 6% and Fidelity substituted cash for shares, then the cash would reflect the upside that the Company’s stockholders would have enjoyed if they received shares.

On May 14, 2013, the Board held a telephonic meeting. Credit Suisse reported on the negotiations, and the Board instructed management and the deal team to begin due diligence on Fidelity and negotiate a merger agreement. The parties used the merger agreement they had negotiated in 2012 as a template, which included a go-shop. The parties kept the go-shop largely because of legal advice the Board received regarding its ability to mitigate potential legal risk. See Carpenter Dep. 124. The concept of a go-shop was not part of the bankers’ design for the sale process.

On May 22, 2013, the Wall Street Journal reported that Fidelity and the Company were in merger talks. JX 171 at 1. In response, Macquarie Capital (USA) Inc. issued a report titled, “Best Outcome for LPS is to be Acquired.” JX 173 at 1. Macquarie argued that “the [loan] cycle has peaked” and the deal would “rescue[] shareholders from pending fundamental slowdown.” Id. At the time, Macquarie valued LPS at $22 per share. Id.

M. The Board Approves The Merger Agreement.

On May 27, 2013, the Board met to consider the agreement and plan of merger (the “Merger Agreement”). It contemplated consideration of $33.25 per share, paid 50% in cash and 50% in Fidelity stock (the “Original Merger Consideration”). The formula for the stock component built in a one-way collar that protected against a decline of more than 5% in the value of Fidelity’s common stock and established a floor for the stock component at $15.794 per share. The Merger Agreement gave Fidelity the right to increase the cash portion and contained a formula that specified how much gain from an increase in Fidelity’s stock price would flow through to the Company’s stockholders.

The Merger Agreement provided for (i) a 40-day go-shop that would expire on July 7, 2013, (ii) a five-day initial match right that fell back to a two-day unlimited match right, and (iii) a $37 million termination fee for a deal generated during the go-shop. Otherwise the termination fee was $74 million. The lower fee represented 1.27% of the equity value of the deal ($2.9 billion); the higher fee represented 2.5% of equity value. Once the go-shop ended, LPS could continue negotiating with any party that had achieved excluded party status or if a party made a bid that met the terms of the fiduciary out.

Credit Suisse and Goldman opined that the transaction consideration was fair. The bankers’ valuations had not changed materially since their earlier assessments. Credit Suisse’s ranges included:

• Comparable companies: $21.25 to $32.93 per share.

• Precedent transactions: $27.81 to $33.67 per share.

• DCF analysis: $27.67 to $39.76 per share.

JX 175 at 12. Goldman’s ranges included:

• Comparable companies: $20.35 to $31.74 per share.

• Precedent transactions: $25.42 to $34.41 per share.

• DCF analysis: $26.50 to $37.25 per share.

• Present value of future share price: $21.32 to $32.97 per share.

JX 177 at 17.

The Board unanimously adopted and approved the Merger Agreement and recommended that the LPS stockholders vote in favor of the transaction.

N. The Go-Shop

On May 28, 2013, the bankers started the go-shop process. They contacted twenty-five potential strategic buyers and seventeen potential financial buyers. JX 213 at 5. Only Altisource and two financial sponsors expressed interest and executed confidentiality agreements. PTO ¶ 61.

The discussions with the financial sponsors never gained traction. Altisource, however, brought in a large team and conducted a “very rigorous level of diligence.” Tr. 277 (Schilling). Altisource accessed the data room, received a management presentation, and was given the Company’s projections. JX 194; JX 202; Tr. 123 (Harris). Altisource appeared serious and said they would make an offer that included an equity component. In response, the Company began conducting reverse due diligence on Altisource. Tr. 279 (Schilling); JX 199. Management generally preferred Altisource over Fidelity because they thought they would keep their jobs after a deal with Altisource. Tr. 419 (Carpenter).

On June 21, 2013, Altisource withdrew without explaining why. JX 206; Tr. 42 (Harris). There were rumors that several LPS clients did not want a competitor to acquire LPS. See JX 357 at 1; Tr. 189 (Harris). Credit Suisse had previously estimated that Altisource would face “a net revenue dis-synergy” from acquiring the Company because many of LPS’s clients would have concerns if it were owned by a competitor, and “any theoretical cost synergy” available to Altisource “would likely be more than offset by the revenue dis-synergy with customers.” JX 103.

On July 7, 2013, the go-shop ended. No one had submitted an indication of interest, much less a topping bid.

O. The Period Leading Up To The Stockholder Vote

In July 2013, management reported on the Company’s second quarter results. Revenues decreased by 1% and EBITDA remained flat. Year over year, revenue decreased by 9% and EBITDA by 13%. These results were consistent with management guidance and the consensus forecast.

On August 29, 2013, Fidelity filed a Form S-4 in connection with the transaction. The filing included the Updated Base Case, marking the first time it was publicly disclosed.

In October 2013, management reported on the Company’s third quarter results. Revenue declined by 10.6% and EBITDA by 18.4%. Year over year, revenue declined by 15.8% and EBITDA by 25%. The results fell within management’s guidance but at the lower end of the range. They came in below analysts’ consensus estimates.

On October 31, 2013, LPS filed its definitive proxy statement relating to the Merger. The proxy statement included the Updated Base Case.

Institutional Shareholder Services and Glass Lewis & Co. recommended that stockholders vote in favor of the Merger. At a meeting of stockholders held on December 19, 2013, holders of 78.6% of the outstanding shares voted in favor of the deal. Of the shares that voted, 98.4% voted in favor.

Goldman received $22.8 million for its work on the transaction. The proxy statement revealed that Goldman had a lucrative relationship with THL that generated $97 million during the previous two years. Goldman had not previously disclosed these amounts to the Board or LPS management. They learned about the figures when they saw the proxy statement. Tr. 171 (Harris).

Credit Suisse received $21.8 million for its work on the deal. The proxy statement revealed that Credit Suisse had received $26 million from THL during the previous two years. Credit Suisse had not previously disclosed these amounts to the Board or LPS management. The directors learned about the figures when they saw the proxy statement.

P. The Merger Closes.

On January 2, 2014, the Merger closed. Fidelity’s stock price had increased in the interim, resulting in an increase in the merger consideration. Fidelity elected twice to increase the cash component, which ended up at $28.10 per share. The collar yielded a stock component valued at $9.04 per share. The aggregate merger consideration received by the Company’s stockholders at closing was $37.14 per share (the “Final Merger Consideration”). The equity value of the final deal was $3.4 billion, an increase of approximately $500 million over the value at signing. Net of $287 million in cash and $1.1 billion in debt, the enterprise value of the deal was $4.2 billion.

The Initial Merger Consideration of $33.25 per share and the Final Merger Consideration of $37.14 per share represented premiums of 14% and 28% respectively over the Company’s unaffected market price on May 22, 2013, the last trading day before the Wall Street Journal reported on the merger discussions. The Final Merger Consideration provided a premium of approximately 20% over Altisource’s expression of interest in February 2013.

Evidence in the record indicates that the Initial Merger Consideration and the Final Merger Consideration included a portion of the value that Fidelity and THL expected to generate from synergies.

• In May 2012, when THL, Blackstone, and Fidelity made an offer of $29 per share to acquire the Company, they explained that the offer price depended in part on anticipated synergies with Fidelity’s ServiceLink business. JX 260 at 53.

• In March 2013, Credit Suisse made a preliminary estimate that a transaction with Fidelity could generate annual synergies of $50 to $65 million, with $40 to $50 million coming from the combination of Services and ServiceLink and another $10 to $15 million from reduced corporate overhead. JX 103.

• In May 2013, in its presentation to the Board, Credit Suisse estimated “Potential Synergies—$50mm in cost synergies in 2013E, $100mm in 2014E and $100mm thereafter. JX 180 at 45. Goldman estimated that “net synergies include $100mm in run-rate cost savings.” JX 178 at 34.

• In May 2013, Fidelity made a presentation to the rating agencies that forecasted “$75 million of [annual] cost synergies” from the transaction. JX 164 at 4. Fidelity cited its “strong history of overachieving forecasted synergies.” Id. at 8.

• The press release announcing the deal attributed the following quote to Foley, Fidelity’s Chairman: “We believe there are meaningful synergies that can be generated through the similar businesses in centralized refinance and default related products, elimination of some corporate and public company costs and the shared corporate campus. We have set a target of $100 million for cost synergies and are confident that we can meet or exceed that goal.” JX 186, Ex. 99.1 at 2.

• Merion internally modeled $100 million in synergies as part of its investment analysis. JX 310.

• The respondent’s expert cited an analyst report which described the synergy estimate as “conservative, considering business overlap between [Services] and ServiceLink (~$2B in combined revenue) and the potential elimination of corporate and management cost redundancies.” JX 296 ¶ 126.

The prospect of $100 million in synergies was a significant source of value. Using a higher discount rate than this decision adopts, the Company’s expert calculated that the $100 million target would translate into approximately $660.4 million of present value, or $7.50 per share. Id. ¶ 128.

Q. The Company’s Post-Closing Performance

Post-closing, Fidelity divided the Company’s operations into two separate subsidiaries, combined the Services business with its ServiceLink business, and issued a 35% interest in each subsidiary to THL. On March 31, 2014, KPMG LLP issued a final financial report for the combined entity. Across the board, the Company’s results came in below the Updated Base Case.

                              Actual      Updated Base Case   Actual v. Updated
                                                                                      Base Case

    TD&A                      $757.2        $800.9             ($43.7)     (5.5%)

    Transaction Services      $965.8      $1,067.3            ($101.5)     (9.5%)

    Total Revenue           $1,723.5      $1,868.3            ($144.8)     (7.8%)

    Operating Expense       $1,285.1      $1,345.3             ($60.2)     (4.5%)

    EBITDA                    $438.4        $523.0              ($84.6)    (16.2%)

    % Margin                  25.4%         28.0%             (2.6%)     (9.1%)

    EBIT                      $333.0        $415.1             ($82.1)    (19.8%)

JX 296 Ex. 15 (summarizing documents).

R. This Litigation

Merion purchased 5,682,276 shares after the announcement of the Merger and before the stockholder vote. Merion demanded appraisal, did not withdraw its demand or vote in favor of the Merger, and eschewed the Final Merger Consideration. Merion pursued this appraisal action to obtain a judicial determination of the fair value of its shares.

II. LEGAL ANALYSIS

“An appraisal proceeding is a limited legislative remedy intended to provide shareholders dissenting from a merger on grounds of inadequacy of the offering price with a judicial determination of the intrinsic worth (fair value) of their shareholdings.” Cede & Co. v. Technicolor, Inc. (Technicolor I), 542 A.2d 1182, 1186 (Del. 1988). Section 262(h) of the Delaware General Corporation Law (the “DGCL”) states that

the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors.

8 Del. C. § 262(h).

Because of the statutory mandate, the allocation of the burden of proof in an appraisal proceeding differs from a liability proceeding. “In a statutory appraisal proceeding, both sides have the burden of proving their respective valuation positions by a preponderance of evidence.” M.G. Bancorporation, Inc. v. Le Beau, 737 A.2d 513, 520 (Del. 1999).

Each party also bears the burden of proving the constituent elements of its valuation position by a preponderance of the evidence, including the propriety of a particular method, modification, discount, or premium. If both parties fail to meet the preponderance standard on the ultimate question of fair value, the Court is required under the statute to make its own determination.

Jesse A. Finkelstein & John D. Hendershot, Appraisal Rights in Mergers & Consolidations, 38-5th C.P.S. §§ IV(H)(3), at A-89 to A-90 (BNA) (collecting cases) [hereinafter Appraisal Rights]. “Proof by a preponderance of the evidence means proof that something is more likely than not. It means that certain evidence, when compared to the evidence opposed to it, has the more convincing force and makes you believe that something is more likely true than not.” Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *13 (Del. Ch. Feb. 18, 2010) (Strine, V.C.) (internal quotation marks omitted). “Under this standard, [a party] is not required to prove its claims by clear and convincing evidence or to exacting certainty. Rather, [a party] must prove only that it is more likely than not that it is entitled to relief.” Triton Constr. Co. v. E. Shore Elec. Servs., Inc., 2009 WL 1387115, at *6 (Del. Ch. May 18, 2009),aff’d, 988 A.2d 938 (Del. 2010) (TABLE).

The standard of “fair value” is “a jurisprudential concept that draws more from judicial writings than from the appraisal statue itself.” Del. Open MRI Radiology Assocs., P.A. v. Kessler, 898 A.2d 290, 310 (Del. Ch. 2006) (Strine, V.C.). “The concept of fair value under Delaware law is not equivalent to the economic concept of fair market value. Rather, the concept of fair value for purposes of Delaware’s appraisal statute is a largely judge-made creation, freighted with policy considerations.” Finkelstein v. Liberty Dig., Inc., 2005 WL 1074364, at *12 (Del. Ch. Apr. 25, 2005) (Strine, V.C.).

In Tri-Continental Corp. v. Battye, 74 A.2d 71 (Del. 1950), the Delaware Supreme Court explained in detail the concept of value that the appraisal statute employs:

The basic concept of value under the appraisal statute is that the stockholder is entitled to be paid for that which has been taken from him, viz., his proportionate interest in a going concern. By value of the stockholder’s proportionate interest in the corporate enterprise is meant the true or intrinsic value of his stock which has been taken by the merger. In determining what figure represents the true or intrinsic value, . . . the courts must take into consideration all factors and elements which reasonably might enter into the fixing of value. Thus, market value, asset value, dividends, earning prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of the merger and which throw any light on future prospects of the merged corporation are not only pertinent to an inquiry as to the value of the dissenting stockholder’s interest, but must be considered. . . .^[1]

When applying this standard, the corporation “must be valued as a going concern based upon the operative reality’ of the company as of the time of the merger, taking into account its particular market position in light of future prospects.” M.G. Bancorporation, 737 A.2d at 525. A determination of fair value assesses “the value of the company . . . as a going concern, rather than its value to a third party as an acquisition.” M.P.M. Enters., Inc. v. Gilbert, 731 A.2d 790, 795 (Del. 1999).

“The statutory obligation to make a single determination of a corporation’s value introduces an impression of false precision into appraisal jurisprudence.” In re Appraisal of Dell Inc. (Dell Fair Value), 2016 WL 3186538, at *22 (Del. Ch. May 31, 2016). “The value of a corporation is not a point on a line, but a range of reasonable values, and the judge’s task is to assign one particular value within this range as the most reasonable value in light of all the relevant evidence and based on considerations of fairness.” Cede & Co. v. Technicolor, Inc., 2003 WL 23700218, at *2 (Del. Ch. July 9, 2004), aff’d in part, rev’d on other grounds, 884 A.2d 26 (Del. 2005).

A. The Deal Price As Evidence Of Fair Value

The Company contends that the Final Merger Consideration establishes a ceiling for the fair value of the Company. As the proponent of this valuation methodology, the Company bears the burden of establishing its reliability. In this case, the Initial Merger Consideration provides reliable evidence of the Company’s fair value at the time of signing, and the Final Merger Consideration provides reliable evidence of the Company’s fair value at the effective time.

1. Deal Price As One Form Of Market Evidence

“The consideration that the buyer agrees to provide in the deal and that the seller agrees to accept is one form of market price data, which Delaware courts have long considered in appraisal proceedings.” Dell Fair Value, 2016 WL 3186548, at *22. See generally Appraisal Rights, supra, at A-57 to A-59. Chancellor Allen summarized the law on the use of market price data as follows:

It is, of course, axiomatic that if there is an established market for shares of a corporation the market value of such shares must be taken into consideration in an appraisal of their intrinsic value. . . . It is, of course, equally axiomatic that market value, either actual or constructed, is not the sole element to be taken into consideration in the appraisal of stock.^[2]

Numerous cases support Chancellor Allen’s observations that (i) pricing data from a thick and efficient market should be considered^[3] and (ii) market price alone is not dispositive.^[4] The trial court “need not accord any weight to [values derived from the market] when unsupported by evidence that they represent the going concern value of the company at the effective date of the merger.” M.P.M., 731 A.2d at 796.

“Recent jurisprudence has emphasized Delaware courts’ willingness to consider market price data generated not only by the market for individual shares but also by the market for the company as a whole.” Dell Fair Value, 2016 WL 3186548, at *23. If the merger giving rise to appraisal rights “resulted from an arm’s-length process between two independent parties, and if no structural impediments existed that might materially distort the `crucible of objective market reality,'” then “a reviewing court should give substantial evidentiary weight to the merger price as an indicator of fair value.”^[5]

“Here too, however, the Delaware Supreme Court has eschewed market fundamentalism by making clear that market price data is neither conclusively determinative of nor presumptively equivalent to fair value.” Dell Fair Value, 2016 WL 3186548, at *23.

Section 262(h) neither dictates nor even contemplates that the Court of Chancery should consider the transactional market price of the underlying company. Rather, in determining “fair value,” the statute instructs that the court “shall take into account all relevant factors.” Importantly, this Court has defined “fair value” as the value to a stockholder of the firm as a going concern, as opposed to the firm’s value in the context of an acquisition or other transaction. Determining “fair value” through “all relevant factors” may be an imperfect process, but the General Assembly has determined it to be an appropriately fair process. . . .

Section 262(h) unambiguously calls upon the Court of Chancery to perform an independent evaluation of “fair value” at the time of a transaction. It vests the Chancellor and Vice Chancellors with significant discretion to consider “all relevant favors” and determine the going concern value of the underlying company. Requiring the Court of Chancery to defer—conclusively or presumptively—to the merger price, even in the face of a pristine, unchallenged transactional process, would contravene the unambiguous language of the statute and the reasoned holdings of our precedent. It would inappropriately shift the responsibility to determine “fair value” from the court to the private parties. Also, while it is difficult for the Chancellor and Vice Chancellors to assess wildly divergent expert opinions regarding value, inflexible rules governing appraisal provide little additional benefit in determining “fair value” because of the already high costs of appraisal actions. . . . Therefore, we reject . . . [the] call to establish a rule requiring the Court of Chancery to defer to the merger price in any appraisal proceeding.

Golden Telecom, Inc. v. Glob. GT LP (Golden Telecom II), 11 A.3d 214, 217-18 (Del. 2010) (footnotes omitted).

Since Golden Telecom II, the Court of Chancery has regularly considered the deal price as a relevant factor when determining fair value, but it has not deferred automatically or presumptively to the deal price. The court also has not equated satisfying the standards of review that govern fiduciary duty claims with carrying the burden of proof in an appraisal proceeding. Because the two inquiries are different, a sale process might pass muster for purposes of a breach of fiduciary claim and yet still constitute a sub-optimal process of an appraisal.^[6]

In evaluating the persuasiveness of the deal price, this court has cautioned that “[t]he dependability of a transaction price is only as strong as the process by which it was negotiated.” Merlin P’rs LP v. AutoInfo, Inc., 2015 WL 2069417, at *11 (Del. Ch. Apr. 30, 2015). What is required is “a proper transactional process likely to have resulted in an accurate valuation of [the] acquired corporation.” LongPath Capital, LLC v. Ramtron Int’l Corp., 2015 WL 4540443, at *21 (Del. Ch. June 30, 2015). Under this standard, the court will rely “on the merger price itself as evidence of fair value, so long as the process leading to the transaction is a reliable indicator of value and any merger-specific value in that price is excluded.” Merion Capital LP v. BMC Software, Inc., 2015 WL 6164771, at *11 (Del. Ch. Oct. 21, 2015). “[T]he Court will give little weight to a merger price unless the record supports its reliability.” AutoInfo, 2015 WL 2069417, at *11. The deal price “is informative of fair value only when it is the product of not only a fair sale process, but also of a well functioning market.” In re Appraisal of DFC Glob. Corp., 2016 WL 3753123, at *21 (Del. Ch. July 8, 2016).

Evaluating the reliability and persuasiveness of the deal price for purposes of establishing fair value in an appraisal proceeding is a multifaceted, fact-specific inquiry. The relevant factors can vary from case to case depending on the nature of the company, the overarching market dynamics, and the areas on which the parties focus. The last is perhaps an underappreciated aspect of appraisal jurisprudence. Because an appraisal decision results from litigation in which adversarial parties advance arguments and present evidence, the issues that the court considers and the outcome that it reaches depend in large part on the arguments that the advocates make and the evidence they present. An argument may carry the day in a particular case if counsel advance it skillfully and present persuasive evidence to support it. The same argument may not prevail in another case if the proponents fail to generate a similarly persuasive level of probative evidence or if the opponents respond effectively.

2. The Persuasiveness Of The Initial Merger Consideration

The Company demonstrated at trial that the Initial Merger Consideration provides a reliable indicator of the Company’s fair value at the time of the signing of the Merger Agreement. Multiple factors contribute to this court’s determination that the sale process that the Board conducted provided an effective means of price discovery.

a. Meaningful Competition During The Pre-Signing Phase

The first factor supporting the persuasiveness of the Company’s sale process is the existence of meaningful competition among multiple bidders during the pre-signing phase.^[7] Scholars who study auction design agree on the importance of creating competition among multiple bidders.^[8] Renowned M&A practitioner Marty Lipton has contrasted the effects of adding another interested party at the front end of a negotiation with the effect of bargaining more vigorously with a single counterparty at the back end. Lipton even roughly quantified the added value of adding another interested party: “The ability to bring somebody into a situation is far more important than the extra dollar a share at the back end. At the front end, you’re probably talking about 50%. At the back end, you’re talking about 1 or 2 percent.”^[9]

Equally important, the Company’s process involved different types of bidders, which is critical for promoting competition.^[10] “[T]he most important driver of market efficiency for [change of control] transactions [is] heterogeneous buyers.” Subramanian, supra, at 713. Among homogenous bidders, a sale process functions as a common-value auction, but with heterogeneous bidders, the sale process functions as a private-value auction.^[11] The latter is better for the seller because in a private-value auction, “honest reporting of values is a dominant strategy for bidders.”^[12] Finding heterogeneous bidders generally means involving strategic buyers.^[13]Financial sponsors, by contrast, predominantly use the same pricing models, the same inputs, and the same value-creating techniques.^[14] Absent distorted market conditions, “strategic bidders are systematically willing to pay more than financial bidders,”^[15] and the fact that “average returns to [strategic] acquirers are close to zero or even negative” suggests that acquirers pay full value for targets, inclusive of the benefits of control and synergies. See Gorbenko & Malenko, supra, at 2537. Financial buyers, by contrast, generally pay lower premiums^[16] and are hampered by limitations on leverage and the need to achieve their internal hurdle rates.^[17]

In this case, the Board conducted a sale process that involved a reasonable number of participants and created credible competition among heterogeneous bidders during the pre-signing phase. The process began after the Board received five unsolicited indications of interest, with three from strategic buyers (Fidelity, Altisource, and First American) and two from financial sponsors (Flexpoint and Golden Gate). The Board did not immediately enter into negotiations or launch a sale process. Instead it awaited the results of BCG’s analysis and obtained input from management and its financial advisors about strategic alternatives. With the benefit of that information, including estimates of the Company’s standalone value based on BCG’s scenarios, the Board was well-positioned to solicit bids for the Company and its Services business and to evaluate those bids against other possibilities, including remaining a standalone entity. Having decided to solicit bids, the Board went beyond the parties who had submitted unsolicited expressions of interest by identifying three additional strategic buyers. The Board’s financial advisors approached all of the potential bidders on equal terms, and all knew that the Board was conducting a sale process and so faced the prospect of competition when formulating their offers.

The petitioners have argued that although the Board may have set out to generate competition, its efforts failed because Altisource decided not to bid. They say that this left Fidelity without any competition as the only strategic bidder for the whole Company. It is possible that a single-bidder process, even one that would be defensible from a fiduciary duty standpoint, could be unpersuasive for purposes of price discovery for an appraisal. In CKx, for example, the court relied exclusively on the market price, but stressed that the case involved meaningful pre-signing competition and was not one in which “the only evidence that a merger price was the result of `market’ forces was a post-signing go-shop period (which failed to produce competing bids). . . .” 2013 WL 5878807, at *13. Likewise in Orchard Enterprises, the court declined to give weight to the merger price in an appraisal action where “the trial did not focus extensively on the quality of marketing . . . or the utility of the `go shop’ provision in the merger agreement, which could obviously have been affected by [a large stockholder’s] voting power and expressed interest to acquire all of [the company] for itself.” 2012 WL 2923305, at *5.

Importantly, however, if bidders perceive a sale process to be relatively open, then a credible threat of competition can be as effective as actual competition:

Even when there is only one buyer, that buyer could feel compelled to act as if there were more. In a perfectly contestable market, competitive pressures exerted by the perpetual threat of entry (as well as by the presence of actual rivals) induce competitive behavior. Free entry is a sufficient condition for a market to be perfectly contestable. . . .

Aktas et al., supra, at 242-43. Consequently, “competition need not be observed ex post for the M&A market to be efficient.” Id. at 242. “Competition, or the threat of competition, is a strong incentive for buyers to make higher bids for sellers.” Bulletproof, supra, at 884 (emphasis added); see also id at 879-80 (surveying literature on auction theory and concluding that “[t]he two key insights are that competition, or the threat of competition, will lead to a price closer to the buyer’s reservation price and that the price effect of one additional competitor is greater than the price effects attributable to bargaining”).

During the pre-signing phase, Fidelity and THL did not know that Altisource had dropped out. They instead knew that the Company was conducting a sale process involving multiple parties, and they also knew that the merger agreement that they had negotiated with the Company in 2012 and planned to use as the framework for their 2013 deal included a go-shop, which could create a path for post-signing competition by a strategic competitor.^[18] In this case, the Company established the presence of a competitive dynamic during the pre-signing phase that that generated meaningful price discovery.

Reinforcing the threat of competition from other parties was the realistic possibility that the Company would reject the Fidelity/THL bid and pursue a different alternative. Fidelity and THL had approached the Company previously in 2010, 2011, and 2012. Each time, the Board had declined to pursue a transaction. In 2012, the Board had rejected premium bids of $26.50, $28.00, and $29.00 per share, choosing instead to continue operating the Company on a stand-alone basis. In early 2013, the Board also rejected Fidelity/THL’s preliminary indication of interest of $30.00 per share. The Board’s track record of saying “no” gave Fidelity/THL a credible reason to believe that the Board would not sell below its internal reserve price. See Tr. 483 (Carpenter) (“And I might add that [Fidelity] had learned in prior times that we would walk away when they didn’t raise their bid.”).

By citing the involvement of multiple, heterogeneous bidders during the pre-signing phase, this decision is not suggesting any legal requirement to engage with multiple bidders. There may be sound business reasons for not doing so, and “[n]othing in our jurisprudence suggests that an auction process need conform to any theoretical standard.” CKx, 2013 WL 5878807, at *14. As this court has observed, “a multi-bidder auction of a company” is not a “prerequisite to finding that the merger price is a reliable indicator of fair value.” Ramtron, 2015 WL 4540443, at *21. The point of citing the involvement of multiple bidders in this case is more limited. It is simply that because the Company contacted a reasonable number of heterogeneous bidders during the pre-signing phase, its argument for reliance on the deal price (all else equal) is more persuasive.^[19]

b. Adequate And Reliable Information During The Pre-Signing Phase

Another factor supporting the effectiveness of the sale process in this case was that adequate and reliable information about the Company was available to all participants, which contributed to the existence of meaningful competition. Delaware cases have questioned the validity of a sale process when reliable information is unavailable for reasons that have included regulatory uncertainty^[20] and persistent misperceptions about the corporation’s value.^[21] A company also can create informational inadequacies by providing disparate information to bidders. See Goeree & Offerman, supra, at 600. If a seller only makes information available to one bidder, then the seller has given that bidder a subsidy. See id. The effect of disparate information is greater in a common value auction than in a private value auction.^[22]Strategic buyers, who have their own private sources of value and trade-based informational advantages, are less affected by information disparities than financial buyers, who are more susceptible to the winner’s curse. See Dell Fair Value, 2016 WL 3186538, at *42; Denton, supra, at 1546.

In this case, all bidders received equal access to information about the Company. All had the opportunity to conduct due diligence before submitting their bids, and several did so. There is no evidence in the record suggesting that the Company or its advisors provided any particular bidder with informational advantages. This is also not a case where the size of the Company or the nature of its business made it difficult to understand and assess. Cf. Dell Fair Value, 2016 WL 3186538, at *40-41. Every bidder who submitted an indication of interest, including Altisource in early 2013, identified a limited amount of time for conducting due diligence, typically four weeks.

The record in this case lacked persuasive evidence of factors that would undermine the reliability of information that bidders received, such as a regulatory overhang or a significant disconnect between the Company’s unaffected market price and informed assessments of fair value by insiders. Compare DFC Glob., 2016 WL 3753123, at *21; Dell Fair Value, 2016 WL 3186538, at *32-36. The petitioners have pointed to the legal uncertainty that surrounded the Company and the proximity of the sale process to the settlements that the Company announced in January 2013. They argue that stockholders did not sufficiently understand the Company’s significant value once its legal risk had been addressed. It is true that there was a regulatory overhang from the investigations in the Company’s involvement in robo-signing and related stockholder litigation, but the settlements cleared up those issues. The weight of the evidence at trial indicated that the settlements made the Company easier to understand, and the Company’s stock price increased substantially following the announcement of the settlements.

The record in this case lacked persuasive indications of irrational or exaggerated pessimism, whether driven by short-termism or otherwise, that could have anchored the price negotiations at levels below fair value.^[23] A variety of factors indicated that the market price was providing a reliable valuation indicator. Management believed that its efforts to educate the market had succeeded, that the Company’s stockholders understood its business, and that they were focused on its long-term prospects. Since 2011, analysts had established a pattern of accurately predicting the Company’s performance. The valuation ranges that the Company’s advisors generated in 2012 and 2013 using DCF analyses were also generally consistent with market indicators. See JX 33 at 17.

c. Lack Of Collusion Or Unjustified Favoritism Towards Particular Bidders

A third factor supporting the effectiveness of the sale process in this case was the absence of any explicit or implicit collusion, whether among bidders or between the seller and a particular bidder or subset of bidders.^[24] Under Delaware law, only an “arms-length merger price resulting from an effective market check” is “entitled to great weight in an appraisal.” Glob. GT LP v. Golden Telecom, Inc. (Golden Telecom I), 993 A.2d 497, 508-09 (Del. Ch. 2010) (Strine, V.C.), aff’d, 11 A.3d 214 (Del. 2010). A common risk in corporate sale processes is the possibility that management will favor a particular bidder for self-interested reasons, even if the favoritism does not rise to the level of an actionable breach of duty; a reliable sales process avoids that taint.^[25]

The Merger was not an MBO. To the contrary, the Company’s management team believed that Fidelity would not retain them if it acquired the Company. This gave the management team a powerful personal incentive not to favor Fidelity and not to seek (consciously or otherwise) to deliver the Company to Fidelity at an advantageous price. Instead it gave the management team an additional incentive to seek out other bidders and create competition for Fidelity.

The petitioners have pointed to ties among Fidelity, THL, and members of the Board which they say undermined the sale process in general and the price negotiation in particular. It is true that there were relationships among Fidelity, THL, and members of the Board, in large part because of the Company’s history. Recall that Fidelity purchased the Alltel financial division that eventually became the Company in 2003, reorganized it as part of FNF Services, then spunoff FNF Services in 2006. FNF Services in turn spun off the Company in 2008. The Company’s CEO, Harris, had consulted for Fidelity and THL on the Alltel acquisition and managed FNF Services from 2002 through 2006. Kennedy, the Company’s Chairman, had served as CEO of FNF Services from 2006 through 2009, and during that time Foley, the Chairman of Fidelity, was Executive Chairman of FNF Services. Hunt, another outside director, served as an officer of one of THL’s portfolio companies. The Company and Fidelity also shared a common business campus in Jacksonville, Florida (although they occupied separate office buildings).

These relationships warranted close examination, but they did not compromise the sale process. Harris interacted with Fidelity and other bidders in his capacity as CEO, but he recused himself from deliberating as a director during the 2013 sale process. Hunt also recused himself. Kennedy participated only after the Board determined that he did not have a conflict. All of the members of the Board and management were net sellers in the deal, and they collectively expected to receive approximately $100 million from the Merger in stock-based compensation. See JX 260 at 91-99; Tr. 784 (Hausman). Harris in particular had an incentive to maximize the value of his shares, because he planned to retire. As noted, the management team as a whole believed that if Fidelity acquired the Company, they would not retain their positions, meaning that maximizing the value of the merger consideration was the best way for them to obtain value from the deal. There also was a history of competition between Fidelity’s ServiceLink business and the Company, and during the sale process management resisted providing sensitive information to what it regarded as its closest competitor. See JX 46.

The petitioners complain the loudest about the call that Foley made to Kennedy, where Foley proposed consideration of $33.25 per share, essentially splitting the difference between Fidelity’s offer of $32 per share and the Company’s counteroffer of $34.50 per share. Although the Company’s bankers made one more try to get more consideration, the headline price term was effectively set during that telephone call, and negotiations from that point on revolved around the collar and other aspects of the deal. The petitioners seem to believe that during that call, Kennedy committed to $33.25 per share, ending the negotiations at a point below where they would have ended up otherwise. But Kennedy did not have authority to lock the Board in to $33.25 per share, and the Board in fact had its bankers push back once more. Nor is it clear that the negotiations would have ended in a different place if Fidelity’s banker had responded to Credit Suisse, as the petitioners would have preferred.

More importantly, the record indicates that even at $33.25 per share, the deal price included a portion of the synergies that Fidelity and THL hoped to achieve from the transaction, including revenue synergies from combining the Company’s Services business with Fidelity’s ServiceLink unit. Assuming for the sake of argument that a negotiator without a historical relationship with Foley might have extracted more than $33.25 per share, the record indicates that the additional amount would have represented a portion of the combinatorial value of the Company to Fidelity, not increased going concern value to which the petitioners would be entitled in an appraisal. “A merger price resulting from arms-length negotiations . . . is a very strong indication of fair value,” but it “must be accompanied by evidence tending to show that it represents the going concern value of the company rather than just the value of the company to one specific buyer.” M.P.M., 731 A.2d at 797. “The fact that a board has extracted the most that a particular buyer (or type of buyer) will pay does not mean that the result constitutes fair value.” Dell Fair Value, 2016 WL 3186538, at *29. Likewise, the fact that a negotiator has failed to extract the most a particular buyer (or type of buyer) will pay does not mean that what the negotiator obtained did not already exceed fair value. In Dell, the former was true. In this case, the latter was true.

d. Conclusion Regarding The Initial Merger Consideration

The evidence at trial established that the Initial Merger Consideration is a reliable indicator of fair value as of the signing of the Merger Agreement. The evidence indicating that the transaction price included synergies suggests that the fair value of the Company as of the signing of the Merger Agreement would not have exceeded the value of the Initial Merger Consideration. The valuation date for purposes of an appraisal, however, is not the date on which the Merger Agreement was signed, but rather the date on which the merger closes.

3. Evidence From The Post-Signing Period

Over seven months elapsed between the signing of the Merger Agreement on May 27, 2013, and the closing of the merger on January 2, 2014. The parties have to address this temporal gap, because “[t]he time for determining the value of a dissenter’s shares is the point just before the merger transaction `on the date of the merger.'” Appraisal Rights A-33 (quoting Technicolor I, 542 A.2d at 1187). Consequently, if the value of the corporation changes between the signing of the merger and the closing, the fair value determination must be measured by the “operative reality” of the corporation at the effective time of the merger. Cede & Co. v. Technicolor, Inc. (Technicolor II), 684 A.2d 289, 298 (Del. 1996).

Neither side presented analyses of the potential for valuation change between signing and closing. Neither analyzed changes in value of market indices or (arguable) peer companies. Neither attempted to use these metrics to bring the Company’s market price forward, as parties sometimes historically did under the Delaware Block Method. See Appraisal Rights, supra, at A-58 (collecting cases). The petitioners pointed to the existence of the temporal gap as a reason not to rely on either the deal price or market-based metrics associated with the signing of the deal. They argued that in light of the temporal gap, the court should construct its own valuation as of the closing date.

The respondent approached the temporal gap differently. They argued that (i) the failure of a topping bid to emerge between announcement of the deal and the stockholder vote validated the deal price, (ii) the Company’s performance declined during the gap period, and (iii) Fidelity’s stock traded up, resulting in the Company’s stockholders receiving the higher Final Merger Consideration. The respondent argued that the Final Merger Consideration therefore exceeded fair value, particularly because of evidence that the deal included combinatorial synergies.

Taken as a whole, the evidence at trial established that the Final Merger Consideration was a reliable indicator of fair value as of the closing of the Merger and that, because of synergies and a post-signing decline in the Company’s performance, the fair value of the Company as of the closing date did not exceed the Final Merger Consideration.

a. The Absence Of A Topping Bid

During the seven-month period between signing and closing, no other bidder submitted an indication of interest or made a competing proposal. During the first forty days of the post-signing period, the Company conducted a go-shop. After that, until the meeting of stockholders on December 19, 2014, the Company was free to respond to a topping bid that constituted a Superior Proposal. The time leading up to the meeting of stockholders amounted to a five-month window-shop.

A go-shop period is less common in deals involving strategic buyers like Fidelity than in MBOs involving private equity sponsors.^[26] MBOs in which a management team has affiliated with an incumbent financial sponsor rarely generate topping bids, particularly from other financial sponsors.^[27] It is not clear how a go-shop in a deal with a strategic acquirer would affect the behavior of other strategic bidders. It seems logical that relative to a deal without a go-shop, a strategic buyer would be more likely to compete when a deal involved a go-shop.

In this case, however, several factors undermined the efficacy of the go-shop. First, it was not part of the bankers’ plan for the sale process. The parties appear to have kept the go-shop because of legal advice indicating that it would help mitigate litigation risk in the event a stockholder sued the board for breach of fiduciary duty. The bankers gave no advice regarding the timing or structure of the go-shop, and the respondent’s counsel invoked the attorney-client privilege to block discovery into discussions regarding the go-shop. The go-shop appears to have been a lawyer-driven add-on.

Second, the quality of the contacts during the go-shop is suspect. It is true that the Company’s financial advisors contacted twenty-five potential strategic buyers and seventeen potential financial buyers, which are impressive headline numbers. The bulk of those companies, however, already had demonstrated that they were not interested in acquiring the Company, had been ruled out by the Board and its bankers as unlikely transaction partners, or were “the usual opportunities.” Carpenter Dep. 129-30.

Only Altisource and two financial buyers expressed interest during the go-shop period. Neither bid. One could view the lack of interest and absence of bidding during the go-shop phase as providing support for the proposition that the Initial Merger Consideration equaled or exceeded fair value. See Highfields Capital, Inc. v. AXA Fin., Inc., 939 A.2d 34, 62 (Del. Ch. 2007) (“The more logical explanation for why no bidder ever emerged is self-evident: MONY was not worth more than $31 per share.”). The more logical explanation on the facts of this case is that potential overbidders did not see a realistic path to success. To make it worthwhile to bid, a potential deal jumper must not only value the target company above the deal price, but also perceive a pathway to success that is “sufficiently realistic to warrant incurring the time and expense to become involved in a contested situation, as well as the potential damage to professional relationships and reputation from intervening and possibly being unsuccessful.” Dell Fair Value, 2016 WL 3186538, at *39. The lack of a realistic path to success explains why a bidder “would choose not to intervene in a go-shop, even if it meant theoretically leaving money on the table by allowing the initial bidder to secure an asset at a beneficial price.” Id.

In this case, the most persuasive explanation is that the existence of an incumbent trade bidder holding an unlimited match right was a sufficient deterrent to prevent other parties from perceiving a realistic path to success.^[28] Put differently, for another bidder to warrant intervening, the bidder would have had to both (i) value the Company more highly than $33.25 per share and (ii) believe that it could outbid Fidelity, recognizing that Fidelity could achieve synergies from acquiring the Company and therefore would be likely to be able to outbid any competitor that lacked similar access to synergies or a comparable source of private value. Without the second half of the equation, an overbidder could force Fidelity to pay more, but it could not ultimately prevail. Without a realistic path to success, it made no sense to get involved.

At first blush, Altisource’s decision not to bid during the go-shop phase appears to suggest that the Initial Merger Consideration exceeded fair value. Altisource was a trade bidder and therefore might have been expected to generate synergies from a transaction with the Company. If so, and if the Initial Merger Consideration was equivalent to or less than fair value, than Altisource could have contested Fidelity’s position. But there is also evidence in this case that because Altisource competed with some of the Company’s clients, Altisource actually faced revenue dis-synergies as part of a potential deal, and that those dis-synergies would outweigh any cost savings that Altisource might achieve.

On the facts presented, the probative value of the go-shop is inconclusive. The same is true for the post-signing period between the end of the go-shop and the stockholder vote. During that nearly six-month period, the Company could no longer solicit additional bids, and the termination fee doubled from $37 million to $74 million, but otherwise the Company could entertain a bid that qualified as a Superior Proposal. Just as during the go-shop period, however, a topping bidder needed a realistic path to success to make it rational to intervene. The marginally greater impediments to a topping bid made that path less realistic, rather than more realistic, than during the post-go-shop phase.

b. Post-Closing Performance And The Operation Of The Collar

Immediately after the announcement of the Merger, Fidelity’s stock price rose. It continued to rise during the post-signing period. Due to the collar, these increases caused the value of the merger consideration to increase. Fidelity twice exercised its right to increase the cash component, resulting in the Final Merger Consideration of $37.04 per share.

During the same time period that Fidelity’s stock price was going up, the Company’s financial performance was going down. In October 2013, the Company announced that quarter over quarter, revenue had declined by 10.6% and EBITDA by 18.4%. Compared to the Updated Base Case’s projections for FY 2013, actual revenues were down 7.8% and EBITDA was down 16.2%.

The petitioners might have sought to address these issues. They might have attempted to show by reference to other companies or indices that but for the Merger, the Company’s stock price would have risen as well, perhaps even more than Fidelity’s. Or they might have sought to show that the declines in the Company’s performance resulted from the Merger itself and therefore should be excluded as a valuation consideration, perhaps because the sale process diverted management’s attention and harmed employee morale. They petitioners did not advance these or other arguments, which they would have had to support with persuasive evidence. The record rather indicates that Fidelity’s performance improved, causing an increase in the value of the merger consideration, while the Company’s performance declined.

Instead, the petitioners argued the declines in the Company’s performance post-closing did not require any adjustments to the Updated Base Case and that management reaffirmed the Company’s belief in the reliability of its projections. Accepting that as true, it suggests that the going concern value of the Company did not change such that the Initial Merger Consideration remained a reliable indicator of fair value and the Final Merger Consideration established a ceiling for fair value. See Union Ill., 847 A.2d at 343 (relying on merger price in appraisal case despite six-month lag between signing and closing because “nothing occurred between the signing of the Merger Agreement and the effective date of the Merger that resulted in an increase in the value of UFG”).

A final factor pertinent to the Company’s post-signing, pre-closing performance is the extensive evidence indicating that the Initial Merger Consideration included a portion of the value that Fidelity and THL expected to generate from synergies. The Final Merger Consideration logically incorporated an additional portion of this value because of the component consisting of Fidelity stock, which drew some (admittedly unquantified) portion of its value from the synergies that Fidelity and its stockholders would enjoy. The existence of combinatorial synergies provides an additional reason to think that the Final Merger Consideration exceeded the fair value of the Company.

B. The DCF Analysis As Evidence Of Fair Value

Both the petitioners and the Company submitted valuation opinions from distinguished experts. The petitioners’ expert, Professor Jerry A. Hausman, used a DCF analysis to opine that the Company’s fair value at closing was $50.46 per share. The respondent’s expert, Daniel Fischel, used a DCF analysis to opine that the Company’s fair value at closing was $33.57 per share. The Final Merger Consideration was $37.14 per share.

“[T]he DCF . . . methodology has featured prominently in this Court because it is the approach that merits the greatest confidence within the financial community.” Owen v. Cannon, 2015 WL 3819204, at *16 (Del. Ch. June 17, 2015) (quotation marks omitted).

Put in very simple terms, the basic DCF method involves several discrete steps. First, one estimates the values of future cash flows for a discrete period. . . . Then, the value of the entity attributable to cash flows expected after the end of the discrete period must be estimated to produce a so-called terminal value, preferably using a perpetual growth model. Finally, the value of the cash flows for the discrete period and the terminal value must be discounted back. . . .

Andaloro v. PFPC Worldwide, Inc., 2005 WL 2045640, at *9 (Del. Ch. Aug. 19, 2005)(Strine, V.C.) (footnote omitted). This decision does not exhaustively describe the DCF methodology; it only addresses the areas of substantial disagreement between the experts.

1. The Projection Period

The first issue for any DCF analysis is to determine the appropriate forecasts to use for the projection period. Both experts used the Updated Base Case with minor adjustments. Hausman added back deferred income taxes and subtracted accounts payable, accrued liabilities, and other liabilities for 2014. JX 297 ¶ 67. Fischel added back deferred tax income and other investments. JX 296, Ex. 23. Neither provided a detailed explanation for their adjustments. This decision adopts the Updated Base Case and averages the adjustments that the experts made.

2. The Terminal Period

The next challenge for a DCF analysis is to extend the forecasts beyond the projection period to derive an estimate of cash flows during the terminal period. The experts disagreed on two aspects of the calculation.

The experts disagreed initially over the level of capital expenditures needed to sustain the Company’s business during the terminal period. Over the long run, capital expenditures should equal depreciation. Robert W. Holthausen & Mark E. Zmijewski, Corporation Valuation Theory, Evidence & Practice 232 (2014). In the last year of the projection period, however, the Updated Base Case contemplated an amount for depreciation that exceeded capital expenditures. To bring the two into harmony, Hausman assumed that capital expenditures would exceed depreciation over time by an amount sufficient to cause net amortizable assets to grow at the Company’s long-term growth rate. Fischel chose to increase capital expenditures to equal depreciation. The record shows that the Company historically had high levels of depreciation relative to capital expenditures, so it is more reasonable to assume depreciation would decrease during the terminal period to match capital expenditures. This decision adopts that approach.

The experts also disagreed over the perpetuity growth rate. Hausman used 3.4%, which he derived from the projected rate of loan originations. Fischel used 2.2%, equal to the long-term rate of inflation.

“This Court often selects a perpetuity growth rate based on a reasonable premium to inflation.” DFC Glob., 2016 WL 3753123, at *17. This is because “[i]n a steady state, it is typically assumed that future business growth will approximate that of the overall economy.” In re Trados S’holder Litig., 73 A.3d 17, 73 (Del. Ch. 2013). “[O]nce an industry has matured, a company will grow at a steady rate that is roughly equal to the rate of nominal GDP growth.” Golden Telecom I, 993 A.2d at 511. The risk-free rate is a viable proxy for expected nominal GDP growth. See DFC Glob., 2016 WL 3753123, at *17.

The Company was a mature firm, so ordinarily it would grow at a rate approximating GDP growth. The Company’s operative reality on the closing date, however, included the Services business, which had declining prospects, and a smaller Analytics business, which was growing. Given this business mix, the Company should grow over the long-term at a rate between inflation and nominal GDP that is closer to the latter. Hausman’s rate of 3.4% better fits the operative reality of the Company, so this decision adopts his figure.

3. The Discount Rate

The final issue is the appropriate discount rate, which the experts derived by calculating the Company’s weighted average cost of capital (“WACC”). They disagreed on virtually every input except the appropriate tax rate, where they both used 37%.

Hausman used a capital structure consisting of 81.1% equity, relying on the Company’s financial statements from 2013 and the equity value implied by his DCF analysis. Fischel used a capital structure consisting of 70% equity, relying on the Company’s pre-announcement debt-to-equity ratio. This decision adopts Fischel’s approach, which is consistent with precedent and avoids the circularity in Hausman’s method.

Hausman opined that the Company’s cost of debt was 5.0% without citing any support. Fischel used a cost of debt of 5.02%, explaining that the Company’s was rated BB+ from 2008 through 2014 and that the yield to maturity of a BB-rated bond index as of January 2, 2014 was 5.02%. Fischel provided a better justification for his number, so this decision uses it.

The experts disagreed about the risk-free rate. Hausman used 3.63%, which was the return on a 20-year U.S. Treasury bond as of December 2013. Fischel used 3.68%, which was the return on a 20-year U.S. Treasury bond as of January 2, 2014. Fischel’s measurement was closer to the closing date, so this decision adopts it.

Both experts used the supply-side equity risk premium. Hausman used 6.11%, which he obtained from Ibbotson’s 2013 Valuation Yearbook. Fischel used 6.18%, which he obtained from the 2014 Duff & Phelps Valuation Handbook. Fischel’s figure better captures the Company’s operative reality on the closing date. See Ancestry.com, 2015 WL 399726, at *21 (rejecting argument that court should have used 2012 Ibbotson Yearbook instead of 2013 Yearbook for merger that closed on December 28, 2012, because the 2013 Yearbook would not have been available to investors yet when the merger closed).

The experts chiefly disagreed over beta. Hausman derived a beta of 0.845 from five years of daily observations. Fischel used a beta of 1.395, which represented the average of (i) a beta derived from five years of monthly observations and (ii) a beta derived from two years of weekly observations. The beta drives the bulk of the valuation difference between the experts. Inserting Hausman’s beta into Fischel’s model generates a value of $51.18 per share.

“Beta, like cost of capital itself, is a forward-looking concept. It is intended to be a measure of the expected future relationship between the return on an individual security (or portfolio of securities) and the overall market.” Duff & Phelps, 2015 Valuation Handbook: Guide to Costs of Capital 5-3 (2015). The Company’s performance during the measuring period therefore should match, to the extent possible, the anticipated performance of the Company going forward. The financial literature indicates that using a five-year measurement period is both acceptable and common, but that a shorter period should be used if a five-year look back encompasses significant changes in the macroeconomic environment^[29] or the company’s business.^[30] In this case, five years covers the Great Recession and attendant housing crisis, which benefitted the Company and caused it to outperform the S&P 500. Company management and BCG anticipated that the Company would perform going forward at substantially lower levels. Looking back five years also covers a period when the Company was more dependent on Services, while going forward the Company will rely more on Analytics. These factors counsel in favor of using a two-year period as a better predictor of the Company’s operative reality at the time of the Merger.

Discarding the five-year betas leaves Fischel’s measurement of 1.503, which relied on weekly observations. The financial literature supports using a two-year beta with weekly observations, so this decision could adopt this estimate.^[31] Fischel, however, used a lower beta of 1.395. By doing so, Fischel favored the petitioners. That fact enhances the credibility of his selection, so this decision uses his figure.

The last input is the size premium. Hausman added a size premium of 0.92%. Fischel did not add a size premium, arguing that there “is no consensus in the academic literature as to whether such a premium still exists.” JX 296 ¶ 113 n.163. Adding a size premium increases the discount rate and lowers the value of the Company. As with his estimate of beta, Fischel’s judgment favored the petitioners, so this decision uses it.

These inputs result in a WACC of 9.56%, which this decision adopts. Adding a size premium of 0.92% to the cost of equity would increase the WACC to 10.2%.

4. The DCF Valuation

A DCF valuation using the foregoing inputs produces a value of $38.67 per share, which is 4% higher than the Final Merger Consideration of $37.14 per share. Using a WACC of 10.02% would produce a value of $34.50 per share, or 8% less than the Final Merger Consideration. These figures bracket what the stockholders received. Nevertheless, the figure of $38.67 per share is my best estimate of the fair value of the Company based on the DCF method.

B. The Weight Given To The Methodologies

When presented with multiple indicators of fair value, the court must determine how to weigh them. “In discharging its statutory mandate, the Court of Chancery has discretion to select one of the parties’ valuation models as its general framework or to fashion its own.” M.G. Bancorporation, 737 A.2d at 525-26. “The Court may evaluate the valuation opinions submitted by the parties, select the most representative analysis, and then make appropriate adjustments to the resulting valuation.”^[32] The court also may “make its own independent valuation calculation by either adapting or blending the factual assumptions of the parties’ experts.” M.G. Bancorporation, 737 A.2d at 524. “When . . . none of the parties establishes a valuation that is persuasive, the Court must make a determination based on its own analysis.”^[33]

Delaware law does not have a rigid hierarchy of valuation methodologies, nor does it have a settled formula for weighting them. “Appraisal is, by design, a flexible process.” Golden Telecom II, 11 A.3d at 218. The statute “vests the Chancellor and Vice Chancellors with significant discretion to consider `all relevant factors’ and determine the going concern value of the underlying company.” Id. (quoting 8 Del. C. § 262(h)).

In a series of decisions since Golden Telecom II, this court has considered how much weight to give the deal price relative to other indications of fair value. In five decisions since Golden Telecom II, the Court of Chancery has given exclusive weight to the deal price, particularly where other evidence of fair value was unreliable or weak. In five other decisions since Golden Telecom II, the court has declined to give exclusive weight to the deal price in situations where the respondent failed to overcome the petitioner’s attacks on the sale process and thus did not prove that it was a reliable indicator of fair value.

CKx was the first post-Golden Telecom II decision to rely exclusively on the merger price. The court found that “[t]he company was sold after a full market canvass and auction,” the process was “free of fiduciary and process irregularities,” and “the sales price [was] a reliable indicator of value.” 2013 WL 5878807 at *1. By contrast, the parties’ experts in CKx did not establish the reliability of their methods. The court found that (i) the company lacked sufficiently comparable peers and (ii) that “the evidence [was] overwhelming” that a key element of management’s projections “was not prepared in the ordinary course of business” and “was otherwise unreliable.” Id. at *10. “In the absence of comparable companies or transactions to guide a comparable companies analysis or a comparable transactions analysis, and without reliable projections to discount in a DCF analysis,” the court relied “on the merger price as the best and most reliable indication of [the company’s] value.” Id. at *11. The court stressed that the “conclusion that merger price must be the primary factor in determining fair value is justified in light of the absence of any other reliable valuation analysis.” Id. at *13.

In Ancestry.com, the court again relied exclusively on the merger price. The court found that the company was sold after an “auction process” which involved “a market canvass and uncovered a motivated buyer. 2015 WL 399726, at *1. The court concluded that the sale process “represent[ed] an auction of the Company that is unlikely to have left significant stockholder value unaccounted for.” Id. at *16. As in CKx, there were “no comparable companies to use for purposes of valuation.” Id. at *18. The court also had “reason to question management[‘s] projections, which were done in light of the transaction and in the context of obtaining a fairness opinion,” and where “management did not create projections in the normal course of business.” Id. at *18. The court prepared its own DCF analysis, which it regarded as a reliable indicator of value, but the answer was reasonably close to the deal price. That outcome gave the court “comfort that no undetected factor skewed the sales process.” Id. at *23. The court found that “fair value in these circumstances [was] best represented by the market price.” Id.

In AutoInfo, the court again relied exclusively on the merger price. The company conducted an extensive sale process in which its financial advisor contacted 165 potential strategic and financial acquirers, seventy signed NDAs, ten submitted indications of interest after conducting due diligence, nine received management presentations, five submitted verbal valuations or written letters of intent, and the company ultimately negotiated exclusively with the highest bidder. 2015 WL 2069417, at *3-6. The court concluded that “evidence regarding AutoInfo’s sales process substantiates the reliability of the Merger price.” Id. at *11. The court later reiterated that “the sales process was generally strong and can be expected to have led to a Merger price indicative of fair value.” Id. at *14. The expert’s valuation methodologies lacked similar persuasiveness. Management had prepared projections as part of the sale process, but management had never prepared projections before, and the court found them unreliable. Id. at *8. The court also found that there were no comparable companies that could be used for valuation purposes. Id. The court rejected both sides’ valuation analyses as unreliable, but as in Ancestry, prepared its own DCF analysis. Id. at *16. Despite noting that the “[u]nder Delaware law, it would be appropriate to provide weight to the value as implied by the Court’s DCF analysis,” the decision elected to put “full weight” on the deal price as “the best estimate of value.” Id.

In Ramtron, the court once again relied exclusively on the merger price. The company conducted a “thorough” sale process in response to an unsolicited tender offer. 2015 WL 4540443, at *1. The company rejected the hostile bid on multiple occasions and “actively solicited every buyer it believed could be interested in a transaction.” Id. at *21. The company ultimately agreed to a transaction with the unsolicited bidder only after extracting five separate price increases. Id. at *24. As in CKx, management’s projections were “not reliable,” and the parties’ experts agreed that there were “no comparable companies.” Id. at *1, *18.

In BMC, the court relied exclusively on the merger price yet again. The company engaged in “a thorough and vigorous sales process” that involved outreach to financial and strategic buyers. 2015 WL 6164771, at *1. The court found that the merger price was “sufficiently structured to develop fair value” and hence a reliable indicator of value. Id. at *16. The court also constructed a DCF analysis based on a set of management projections, which the court believed represented “the best DCF valuation based on the information available to me.” Id. at *18. The court nevertheless declined to give weight to the DCF valuation, reasoning as follows:

My DCF valuation is a product of a set of management projections, projections that in one sense may be particularly reliable due to BMC’s subscription-based business. Nevertheless, the Respondent’s expert, pertinently, demonstrated that the projections were historically problematic, in a way that could distort value. The record does not suggest a reliable method to adjust these projections. I am also concerned about the discount rate in light of a meaningful debate on the issue of using a supply side versus historical equity risk premium. Further, I do not have complete confidence in the reliability of taking the midpoint between inflation and GDP as the Company’s expected growth rate.

Taking these uncertainties in the DCF analysis—in light of the wildly-divergent DCF valuation of the experts—together with my review of the record as it pertains to the sales process that generated the Merger, I find the merger price . . . to be the best indicator of fair value. . . .

Id. at *18.

In five other decisions since Golden Telecom II, the Court of Chancery has considered the deal price, but has either not relied on it or given it limited weight. In Orchard Enterprises, the court declined to give weight to the merger price in an appraisal proceeding that followed a merger between a corporation and an affiliate of a large stockholder, observing that “the trial did not focus extensively on the quality of marketing. . . or the utility of the `go shop’ provision in the merger agreement, which could obviously have been affected by [a large stockholder’s] voting power and expressed interest to acquire all of [the company] for itself.” 2012 WL 2923305, at *5. Similarly in 3M Cogent, the court gave no weight to a deal price of $10.50 per share where the respondent corporation did not seek to have the court award that amount as fair value and relied instead on its experts’ opinions that proposed a fair value award of $10.12 per share. Merion Capital, L.P. v. 3M Cogent, Inc., 2013 WL 3793896, at *5 (Del. Ch. July 8, 2013). The court also noted that the respondent corporation and its experts had not made any attempt to adjust the merger price for synergies or similar elements of value that arose from the merger.^[34]

In Dell, I gave limited weight to the deal price, finding that the respondent corporation “did not establish that the outcome of the sale process offer[ed] the most reliable evidence of the Company’s value as a going concern.” Dell Fair Value, 2016 WL 3186538, at *44. I nevertheless found that the market data was sufficient

to exclude the possibility, advocated by the petitioners’ expert, that the Merger undervalued the Company by $23 billion. Had a value disparity of that magnitude existed, then [a strategic bidder] would have emerged to acquire the Company on the cheap. What the market data [did] not exclude is an underpricing of a smaller magnitude.

Id. A confluence of multiple factors caused me not to give greater weight to the deal price, including (i) the transaction was an MBO, (ii) the bidders used an LBO pricing model to determine the original merger consideration, (iii) there was compelling evidence of a significant valuation gap driven by the market’s short-term focus, and (iv) the transaction was not subjected to meaningful pre-signing competition. See id. at *29-37. Although the deal price increased as a result of post-signing developments, the pattern of bidding by financial sponsors during the go-shop reinforced the conclusion that the consideration did not represent fair value, and the petitioners proved that there were structural impediments to a topping bid on the facts of the case, particularly in light of the size and complexity of the company and the sell-side involvement of the company’s founder. See id. at *37-44. I relied instead on a DCF analysis to determine fair value. Id. at *51.

More recently, in DFC Global, the court gave equal weight to the deal price, the court’s DCF valuation, and one of the expert’s comparable companies analysis. 2016 WL 3753123, at *23. The court found that the merger giving rise to the appraisal proceeding had been “negotiated and consummated during a period of significant company turmoil and regulatory uncertainty, calling into question the reliability of the transaction price as well as management’s financial projections.” Id. at *1. The company’s competitors faced similar challenges, and the resulting uncertainty undermined the projections. Id. at *22. It also meant that the company was sold during a valuation trough, which suggested that “the transaction price would not necessarily be a reliable indicator.” Id. The court also noted that the financial sponsor who acquired the company had focused “on achieving a certain internal rate of return and on reaching a deal within its financing constraints,” which could generate an outcome different from fair value. Id. To a lesser degree, the uncertainly also undermined the multiples-based valuation, because that valuation relied on two years of management projections. The court concluded that “all three metrics suffer from various limitations but . . . each of them still provides meaningful insight into [the company’s] value.” Id. at *23. The court also observed that “all three of them fall within a reasonable range.” Id. The court therefore elected to weight them equally.

Most recently, in Dunmire v. Farmers & Merchants Bancorp of Western Pennsylvania, Inc., 2016 WL 6651411 (Del. Ch. Nov. 10, 2016), the court declined to rely on the deal price where a controlling stockholder set the exchange ratio for a stock-for-stock transaction between the company and another entity controlled by the same family. The decision noted that (i) “the Merger was not the product of an auction,” (ii) no third parties were solicited, (iii) a controlling stockholder stood on both sides of the deal, (iv) although a special committee negotiated with the controller, the record did “not inspire confidence that the negotiations were truly arms-length,” and (v) the transaction was not conditioned on a majority-of-the minority vote. Id. at *7-8. The only surprising aspect of Dunmire is the respondent argued in favor of deference to the deal price.

This case is most similar to AutoInfo and BMC. The Company ran a sale process that generated reliable evidence of fair value. The Company also created a reliable set of projections that support a meaningful DCF analysis. Small changes in the assumptions that drive the DCF analysis, however, generate a range of prices that starts below the merger price and extends far above it. My best effort to resolve the differences between the experts resulted in a DCF valuation that is within 3% of the Final Merger Consideration. The proximity between that outcome and the result of the sale process is comforting. See S. Muoio & Co. LLC v. Hallmark Entm’t Invs. Co.,2011 WL 863007, at *19 (Del. Ch. Mar. 9, 2011) (“[W]hat you actually like to see when you’re doing a valuation is some type of overlap between the various methodologies.” (quotation marks omitted)), aff’d, 35 A.3d 419 (Del. 2011) (TABLE).

As noted, a DCF analysis depends heavily on assumptions. Under the circumstances, as in AutoInfo and BMC, I give 100% weight to the transaction price.

C. Whether To Make An Adjustment For Combinatorial Synergies

The Company argued belatedly that the court should make a finding regarding the value of the combinatorial synergies and deduct some portion of that value from the deal price to generate fair value. That is a viable method. See, e.g., Union Ill., 847 A.2d at 353 n.26; Highfields, 939 A.2d at 61. In this case, however, the Company litigated on the theory that the Final Merger Consideration represented the “maximum fair value” of the shares. JX 296 ¶ 128. In his expert report, Fischel declined to offer any opinion on the quantum of synergies or to propose an adjustment to the merger price. Id. At trial, Fischel affirmed that he did not have any basis to opine regarding a specific quantum of synergies. Tr. 982 (Fischel). Having taken these positions, it was too late for the Company to argue in its post-trial briefs that the court should deduct synergies.

III. CONCLUSION

The fair value of the Company on the closing date was $37.14 per share. The legal rate of interest, compounded quarterly, shall accrue on this amount from the date of closing until the date of payment. The parties shall cooperate on preparing a final order. If there are additional issues that need to be resolved before a final order can be entered, the parties shall submit a joint letter within two weeks that identifies them and recommends a schedule for bringing this matter to a conclusion, at least at the trial court level.

[1] Id. at 72. Subsequent Delaware Supreme Court decisions have adhered consistently to this definition of value. See, e.g., Montgomery Cellular Hldg. Co. v. Dobler, 880 A.2d 206, 222 (Del. 2005); Paskill Corp. v. Alcoma Corp., 747 A.2d 549, 553 (Del. 2000); Rapid-Am. Corp. v. Harris, 603 A.2d 796, 802 (Del. 1992); Cavalier Oil Corp. v. Hartnett, 564 A.2d 1137, 1144 (Del. 1989); Bell v. Kirby Lumber Corp., 413 A.2d 137, 141 (Del. 1980); Universal City Studios, Inc. v. Francis I. duPont & Co., 334 A.2d 216, 218 (Del. 1975).

[2] Cede & Co. v. Technicolor, Inc., 1990 WL 161084, at *31 (Del. Ch. Oct. 19, 1990) (quoting In re Del. Racing Ass’n, 213 A.2d 203, 211 (Del. 1965) (citing Tri-Cont’l, 74 A.2d; Chicago Corp. v. Munds, 172 A. 452 (Del. Ch. 1934)), rev’d on other grounds, 636 A.2d 956 (Del. 1994).

[3] See ONTI, Inc. v. Integra Bank, 751 A.2d 904, 915 (Del. Ch. 1999); Gonsalves v. Straight Arrow Publ’rs, Inc., 793 A.2d 312, 316 (Del. Ch. 1998), aff’d in pertinent part, rev’d on other grounds, 725 A.2d 442 (Del. 1999) (TABLE); Cooper v. Pabst Brewing Co., 1993 WL 208763, at *8 (Del. Ch. June 8, 1993). Relatedly, when this court considers comparable company analyses in valuations, it effectively relies upon the market prices of the comparable companies to generate valuation metrics. See, e.g., Andaloro v. PFPC Worldwide, Inc., 2005 WL 2045640, at *18-20 (Del. Ch. Aug. 19, 2005) (Strine, V.C.); Doft & Co. v. Travelocity.com Inc., 2004 WL 1152338, at *8 (Del. Ch. May 20, 2004); Taylor v. Am. Specialty Retailing Gp., Inc., 2003 WL 21753752, at *9 (Del. Ch. July 25, 2003).

[4] See, e.g., Rapid-Am. Corp., 603 A.2d at 806 (“[T]he Court of Chancery long ago rejected exclusive reliance upon market value in an appraisal action.”); Kirby Lumber, 413 A.2d at 141 (“[M]arket value may not be taken as the sole measure of the value of the stock.”); Del. Racing, 213 A.2d at 211 (“It is, of course, equally axiomatic that market value, either actual or constructed, is not the sole element to be taken into consideration in the appraisal of stock.”); Jacques Coe & Co. v. Minneapolis-Moline Co., 75 A.2d 244, 247 (Del. Ch. 1950) (observing that market price should not be exclusive measure of value); Munds, 172 A. at 455 (“There are too many accidental circumstances entering into the making of market prices to admit them as sure and exclusive reflectors of fair value.”).

[5] Highfields Capital, Inc. v. AXA Fin., Inc., 939 A.2d 34, 42 (Del. Ch. 2007); see also M.P.M., 731 A.2d at 796 (“A merger price resulting from arms-length negotiations where there are no claims of collusion is a very strong indication of fair value.”); Prescott Gp. Small Cap, L.P. v. Coleman Co., 2004 WL 2059515, at *27 (Del. Ch. Sept. 8, 2004) (explaining that “the price actually derived from the sale of a company as a whole . . . may be considered as long as synergies are excluded”); see also Van de Walle v. Unimation, Inc., 1991 WL 29303, at *17 (Del. Ch. Mar. 6, 1991) (commenting in an entire fairness case that “[t]he fact that a transaction price was forged in the crucible of objective market reality (as distinguished from the unavoidably subjective thought process of a valuation expert) is viewed as strong evidence that the price is fair”).

[6] See In re Appraisal of Ancestry.com, Inc., 2015 WL 399726, at *16 (Del. Ch. Jan. 30, 2015) (“[A] conclusion that a sale was conducted by directors who complied with their duties of loyalty is not dispositive of the question of whether that sale generated fair value.”); Huff Fund Inv. P’ship v. CKx, Inc., 2013 WL 5878807, at *13 (Del. Ch. Nov. 1, 2013) (“[T]he issue in this case is fair value, not fiduciary duty.”); In re Orchard Enters., Inc., 2012 WL 2923305, at *5 (Del. Ch. July 18, 2012) (Strine, C.) (“[Respondent] makes some rhetorical hay out of its search for other buyers. But this is an appraisal action, not a fiduciary duty action, and although I have little reason to doubt [respondent’s] assertion that no buyer was willing to pay Dimensional $25 million for the preferred stock and an attractive price for [respondent’s] common stock in 2009, an appraisal must be focused on [respondent’s] going concern value”); see also M.P.M., 731 A.2d at 797 (“A fair merger price in the context of a breach of fiduciary duty claim will not always be a fair value in the context of determining going concern value.”); In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 30 (Del. Ch. 2014) (“A price may fall within the range of fairness for purposes of the entire fairness test even though the point calculation demanded by the appraisal statute yields an award in excess of the merger price.”). Compare Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1176-77 (Del. 1995) (affirming that merger consideration of $23 per share was entirely fair), with Cede & Co. v. Technicolor, Inc., 884 A.2d 26, 30 (Del. 2005) (awarding fair value in appraisal of $28.41 per share). See generally Charles R. Korsmo & Minor Myers, Appraisal Arbitrage and the Future of Public Company M&A, 92 Wash. U.L. Rev. 1551, 1608 (2015) (explaining that “[s]atisfying one of the various Revlon-type tests . . . is not necessarily a market test” sufficient to establish fair value for purposes of appraisal); Lawrence A. Hamermesh & Michael L. Wachter, The Fair Value of Cornfields in Delaware Appraisal Law, 31 J. Corp. L. 119, 154 (2005) (“The dissenting shareholders need not prove breach of fiduciary duty, although such a claim is available to them, but only that the sale process was defective in some manner.”).

[7] See, e.g., BMC, 2015 WL 6164771, at *14-15 (giving exclusive weight to merger process where the company conducted “a robust, arm’s-length sales process” that involved “two auctions over a period of several months,” where the company “was able to and did engage multiple potential buyers during these periods,” and where the lone remaining bidder “raised its bid multiple times because it believed the auction was still competitive”); AutoInfo, 2015 WL 2069417, at *12 (giving exclusive weight to merger price that “was negotiated at arm’s length, without compulsion, and with adequate information” and where it was “the result of competition among many potential acquirers”); Ancestry.com, 2015 WL 399726, at *1 (giving exclusive weight to the deal price where the transaction resulted from an “auction process, which process itself involved a market canvas and uncovered a motivated buyer”); id. at *18 (describing sale effort as “an open auction process”); CKx, 2013 WL 5878807, at *14 (evaluating sale process and concluding that “the bidders were in fact engaged in a process resembling the English ascending-bid auction” involving direct competition between bidders); see also Ramtron, 2015 WL 4540443, at *9 (relying on “thorough” sale process initiated in response to “a well-publicized hostile bid and a target actively seeking a white knight”); id. at *21 (observing that “Ramtron actively solicited every buyer it believed could be interested in a transaction” before signing a merger agreement with the hostile bidder); Union Ill. 1995 Inv. Ltd. P’ship v. Union Fin. Gp., Ltd., 847 A.2d 340, 359 (Del. Ch. 2003) (Strine, V.C.) (using merger price as “best indicator of value” where the merger “resulted from a competitive and fair auction” in which “several buyers with a profit motive” were able to evaluate the company and “make bids with actual money behind them”); cf. In re Del Monte Foods Co. S’holders Litig., 25 A.3d 813, 840 n.5 (Del. Ch. 2011) (noting “the importance of the pre-signing phase to developing price competition among private equity bidders”). See generally Brian JM Quinn, Bulletproof: Mandatory Rules for Deal Protection, 32 J. Corp. L. 865, 879-80 (2007) [hereinafter Bulletproof] (surveying literature on auction theory and concluding that “[t]he two key insights are that competition, or the threat of competition, will lead to a price closer to the buyer’s reservation price and that the price effect of one additional competitor is greater than the price effects attributable to bargaining”).

[8] See Jacob K. Goeree & Theo Offerman, Competitive Bidding in Auctions with Private and Common Values, 113 Econ. J. 598, 611 (2003) (explaining that having “all potentially interested bidders participate” before signing produces “more competition [and] results in a more efficient allocation” of surplus between the buyer and seller); id. at 600 (“Another factor improving efficiency is an increase in competition: expected efficiency and expected revenue increase with each extra bidder. In the limit when the number of bidders goes to infinity, an efficient allocation again materializes. Interestingly, the effect of more competition on efficiency and revenues is stronger than the effect of information provided by the auctioneer. When the seller has the choice between finding more interested bidders or providing information about the value of the commodity, she should choose the former.”); Jeremy Bulow & Paul Klemperer, Auctions Versus Negotiations, 86 Am. Econ. Rev. 180, 180 (1996) (conducting empirical study and concluding that “a single extra bidder more than makes up for any diminution in negotiating power” such that “there is no merit in arguments that negotiation should be restricted to one or a few bidders to allow the seller to maintain more control of the negotiating process, or to credibly withdraw the company from the market”); cf. Nihat Aktas et al., Negotiations Under the Threat of an Auction, 98 J. Fin. Econ. 241, 242 (2010) (finding that “that target-initiated deals are more often auctions while negotiations are more frequently initiated by bidders”).

[9] Guhan Subramanian, The Drivers of Market Efficiency in Revlon Transactions, 28 J. Corp. L. 691, 691 (2003) (quoting Author’s Interview with Martin Lipton, Senior Partner, Wachtell, Lipton, Rosen & Katz, in New York, NY (June 14, 2000)).

[10] See DFC Glob., 2016 WL 3753123, at *21 (giving weight to deal price where sale process “involved DFC’s advisor reaching out to dozens of financial sponsors as well as several potential strategic buyers”); BMC, 2015 WL 6164771, at *14 (giving exclusive weight to merger process where the company conducted “a robust, arm’s-length sales process” that included “two auctions over a period of several months” and involved both financial sponsors and strategic buyers); AutoInfo, 2015 WL 2069417, at *3 (relying exclusively on deal price where financial advisor contacted 164 potential strategic and financial acquirers, approximately 70 signed NDAs and received a confidential information memorandum, interested parties received several weeks of due diligence, ten bidders submitted indications of interest, and nine moved on to a second round); Ramtron, 2015 WL 4540443, at *23 (relying exclusively on deal price where financial advisor “(1) contacted twenty-four third parties . . .; (2) sent non-disclosure agreements (`NDAs’) to twelve . . .; (3) received executed NDAs from six . . .; and (4) remained in discussions with [three]”); Ancestry.com, 2015 WL 399726, at *3 (relying exclusively on deal price where process that involved discussion with fourteen potential bidders, including six potential strategic buyers and eight financial sponsors); CKx, 2013 WL 5878807, at *4-5(relying exclusively on deal price where sale process in which sell-side financial advisor reached out to multiple financial and strategic buyers). Compare Dell Fair Value, 2016 WL 3186538, at *7-10, *29, *36-37 (giving limited weight to deal price where pre-signing phase involved no strategic bidders and only two financial sponsors, one of which dropped out, as did the firm invited to replace it).

[11] A common value auction is one in which “every bidder has the same value for the auctioned object.” Peter Cramton & Alan Schwartz, Using Auction Theory to Inform Takeover Regulation, 75 L. Econ. & Org. 27, 28-29 (1991). A private value auction is one in which “the value of the auctioned object differs across potential acquirers.” Id.

[12] Jeremy Bulow & John Roberts, The Simple Economics of Optimal Auctions, 97 J. Pol. Econ. 1060, 1065 (1989); accord Paul Klemperer, Auction Theory: A Guide to the Literature, 13 J. Econ. Survs. 227, 230 (1999).

[13] See Paul Povel & Rajdeep Singh, Takeover Contests with Asymmetric Bidders, 19 Rev. Fin. Stud. 1399, 1399-1400 (2006); Christina M. Sautter, Auction Theory and Standstills: Dealing with Friends and Foes in A Sale of Corporate Control, 64 Case W. Res. L. Rev. 521, 529 (2013).

[14] See Dell Fair Value, 2016 WL 3186538, at *30 (“[T]he outcome of competition between financial sponsors primarily depends on their relative willingness to sacrifice potential IRR.”); see also Povel & Singh, supra, at 1399-1400. See generally Paul Gompers, Steven N. Kaplan, & Vladimir Mukharlyamov, What Do Private Equity Firms Say They Do?, 121 J. Fin. Econ. 449, 450 (2016) (noting predominance of similar techniques and strategies across private equity firms). An exception would be a financial buyer with a synergistic portfolio company, which would provide a source of private value.

[15] Alexander S. Gorbenko & Andrey Malenko, Strategic & Financial Bidders in Takeover Auctions, 69 J. Fin. 2513, 2514 (2014); see id. at 2532 (finding that the “average valuation of a strategic (financial) bidder of an average target is 16.7% (11.7%) above its value under the current management”); id. at 2538 (“Not only do strategic acquirers pay, on average, higher premiums than financial acquirers, but the maximum premiums that they are willing to pay are considerably higher.”); Mark E. Thompson & Michael O’Brien, Who Has the Advantage: Strategic Buyers or Private Equity Funds?, Financier Worldwide (Nov. 2005) (“Strategic buyers have traditionally had the advantage over private equity funds, particularly in auctions, because strategic buyers could pay more because of synergies generated from the acquisition that would not be enjoyed by a fund.”).

[16] See Steven N. Kaplan & Per Strömberg, Leveraged Buyouts and Private Equity, 23 J. Econ. Perspectives 121, 122 (2009) (“[T]here is also evidence consistent with private equity investors taking advantage of market timing (and market mispricing) between debt and equity markets particularly in the public-to-private transactions of the last 15 years.”); id. at 136 (“[P]rivate equity firms pay lower premiums than public company buyers in cash acquisitions. These findings are consistent with private equity firms identifying companies or industries that turn out to be undervalued. Alternatively, this could indicate that private equity firms are particularly good negotiators, and/or that target boards and management do not get the best possible price in these acquisitions.”); id. at 135-36 (“[P]ost-1980s public-to-private transactions experience only modest increases in firm operating performance, but still generate large financial returns to private equity funds. This finding suggests that private equity firms are able to buy low and sell high.”).

[17] See DFC Glob., 2016 WL 3753123, at *22; Dell Fair Value, 2016 WL 3186538, at *29; see also Joshua Rosenbaum & Joshua Pearl, Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions 235-36 (2009) (explaining that a sponsor’s ability to pay in a leveraged buy-out is constrained by “leverage capacity, credit market conditions, and the sponsor’s own IRR hurdles”).

[18] See Dell Fair Value, 2016 WL 3186538, at *36 (“[T]he prospect of post-signing competition can help raise the price offered during the pre-signing phase.”); Brian JM Quinn, Omnicare: Coercion and the New Unocal Standard, 38 J. Corp. L. 835, 844 (2013) (“[K]nowing that a transaction will include a go-shop, wherein the seller will treat the initial bidder as a stalking horse to generate an active post-signing auction, may incent initial bidders to offer a preemptive bid to deter subsequent bids. In that view, the prospect of competition, even if no competition subsequently emerges, should be sufficient incentive for a bidder to shift transaction surplus to the seller.”).

[19] The focus is on a reasonable number of bidders, rather than all potential bidders, because as the number of bidders increases, the marginal value of each additional bidder declines. “At about 10 bidders, you’ll get 85% of the revenue that you could expect to get from an auction with 50 bidders.” Guhan Subramanian, Negotiation? Auction? A Deal Maker’s Guide, Harv. Bus. Rev. (Dec. 2009), https://hbr.org/2009/12/negotiation-auction-a-deal-makers-guide.

[20] See DFC Glob., 2016 WL 3753123, at *21.

[21] See Dell Fair Value, *32 (“A second factor that undermined the persuasiveness of the Original Merger Consideration as evidence of fair value was the widespread and compelling evidence of a valuation gap between the market’s perception and the Company’s operative reality.”). In the Dell Fair Value decision, the misperception resulted from “(i) analysts’ focus on short-term, quarter-by-quarter results and (ii) the Company’s nearly $14 billion investment in its transformation, which had not yet begun to generate the anticipated results.” Id.

[22] J. Russel Denton, Note, Stacked Deck: Go-Shops & Auction Theory, 60 Stan. L. Rev. 1529, 1536 (2008) (citing Jeremy Bulow, Ming Huang & Paul Klemperer, Toeholds and Takeovers, 107 J. Pol. Econ. 427, 430 (1999)). In an ascending private value auction, the winning bidder is more likely to have prevailed because it has a greater private value than the next highest bidder. See Denton, supra, at 1536. In common value auctions, the prospect of information asymmetries drives the winner’s curse. See Dell, 2016 WL 3186538, at *42; Paul Povel & Rajdeep Singh, Takeover Contests with Asymmetric Bidders, 19 Rev. Fin. Stud. 1399-1400 (2006).

[23] See Dell Fair Value, 2016 WL 3186538, at *33-36 (explaining why record supported existence of significant valuation gap, driven by short-term pessimism, that depressed the market price and anchored price negotiations below fair value); Malcom Baker, Xin Pan, & Jeffery Wurgler, The Effect of Reference Point Prices on Mergers and Acquisitions, 106 J. Fin. Econ. 49, 50 (2012) (finding the “26-week high price [of a particular stock] has a statistically and economically significant effect on offer prices [in mergers and acquisitions], and the 39-, 52-, and 65-week high prices also have independent explanatory power” and speculating as to the causes of this reference point effect); id. at 64-65 (finding that deals with higher premiums tend to close more often, which is “consistent with reference point behavior.”); Inga Chira & Jeff Madura, Reference Point Theory and Pursuit of Deals, 50 Fin. Rev. 275, 277, 299 (2015) (“Our analysis reveals that a higher target 52-week reference point, relative to the target’s current stock price, . . . increases the likelihood of a management buy out (MBO). . . . Overall, the results from our analyses offer strong evidence that target and bidder reference points serve as potent anchors that shape the outcomes and structures of mergers.”); Sangwon Lee & Vijay Yerramilli, Relative Values, Announcement Timing, and Shareholder Returns in Mergers and Acquisitions 2 (January 2016) (unpublished manuscript) (adopting finding of Baker, Pan, & Wurger, supra, that “key decision makers in the bidding and target firms and investors are likely to use recent prices as reference points”). See generally Guhan Subramanian, Negotiauctions: New Dealmaking Strategies for a Competitive Marketplace, 16-18 (2010) (explaining that anchoring “works by influencing your perceptions of where the [zone of possible agreement] lies”).

[24] See M.P.M., 731 A.2d at 796 (“A merger price resulting from arms-length negotiations where there are no claims of collusion is a very strong indication of fair value.”); Paul Klemperer, What Really Matters in Auction Design, 16 J. Econ. Persp. 169, 170 (2002) (citing “the risk that participants may explicitly or tacitly collude to avoid bidding up prices”).

[25] See DFC Glob., 2016 WL 3753123, at *21 (giving weight to deal price where “[t]he deal did not involve the potential conflicts of interest inherent in a management buyout or negotiation to retain existing management”); CKx, 2013 WL 5878807, at *13 (giving exclusive weight to sales process where “[t]he record and the trial testimony supports a conclusion that the process by which [the company] was marketed to potential buyers was thorough, effective, and free from any spectre of self-interest or disloyalty.”). For these and other reasons, “the weight of authority suggests that a claim that the bargained-for price in an MBO represents fair value should be evaluated with greater thoroughness and care than, at the other end of the spectrum, a transaction with a strategic buyer in which management will not be retained.” Dell Fair Value, 2016 WL 3186548, at *28. See Iman Anabtawi, Predatory Management Buyouts, 49 U.C. Davis L. Rev. 1285, 1320 (2016) (discussing factors that undermine pricing efficiency in the market for corporate control when the transaction is an MBO); Matthew D. Cain & Steven M. Davidoff, Form Over Substance? The Value of Corporate Process and Management Buy-outs, 36 Del. J. Corp. L. 849, 862 (2011) (“There is a more concrete argument against MBOs on fairness grounds. It is the prospect that management is utilizing inside information when it arranges an MBO. Management by its inherent position has in its possession non-public knowledge of the corporation, and management can use this informational asymmetry between itself and public shareholders to time the buy-out process. MBOs can thus be arranged at advantageous times in the business cycle or history of the corporation.” (footnotes omitted)); Marcel Canoy, Yohanes E. Riyanto & Patrick van Cayseele, Corporate Takeovers, Bargaining and Managers’ Incentives to Invest, 21 Managerial & Decision Econs. 1, 2, 14 (2000) (“Long-term investments, such as R&D investments, are slow yielding and more difficult to be evaluated by the market, despite the fact that they could generate higher profits. Consequently, firms investing heavily in long-term projects may be more susceptible to a takeover attempt. . . . If being taken over is better than taking over [for target management] . . . then obviously, [management] would like to overinvest to facilitate a takeover. . . .”); Deborah A. DeMott, Directors’ Duties in Management Buyouts and Leveraged Recapitalizations, 49 Ohio St. L.J. 517, 536 (1988) (explaining that overhang from past acquisitions may artificially depress a company’s stock market price and make the buyout price appear generous); James R. Repetti, Management Buyouts, Efficient Markets, Fair Value, and Soft Information, 67 N.C. L. Rev. 121, 125 (1988) (“Other methods for management to realize large gains in management buyouts are not as innocuous as the use of leverage or as apparently innocuous as increasing cash flow. Management may actively depress the price of the shares prior to the management buyout in order to reduce the price they have to pay. Management may accomplish this by . . . channeling investments into long-term projects which will not provide short-term returns.”); James Vorenberg, Exclusiveness of the Dissenting Stockholder’s Appraisal Right, 77 Harv. L. Rev. 1189, 1202-03 (1964) (“Far more difficult is ensuring to departing stockholders the benefit of improved prospects, where, at the time of appraisal, the evidence of improvement is more intuitive than tangible. . . . The appraisal process will tend to produce conservative results where the values are speculative, and the majority’s power to pick the time at which to trigger appraisal may encourage them to move when full values may be temporarily obscured.” (footnote omitted)); see also Benjamin Hermalin & Alan Schwartz, Buyouts in Large Companies, 25 J. Legal Stud. 351, 356 (1996) (“With respect to timing, the firm could initiate a freeze-out (i) before it invests effort, (ii) after it invests effort but before the value of the firm conditional on effort is revealed, or (iii) after the value of the firm is revealed but before earnings are realized. We generally assume that the firm would wait until point iii because waiting in the model is costless but produces gains: were the firm to initiate a freeze-out before it learns its value, it might have to pay too much.”).

[26] See JX 296 ¶ 79 (finding that a merger agreement contained a go-shop in only 4% of sample of transactions that involved a strategic entity buying a publicly traded U.S. target for a deal price above $100 million); id. ¶ 80 (finding that only 1% of transactions had an auction and a go-shop where strategic buyers acquired a U.S. publicly traded target for a deal price above $100 million).

[27] See Denton, supra, at 1547 (“In the sixty-three deals that utilized go-shop provisions, there have been nine deals with jump bids. Furthermore, there were jump bids in none of the MBOs containing go-shops. . . . Of the nine jump bids that were made, strategic buyers made seven.” (footnotes omitted)); id. at 1549 (“[G]o-shops have structures that discourage bidding wars between financial buyers. Management involvement with the initial private equity bidder only increases the advantages that are given to the initial bidder, since it gives the initial bidder better information about the value of the target. Despite appearing to encourage additional bidders and a post-signing auction, go-shop provisions are structured in a way that discourages financial buyers from bidding for the company.”).

[28] A matching right is the functional equivalent of a right of first refusal and can foreclose a topping bidder from having a realistic path to success. See Bulletproof, supra, at 870 (“The presence of rights of first refusal can be a strong deterrent against subsequent bids. . . . Success under these circumstances may involve paying too much and suffering the `winner’s curse.'”); see also Frank Aquila & Melissa Sawyer, Diary Of A Wary Market: 2010 In Review And What To Expect In 2011, 14 M & A Law. Nov.-Dec. 2010, at 1 (“Match rights can result in the first bidder `nickel bidding’ to match an interloper’s offer, with repetitive rounds of incremental increases in the offer price. . . . Few go-shops are successful as it is . . . and match rights are just one more factor that may dissuade a potential competing bidder from stepping in the middle of an already-announced transaction.”); Marcel Kahan & Rangarajan K. Sundaram, First-Purchase Rights: Rights of First Refusal and Rights of First Offer, 14 Am. L. & Econ. Rev. 331, 331 (2012) (finding “that a right of first refusal transfers value from other buyers to the right-holder, but may also force the seller to make suboptimal offers”); David I. Walker, Rethinking Rights of First Refusal, 5 Stan. J.L. Bus. & Fin. 1, 20-21 (1999) (discussing how a right of first refusal affects bidders); cf. Steven J. Brams & Joshua R. Mitts, Mechanism Design in M&A Auctions, 38 Del. J. Corp. L. 873, 879 (2014) (“The potential for a bidding war remains unless interlopers are restricted-say, to one topping bid, which then can be matched.”).

[29] Duff & Phelps, 2015 Valuation Handbook, supra, at 5-7 (“If a fundamental change in the business environment in which an individual company (or even an industry) operates occurs, the valuation analyst should consider whether using historical data from before the change should be included in the overall [beta] analysis.”). As an example, the Duff and Phelps 2015 Valuation Handbook cites the effect of the Great Recession on the financial sector, suggesting it would not be appropriate for an analyst to include pre-crisis data. Id.

[30] Holthausen & Zmijewski, supra, at 300 (“Using more recent data might better reflect a company’s current (and more forward-looking) systematic risk. Betas can shift because of changes in capital structure or because of changes in the underlying business risk of the company, or because of fundamental changes in the market. . . .”); Tim Koller, Marc Goedhart & David Wessels, Valuation: Measuring and Managing the Value of Companies 247 (5th ed. 2010) (advocating for five-year monthly but noting that “changes in corporate strategy or capital structure often lead to changes in risk for stockholders. In this case, a long estimation period would place too much weight on irrelevant data”); Shannon P. Pratt & Roger J. Grabowski, Cost of Capital: Applications and Examples 208 (5th ed. 2014) (“Most services that calculate beta use a two- or five-year sample measurement or look-back period. Five years is the most common . . . But if the business characteristics change during the sampling period . . ., it may be more appropriate to use a shorter sampling period. However, as the sampling period used is reduced, the accuracy of the estimate is generally reduced.”); see DFC Glob., 2016 WL 3753123, at *10 n.124 (“[L]ong estimation period may be inappropriate when analysis of the five-year historical chart shows changes in corporate strategy or capital structure that could render prior data irrelevant.” (citing Koller, Goedhart & Wessels, supra, at 247)); see also James R. Hitchner, Financial Valuation: Applications and Models 256 (3d ed. 2011) (noting that in measuring closely-held companies, sources “use anywhere from a two- to five-year period to measure beta, with the five-year period being the most common”).

[31] John Y. Campbell, Andrew W. Lo & A. Craig Mackinlay, The Econometrics of Financial Markets 184 (1997); Holthausen & Zmijewski, supra, at 301 (noting that Bloomberg’s default is to use “104 weeks of weekly observations or two years of data”); id. at 300 (“The most commonly used intervals for estimating betas are monthly, weekly, and, to a lesser extent, daily returns. The precision of regression parameters tends to increase with more observations; hence, all else equal, we prefer to use more observations.”); id. at 302 (“When using daily beta, a common rule of thumb is to use one to two years of data. . . . When using weekly data, it is a fairly common practice to use two years of data. . . .); see also Hitchner, supra, at 256 (noting that in valuing closely-held companies, “the frequency of the data measurements varies, with monthly data being the most common, although some sources use weekly data”).

[32] Appraisal Rights, supra, at A-31 (citing ONTI, 751 A.2d at 907) (basing fair value calculation on one expert’s valuation, “modifying it where appropriate by the primary adjustment claims asserted by [the company]”); Kleinwort Benson Ltd. v. Silgan Corp., 1995 WL 376911, at *5 (Del. Ch. June 15, 1995) (“I will not construct my own DCF model. From the evidence presented by [the] experts, I will choose the DCF analysis that best represents Silgan’s value. Next, . . . I will scrutinize that DCF analysis to remove the adversarial hyperbole that inevitably influences an expert’s opinion in valuation proceedings.” (citation omitted))).

[33] Pabst Brewing Co., 1993 WL 208763, at *8; accord Del. Open MRI Radiology Assocs., 898 A.2d at 310-11 (“I cannot shirk my duty to arrive at my own independent determination of value, regardless of whether the competing experts have provided widely divergent estimates of value, while supposedly using the same well-established principles of corporate finance.”).

[34] Id. If the respondent corporation had relied affirmatively on the deal price and made some attempt to deal with synergies, it seems likely that the court would have given the deal price at least some weight. The transaction resulted from a process that involved a pre-signing outreach to twenty-five potential strategic and financial partners, followed by competition among four strategic bidders to acquire the company. See id. at *2-3. Using a DCF analysis, the court ultimately determined that the fair value of the company as $10.87 per share, just above the deal price. Id. at *26. If the respondent had made a different tactical decision, the 3M Cogent court could well have relied on the deal price.

 

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LESLIE J. SHAW, Plaintiff,
v.
CITIMORTGAGE, INC.; et al., Defendants.

No. 3:13-CV-0445-LRH-VPC.United States District Court, D. Nevada.August 17, 2016.Leslie Shaw, Esq., Plaintiff, represented by John Ohlson, John Ohlson.

CitiMortgage, Inc., Defendant, represented by Andrew A. Bao, Wolfe & Wyman LLP & Colt B. Dodrill, Wolfe & Wyman LLP.

ORDER

LARRY R. HICKS, District Judge.

This is a breach of contract action arising from an alleged residential loan modification agreement between plaintiff Leslie J. Shaw (“Shaw”) and defendant CitiMortgage, Inc. (“CMI”). Shaw alleges that in mid-2011, the parties executed a loan modification agreement on his residential home loan, but CMI breached the agreement prompting Shaw to stop making payments on his modified loan. Shaw then fell into default and CMI initiated non-judicial foreclosure proceedings in early 2013.

On July 26, 2013, Shaw filed a complaint against CMI and defendant Northwest Trustee Services, Inc. (“NTS”), the trustee identified on the recorded notice of default. ECF No. 1, Exhibit A, p. 8-19. On April 3, 2014, Shaw filed an amended complaint adding defendant Bank of New York Mellon (“BNY”), as trustee for SASCO Fund 2003-37A, as a defendant to this action. ECF No. 52. Subsequently, on August 25, 2014, Shaw filed a second amended complaint against defendants alleging eight causes of action: (1) declaratory relief against defendant BNY; (2) declaratory relief against defendant CMI; (3) breach of contract; (4) breach of the implied covenants of good faith and fair dealing; (5) fraudulent misrepresentation and concealment; (6) negligent misrepresentation; (7) interference with prospective economic advantage; and (8) violation of the Real Estate Settlement Procedures Act (“RESPA”). ECF No. 109.

On January 14, 2015, the court granted defendant NTS’ motion to dismiss (ECF No. 110) and dismissed NTS as a defendant in this action. ECF No. 124. Three weeks later, on February 5, 2015, the court granted defendants BNY and CMI’s motion to dismiss (ECF No. 113). ECF No. 128. In that order, the court dismissed BNY as a defendant and dismissed Shaw’s fifth cause of action for fraudulent misrepresentation and sixth cause of action for negligent misrepresentation. Id.

A bench trial was held on Shaw’s remaining claims^[1] against sole-remaining defendant CMI from May 3 through May 5, 2016. See ECF Nos. 203-05. The court, having heard the testimony of all witnesses at trial^[2] and having considered all exhibits accepted into evidence, renders the following findings of fact and conclusions of law:^[3]

I. Findings of Fact

1. Plaintiff Shaw is a resident of the State of Nevada. Shaw is also an attorney duly licensed to practice law in the States of Nevada and California. Shaw practices primarily in the areas of family and divorce law and during the relevant time period had a practice at Lake Tahoe that moved to Reno, Nevada.

2. In 2001, Shaw purchased a vacant lot located in Zephyr Cove, Nevada, and built a singlefamily residence commonly known as 251 McFaul Court (“the McFaul Court property”), the underlying residential property at issue in this action.

3. On October 8, 2003, Shaw executed a promissory note for a residential home loan on the McFaul Court property in favor of non-party Lehman Brothers Bank, FSB (“Lehman Brothers”), a federal savings bank, in the amount of $875,000.00 with an adjustable interest rate starting at 5.125%. The residential loan was secured by a first deed of trust recorded against the McFaul Court property on October 14, 2003, in the official records of Douglas County, Nevada (Doc. No. 0593479). Def. Trial Ex. 501-B, CMI000001-22.

4. Immediately following the execution of the residential home loan, non-party Aurora Loan Services (“Aurora”), a servicing branch of Lehman Brothers, began servicing Shaw’s residential loan and accepted all mortgage payments on behalf of non-party Lehman Brothers. In June 2005, Aurora ceased servicing the loan and transferred the servicing rights to CMI.

5. At some point prior to the relevant time period, Lehman Brothers sold Shaw’s residential home loan as part of an investment mortgage package to an unknown party.

6. Defendant CMI, a foreign corporation duly qualified to conduct business in the State of Nevada, is a mortgage servicing company. CMI is owned by non-party CitiBank and is part of the Citi Group corporate organization. Since June 2005, CMI has been servicing Shaw’s residential home loan and has collected all payments on behalf of the various owners of the loan. On June 20, 2012, CMI became the beneficiary under the first deed of trust pursuant to an assignment of deed of trust recorded in the official records of Douglas County, Nevada (Doc. No. 0804389). Def. Trial Ex. 504-B, CMI000038-39.

7. Each mortgage account serviced by CMI is assigned an electronic account file. The electronic account file, identified by a specific numerical identifier (the mortgage account number), is accessible to CMI employees and contains information about each particular account including payment information, loan terms, account notes, and other relevant account information. As part of its servicing of Shaw’s residential home loan, CMI maintained such an electronic account file for Shaw’s loan. It is in this electronic account that CMI booked the terms of Shaw’s residential loan and all payments made under that agreement.

8. In August 2006, Shaw and his then wife, non-party Janice Shaw, separated. As part of their eventual divorce — as evidenced by the divorce decree issued in July 2007 — Shaw was awarded the McFaul Court property as his sole and separate property.

9. On or about January 19, 2007, Shaw obtained a loan from non-party Katherine Barkley in the amount of $225,000.00 at an annual interest rate of 10%. This loan was secured by a second deed of trust recorded against the McFaul Court property on January 23, 2007, in the official records of Douglas County, Nevada (Doc. No. 0693296). Def. Trial Ex. 502-B, CMI000023-27.

10. On September 20, 2007, a third deed of trust was recorded in the amount of $77,123.50 against the McFaul Court property in favor of non-party Janice Shaw, Shaw’s ex-wife, in the official records of Douglas County, Nevada (Doc. No. 0709512). Def. Trial Ex. 503-B, CMI000028-37.

11. In 2010, Shaw began experiencing financial difficulties. On or about the fall of 2010, while still current on his monthly mortgage payments, Shaw contacted CMI to request a modification of his residential mortgage loan. At that time, Shaw’s monthly mortgage obligation was approximately $4,300.00.

12. During the relevant time period, CMI had a company policy that it would not consider any application for the modification of an existing loan unless a borrower was at least three (3) months in arrears on the borrower’s monthly mortgage obligations. This policy was communicated to Shaw during one of the telephonic conversations in the fall of 2010.

13. Beginning October 2010, and continuing through December 2010, Shaw withheld his monthly mortgage payments from CMI. Def. Trial Ex. 510-B, CMI000067. Shaw then contacted CMI and received a loan modification application. Shaw completed and submitted the application to CMI in early December 2010.

14. CMI reported Shaw’s mortgage account as delinquent to the various credit reporting agencies for the months that Shaw withheld payment on his account: October, November, and December 2010.

15. At the time he submitted his loan modification application Shaw had never, in memory, been denied an application for credit and was current on all credit obligations except for his mortgage account.

16. On December 24, 2010, Shaw received an e-mail from CMI. Pl. Trial Ex. 1, P00001. The e-mail advised Shaw that his “mortgage assistance request [had] been approved” and he could expect a “mortgage solution package within the next 5-7 business days.” Id.

17. On December 28, 2010, four days after receiving CMI’s approval e-mail, Shaw received a letter from CMI denying his request for a loan modification. Pl. Trial Ex. 2, P00002-5. The letter specifically stated that CMI could not “approve a mortgage modification under the government’s Home Affordable Modification Program (“HAMP”)” and that Shaw’s “mortgage terms [would] remain unchanged.” Id. at P00002. At the time Shaw received this letter from CMI, he had not applied for a specific HAMP loan modification. Rather, Shaw had only applied for a general loan modification with defendant CMI.^[4]

18. Commencing on or about December 28, 2010, and continuing through February 2011, Shaw began near daily telephonic efforts with CMI to resolve the inconsistent and contradictory written communications of December 24 and December 28, 2010. Despite repeated phone calls with CMI employees in various departments, including Loss Mitigation, Shaw never received an explanation as to why he received two separate communications from CMI about his loan modification application, or why he had been denied a modification after already receiving notification that his application had been approved.^[5] Further, Shaw did not receive an answer from CMI as to which of the two communications constituted CMI’s final determination of his loan modification application.

19. Shaw did not make either of his monthly mortgage payments for January or February 2011. Def. Trial Ex. 510-B, CMI000067. Subsequently, CMI reported Shaw’s mortgage account as delinquent to the various credit reporting agencies for those months.

20. Between December 28, 2010, and early February 2011, Shaw did not receive any written communication from CMI concerning his loan modification application.

21. On February 15, 2011, Shaw received another e-mail from CMI. Pl. Trial Ex. 3, P00006. This e-mail again advised Shaw that his “mortgage assistance request [had] been approved” and that he could expect a “mortgage solution package within the next 5-7 business days.” Id.

22. On or about February 16, 2011, after receiving CMI’s second approval e-mail, Shaw received another letter from CMI again denying his request for a loan modification. Pl. Trial Ex. 4, P00007-10. The letter specifically stated that CMI could not “approve a mortgage modification under the government’s Home Affordable Modification Program (“HAMP”)” and that Shaw’s “mortgage terms [would] remain unchanged.” Id. at P00007.

23. Commencing February 16, 2011, Shaw again contacted CMI to resolve the inconsistent and contradictory written communications concerning his loan modification application. Despite repeated calls with CMI employees, Shaw never received an explanation why he had received new communications regarding his application,^[6] or why he had once again been denied mortgage assistance after receiving notification that his loan modification application had been approved. Further, Shaw did not receive an answer from CMI as to which of the four communications constituted CMI’s final determination of his loan modification application.

24. On or about February 23, 2011, Shaw received a mortgage solution package from CMI. Def. Trial Ex. 505-A, CMI000051-56. The mortgage solution package advised Shaw that he had been “approved to enter into a trial period plan” modifying his residential loan for a period of ninety (90) days. Id. at CMI000051. The package further advised Shaw that in order to qualify for a permanent modification, Shaw must comply with two requirements. First, Shaw was required to timely make three modified monthly mortgage payments of $3,079.30 starting March 2011. Id. Second, Shaw was required to submit various documents to CMI. Id. If Shaw complied with both requirements, CMI advised Shaw that his residential home loan would be “permanently modified” and it would send him “a modification agreement detailing the terms of the modified loan.” Id. at CMI000052.

25. Shaw timely made all three required trial payments of $3,079.30 under the trial period plan for the months of March, April, and May 2011. Def. Trial Ex. 510-B, CMI000067.

26. CMI reported Shaw delinquent on his mortgage account to the various credit reporting agencies for the months of March, April, and May 2011, despite granting Shaw a trial modification plan and having received all three modified payments in a timely manner. By this time, Shaw had been reported delinquent on his mortgage account for eight months.

27. During the time period after submitting his loan modification application through the time of the trial modification plan, Shaw received various collection calls from CMI seeking payment on his delinquent account. Approximately April 2011, Shaw registered for CMI’s no-call list, thereby precluding CMI from initiating telephonic contact with Shaw. Since that time, Shaw has received no telephonic attempts to collect on his mortgage account.

28. On May 11, 2011, having submitted all trial plan payments, Shaw received an e-mail from CMI advising him that his “mortgage assistance documents [had] been sent” the previous day, May 10, 2011. Pl. Trial Ex. 5, P00011. The e-mail further directed Shaw to “review and sign the documents as instructed.” Id.

29. On May 18, 2011, Shaw received a letter from CMI authored by CMI employee Kim Vukovich (“Vukovich”). Pl. Trial Ex. 6, P00014-20. The letter advised Shaw that he was “eligible for a Citi Affordable Modification” and directed him to complete and return the enclosed modification agreement (also prepared by Vukovich) no later than May 20, 2011. Id. at P00014. The enclosed proposed modification agreement, titled “Citi Affordable Modification Agreement” (“May 2011 Modification Agreement”), outlined the various terms of the proposed loan modification. Id. at P00016-20. Those terms included, in relevant part to this action, that: (1) permanent modified payments in the amount of $3,079.30^[7] would commence starting June 1, 2011; (2) the new principal balance under the modified loan would be set at $910,110.34 and include all past due amounts, including the difference between the original monthly payment amount (approximately $4,300) and the payment amount made under the three months of the trial modification plan ($3,079.30); (3) $85,777.89 of the new principal balance was deferred from interest charges during the life of the modification and would be due as a balloon payment; (4) the effective date of the properly executed agreement would be May 1, 2011; and (5) the maturity date under the modified loan would be November 1, 2033. Id.

30. Also on May 18, 2011, Shaw promptly executed, by notarized signature, the May 2011 Modification Agreement and submitted the signed agreement to CMI via an enclosed Next Day Air envelope. Pl. Trial Ex. 6, P00013; Def. Trial Ex. 506-A, CMI000061.

31. On May 19, 2011, CMI received the executed May 2011 Modification Agreement. Pl. Trial Ex. 7, P00021.

32. On May 23, 2011, CMI entered and booked the terms of the May 2011 Modification Agreement into Shaw’s electronic mortgage account. Def. Trial Ex. 510-B, CMI000066. At the time CMI booked the terms of the modification, CMI misentered the length of the loan, extending the loan from three hundred and sixty (360) months to four hundred and eighty (480) months. Id. This administrative booking error extended the loan maturity date and subsequent due date of the $85,777.89 balloon payment from November 1, 2033, to November 1, 2045.

33. Shaw timely made his modified mortgage payments of $3,079.30 for the months of June and July 2011. Def. Trial Ex. 510-B, CMI000066.

34. On June 30, 2011, Larry Bauman, Vice-President for CMI, executed, by notarized signature, the May 2011 Modification Agreement. Def. Trial Ex. 506-A, CMI000061; Pl. Trial Ex. 18, P00055-56.

35. From May 20, 2011, through mid-July 2011, Shaw did not receive any communication from CMI concerning the May 2011 Modification Agreement and was not informed that the agreement had been executed by CMI.

36. Prior to July 2011, Shaw maintained, in good standing, a Diners Club Charge Card credit account and had sufficient credit to qualify as a cosigner on his daughter’s student loans obtained through non-party Wells Fargo Bank. At that time, Shaw was also at the tail end of a thirty-six (36) month lease agreement with non-party Audi Financial Services on a 2008 Audi A-4 automobile.

37. Approximately early-July 2011, Loss Mitigation reviewed Shaw’s mortgage account and unilaterally determined that there was an issue with the modified terms of his residential loan booked pursuant to the May 2011 Modification Agreement documents. Loss Mitigation then, without consultation or communication with Shaw, unbooked the May 2011 Modification Agreement from Shaw’s electronic mortgage account. Def. Trial Ex. 510-B, CMI000065-66. This action automatically unbooked Shaw’s timely made modified mortgage payments under both the trial and permanent modification periods, and placed his account in default. Id. As Shaw’s account then showed that no payment had been made on his account for the months of June and July 2011, CMI reported Shaw’s account as delinquent to the various credit reporting agencies for those months.

38. On July 15, 2011, non-party BMO Financial Group sent Shaw a letter advising him that his Diners Club Charge Card account, a credit account with Citicorp Credit Services, Inc., was going to be closed effective July 20, 2011. Pl. Trial Ex. 50, P00022.

39. On July 16, 2011, non-party U.S. Bank, National Association sent Shaw a letter advising him that his credit application for an auto loan to purchase his leased 2008 Audi A-4 automobile had been denied. Pl. Trial Ex. 51, P00023.

40. On July 18, 2011, CMI sent Shaw a letter advising him that his mortgage account was in default and that monthly mortgage payments had not been made as required under his residential home loan. Pl. Trial Ex. 10, P00035-36. In that letter, CMI further demanded Shaw pay, in full, the past due amount of $31,684.34 by August 18, 2011, or the McFaul Court property could be sold in accordance with the terms of the first deed of trust. Id. at P00035.

41. On July 19, 2011, CMI sent Shaw a letter authored by CMI employee Juan Mayorga (“Mayorga”).^[8] Pl. Trial Ex. 9, P00025-33. This letter again advised Shaw that he was “eligible for a Citi Affordable Modification” and directed him to complete and return the new “corrected” modification agreement (separately prepared by Mayorga) no later than August 2, 2011. Id. at P00025. The enclosed “corrected” modification agreement, again titled “Citi Affordable Modification Agreement” (“July 2011 Modification Agreement”), outlined the various terms and provisions of the new agreement. Id. at P00027-33. The majority of the terms in the July 2011 Modification Agreement were similar, or even identical, to the terms and provisions of the May 2011 Modification Agreement, including that: (1) permanent modified payments of $3,079.30 would commence starting June 1, 2011;^[9] (2) the modified principal balance was set at $910,110.34; (3) $85,777.89 of the principal balance was deferred from interest charges and would be due as a balloon payment; (4) the effective date of the properly executed agreement would be May 1, 2011; and (5) the maturity date under the modified residential loan would be November 1, 2033. Id. However, the July 2011 Modification Agreement also included specific language establishing the due date of the deferred principal balloon payment that was not in the May 2011 Modification Agreement. Compare Pl. Trial Ex. 6 at P00018 (no date) with Pl. Trial Ex. 9 at P00028 (establishing the maturity date of the modified loan (November 1, 2033) as the due date). Further, the “corrected” agreement contained several additional provisions that were not in the May 2011 Modification Agreement, including Section 5(G). Id. at P00032. Section 5(G) required, in pertinent part, that under the July 2011 Modification Agreement Shaw would be required to execute any and all other documents requested by CMI or forfeit all his rights under the modified agreement. Id. (“If I elect not to sign any such corrected documentation, the terms of the original Loan Documents shall continue in full force and effect, such terms will not be modified by this Agreement, and I will not be eligible for a modification . . . .”).

42. On July 20, 2011, Shaw received an e-mail from CMI advising him that “mortgage assistance documents” had been sent on July 19, 2011. Pl. Trial Ex. 8, P00024. The communication further directed Shaw to “review and sign the documents as instructed.” Id. On the same day, Shaw received CMI’s communications dated July 18 and July 19, 2011. Shaw immediately contacted CMI, including a conversation with Mayorga, but was never provided an explanation why his mortgage account was placed in default, or why a new modification agreement had been sent only two months after he executed and submitted the May 2011 Modification Agreement. Instead, Shaw was directed to review and sign the July 2011 Modification Agreement.^[10]

43. On July 21, 2011, Shaw sent a letter to Mayorga objecting to CMI’s handling of his mortgage account, including CMI’s unilateral decision to unbook the May 2011 Modification Agreement and place his mortgage account in default, as well as the additional material terms in the July 2011 Modification Agreement not present in the May 2011 Modification Agreement. Pl. Trial Ex. 13, P00040.

44. Shaw did not execute the July 2011 Modification Agreement.

45. On July 22, 2011, Shaw received a letter from CMI dated July 20, 2011, advising him that CMI had reviewed his loan modification application and could not approve a modification at that time. Pl. Trial Ex. 11, P00037-38. CMI sent the letter to Shaw even though it had already executed the May 2011 Modification Agreement and sent the separate July 2011 Modification Agreement.

46. Also on July 22, 2011, Shaw received an e-mail from CMI advising Shaw that his “mortgage assistance documents [had] been received by [CMI.]” Pl. Trial Ex. 12, P00039. However, Shaw had not submitted any mortgage assistance documents to CMI and had refused to execute the July 2011 Modification Agreement.

47. Commencing late July 2011, Shaw again contacted CMI to resolve the inconsistent and contradictory communications received during the previous weeks including why he had received a loan modification denial letter after having just received the July 2011 Modification Agreement. Once again, Shaw did not receive any explanation from CMI for these contradictory communications.

48. Approximately July 2011, in response to Shaw’s near daily communications with CMI, CMI deemed Shaw’s mortgage account an Escalated Case and turned his account over to the Executive Response Unit, a CMI department dedicated to addressing customer account issues. Shaw’s account was placed with Chris Gabbert (“Gabbert”), a Homeowner Support Specialist in the Executive Response Unit. Shaw contacted Gabbert to outline and discuss his ongoing mortgage and modification issues. At that time, Gabbert advised Shaw that the July 2011 Modification Agreement was the only modification agreement that CMI would accept, directed him to execute the agreement, and informed him that there was not a prior modification of his residential loan under the May 2011 Modification Agreement.

49. As a result of CMI’s repeated inconsistent communications and complete lack of any explanation for CMI’s conduct in handling his mortgage account and loan modification, Shaw experienced increasing confusion, frustration, stress, and a general feeling of worthlessness over not being able to resolve his issues with CMI. This frustration and stress caused Shaw to suffer occasional sleeplessness during this time. Further, Shaw spent significant amounts of time and energy, sometimes as much as eight (8) hours in a single day, contacting CMI and dealing with various CMI employees that were unable to address his concerns or help with his mortgage and modification issues.

50. Due to Shaw’s ongoing frustration in dealing with CMI, Shaw sought the identity of the owner/beneficiary of his loan in the hopes of resolving his problems directly with the loan’s owner.

51. Between July 25 and July 28, 2011, Shaw contacted Gabbert several times. In those telephonic conversations, Shaw requested information about the current owner of his loan. Gabbert advised Shaw that the current owner of his loan was Lehman Brothers through Structured Asset Security Corporation (“SASCO”) Mortgage Pass-Through Certificates.

52. On July 31, 2011, Shaw again e-mailed Gabbert. Pl. Trial Ex. 15, P00044-45. In that email, Shaw specifically requested information related to the owner of his loan, as Shaw had determined on his own that Lehman Brothers had previously gone bankrupt and the SASCO Mortgage Pass-Through Certificates that included his residential loan had been transferred to a new, unknown owner. Id.

53. Shaw requested contact information for the current owner of his loan in order to seek a modification directly from the owner and to make sure that he was receiving credit from the owner for payments made on the mortgage.

54. Shaw timely made a modified mortgage payment in the amount of $3,079.30 for the month of August 2011. Def. Trial Ex. 510-B, CMI000065. CMI did not book Shaw’s payment into his electronic mortgage account.

55. Approximately August 2011, Shaw applied for and was denied credit with non-party Audi Financial Services to purchase his Audi automobile which he had been leasing from Audi for approximately four (4) years.

56. On August 2, 2011, CMI sent Shaw another letter again advising Shaw that his mortgage account was in default and demanded Shaw pay, in full, the past due amount of $31,697.84 by September 2, 2011, or the McFaul Court property could be sold in accordance with the terms of the first deed of trust. Pl. Trial Ex. 16, P00046-47.

57. On August 9, 2011, CMI sent Shaw a letter from the Document Processing Modification Unit that included a copy of the completed and executed May 2011 Modification Agreement signed by CMI Vice-President Bauman. Pl. Trial Ex. 18, P00049-56. The letter advised Shaw that the copy of the agreement executed by both parties was solely for his records and that “no further action [was] necessary.” Id.

58. Upon receiving his copy of the executed May 2011 Modification Agreement, Shaw immediately contacted Gabbert who initiated the involvement of Dana Ross (“Ross”), Assistant General Counsel of CMI, to resolve Shaw’s mortgage account and loan modification.

59. On August 12, 2011, after reviewing Shaw’s account and the May 2011 Modification Agreement, Ross advised Shaw that he would be receiving a letter outlining CMI’s resolution of Shaw’s mortgage account and loan modification. Pl. Trial Ex. 22, P00061.

60. On August 15, CMI rebooked the terms of the May 2011 Modification Agreement into Shaw’s electronic mortgage account. Def. Trial Ex. 510-B, CMI000064. As of that date, Shaw’s account reflected all of the modification terms outlined in the May 2011 Modification Agreement, including principal amount, deferred principal amount, and modified payment amounts. See Pl. Trial Ex. 19, P00057-58. CMI also rebooked all payments Shaw made under the trial period plan and the May 2011 Modification Agreement to date. These actions brought Shaw’s mortgage account current and removed his account from default.

61. On August 23, 2011, Ross sent Shaw an e-mail advising him that CMI had resolved the issues on his account and directed him to access a document on his online mortgage account constituting CMI’s resolution. Pl. Trial Ex. 20, P00059. The aforementioned document was a letter signed by Gabbert explaining the actions CMI took on Shaw’s mortgage account in July 2011, and outlining CMI’s resolution of his account and modification. Pl. Trial Ex. 21, P00060. The resolution document advised Shaw that although the May 2011 Modification Agreement did not have clear balloon payment language (as no due date was specifically mentioned in that provision), the agreement correctly identified the appropriate maturity date for the loan (November 1, 2033), and thus, “there [was] nothing legally deficient with the [May 2011 Modification Agreement.]” Id. Further, the resolution document advised Shaw that CMI had already rebooked the May 2011 Modification Agreement and that his account was permanently modified under that agreement going forward. Id.

62. Shaw believed that he had a binding loan modification with CMI and that all his account issues had been resolved. Thereafter, Shaw timely made all modified monthly payments of $3,079.30 pursuant to the May 2011 Modification Agreement through December 2011. Def. Trial Ex. 510-B, CMI000063-64.

63. Beginning in September and continuing through December 2011, Shaw received sporadic written collection notices from CMI that consisted of formal collection notices and informal door hangers left in plain view at the McFaul Court property, demanding payment on past due amounts. Whenever he received a collection notice, Shaw contacted the telephone number on that notice. However, Shaw was repeatedly told by various CMI employees that because Shaw’s account had been transferred to the Executive Response Unit, only his dedicated Homeowner Support Specialist was allowed to deal with, discuss, and handle his account issues. Shaw would then contact and advise Gabbert that he was still receiving collection notices from CMI despite the rebooking of the May 2011 Modification Agreement and the inclusion of all past due amounts into his new principal balance.

64. Sometime in the fall of 2011, Shaw applied for and was denied credit as a cosigner on his daughter’s student loans through non-party Wells Fargo Bank for the 2011-12 school year.

65. Throughout the fall of 2011, Shaw repeatedly sought the identity and contact information for the owner of his residential home loan from CMI. Shaw’s efforts consisted of various telephonic and written requests to Gabbert. In response to these requests, Gabbert advised Shaw of different owners at different times. Lehman Brothers through SASCO Mortgage Pass-Through Certificates was identified, non-party Aurora Loan Services was identified, and even CMI itself was identified as the owner.

66. On December 5, 2011, Shaw attempted to e-mail Gabbert requesting specific information about his loan — including copies of the original note, deed of trust, and any assignment of rights — as well as contact information for the current owner of his loan as Shaw had previously received such inconsistent information about the owner from CMI. See Def. Trial Ex. 512-A. At that time, Shaw was informed that Gabbert was no longer employed with CMI. Shaw then forwarded the email directly to Ross, CMI’s Assistant General Counsel. Def. Trial Ex. 512-A.

67. On December 8, 2011, CMI sent Shaw a letter advising him that his account had been transferred to a new Homeowner Support Specialist in the Executive Response Unit, Jennifer Butler (“Butler”). Pl. Trial Ex. 23, P00062-63. Shaw contacted Butler to outline his account history and discuss CMI’s ongoing collection efforts despite his resolved loan modification. Butler informed Shaw that Shaw did not have any loan modification with CMI because he had not yet signed the July 2011 Modification Agreement. Shaw provided Butler all prior communications allegedly resolving his modification, but was then informed that CMI’s Loss Mitigation and underwriting departments had confirmed that Shaw did not have a loan modification with CMI at that time, and would not have any modification with CMI unless and until he executed and submitted the July 2011 Modification Agreement.

68. Upon now being informed that he did not have a binding loan modification with CMI under the May 2011 Modification Agreement, Shaw did not make his modified mortgage payment of $3079.30 for the month of January 2012. Def. Trial Ex. 510-B, CMI000063. Since January 2012, Shaw has not made any payments on his mortgage account. See Def. Trial Ex. 510-B, CMI000062-63; Def. Trial Ex. 511-B.

69. On January 3, 2012, Shaw again e-mailed Ross, CMI’s Assistant General Counsel, requesting information related to his loan and informing Ross that he was withholding all mortgage payments until CMI officially and finally resolved his account under the May 2011 Modification Agreement. Pl. Trial Ex. 24, P00064-65. Ross responded and informed Shaw that she had reached out to CMI Senior Management for the information Shaw had requested. Id.

70. On January 9, 2012, CMI sent Shaw a letter in response to his recent request advising him that non-party Aurora was the owner of his mortgage. Pl. Trial Ex. 25, P00066. Shaw then contacted Aurora and was informed by Aurora that it was not the owner of his mortgage and had no involvement in either his mortgage account or his loan modification since transferring the servicing rights to CMI. See Pl. Trial Ex. 26, P00067-69.

71. On January 20, 2012, Shaw sent Ross a formal letter outlining the information obtained from Aurora that it was not the owner of his residential home loan and requested correct ownership information, as well as all documents related to his mortgage account. Pl. Trial Ex. 26, P00067-69.

72. Approximately February 2012, Shaw’s mortgage account was placed in default.

73. On February 13, 2012, CMI sent Shaw another letter again identifying the owner of his loan as non-party Aurora. Pl. Trial Ex. 31, P00099.

74. On February 23, 2012, Shaw e-mailed Butler after receiving another collection notice requesting she contact him to resolve his loan modification issues. Pl. Trial Ex. 26, P00070.

75. On March 12, 2012, Shaw received an e-mail from Butler outlining CMI’s final position concerning his loan modification. Pl. Trial Ex. 27, P00068. The e-mail informed Shaw that he did not have a loan modification with CMI under the May 2011 Modification Agreement and would not have any modification of his residential loan unless and until Shaw executed the July 2011 Modification Agreement. Id. Butler then sent Shaw another copy of the July 2011 Modification Agreement. Pl. Trial Ex. 29, P00074-85.

76. On March 16, 2012, Shaw e-mailed Butler requesting confirmation that it was CMI’s final position that the May 2011 Modification Agreement executed by both parties was not in force. Pl. Trial Ex. 30, P00086. Butler responded and confirmed that CMI was not recognizing the May 2011 Modification Agreement and was not changing its position that Shaw had to sign the July 2011 Modification Agreement. Id. at P00088. Further, Butler advised Shaw that because he refused to sign the July 2011 Modification Agreement, his Escalated Case file with the Executive Response Unit was closed and she would no longer communicate with Shaw about his mortgage account. Id. at P00088; P00093. At that point, Shaw’s Escalated Case with the Executive Response unit was closed and he received no further communication from Butler.

77. Two months later, on May 30, 2012, CMI sent Shaw a letter advising him that his mortgage account had again been deemed an Escalated Case and had been transferred to a new Homeowner Support Specialist in the Executive Response Unit, Robert Orcutt (“Orcutt”). Pl. Trial Ex. 33, P00101-02. Shaw contacted Orcutt and outlined the history of his mortgage account and CMI’s inconsistent positions on his loan modification. Orcutt advised Shaw that he would review Shaw’s mortgage account and contact him to resolve his account issues.

78. On June 13, 2012, Orcutt sent Shaw an e-mail outlining a proposed reinstatement of Shaw’s mortgage account. Pl. Trial Ex. 35, P00104-06. The reinstatement offer provided that if Shaw paid a past due amount of $18,534.34 by June 30, 2012, CMI would reinstate Shaw’s mortgage account and remove his account from default. Id. at P00105. However, the reinstatement offer made no mention of any loan modification or the terms of Shaw’s loan going forward after reinstatement. Shaw contacted Orcutt and asked whether CMI would recognize the May 2011 Modification Agreement if he made the reinstatement payment but was not given any assurance that CMI would rebook the modification agreement or not require him to execute the July 2011 Modification Agreement documents at some time in the future. Shaw refused the reinstatement offer and did not make any reinstatement payment.

79. On June 20, 2012, Shaw e-mailed Orcutt and requested contact information for the representative or trustee of the SASCO 2003-37A Mortgage Pass-Through Certificates, the bundled mortgage investment that included Shaw’s residential home loan. Pl. Trial Ex. 36, P00107. In response, Orcutt provided Shaw with the e-mail contact of non-party Deborah Lenhart, a representative of the bondholders of the SASCO Mortgage Pass-Through Certificates 2003-37A.

80. On June 21, 2012, Shaw sent an e-mail to Deborah Lenhart at the contact information provided by Orcutt, but the e-mail was returned as undeliverable. Pl. Trial Ex. 37, P00110-111.

81. On June 22, 2012, Shaw again contacted Orcutt to request correct contact information for Lenhart, or another representative, as the information Orcutt provided was incorrect. Pl. Trial Ex. 37, P00112-114. Orcutt informed Shaw that he did not have any other contact information for Lenhart. Pl. Trial Ex. 37, P00115.

82. On June 26, 2012, Shaw received an e-mail from CMI stating that his online account had been suspended and that he would no longer be able to receive online statements or access his online account. Pl. Trial Ex. 37, P00117.

83. In August 2012, Shaw moved out of the McFaul Court property.

84. At the end of 2012, CMI began foreclosure proceedings on the McFaul Court property. In response, Shaw placed the McFaul Court property up for sale as a short sale with nonparty Pinnacle Realty.

85. On January 3, 2013, dismissed defendant NTS recorded a Notice of Default and Election to Sell Under Deed of Trust in the official records of Douglas County, Nevada (Doc. No. 0815587). Def. Trial Ex. 505-B, CMI000042-47.

86. On January 29, 2013, Shaw sent a letter to CMI objecting to the pending foreclosure of the McFaul Court property and again requesting information and documents pertaining to his residential loan. Pl. Trial Ex. 38, P00120-22.

87. On February 5, 2013, Shaw received an e-mail from attorney Joseph E. Bleeker on behalf of both CMI and dismissed defendant NTS. Pl. Trial Ex. 39, P00123-24. The e-mail informed Shaw that attorney Bleeker was in receipt of Shaw’s January 29, 2013 letter and was treating that letter as a “Qualified Written Request” pursuant to RESPA. Id. Attorney Bleeker then advised Shaw that CMI would respond to his letter within sixty days as required under RESPA. Id.

88. On February 8, 2013, Shaw received and accepted an offer on the McFaul Court property from non-parties Jeff and Cathy Knapp (“the Knapps”). Pl. Trial Ex. 40, P00125-135. The offer was a contingent short sale offer with a purchase price of $857,000.00 (“the Knapp Offer”).

89. At the time of the Knapp Offer, Shaw owed approximately $900,000.00 to CMI on the residential loan and approximately $250,000.00 on the two junior liens for a total liability on the McFaul Court Property of approximately $1,150,000.

90. On February 14, 2013, Shaw forwarded to CMI, through his real estate agent, the accepted Knapp Offer. Pl. Trial Ex. 44, P00202.

91. On February 25, 2013, Shaw received a letter from CMI advising him that pursuant to the terms of the May 2011 Modification Agreement, Shaw’s modified payments would be increasing from $3079.30 to $3,539.22 starting June 1, 2013. Pl. Trial Ex. 42, P00138. Shaw received this letter despite CMI repeatedly informing Shaw as early as December 2011, that he did not have a loan modification with CMI under the May 2011 Modification Agreement.

92. On March 6, 2013, Shaw received a package from Kristin Dennis, a Default Research Specialist at CMI, in response to Shaw’s January 29, 2013 “Qualified Written Request.” Pl. Trial Ex. 43, P00139-87. The package included copies of Shaw’s account history with CMI from February 2006 through March 2013 (Id. at P00140-49); CMI’s transaction codes for its electronic mortgage accounts (Id. at P00150-51); Shaw’s adjustable rate note dated October 8, 2013 (Id. at P00152-60); the recorded first deed of trust (Id. at P00161-82); and the June 20, 2012 assignment of deed of trust to CMI (Id. at P00183-87). The letter further advised Shaw that CMI had determined that Shaw had been eligible for a modification of his residential loan, but that his application was closed for lack of documentation because he did not sign and return the July 2011 Modification Agreement. Id. at P00139.

93. On or about March 19, 2013, Maria Mejia (“Mejia”), an employee in CMI’s Homeowner Assistance Department, was assigned as the short sale advisor to review the Knapp Offer. Def. Trial Ex. 26.

94. On March 26, 2013, Mejia contacted Shaw’s real estate agent and advised Shaw, through his real estate agent, that in order for CMI to review the Knapp Offer, Shaw had to submit several documents including: (1) a hardship letter; (2) a signed purchase agreement (as the original offer had expired in late February 2013); (3) Shaw’s tax returns for the tax years 2011 and 2012; (4) all payoffs for the junior liens on the property within the last sixty days, if any; or, (5) if the junior liens still needed to be paid off, then approval letters of the short sale by each junior lien holder and releases of their junior liens; (6) the 2011 real estate tax bill for the McFaul Court property; and (7) a hazard insurance policy on the property. Def. Trial Ex. 525-A.

95. In mid-March 2013, Shaw and the Knapps signed an agreement to extend the Knapp Offer for an additional thirty (30) days.

96. On April 3, 2013, an appraisal of the McFaul Court property was conducted at the request of CMI as part of the evaluation of the Knapp Offer. Pl. Trial Ex. 49, P00283. At that time, the McFaul Court property was appraised at a value of $1,082,000.00. Id.

97. In mid-April 2013, after no response to the Knapp Offer by CMI, Shaw and the Knapps executed a second thirty (30) days extension on the Knapp Offer.

98. On May 6, 2013, dismissed defendant NTS recorded a Notice of Trustee’s Sale on the McFaul Court property in the official records of Douglas County, Nevada (Doc. No. 0823028) setting the trustee’s sale for June 5, 2013. Def. Trial Ex. 507-B, CMI000049-50.

99. On May 16, 2013, Shaw received an e-mail from Mejia informing him that CMI had not received all required documentation for CMI to review and consider the Knapp Offer. Shaw resubmitted most of the documentation but did not provide, at any point during the relevant time period, payoff information on the junior liens or a release of liens from the junior lien holders.

100. On May 23, 2013, CMI denied the short sale of the McFaul Court property under the Knapp Offer for lack of documentation related to the junior lien holders. However, by that point, the Knapp Offer had already expired under the terms of the second extension.

101. On June 5, 2013, dismissed defendant NTS sent Shaw a letter advising him that the trustee’s sale set for June 5, 2013, was postponed until August 7, 2013. Pl. Trial Ex. 45 P00204.

102. In July 2013, Shaw and the Knapps revived the Knapp Offer to purchase the McFaul Court property as a short sale for the purchase price of $857,000.00. Shaw submitted the revived Knapp Offer to CMI. Along with the revived Knapp Offer, Shaw submitted all documents originally requested by CMI for consideration of the short sale except for releases from the junior lien holders.

103. On July 26, 2013, Shaw filed his initial complaint against CMI initiating the present action. ECF No. 1, Exhibit 1, p.8-19.

104. In mid-August 2013, after no response to the revived Knapp Offer by CMI, Shaw and the Knapps executed a thirty (30) day extension on the offer.

105. In mid-September 2013, again after no response to the revived Knapp Offer by CMI, Shaw and the Knapps executed a second thirty (30) day extension on the offer.

106. In October 2013, Shaw applied for and was denied credit as a cosigner for his son on a thirty-six (36) month lease of a Kia automobile.

107. In mid-October 2013, after still no response to the revived Knapp Offer by CMI, Shaw and the Knapps executed a third and final thirty (30) day extension on the offer.

108. In mid-November 2013, the revived Knapp Offer expired under the terms of the last extension. At that point, Shaw ended his listing agreement with non-party Pinnacle Realty and the McFaul Court property was no longer listed for sale.

109. On December 11, 2013, and in response to developments in the litigation, dismissed defendant NTS recorded a rescission of the notice of default in the official records of Douglas County, Nevada (Doc. No. 0835262). Def. Trial Ex. 508-B.

110. During the infancy of the litigation, defendant CMI was represented by Attorney Colt Dodrill (“Attorney Dodrill”). While the litigation was proceeding, Shaw contacted and met with Attorney Dodrill several times. In December 2013, after a court hearing, Attorney Dodrill and Shaw had a discussion about the possible short sale of the McFaul Court property. As part of that conversation, Attorney Dodrill advised Shaw that if he was to re-list the property for sale and accept any short sale offers, those offers should be submitted directly to Attorney Dodrill as counsel of record for CMI, rather than to CMI’s Homeowner’s Assistance department.

111. After the discussion with Attorney Dodrill, Shaw listed the McFaul Court property as a short sale with non-party Chase International Realty, at a listing price of $1,082,000.00, the appraised value of the property in April 2013.

112. On April 3, 2014, Shaw filed an amended complaint in this litigation. ECF No. 52.

113. On April 8, 2014, Shaw received a short sale offer on the McFaul Court property from non-parties Darin and Lisette Smith (“the Smiths”) to purchase the property for $785,000.00. Pl. Trial Ex. 48A.

114. On April 11, 2014, Shaw submitted a counter-offer to the Smiths for the same purchase price which they accepted (“the first Smith Offer”). Pl. Trial Ex. 48A. The terms of the accepted counter-offer included that: (1) CMI had until April 30, 2014, to approve the short sale; (2) Katherine Barkley and Janice Shaw, the second and third junior lien holders, would be paid in full on their junior liens from the sale proceeds of the McFaul Court property; (3) Shaw would receive $75,000.00 from the sale proceeds of the property; and (4) CMI would receive the remaining sale proceeds as full and final satisfaction of Shaw’s residential loan and the first deed of trust. Id.

115. On April 14, 2014, Shaw forwarded the first Smith Offer to Attorney Dodrill and demanded a response on the offer by April 28, 2014. Pl. Trial Ex. 48A.

116. On April 30, 2014, the first Smith Offer lapsed pursuant to its terms without any action by CMI on the short sale offer.

117. On June 2, 2014, CMI denied the first Smith Offer. However, by that point, the offer had already expired under its terms more than a month earlier.

118. On July 11, 2014, Shaw received another short sale offer from the Smiths to purchase the McFaul Court property for $825,000.00 (“the second Smith Offer”). Pl. Trial Ex. 48B. The terms of the second Smith Offer included: (1) approval of the short sale by CMI within 5 business days of acceptance by Shaw; (2) Katherine Barkley and Janice Shaw, the second and third junior lien holders, would be paid in full on their junior liens from the sale proceeds; (3) Shaw would receive $75,000.00 from the sale proceeds; and (4) CMI would receive the remaining proceeds as full and final satisfaction of Shaw’s residential loan and the first deed of trust. Id. Shaw accepted and forwarded the second Smith Offer to Attorney Andrew Bao (“Attorney Bao”), CMI’s new counsel of record in the litigation. Pl. Trial Ex. 48B. Attorney Bao advised Shaw that the second Smith Offer had been submitted to CMI and that if any further information was required to consider the offer he would contact Shaw. Id.

119. On July 19, 2014, the second Smith Offer lapsed without any action by CMI.

120. During Shaw’s attempts to sell the property in 2013 and 2014, junior lien holder Katherine Barkley did not have any conversations with Shaw regarding the various short sale offers on the McFaul Court property, had not agreed to any short sale offers on the property, and had not agreed to release her junior lien.

121. Similarly, junior lien holder Janice Shaw did not have any conversations with Shaw regarding the various short sale offers on the McFaul Court property, had not agreed to any short sale offer on the property, and had not agreed to release her junior lien.^[11]

122. On August 25, 2014, Shaw filed his second amended complaint in this action. ECF No. 109. The second amended complaint is the operative complaint in this litigation.

123. By the time trial began in May 2016, Shaw’s mortgage account with CMI showed a total amount due of $1,162,304.95. Pl. Trial Ex. 57. This amount was calculated as the combination of the remaining principal balance of $891,467.07; $221,350.69 in accrued interest; $43,110.45 in advanced escrow charges;^[12] $186.90 in fees; and $7963.83 in past-due fees and late charges. Id.

124. Throughout the history of this action, Shaw sought contact information from CMI for the current owner of his residential loan. However, prior to trial in June of 2016, CMI never provided contact information for, or identified the actual current owner of Shaw’s residential loan.

125. Throughout the history of this action Shaw suffered a loss of personal and business reputation as a direct consequence of CMI’s conduct, collection activities, and eventual initiation of foreclosure proceedings on the McFaul Court property.

II. Conclusions of Law

In his second amended complaint, Shaw has alleged five causes of action against CMI that are currently before the court: declaratory relief, breach of contract, breach of the implied covenants of good faith and fair dealing, interference with prospective economic advantage, and violation of the Real Estate Settlement Procedures Act. ECF No. 109. Shaw has the burden of proof on all his claims and must prove each claim by a preponderance of the evidence. See, e.g., Cal. State Bd. of Equilization v. Renovisor’s Inc., 282 F.3d 1233 (9th Cir. 2002) (stating the basic premise that civil claims must be proven by a preponderance of the evidence). Along with contract and tort damages, Shaw also seeks punitive damages for CMI’s conduct in this action. See ECF No. 109. In order to be eligible for an award of punitive damages, Shaw must prove by clear and convincing evidence that CMI engaged in oppression, fraud, or malice. See NRS §42.005(1). The court addresses each of Shaw’s remaining causes of action below.

A. Declaratory Relief

Pursuant to Section 2201 of the Declaratory Judgment Act, “any court of the United States. . . may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. §2201. Further “[a]ny such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.” Id. In his claim for declaratory relief, Shaw seeks a declaration from the court that the May 2011 Modification Agreement was a fully executed, valid, and binding loan modification agreement between the parties and that such agreement was, pursuant to its terms, effective May 1, 2011. See ECF No. 109. Shaw also seeks an order from the court declaring the parties’ obligations and financial relationship under that agreement. Id.

The existence of a contract is a question of law. May v. Anderson, 119 P.3d 1254, 1257 (Nev. 2005); Kabil Developments Corp. v. Mignot, 566 P.2d 505, 577 (Or. 1977). “Formation of a valid contract requires that there be a meeting of the minds as evidenced by a manifestation of mutual intent to contract.” Ridenour v. Bank of Am., N.A., 23 F. Supp. 3d 1201, 1208 (D. Idaho 2014). This manifestation can take the form of an offer by one party and acceptance by the other. Id.; see also Erection Co. v. W&W Steel, LLC, 2011 U.S. Dist LEXIS 121581, at *19 (D. Or. 2011) (citing Ken Hood Construction Co. v. Pacific Coast Construction, Inc., 120 P.3d 6 (Or. 2005) (“Manifestation of mutual assent ordinarily occurs through an offer or proposal by one party followed by acceptance of the other party.”); Integrated Storage Consulting Servs. v. NetApp, Inc., 2013 U.S. Dist. LEXIS 107705, at *19 (N.D. Cal. 2013) (“The formation of a contract is properly shown through evidence of an offer and acceptance of definite terms.”). The party asserting the existence of a contract has the burden to establish the contract’s existence and its terms. Erection Co., 2011 U.S. Dist. LEXIS 121581, at *20.

Here, the undisputed evidence presented at trial establishes that defendant CMI offered to modify Shaw’s residential home loan in May 2011. CMI sent Shaw a letter written by CMI employee Kim Vukovich along with a copy of the May 2011 Modification Agreement. CMI’s letter specifically advised Shaw that he was eligible for a loan modification as outlined by the terms of the enclosed agreement. The letter further advised Shaw that if he accepted the terms of that agreement, he should execute and submit the agreement to CMI. Shaw properly executed, by notarized signature, the May 2011 Modification Agreement and submitted the agreement to CMI on May 18, 2011, pursuant to CMI’s instructions. CMI then accepted the executed May 2011 Modification Agreement by booking the terms of the modification into Shaw’s electronic mortgage account on May 23, 2011. After that date, Shaw’s mortgage account showed that his residential loan had been modified pursuant to the terms of the May 2011 Modification Agreement.

Additionally, on June 30, 2011, after having already booked the May 2011 Modification Agreement into Shaw’s mortgage account and having accepted Shaw’s first timely made modified payment under the agreement, CMI Vice-President Larry Bauman separately executed, by notarized signature, the May 2011 Modification Agreement on behalf of CMI. CMI then sent a copy of the completed May 2011 Modification Agreement, executed by both parties, to Shaw on August 9, 2011. Moreover, CMI, through its Assistant General Counsel, Dana Ross, and Homeowner Support Specialist Chris Gabbert, recognized both the validity and the legality of the May 2011 Modification Agreement in a separate letter to Shaw sent on August 23, 2011. Finally, it is undisputed that CMI accepted Shaw’s timely made modified monthly payments of $3079.30 from June through December 2011.

The court finds that this record of activity is sufficient to establish an offer of a modification by CMI and acceptance of that offer by Shaw. Such conduct establishes the formation of a contract as a matter of law. See Erection Co., 2011 U.S. Dist. LEXIS 121581, at *19. Further, this record of activity unequivocally established “a manifestation of mutual intent” between the parties to modify Shaw’s residential home loan. Ridenour, 23 F. Supp. 3d at 1208. Therefore, the court finds that the undisputed evidence in this action establishes that the parties executed a valid and binding loan modification agreement known as the May 2011 Modification Agreement that defines the financial relationship, duties, and obligations between Shaw and CMI, the terms of which are outlined in the agreement. See Pl. Trial Ex. 6, P00016-20. The court makes this finding concerning the formation and validity of the May 2011 Modification Agreement nunc pro tunc.

As the court has found that the May 2011 Modification Agreement is a valid contract between the parties, the court finds that due to the long history of this action it is necessary to define the obligations and financial relationship of the parties under the May 2011 Modification Agreement and going forward from this order. In that regard, the court makes these additional findings. First, the modification of Shaw’s residential loan pursuant to the May 2011 Modification Agreement became effective May 1, 2011. See Pl. Trial Ex. 6, P00017, Section 4. Second, pursuant to the contract, Shaw’s modified monthly payments for the first two years of the agreement were set at $3,079.30, with the first payment having been due on June 1, 2011. Id. at P00018, Section 4(C). It is undisputed that Shaw timely made modified monthly payments under the May 2011 Modification Agreement from June through December 2011, for a total of seven (7) modified payments. As addressed in depth below when analyzing Shaw’s breach of contract claim, the court finds that Shaw’s breach of the May 2011 Modification Agreement — by withholding his modified monthly mortgage payments beginning in January 2012 — was reasonable and excused because of CMI’s anticipatory repudiation of the May 2011 Modification Agreement in December 2011. See Infra Section II(B)(ii). Accordingly, the court considers the time period from January 2012, through the date of this order tolled and excluded under the agreement. The court finds that this tolling of the modification agreement is equitable based on CMI’s continued refusal to recognize the existence of the May 2011 Modification Agreement until the filing of the pretrial order in late 2015, four-and-a-half years after the May 2011 Modification Agreement was executed by both parties. Therefore, going forward from this order, Shaw’s modified monthly payment under the May 2011 Modification Agreement remains $3,079.30 for the next seventeen (17) months, after which the monthly payment will increase pursuant to the staggered payment plan outlined in the agreement with the date the staggered payments begin commencing from the date of this order and excluding the tolled period. See Pl. Trial Ex. 6, P00018, Section 4(C). Similarly, the maturity date of Shaw’s modified loan is extended from November 1, 2033, until approximately August 1, 2038, to account for the time tolled in this action.

Third, as specified in the May 2011 Modification Agreement, Shaw’s principal balance on the loan was set at $910,110.34, $85,777.89 of which was deferred from interest charges and is due as a balloon payment at the end of Shaw’s loan. See Pl. Trial Ex. 6, P00017-18, Section 4(B) & 4(C). Since that time, Shaw made seven modified payments of $3,079.30 under the agreement and reduced the principal balance on his residential loan. According to Shaw’s April 2016 mortgage statement admitted at trial, his current remaining principal balance under his loan is $891,467.07. Pl. Trial Ex. 57. Thus, going forward, the court finds that the remaining principal balance on Shaw’s loan is $891,467.07, and that Shaw’s mortgage account with CMI should reflect this amount.

Fourth, the court recognizes that beginning in January 2012, CMI advanced $43,100.45 in escrow funds to Shaw’s mortgage account in order to protect its security interest in the McFaul Court property during the parties’ dispute and this litigation. See Pl. Trial Ex. 57; Def. Trial Ex. 513-B. These advanced escrow funds included quarterly property tax payments on the McFaul Court property, monthly Homeowner’s Insurance premiums, and other escrow expenses for which Shaw was responsible under the terms of his original residential loan, first deed of trust, and the May 2011 Modification Agreement. CMI made all escrow payments on Shaw’s account since January 2012, even though Shaw’s escrow account had insufficient funds to make these payments. Though it was in CMI’s interest to advance these funds in order to protect its security interest in the McFaul Court property, Shaw directly benefited from CMI’s conduct as no property tax liens were recorded on the McFaul Court property during the parties’ dispute and his Homeowner’s Insurance policy did not lapse. Accordingly, the court finds that in the interest of equity between the parties, Shaw is liable for, and CMI is entitled to recover from Shaw, the $43,100.45 in advanced escrow charges. Therefore, going forward from this order, Shaw’s mortgage account should reflect that he continues to owe $43,100.45 to CMI in advanced escrow charges.

Finally, the court finds that any other fees charged by CMI against Shaw’s mortgage account since January 2012, are invalid and improper. As the court has found the time between January 2012 and this order is tolled and excluded from the May 2011 Modification Agreement, all interest charges, late payment fees, and any other fees or past due amounts charged against Shaw under either his original residential loan or the May 2011 Modification Agreement are excluded. The court’s finding specifically extends to and includes the $221,350.89 in accrued interest, $189.90 in fees, and $7,963.83 in past-due fees and late charges reflected on Shaw’s April 2016 mortgage statement, as well as any and all other expenses and fees that have accumulated since January 2012, except for the aforementioned advanced escrow charges. See Pl. Trial Ex. 57. Accordingly, the court shall issue judgment on Shaw’s claim for declaratory relief as outlined above.

B. Breach of Contract

To prevail on a breach of contract claim, a plaintiff must prove: (1) the existence of a valid contract; (2) a breach of that contract by the defendant; and (3) damages resulting from defendant’s breach. Saini v. Int’l Game Tech., 434 F. Supp. 2d 913, 919-20 (D. Nev. 2006); Brown v. Kinross Gold U.S.A., Inc., 531 F. Supp. 2d 1234, 1240 (D. Nev. 2008). A breach of contract can occur in one of two ways. See Nev. Power Co. v. Calpine Corp., 2006 U.S. Dist. LEXIS 36135, at *22 (D. Nev. 2006). The first is an actual breach of the specific terms and obligations of the contract. Brown, 531 F. Supp. 2d at 1240. The second is an anticipatory breach, or repudiation, of the contract. Nev. Power Co., 2006 U.S. Dist. LEXIS 36135, at *23.

In this action, Shaw has alleged both an actual breach of contract claim and an anticipatory breach of contract claim against CMI. See ECF No. 109; ECF No. 168. As each type of breach permits different relief and requires proof of separate and distinct elements, the court shall evaluate CMI’s conduct for each type of breach separately.

i. Actual Breach

As addressed above, the court has found that the May 2011 Modification Agreement constitutes a valid and binding contract. Supra Section II(A). Thus, the remaining issues for the court to determine are (1) whether CMI breached the terms of the May 2011 Modification Agreement, and (2) if there was a breach of that agreement, the damages Shaw incurred as a result of that breach, if any. See Saini, 434 F. Supp. 2d at 920.

Under the terms of the May 2011 Modification Agreement, CMI had a duty to correctly book and apply all of Shaw’s timely made modified payments throughout the life of the modified loan. Further, CMI had a duty to keep correct records of Shaw’s mortgage account so that his account was not improperly placed in default. However, in direct contravention of its obligations and duties under the May 2011 Modification Agreement, CMI unbooked the modified loan terms from Shaw’s electronic mortgage account, unbooked Shaw’s timely made mortgage payments for the months of June and July 2011; placed Shaw’s account into default at a time that he was current on all his mortgage obligations under the express terms of the May 2011 Modification Agreement; and refused to book Shaw’s timely made mortgage payment for the month of August 2011. Further, CMI sent Shaw collection notices demanding payment on over $30,000.00 in past due amounts in both July and August 2011, even though pursuant to the terms of the May 2011 Modification Agreement, all amounts that were previously past due (including the unpaid monthly payments from October 2010, through February 2011, as well as the difference between Shaw’s prior monthly payments and the modified payments under the trial modification period) were specifically included in the new principal balance of $910,110.34, and thus, there was no past due balance on Shaw’s mortgage account at the time.

The court finds that CMI’s undisputed conduct was a direct breach of the May 2011 Modification Agreement. Further, the court finds that CMI’s unilateral actions were made without justification. As recognized by CMI, there was nothing legally deficient with the May 2011 Modification Agreement. Pl. Trial Ex. 21, P00060. Thus, CMI was not justified in unbooking both the modification’s terms and Shaw’s monthly payments from his electronic mortgage account simply because the May 2011 Modification Agreement lacked a payment date for the balloon payment.

As the court has found that CMI breached the May 2011 Modification Agreement, the court now turns to the issue of damages. Damages for a breach of contract claim are limited to those specifically outlined in the contract, if any, and those expectation damages sufficient to put the nonbreaching party in the position it would have been in had the breach not occurred. See, e.g., Keife v. Metro. Life Ins. Co., 931 F. Supp. 2d 1100, 1108-09 (D. Nev. 2013); Midwest Precision Services, Inc. v. PTM Indus. Corp., 887 F.2d 1128, 1136-37 (1st Cir. 1989). Here, the May 2011 Modification Agreement does not set forth any damages for a breach of that agreement by CMI. See Pl. Trial Ex. 6, P00016-20. As such, Shaw’s damages claim is limited to being placed in the same position under the May 2011 Modification Agreement as if the agreement had not been breached by CMI, which is a modification of his residential loan under the terms of that agreement. Shaw has already achieved this position as addressed above in the court’s analysis of Shaw’s declaratory relief claim. See Supra Section II(A). Further, it is undisputed that after CMI breached the May 2011 Modification Agreement it resolved and cured its breach of that agreement on August 15, 2011, when it rebooked the modification terms and Shaw’s payments into his electronic mortgage account. See Def. Trial Ex. 510-B, CMI000064. At the same time, CMI removed Shaw’s account from default and corrected the delinquent payment reports it had made to the various credit reporting agencies during its breach. Finally, CMI waived all late fees and other charges that it had charged to Shaw’s account during its breach. Thus, Shaw was already placed in the same position under the May 2011 Modification Agreement in late August 2011, as if CMI’s breach had not occurred. And, Shaw has failed to prove any other consequential damages resulting from CMI’s one-month breach of the May 2011 Modification Agreement. Accordingly, the court finds that Shaw is not entitled to contract damages for CMI’s breach.

ii. Anticipatory Breach

An anticipatory breach is a breach of a contract that occurs when one party to the contract, without justification and prior to a breach by the other party, makes a statement or engages in conduct indicating that it will not or cannot substantially perform its duties under the contract. Nev. Power Co., 2006 U.S. Dist. LEXIS 36135, at *28. An anticipatory breach, or repudiation, of a contract may be express or implied. Id. An express repudiation occurs when one party demonstrates “a definite unequivocal and absolute intent not to perform a substantial portion of the contract.” Kahle v, Kostiner, 455 P.2d 42, 44 (Nev. 1969); see also Stratosphere Litigation, LLC v. Grand Casinos, 298 F.3d 1137, 1147 (9th Cir. 2002) (holding that an “[a]nticipatory repudiation occurs when a party through conduct or language makes a clear, positive and unequivocal declaration of an intent not to perform.”). An implied repudiation occurs when one party acts in such a manner as to make its future performance under the contract impossible. Covington Bros. v. Valley Plastering, Inc., 566 P.2d 814, 817 (Nev. 1977). If one party anticipatorily breaches the contract, a repudiation of the contract has occurred and the non-breaching party is excused from performing its obligations under the contract. Kahle, 455 P.2d at 44; see also Cleverley v. Ballantyne, 2013 U.S. Dist. LEXIS 177416, at *13 (D. Nev. 2013) (stating that an anticipatory repudiation of a contract excuses the necessity for the non-breaching party to tender performance).

The court has reviewed the evidence presented at trial and finds that CMI expressly repudiated the May 2011 Modification Agreement. The evidence in this action establishes that CMI made repeated, unambiguous, and unequivocal statements to Shaw that the May 2011 Modification Agreement was not a binding modification agreement between the parties, that Shaw did not have any modification agreement with CMI, and that CMI would not recognize any modification agreement until Shaw executed the July 2011 Modification Agreement. CMI began making these statements to Shaw in July 2011, when Chris Gabbert, Shaw’s Homeowner Support Specialist, told Shaw that CMI would only grant him a modification of his loan if he signed the July 2011 Modification Agreement. And CMI continued making similar statements about the need for Shaw to execute the July 2011 Modification Agreement even after CMI had rebooked the May 2011 Modification Agreement in August 2011. For example, Shaw’s next Homeowner Support Specialist, Jennifer Butler, unequivocally advised Shaw in December 2011, and repeatedly through early 2012, that he would not have any modification of his residential loan unless he signed the July 2011 Modification Agreement and that this decision was confirmed by CMI’s Loss Mitigation and underwriting departments. Although Gabbert’s statement concerning the validity of the May 2011 Modification Agreement was prior to CMI curing its breach in August 2011, Butler’s statements regarding the validity of the May 2011 Modification Agreement occurred in December 2011, over four months after CMI rebooked that agreement. And still no explanation was ever provided to Shaw for CMI’s change in position between August 23, 2011, and early December 2011.

Based on this conduct, especially all conduct that occurred after CMI’s “resolution” of Shaw’s mortgage account in August 2011, the court finds that CMI expressly repudiated the May 2011 Modification Agreement. CMI’s conduct constituted “a definite unequivocal and absolute intent not to perform” under the contract. Kahle, 455 P.2d at 44. In fact, this court cannot imagine a more unequivocal and absolute intent to not perform under the May 2011 Modification Agreement than stating that the agreement executed by the parties simply did not exist, and would not be honored. Moreover, as addressed above in Shaw’s actual breach of contract claim, the court finds that CMI was not justified in its conduct simply because the May 2011 Modification Agreement did not contain a specific due date for the balloon payment. See Supra Section II(B)(i). Therefore, the court finds that because CMI repudiated the May 2011 Modification Agreement, Shaw was excused from his performance under that agreement beginning in January 2012. Further, the court finds that Shaw was reasonable in withholding his payments after being told by Butler in December 2011, that the May 2011 Modification Agreement was not in force and that there would be no modification unless and until he executed the July 2011 Modification Agreement based on CMI’s prior conduct in both breaching and repudiating the contract in July 2011, and its history of inconsistent and contradictory statements. Thus, because Shaw’s non-performance under the May 2011 Modification Agreement was excused, all interest, late fees, and past due charges accrued on Shaw’s loan since January 2012, are not recoverable by CMI and the court finds that these charges shall be excluded from Shaw’s mortgage account.^[13]

C. Breach of the Implied Covenants of Good Faith and Fair Dealing

Under Nevada law, “[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and execution.” A.C. Shaw Constr. v. Washoe Cty., 784 P.2d 9, 9 (Nev. 1989) (quoting Restatement (Second) of Contracts §205); see also Nelson v. Heer, 163 P.3d 420, 427 (Nev. 2007) (“It is well established that all contracts impose upon the parties an implied covenant of good faith and fair dealing, which prohibits arbitrary or unfair actions by one party that work to the disadvantage of the other.”). “The implied covenants of good faith and fair dealing impose a burden that requires each party to a contract to `refrain from doing anything to injure the right of the other to receive the benefits of the agreement.'” Integrated Storage Consulting Servs., 2013 U.S. Dist. LEXIS 107705, at *23 (quoting San Jose Prod. Credit Ass’n v. Old Republic Life Ins. Co., 723 F.2d 700, 703 (9th Cir. 1984).

To establish a claim for breach of the implied covenants of good faith and fair dealing, a plaintiff must prove: (1) the existence of a contract between the parties; (2) that defendant breached its duty of good faith and fair dealing by acting in a manner unfaithful to the purpose of the contract; and (3) the plaintiff’s justified expectations under the contract were denied. See Perry v. Jordan, 900 P.2d 335, 338 (Nev. 1995) (citing Hilton Hotels Corp. v. Butch Lewis Prod. Inc., 808 P.2d 919, 922-23 (Nev. 1991). Generally, the remedy for a breach of the implied covenants of good faith and fair dealing is limited to contractual remedies. Mundy v. Household Fin. Corp., 885 F.2d 542, 544 (9th Cir. 1989); see also Nev. Power Co., 2006 U.S. Dist. LEXIS 36135, at *26 (“As a contract concept, breach of duty leads to the imposition of contract damages determined by the nature of the breach and contract principles.”). However, in limited circumstances, a breach of the implied covenants can give rise to tort liability. See, e.g., State v. Sutton, 103 P.3d 8, 19 (Nev. 2004) (holding that in special circumstances, a breach of the implied covenants of good faith and fair dealing can give rise to tort liability).

In his second amended complaint, Shaw has alleged a breach of the implied covenants of good faith and fair dealing arising from CMI’s repeated refusal to accept the May 2011 Modification Agreement and continued demands for both payment on past due amounts and the execution of the July 2011 Modification Agreement. ECF No. 109. As part of this claim, Shaw has requested both contract and tort damages. Id. Because Shaw is requesting both contract and tort damages, the court shall evaluate Shaw’s breach of the implied covenants claims separately for both a contractual and tortious breach.

i. Contractual Breach of Implied Covenants

A contractual breach of the implied covenants of good faith and fair dealing occurs “[w]here the terms of a contract are literally complied with but one party to the contract deliberately countervenes the intention and spirit of the contract.” Hilton Hotels Corp., 808 P.2d at 923-24. “Establishing such a breach of the implied covenant depends upon the `nature and purposes of the underlying contract and the legitimate expectations of the parties arising from the contract.'” Integrated Storage Consulting Servs., 2013 U.S. Dist. LEXIS 107705, at *23 (quoting Mundy, 885 F.2d at 544) As such, a breach of the implied covenants of good faith and fair dealing is “limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated by the contract.” McKnight v. Torres, 563 F.3d 890, 893 (9th Cir. 2009)

At trial, Shaw testified that under the terms of the May 2011 Modification Agreement he expected to receive a modification of his loan as outlined by the express terms of that agreement and that his mortgage account would no longer be in default as a result of the modification. However, after the parties executed the May 2011 Modification Agreement, CMI engaged in a pattern of conduct specifically designed to thwart the purpose of the contract and Shaw’s reasonable expectations^[14] of a modification of his residential home loan.

Initially, the court notes that some of CMI’s conduct which Shaw contends establishes a breach of the implied covenants cannot support his claim as a matter of law. It is well established that a claim alleging breach of the implied covenants of good faith and fair dealing cannot be based on the same conduct establishing a separately pled breach of contract claim. Daly v. United Healthcare Ins. Co., 2010 U.S. Dist. LEXIS 116048, at *4 (N.D. Cal. 2010); see also Guz v. Betchel Nat. Inc., 8 P.3d 1089 (Cal. 2010) (holding that when both a breach of contract and breach of implied covenants claim are based on the same conduct, the implied covenants claim is superfluous). Thus, CMI’s conduct that was a direct actual breach of the May 2011 Modification Agreement in July 2011, cannot support Shaw’s implied covenants claim. As such, the court cannot, and shall not, consider CMI’s conduct in unbooking the May 2011 Modification Agreement and all payments made under that agreement from Shaw’s electronic mortgage account in determining whether CMI breached the implied covenants.

Nonetheless, the court finds that Shaw has proven by a preponderance of the evidence that CMI breached the implied covenants of good faith and fair dealing. First, it is undisputed that within two weeks after CMI executed the May 2011 Modification Agreement, CMI sent Shaw an entirely new modification agreement, the July 2011 Modification Agreement. This new agreement was identified by CMI employee Juan Mayorga as a “corrected” agreement that had to be signed by Shaw before CMI would modify Shaw’s residential loan even though it contained new material terms. No explanation was ever provided to Shaw for why the new modification agreement had been sent. Even Mayorga, the CMI employee who sent the July 2011 Modification Agreement, was unable to inform Shaw as to why the new agreement had been drafted. Shaw was given similar unresponsive answers from Chris Gabbert, who also directed Shaw to sign the new agreement if he wanted a loan modification. The court finds that within the context of the confusing signals to Shaw, CMI’s conduct of executing a loan modification agreement and then insisting upon a new agreement with materially different terms without explanation to Shaw “deliberately contravenes the intention and spirit” of the properly executed and valid May 2011 Modification Agreement. Hilton Hotels Corp., 808 P.2d at 923-24. CMI’s conduct was completely unfaithful to the purpose of the May 2011 Modification Agreement which was to provide Shaw with a modification of his residential home loan.^[15]

Further, CMI engaged in a similar pattern of conduct after resolving Shaw’s account in August 2011. For example, Shaw timely made all modified monthly payments of $3,079.30 under the May 2011 Modification Agreement through December 2011. Def. Trial Ex. 510-B, CMI000063-64. However, during that same time, Shaw received written collection notices from CMI demanding payment on non-existent past due amounts. Further, after his account was transferred to Jennifer Butler in December 2011, CMI reversed its position on the May 2011 Modification Agreement and once again claimed that Shaw did not have any modification with CMI because he had not yet signed the July 2011 Modification Agreement. Moreover, even after being informed that CMI had previously determined that there was nothing legally deficient in the May 2011 Modification Agreement, CMI’s Loss Mitigation and underwriting departments confirmed that Shaw did not have a loan modification with CMI in December 2011, and would not have a recognized loan modification with CMI unless and until he signed the July 2011 Modification Agreement. The court finds that this post August 2011 conduct likewise “deliberately contravenes the intention and spirit” of the May 2011 Modification Agreement. Hilton Hotel Corp., 808 P.2d at 923-24. Based on all of CMI’s conduct in this action, the court finds that CMI breached the implied covenants of good faith and fair dealing.

As the court has found that CMI breached the implied covenants of good faith and fair dealing, the court now turns to the issue of damages. Damages under a contractual breach of the implied covenants are limited to regular contract damages. Munly, 885 F.2d at 544. As addressed above in the court’s analysis of Shaw’s actual breach of contract claim, Shaw is not entitled to contract-based damages. See Supra Section II(B)(i). Shaw has already been placed in the position that he would have been under the May 2011 Modification Agreement absent CMI’s breach of the implied covenants. Id. Further, Shaw has not proven any other contract damages that could be awarded under this claim. Therefore, the court finds that Shaw is not entitled to any damages for CMI’s contractual breach of the implied covenants.

ii. Tortious Breach of Implied Covenants

Generally, a breach of the implied covenants is a contract-based claim. Hilton Hotels Corp., 808 P.2d at 923. However, a breach of the implied covenants can give rise to tort liability when there is a special relationship between the contracting parties. Id. (stating that a tort action for an implied covenants claim requires a special element of reliance or fiduciary duty); see also Sutton, 103 P.3d at 19 (Tort liability for breach of the implied covenants of good faith and fair dealing is appropriate where “the party in the superior or entrusted position has engaged in grievous and perfidious misconduct.”); Max Baer Prods., Ltd. v. Riverwood Partners, LLC, 2010 U.S. Dist. LEXIS 100325, at *14 (D. Nev. 2010) (“Although every contract contains an implied covenant of good faith and fair dealing, an action in tort for breach of the covenant arises only `in rare and exceptional cases’ when there is a special relationship between the victim and tortfeasor.”). A special relationship is “characterized by elements of public interest, adhesion, and fiduciary responsibility.” Id. Under a tortious breach, “a successful plaintiff is entitled to compensation for all of the natural and probable consequences of the wrong, including injury to the feelings from humiliation, indignity and disgrace to the person.” Sutton, 103 P.3d at 19.

Here, the court finds that there is a special relationship between the parties sufficient to support tort liability in this action. First, the parties are in drastically different and unequal bargaining positions. Max Baer Prods., Ltd., 2010 U.S. Dist. LEXIS 100325, at *9 (holding that courts allow tort liability where one party holds “vastly superior bargaining power”). CMI, as the servicer of Shaw’s residential loan, held all of the bargaining power as it controlled the decision of whether to offer Shaw a loan modification, as well as the terms of that agreement. In contrast, Shaw had limited bargaining power as a financially strapped borrower seeking a modification to a loan agreement that he agreed to years earlier and for which CMI held a protected security interest. Although it was in CMI’s interest to grant Shaw a modification so that Shaw would continue making payments, CMI was under no obligation to offer Shaw the May 2011 Modification Agreement or any modification agreement at all. Further, the loan modification agreement is an adhesion contract as CMI completely dictated the terms of the modification with no input by Shaw and offered that agreement to Shaw with his only option to agree to or refuse the agreement. The parties’ relationship necessarily shares “a special element of reliance” sufficient for the court to find a special relationship between the parties for tort liability. Id. at *15. In such relationships, courts have routinely recognized that “there is a need to `protect the weak from the insults of the stronger’ that is not adequately met by ordinary contract damages.” Id.

Further, the same conduct that supports a claim for contractual breach of the implied covenants also supports a claim for tortious breach of the implied covenants. See Supra Section II(C)(i). The court now turns to the issue of compensable damages under this claim. In his complaint, Shaw seeks general tort damages pursuant to NRS §41.334.^[16] See ECF No. 109. NRS §41.334 allows for a party to receive compensation for “loss of reputation, shame, mortification and hurt feelings.” Further, under a tortious breach of the implied covenants claim, “a successful plaintiff is entitled to compensation for all of the natural and probable consequences of the wrong, including injury to the feelings from humiliation, indignity and disgrace to the person.” Sutton, 103 P.3d at 19.

The court has reviewed all the testimony and documents admitted at trial and finds that Shaw has proven by a preponderance of the evidence that he suffered a loss of reputation, shame, mortification, indignity and disgrace as a direct result of CMI’s tortious breach of the implied covenants. Shaw testified that he suffered both a loss in personal and business reputation as a proximate result of CMI’s improper collection efforts after executing the May 2011 Modification Agreement. For example, Shaw testified that door hanger collection notices were placed on the door of the McFaul Court property in plain sight and were visible to his neighbors and guests to the property. Further, Shaw testified that he received various e-mails, letters, and comments from former clients and former spouses of former clients. In those various communications, Shaw was chastised and his professional skills as an attorney were questioned as he, himself, was suffering financial difficulties and facing potential foreclosure upon his personal residence. Further, Shaw’s prior business partner in his legal practice used Shaw’s lack of creditworthiness, as a result of CMI’s pending foreclosure, in a separate legal dispute regarding the partnership’s assets (which included another property) which eventually led to Shaw leaving the business and starting a new practice in Reno, Nevada. Additionally, Shaw testified that he suffered from increasing feelings of frustration, worthlessness, shame and sleeplessness in not being able to resolve or even confront his financial difficulties because of the dispute with CMI. The court finds that Shaw has proven by a preponderance of the evidence that he suffered a loss of reputation, shame, indignity and disgrace, and other general damages as a proximate cause of CMI’s conduct.

As the court has determined that Shaw has proven that he suffered general damages as a result of CMI’s conduct, the next significant issue for the court is to quantify Shaw’s general damages. A second issue is to determine the time frame for Shaw’s damages arising from CMI’s tortious conduct. At trial, Shaw presented no evidence related to any monetary figure for his general damages. In fact, the only number offered for Shaw’s general damages was presented by Shaw’s counsel in closing. In Shaw’s closing, Shaw’s counsel asked the court to award Shaw damages in the amount of $2,700 per day from the date of the execution of the May 2011 Modification Agreement by both parties through the date of trial for compensation in an amount of approximately $5,000,000.00. However, there is no testimony or evidence to support that number and the $2,700 per day figure has no relation to anything specific in this action.

The court has reviewed the documents and evidence admitted at trial and finds that an appropriate award of compensatory damages to Shaw is $500 per day during the critical time periods from May 23, 2011, through December 31, 2011, subject to tolling from August 23, 2011, to December 7, 2011, during which the May 2011 Modification Agreement was being recognized by CMI; $250 per day during the period commencing in January 2012 (when Shaw discontinued further house payments) through August 2012 (when Shaw vacated the home); and a reduced amount of $100 per day from August 2012 through the close of trial on May 5, 2016.

The court reaches the $500 per day figure based upon the reasonable amount of time spent by Shaw in the many contacts, conversations, and other uneventful communications he had with CMI concerning the properly executed and “not legally deficient” May 2011 Modification Agreement. These uneventful contacts resulted in great stress and frustration to Shaw as well as adverse effects upon Shaw’s standing in the community, business reputation and credit worthiness. In support of the damages amount, the court takes judicial notice that the hourly billing rate for an experienced attorney of similar skills as Shaw in this district would have been a minimum of $300 per hour and there is no question that Shaw spent at least one to two hours a day, and on some days much longer, either directly responding to or communicating with CMI and its representatives, or attempting to understand CMI’s inconsistent and contradictory positions concerning his mortgage account and loan modification. The court also takes into consideration that any homeowner whose home represented his or her most significant asset and also greatest debt, in this case over $900,000.00, would undergo such frustration, feelings of worthlessness and shame which should be reasonably and fairly compensable at a daily rate of $500.00 per day during this critical time period. Calculating Shaw’s damages during this period at a rate of $500 per day, the court finds that Shaw is entitled to compensation in the amount of $57,000.00 ($500 per day for 114 days).

With regard to the period commencing January 2012, when Shaw stopped making his monthly payments, through August 2012, when he voluntarily vacated the McFaul Court property, the court finds that Shaw’s decision to terminate payments for lack of reasonable treatment by CMI and to ultimately vacate the house eight months later and move to Reno, Nevada, is reflective in part of the continuation of Shaw’s frustration, bitterness and shame imposed upon him by CMI prior to January 2012. Thus the court finds that Shaw is entitled to receive compensation for the harm he suffered during this time period. However, the court finds that Shaw’s damages during this period should be adjusted to $250 per day. Calculating Shaw’s damages for this period, the court finds that Shaw is entitled to compensation in the amount of $60,750.00 ($250 per day for 243 days).

Finally, with regard to the period commencing in August 2012 through the close of trial on May 5, 2016, the court finds that the tortious conduct inflicted upon Shaw prior to this time continued to cause him to suffer similarly compensable harm at an average rate of $100 per day. The reduction in this amount of compensation is reflective of the fact that Shaw was no longer paying his monthly mortgage payment and was no longer living in the McFaul Court property, although he continued to suffer from the compensable harm previously imposed upon him by CMI as previously set forth. Calculating Shaw’s damages for this period, the court finds that Shaw is entitled to compensation in the amount of $122,100.00 ($100.00 per day for 1,221 days).

D. RESPA

The Real Estate Settlement Procedures Act, found at 12 U.S.C. §2601 et seq., places certain duties and restrictions on mortgage lenders, services, and other entities that deal with residential mortgages. Pertinent to this action is Section 2605 of RESPA which requires a loan servicer, like CMI, to respond to inquires from a borrower. See 12 U.S.C. §2605(e). Pursuant to Section 2605(e), if a loan servicer receives a “qualified written request from the borrower” for information relating to the servicing of the borrower’s loan, “the servicer shall provide a written response” appropriately responding to the borrower’s request and providing any requested documentation. 12 U.S.C. §2605(e)(1)(A) & (2)(C). Similarly, pursuant to Section 2605(k), a loan servicer shall provide “the identity, address, and other relevant contact information about the owner or assignee of the loan” when requested by the borrower. 12 U.S.C. §2605(k)(1)(D). For purposes of triggering a servicer’s duty under RESPA, a Qualified Written Request must (1) be a written communication, and (2) include “the name and account of the borrower,” and “a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.” 12 U.S.C. §2605(e)(1)(B)(i)-(ii).

If a servicer receives a Qualified Written Request from a borrower, then the servicer has sixty (60) days to conduct an investigation into the borrower’s account, make any appropriate corrections to that account, and respond to the borrower’s request “with production of the requested information or an explanation of why the information is unavailable.” Pettie v. Saxon Mortg. Servs., 2009 U.S. Dist. LEXIS 4149, at *7 (W.D. Wash. 2009); see also 12 U.S.C. §2605(e)(2). Further, the servicer shall provide the contact information for an employee who can provide assistance to the borrower. 12 U.S.C. §2605(e)(2). During the servicer’s sixty day investigation and response period, a servicer is precluded from providing “information regarding any overdue payment, owed by such borrower and relating to such period or qualified written request, to any consumer reporting agency.” 12 U.S.C. §2605(e)(3). If a servicer fails to comply with its duties under RESPA, the servicer may be liable for (1) any actual damages the borrower suffered as a result of the servicer’s failure to comply with its duties, and/or (2) statutory damages not to exceed $2,000.00. 12 U.S.C. §2605(f).

In his second amended complaint, Shaw has alleged that he sent several Qualified Written Requests to CMI requesting contact information for the owner of his loan and copies of various loan documents, but that CMI failed to respond to his requests in violation of RESPA. ECF No. 109. The initial step for the court under Shaw’s RESPA claim is to determine whether Shaw submitted Qualified Written Requests to CMI. At trial, Shaw testified that he requested information from CMI about his mortgage and the owner of his loan immediately after CMI unbooked the May 2011 Modification Agreement and placed his account into default and continued to request this information throughout this litigation. In particular, Shaw alleged that he made the following Qualified Written Requests to CMI: (1) a July 31, 2011 e-mail request to Chris Gabbert; (2) a December 5, 2011 e-mail request to Dana Ross; (3) a January 3, 2012 e-mail request to Ross; (4) a January 20, 2012 formal letter to Ross; (5) a June 20, 2012 e-mail request to Robert Orcutt; (6) a January 29, 2013 formal letter to CMI; and (7) multiple written requests to Gabbert, Jennifer Butler, and Orcutt beginning in the fall of 2011 and continuing until Shaw initiated this litigation. The court shall address each alleged Qualified Written Request below.

To constitute a Qualified Written Request under RESPA, a letter must include the name and account of the borrower as well as a statement of reasons for believing the account is in error. Pettie, 2009 U.S. Dist. LEXIS 4149, at *5. Initially, the court notes that Shaw’s generally identified written requests to Gabbert, Butler, and Orcutt beginning in the fall of 2011 are not sufficient to constitute Qualified Written Requests. First, Shaw failed to provide any evidence of the dates of these various communications or what information was requested or included in these communications sufficient for the court to determine whether these communications met the requirements of RESPA. Therefore, the court finds that Shaw has not met his burden to prove these communications were Qualified Written Requests under RESPA.

As to the remaining alleged Qualified Written Requests, the court finds that Shaw did proffer copies of these communications at trial. These admitted exhibits contain sufficient information for the court to determine whether these communications meet the requirements for Qualified Written Requests under RESPA. First, the court has reviewed the July 31, 2011 e-mail request to Gabbert and finds that it does not constitute a Qualified Written Request. Although the email (and all of Shaw’s communications) appropriately identified Shaw and his mortgage account, the e-mail does not contain a statement for why Shaw believes that his mortgage account is in error. See Pl. Trial Ex. 15. Rather, the e-mail only complains of CMI’s failure to previously identify the current owner of his residential loan. These statements are insufficient to trigger CMI’s RESPA duties because they do not mention or discuss his default or mortgage account. See Pettie, 2009 U.S. Dist. LEXIS 4149, at *6 (finding that RESPA “clearly requires that a disputing party give specific `reasons’ for claiming that an account it in error.”); Banayan v. OneWest Bank F.S.B., 2012 U.S. Dist. LEXIS 35301, at *15 (S.D. Cal. 2012) (finding that a qualified written request must seek information “relating to the servicing of a loan.”). Thus, because this e-mail did not provide any statement of reasons for Shaw’s dispute with CMI regarding his mortgage account, the July 31, 2011 e-mail does not constitute a Qualified Written Request. Pettie, 2009 U.S. Dist. LEXIS 4149, at *7. Similarly, the court finds that Shaw’s June 20, 2012 e-mail to Orcutt likewise did not constitute a Qualified Written Request. That e-mail only complains of Orcutt’s failure to provide information about CMI’s reinstatement offer and references several telephonic conversations. See Pl. Trial Ex. 36. But, like Shaw’s July 31, 2011 e-mail, the June 20, 2012 e-mail does not provide any statement of the reasons for Shaw’s dispute with CMI or the ongoing problems with his mortgage account. Thus, as with the July 31, 2011 e-mail to Gabbert, the court finds that Shaw’s June 20, 2012 e-mail to Orcutt does not constitute a Qualified Written Request.

As for Shaw’s remaining alleged Qualified Written Requests — the December 5, 2011 email; January 3, 2012 e-mail; January 20, 2012 letter to Dana Ross; and the January 29, 2013 formal letter to CMI — the court finds that these document did constitute Qualified Written Requests sufficient to trigger CMI’s investigation and response duties under RESPA. In his December 5, 2011 e-mail to Ross, Shaw specifically laid out in detail the parties’ dispute over his mortgage account and also requested various documents from CMI including contact information for the current owner of his loan, a copy of the original mortgage note and deed of trust, and copies of any assignment of the mortgage note and deed of trust, if any. See Def. Trial Ex. 512-A. Similarly, the January 3, 2012 e-mail to Ross references CMI’s lack of response to the December 5, 2011 e-mail, and again details the parties’ dispute including CMI’s ongoing collection attempts, and requests relevant loan documents and owner information. Pl. Trial Ex. 24. Likewise, the formal letter Shaw sent to Ross on January 20, 2012, contained similar information about the parties’ dispute and requested loan documents and contract information for the owner of his loan. Pl. Trial Ex. 26, P00067-69. Finally, the January 29, 2013 e-mail contained similar dispute information and demanded documentation from CMI. Such communications constitute Qualified Written Requests under RESPA. Pettie, 2009 U.S. Dist. LEXIS 4149, at *6; Banayan v. OneWest Bank F.S.B., 2012 U.S. Dist. LEXIS 35301, at *15 (finding that a letter which contained “an extremely detailed account of various communications between the two parties” constitutes a qualified written request).

Now that the court has found that four of Shaw’s written communications were Qualified Written Requests sufficient to trigger CMI’s investigation and response duties under RESPA, the court must determine whether CMI’s response to those requests, if any, was in accordance with its duties under RESPA. Initially, the court finds that CMI did not even respond to or acknowledge Shaw’s December 5, 2011 Qualified Written Request. This lack of acknowledgment of the request is, itself, a violation of RESPA. See 12 U.S.C. §2605(e)(1)(A) (stating that a loan servicer “shall provide a written response acknowledging receipt of the correspondence . . . .”). CMI’s failure to acknowledge receipt of Shaw’s Qualified Written Request, as evidenced by the January 3, 2012 email to Ross which references CMI’s lack of response, was a direct violation of its duties under RESPA.

The court finds that CMI likewise violated its duties under RESPA as it relates to the January 3, 2012 Qualified Written Request. Although Dana Ross properly acknowledged this request in a January 5, 2012 e-mail to Shaw, CMI did not appropriately respond to the request after the investigation period. The evidence establishes that CMI’s only response to Shaw’s January 3, 2012 Qualified Written Request was a January 9, 2012 letter advising Shaw that non-party Aurora was the current owner of his residential loan and provided contact information for Aurora. Pl. Trial Ex. 25, P00066. However, at no point within sixty (60) days after receiving Shaw’s request did CMI provide any of the loan documents that had been requested. CMI’s failure to provide these documents to Shaw is a direct violation of RESPA. Pettie, 2009 U.S. Dist. LEXIS 4149, at *7.

After receiving CMI’s January 9, 2012 letter identifying Aurora as the current owner of his loan, Shaw contacted Aurora at the contact information provided by CMI. Aurora advised Shaw that it was not the owner of his loan at which point Shaw again contacted CMI as outlined in his January 20, 2012 Qualified Written Request. See Pl. Trial Ex. 26, P00067-69. Similar to Shaw’s December 3, 2011 request, CMI did not acknowledge receipt of Shaw’s January 20, 2012 request. As addressed above, this failure by CMI is a violation of its duties under RESPA. 12 U.S.C. §2605(e)(1)(A). Further, the only response to Shaw’s request was a February 13, 2012 letter from CMI again identifying non-party Aurora as the owner of Shaw’s residential loan. Pl. Trial Ex. 31, P00099. However, by that point Shaw had already informed CMI that Aurora was not the owner of his residential loan. Thus, the information CMI provided, stating that Aurora was the current owner of his loan, was false information. CMI’s failure to provide Shaw correct contact information for the owner of his loan is an express violation of RESPA. See 12 U.S.C. §2605(k)(1)(D) (stating that a loan servicer shall provide “the identity, address, and other relevant contact information about the owner of assignee of the loan” when requested by the borrower). Further, once again, at no point did CMI provide Shaw with any of the loan documents that he had been requesting since December 5, 2011. As addressed above, this is also a violation of RESPA. Pettie, 2009 U.S. Dist. LEXIS 4149, at *7.

Shaw’s last Qualified Written Request was his January 29, 2013 Qualified Written Request. Attorney Joseph Bleeker, CMI’s counsel of record at that time, acknowledged Shaw’s request within the twenty day time period and stated that CMI would be responding to Shaw’s request within the requisite sixty (60) days time period. See Pl. Trial Ex. 39, P00123-124. Further, in contrast to CMI’s prior responses, or lack of responses to Shaw’s requests, CMI sent Shaw a package on March 6, 2013, from Kristin Dennis, a Default Research Specialist at CMI. Pl. Trial Ex. 43, P00139-187. The court has reviewed CMI’s response and finds that it properly and appropriately complied with its duties under RESPA. The package included copies of all of the documents that Shaw requested, provided a detailed explanation for CMI’s actions on Shaw’s mortgage account, and explained the reasons for any lacking information. As such, the court finds that CMI did not violate RESPA as it relates to Shaw’s January 29, 2013 Qualified Written Request. See, e.g., Pettie, 2009 U.S. Dist. LEXIS 4149, at *7.

Based on the evidence presented at trial, the court has found that CMI violated RESPA on three separate occasions when dealing with Shaw’s various Qualified Written Requests. A plaintiff who establishes that a servicer violated RESPA is entitled to recover “any actual damages” that the plaintiff suffered as a result of the defendant’s violation and statutory damages. 12 U.S.C. §2605(f)(1)(A) & (1)(B). RESPA’s “actual damages” are limited to pecuniary damages. Zeich v. Select Portfolio Servicing, Inc., 2015 U.S. Dist. LEXIS 151519, at *5 (D. Or. 2015). Here, Shaw has not proven any actual damages as a result of CMI’s violations of RESPA. In contrast to Shaw’s claim for tortious breach of the implied covenants, under RESPA a plaintiff “cannot recover for worry, concern, or frustration.” Id. Thus, the court finds that Shaw is not entitled to any actual damages. Instead, Shaw’s damages award for CMI’s violations is limited to statutory damages. Under RESPA, statutory damages may not exceed $2,000.00. 12 U.S.C. §2605(f)(1)(B). Here, the court finds that such a statutory maximum is warranted based on the repeated pattern of CMI’s failure to appropriately respond to Shaw’s Qualified Written Requests and the fact that Shaw was never once provided correct contact information for the owner of his residential loan. Accordingly, the court shall enter judgment in the amount of $6,000.00 favor of Shaw and against CMI on Shaw’s claims for violation of RESPA.

E. Intentional Interference

In Nevada, a claim for intentional interference with prospective economic advantage requires a plaintiff establish: “(1) a prospective contractual relationship between the plaintiff and a third party; (2) knowledge by the defendant of the prospective relationship; (3) intent to harm the plaintiff by preventing the relationship; (4) the absence of privilege or justification by the defendant; and (5) actual harm to the plaintiff as a result of the defendants’ conduct.” Fagin v. Doby George, LLC, 2011 U.S. Dist. LEXIS 86389, at *15 (D. Nev. 2011) (citing Wichinsky v. Mosa, 847 P.2d 727, 729-30 (Nev. 1993)); see also Barket v. Clarke, 2012 U.S. Dist. LEXIS 88097 (D. Nev. 2012).

The court has reviewed the evidence submitted at trial in this matter and finds that Shaw has failed to prove his claim for intentional interference with prospective economic advantage by a preponderance of the evidence. Shaw’s claim for intentional interference with prospective economic advantage relates solely to CMI’s alleged failure to approve a short sale of the McFaul Court property in a timely manner, which stigmatized the property for potential buyers and caused a devaluation of the property. Although it is undisputed that Shaw had entered into four (4) separate short sale contracts on the McFaul Court property with two different parties, the Knapps and the Smiths, and that CMI had knowledge of these short sale agreements because Shaw had forwarded all four accepted short sale offers to CMI, the court finds that Shaw has not proven that CMI intended to harm Shaw by either denying the short sale offers or not responding to the short sale offers in a timely manner. At trial, Shaw only established that CMI did not respond to any of the four short sale offers in a timely manner thereby causing all four offers to expire under their terms. However, Shaw failed to provide any evidence that CMI’s delay was specifically intended to cause the proposed buyers to walk away from the McFaul Court property or to cause harm to Shaw.

Further, the court finds that Shaw has not proven that CMI, as the servicer of his loan who had final approval on all short sales of the property, was not justified in its conduct. Initially, the court notes that CMI was justified in any delay in its responses to the two Knapp Offers because Shaw did not provide all necessary documents to CMI for it to properly evaluate and respond to these offers. It is undisputed that after receiving the first Knapp Offer, CMI requested various documentation from Shaw including: (1) a hardship letter; (2) a signed purchase agreement (as the original offer had expired in late February 2013); (3) Shaw’s tax returns for the tax years 2011 and 2012; (4) all payoffs for the junior liens on the property within the last sixty days, if any; or, (5) if the junior liens still needed to be paid off, then approval letters of the short sale by each junior lien holder and releases of their junior liens; (6) the 2011 real estate tax bill for the McFaul Court property; and (7) a hazard insurance policy on the property. Def. Trial Ex. 525-A. Shaw submitted, and re-submitted, all requested documents except for signed releases from the junior lien holders. Shaw testified at trial that he had prepared appropriate junior lien holder releases including a consent to judgment in favor of non-party Katherine Barkley and a stipulated monetary judgment in favor of non-party Janice Shaw so that CMI could evaluate the Knapp Offers. However, both Katherine Barkley and Janice Shaw testified that they did not have any conversations with Shaw regarding the various short sale offers on the McFaul Court property, had not agreed to any short sale offers on the property, and had not agreed to release their junior liens or signed any paperwork releasing their junior liens. Further, Shaw did not provide the “judgment” documents to CMI and CMI never received any release documents signed by the junior lien holders. Accordingly, the court finds that CMI did not have any duty to approve, or even respond to, the Knapp Offers in a timely manner as Shaw failed to provide all required documents.

As to the first and second Smith Offers, the court finds that Shaw was not required to provide any releases from the junior lien holders for CMI to consider these short sale offers because under both offers, the junior lien holders were being paid in full. However, the court finds that because CMI had final authority to approve the short sales, Shaw has not established that under the short sales he had reasonable expectations of any economic advantage under these offers. Generally, a loan servicer like CitiMortgage has no duty to approve a short sale. See Blanford v. Suntrust Mortgage, Inc., 2012 U.S. Dist. LEXIS 141666, at *11 (D. Nev. 2012). Further, as the servicer of Shaw’s loan, all short sale offers had to be approved by CMI, thus, even though Shaw accepted the short sale offers, he did not have any true prospective economic benefit from these offers. For example, if CMI declined both Smith Offers, then Shaw would not have received any economic benefit as a matter of law because the McFaul Court property could not be sold at an amount less than Shaw’s remaining indebtedness without CMI’s permission. The court cannot now say that simply because CMI took no action on the offers, rather than deny them outright, that Shaw would have received an economic benefit. As CMI had no duty to respond,^[17] a lack of response which caused the offers to lapse would constitute the same action as a denial and thus, not be actionable for an intentional interference with prospective economic advantage. As CMI has no duty to approve, act on, or even acknowledge any short sale offers Shaw received on the McFaul Court property, the court finds that Shaw has failed to prove he had a prospective economic advantage under the contracts as the determination of whether to allow the property to be sold at short sale was solely within CMI’s control. Further, the testimony at trial establishes that the two Smith Offers were not reasonable short sale offers, such that the court cannot find that CMI’s lack of response on these offers was designed to intentionally cause harm to Shaw or was not justified. At trial, Attorney Dodrill testified that CMI would not have approved either Smith Offer as both offers proposed to pay off both junior lien holders in full and give Shaw $75,000 while CMI lost roughly $500,000 in the sale of the McFaul Court property. Attorney Dodrill further testified that CMI had never approved a short sale in such a situation and that no short sale offer which allowed for the borrower to receive money would be approved. Therefore, the court finds that CMI was justified in not responding to these short sale offers as such offers were not reasonable offers for the purchase of the property. Accordingly, based on all of the evidence presented at trial, the court finds that Shaw has not established by a preponderance of the evidence that CMI engaged in conduct that intentionally interfered with any prospective economic advantage. The court shall enter judgment in favor of CMI and against Shaw on this claim.

F. Punitive Damages

In his second amended complaint, Shaw seeks punitive damages for CMI’s conduct outlined in this action. ECF No. 109. Punitive damages are not available in contract-based claims. See NRS §42.005(1) (stating that punitive damages are available in any action “for the breach of an obligation not arising from contract”). Thus, the only claim for which punitive damages could be awarded in this action is Shaw’s claim for tortious breach of the implied covenants of good faith and fair dealing.

Under Nevada law, in order to recover punitive damages, a plaintiff must show the defendant acted with oppression, fraud or malice. Pioneer Chlor Alkali Co. v. National Union Fire Ins. Co., 863 F.Supp. 1237, 1250 (D. Nev. 1994). Oppression is a conscious disregard for the rights of others constituting cruel and unjust hardship. Id. at 1251 (citing Ainsworth v. Combined Ins. Co. of America, 763 P.2d 673, 675 (Nev. 1988)). “Conscious disregard” is defined as “the knowledge of the probable harmful consequences of a wrongful act and a willful and deliberate failure to act to avoid those consequences.” NRS §42.001(1). Malice is conduct which is intended to injure a person or despicable conduct which is engaged in with a conscious disregard of the rights and safety of others. See NRS §42.005(1). In order to establish that a defendant’s conduct constitutes conscious disregard, the conduct must at a minimum “exceed mere recklessness or gross negligence.” Pioneer Chlor Alkali Co., 863 F.Supp. at 1251; see also Countrywide Home Loans, Inc. v. Thitchener, 192 P.3d 243, 255 (Nev. 2008) (holding that conscious disregard requires a “culpable state of mind” and therefore “denotes conduct that, at a minimum, must exceed mere recklessness or gross negligence.”).

Based upon the substantial factual history in this action, and recognizing that CMI is a large home loan servicing company, the court finds by clear and convincing evidence that CMI’s business practices and its specific conduct toward Shaw constituted oppression and a conscious disregard for Shaw’s rights warranting punitive damages. Given the fact that Shaw’s debt of over $900,000 was for his home, that a home is most Americans greatest asset and also greatest liability and is such an integral part of any homeowner’s personal well being, the court finds that a homeowner is particularly vulnerable as a result of a tortious breach of the implied covenant of good faith and fair dealing oppressively committed by a large corporate servicing company such as CMI.

Here, there was a willful and unconscionable failure to avoid needless and harmful consequences in refusing to honor or recognize the May 2011 Modification Agreement (executed by CMI’s Vice-President in May 2011). CMI’s conduct in recognizing then continuously disavowing that agreement — despite a resolving document from CMI’s Assistant General Counsel — was made with a conscious disregard for the harm that it was causing Shaw. Further, there was a willful and deliberate failure by CMI to avoid these consequences. Accordingly, the court finds that this is an appropriate case for punitive damages.

The court has already cited many of the factors that support the court’s finding within the findings of fact and tortious breach of the implied covenants section of this order and those factors find equal weight here. But, the court now highlights several factors which particularly stand out in support of punitive damages and which have not been more specifically addressed. These include CMI’s lack of policies, procedures, practices and management oversight in handling mortgage account issues such as Shaw’s. The lack of company policies and management oversight in this action allowed CMI, through its Loss Mitigation, underwriting, and Executive Response Unit departments, to take the offensive position that CMI was entitled to require Shaw to abandon the fully executed May 2011 Modification Agreement in favor of the proposed July 2011 Modification Agreement despite upper management and assistant general counsel taking inconsistent and contrary positions. In essence, CMI chose to ignore its own agreement (and its own corporate counsel) because the company was aware that a financially strapped homeowner who was in default on a home loan during the post-recession economic downturn was in no position to hold CMI to the agreement it had unilaterally chosen to ignore. Given the obvious effects such a position would have upon any borrower/homeowner and the lack of any bargaining position to challenge CMI’s position, it is clear that there would be dramatic and harmful consequences to a borrower which would cause feelings of utter frustration, worthlessness, and shame — shame and fear over losing a home — at the very time that the borrower was likely experiencing an insurmountable burden of debt. A non-attorney borrower would likely have caved in to CMI while an attorney like Shaw chose instead to rely upon his contract, though not without obvious compensable injury.

Beyond the above, the court also finds that there was a serious lack of practices, policies and procedures to deal with and explain the company’s positions and actions to the borrower/homeowner. Here, despite repeated requests for information as to why Shaw received contradictory and inconsistent communications, CMI never provided any meaningful explanations. Moreover, CMI’s responses to Shaw’s requests for identification of his loan holder, including both those that qualified under RESPA and those that did not qualify, show a lack of policy and procedure to identify to a borrower/homeowner the creditor (whom CMI was representing) who owned the loan and how the creditor might be contacted. These are just a few examples of CMI’s lack of centralized management policy and speak to the very core of CMI’s conscious disregard of Shaw’s rights. Significantly, even after going through a full trial, there has been no identification by CMI of the owner of Shaw’s loan.

CMI’s failures in this action are exacerbated by the frustration and unexplained revolving door of CMI personnel with whom Shaw was required to deal. Just during the time period from May 2011 through July 2012 when CMI effectively stopped communication with Shaw concerning his mortgage account, Shaw had dealt with two different individuals who had drafted separate modification agreements (Kim Vukovich and Juan Mayorga), three separate Homeowner Support Specialists (Chris Gabbert, Jennifer Butler, and Robert Orcutt), and CMI’s Assistant General Counsel, Dana Ross, not to mention the myriad of unnamed employees Shaw contacted in 2011 through 2012. And there was commonly no meaningful explanation of why a new person, new department, or some other representative was being identified as the person with whom Shaw was now required to deal. Moreover, the evidence established that Shaw informed each new CMI representative of the history of his mortgage account and rather than investigate the matter further — an investigation readily available through Shaw’s electronic mortgage account and the documents in Shaw’s and CMI’s possession — these representatives continued to push forward with CMI’s untenable position that there was no valid and binding loan modification under the May 2011 Modification Agreement. CMI willfully ignored the harm it was causing to Shaw despite clear warning signs from Shaw that its conduct was improper.

Another failure, previously mentioned, was CMI’s inexcusably delayed recognition of the May 2011 Modification Agreement. An agreement executed by its Vice-President but then rejected by some employee in the Loss Mitigation department only to be honored by CMI’s own assistant general counsel and then rejected again by an employee in the Executive Response Unit without any meaningful explanation to the borrower/homeowner and without any regard for the financial burden, frustration and stress such inconsistency placed on the borrower/homeowner is strong evidence of oppression. After three plus years of litigation and a three-day bench trial, an explanation for CMI’s behavior is still unknown.

Also significant to the court in finding that punitive damages are warranted in this action is the effect of CMI’s actions and lack of actions concerning Shaw’s credit status. While it is clear that he was in default on his original loan, it is also clear that he cured the default through the execution of the May 2011 Modification Agreement which subsumed all past due amounts into a new principal balance, made all payments under that agreement in a timely fashion through December 2011, and yet Shaw received negative and unreliable credit reporting by CMI throughout much of this period and afterward. Although the evidence could not show the reasons for the revocation of Shaw’s credit card, and the denial for Shaw’s credit applications for his daughter’s student loans, the rejection of the credit application for the purchase of his son’s automobile, and the rejection of Shaw’s own automobile purchase, it is a reasonable conclusion that CMI’s negative reporting during the periods of time when the default had been cleared contributed to Shaw’s credit problems, particularly when his only negative credit issues were related to his mortgage, and would have been a factor in the shame, embarrassment, stress and frustration suffered by Shaw over the relevant time period. Taking all of these factors together, they demonstrate that CMI acted with conscious disregard of Shaw’s rights and support an award of punitive damages.

In Nevada, an award of punitive damages is limited to “[t]hree times the amount of compensatory damages awarded to the plaintiff if the amount of compensatory damages is $100,000 or more.” NRS §42.005(a). Here, the compensatory damages under Shaw’s tortious breach of the implied covenants claim is $239,850.00 and the court finds that an appropriate amount of punitive damages for the conduct outlined above is the statutory limit. Thus, trebling this amount, the court shall enter judgment in the amount of $719,550.00 in favor of Shaw and against CMI for punitive damages.

G. Attorney’s Fees

Although not presently before the court, the court notes for the benefit of the parties that it would consider a motion for attorney’s fees filed by Shaw pursuant to NRS §18.010 and 12 U.S.C. §2605(f)(3), as Shaw is the prevailing party in this action under his declaratory relief, tortious breach of the implied covenants, and RESPA claims. Therefore, the court shall grant Shaw leave to file a motion for attorney’s fees, if any, within twenty (20) days of entry of this order. Such motion shall comply with Local Court Rule 54-14.

IT IS THEREFORE ORDERED that the clerk of court shall enter judgment in favor of plaintiff Leslie Shaw and against defendant CitiMortgage, Inc. on Shaw’s claim for declaratory relief and breach of contract in accordance with this order.

IT IS FURTHER ORDERED that the clerk of court shall enter judgment in the amount of $239,850.00 in favor of plaintiff Leslie Shaw and against defendant CitiMortgage, Inc. on plaintiff’s claim for breach of the implied covenants of good faith and fair dealing.

IT IS FURTHER ORDERED that the clerk of court shall enter judgment in the amount of $6,000.00 in favor of plaintiff Leslie Shaw and against defendant CitiMortgage, Inc. on plaintiff’s claims for violation of the Real Estate Settlement Procedures Act.

IT IS FURTHER ORDERED that the clerk of court shall enter judgment in favor of defendant CitiMortgage, Inc. and against plaintiff Leslie Shaw on plaintiff’s claim for intentional interference with prospective economic advantage.

IT IS FURTHER ORDERED that the clerk of court shall enter judgment in the amount of $719,550.00 in favor of plaintiff Leslie Shaw and against defendant CitiMortgage, Inc. for punitive damages.

IT IS FURTHER ORDERED that plaintiff shall serve a copy of this order upon junior lien holders Katherine Barkley and Janice Shaw within (10) days of entry of this order.

IT IS FURTHER ORDERED that plaintiff shall have twenty (20) days from entry of this order to file a motion for attorney’s fees in accordance with this order, if any.

IT IS SO ORDERED.

[1] Shaw’s remaining claims are his second cause of action for declaratory relief, third cause of action for breach of contract, fourth cause of action for breach of the implied covenants of good faith and fair dealing, seventh cause of action for interference with prospective economic advantage, and eighth cause of action for violation of RESPA.

[2] At trial the court heard the live testimony of plaintiff Leslie Shaw; Attorney Colt Dodrill, counsel of record for defendant CMI; Jill Hackman, business operations analyst and corporate representative of CMI; Dan Leck, Shaw’s real estate expert; and Michael Brunson, CMI’s real estate expert. The court also heard the testimony by deposition of Travis Nurse, CMI’s designated Rule 30(b)(6) witness; Christopher Gabbert, a CMI employee in the Executive Response Unit; Attorney Dana Ross, Assistant General Counsel for CMI; Katherine Barkley, junior lien holder; and Janice Shaw, Shaw’s ex-wife and junior lien holder.

[3] If any finding of fact herein is considered to be a conclusion of law, or any conclusion of law is considered to be a finding of fact, it is the court’s intention that it be so considered.

[4] During the relevant time period, CMI had a policy that when a borrower submitted a completed loan modification application, Loss Mitigation would review the application for all available modification options — from company modification options to government supported modification programs like HAMP. However, it was not CMI’s policy to advise or disclose to applicants that an application would be reviewed by Loss Mitigation for all possible modification options including government programs. Nor was it CMI’s policy to advise or disclose to applicants that they may receive several responses from CMI concerning the outcome of an application and that such responses could differ in whether an application was approved or denied.

In accordance with CMI’s policies, Loss Mitigation reviewed Shaw’s application and determined, through an underwriter, that Shaw was eligible for a modification of his existing residential loan but was ineligible for a HAMP modification. But Shaw was never advised that his application would be considered for all available modification options, that he would receive multiple responses from CMI about his application, that those responses could be contradictory (as they were in this case), and which of those responses would constitute CMI’s final determination of his application.

[5] At trial, it was explained for the first time that Shaw had received a separate response on his loan modification application relating specifically to the government’s HAMP program because any denial of a modification under HAMP must be directly communicated to the buyer and contain the reasons for the denial along with information related to other loan modification programs and credit counseling. This simple explanation was never provided to Shaw throughout the history of this action.

[6] At trial, it was explained that Shaw had received two separate sets of written communications, first in December 2010 and then again in February 2011, because of the amount of principal remaining on his residential loan. In December 2010, an underwriter for CMI approved Shaw for a modification of his existing loan obligations. Based on that decision, the first set of communications was sent to Shaw in December 2010.

However, because Shaw’s remaining principal obligation was substantial (over $800,000), the original underwriter did not have final authority on Shaw’s application and a manager-level underwriter had to separately review Shaw’s application and make a final determination on whether to approve or deny the application. Upon review, this manager-level underwriter approved Shaw’s application and another set of communications was sent to Shaw in February 2011. Once again, this simple explanation was never provided to Shaw throughout the history of this action.

[7] The proposed modification agreement contained a staggered payment and interest rate schedule that increased the monthly payment on Shaw’s modified loan over the course of several years. See Pl. Trial Ex. 6, P000018. However, for purposes of this order and the relevant time period, Shaw’s modified payment was $3,079.30. Id.

[8] No mention was made during the course of trial as to why Mayorga had been assigned to Shaw’s account to draft the “corrected” modification agreement or what happened to Vukovich during that two month period.

[9] This June 1, 2011 date was still established as the first due date for modified payments even though the July 2011 Modification Agreement was not drafted until some time in July 2011, and sent to Shaw on July 19, 2011.

[10] At trial, it was established that the May 2011 Modification Agreement was missing language in the balloon payment provision setting a specific due date for the balloon payment, although the agreement contained the correct loan maturity date of November 1, 2033. Thus, when CMI received the executed agreement and booked the modification terms into Shaw’s electronic mortgage account, CMI mistakenly entered a 480 month term for the balloon payment, thereby extending Shaw’s loan past the maturity date. When Loss Mitigation audited Shaw’s mortgage account in July 2011, it determined that a “corrected” modification agreement should be sent to Shaw containing a specific due date for the balloon payment, that of the maturity date of November 1, 2033. This “corrected” agreement was sent to Shaw in order to correct CMI’s own mistake. However, no explanation was ever provided at trial as to why the July 2011 Modification Agreement, if all it was supposed to do was correct the balloon payment language error, contained additional material terms like Section 5(G), which placed additional duties and obligations on Shaw.

[11] Due to their status as junior lien holders on the McFaul Court property and beneficiaries under Shaw’s obligations in their favor, the court will order that copies of this order be served upon them by Shaw’s counsel.

[12] Since January 2012, CMI has advanced and paid all taxes, Homeowner’s Insurance premiums, and other escrow expenses on the McFaul Court property in order to protect its security interest under the first deed of trust. Def. Trial Ex. 513-B.

[13] The court has previously addressed the impact of CMI’s anticipatory breach and how it affects the parties going forward from the court’s order in the court’s analysis of Shaw’s declaratory relief claim. See Supra Section II(A).

[14] The court has reviewed the May 2011 Modification Agreement and finds that Shaw’s expectations under that agreement were reasonable and justified.

[15] The court recognizes that this aforementioned conduct occurred prior to Shaw receiving his copy of the fully executed May 2011 Modification Agreement and the involvement of CMI’s Assistant General Counsel, Dana Ross. Once Ross got involved with Shaw’s mortgage issues, CMI resolved Shaw’s account by determining that the May 2011 Modification Agreement was a valid agreement which constituted a modification of Shaw’s residential home loan. However, CMI’s conduct prior to this resolution in August 2011 is still relevant to Shaw’s claim as it constitutes a breach of the implied covenants until that resolution.

[16] At trial, Shaw specifically stated that he was not seeking any damages for lost income, lost rent on the McFaul Court property, or emotional distress within the context of a emotional distress claim. Thus, Shaw’s damages are limited to those under NRS §41.334.

[17] At trial, Shaw argued that CMI created a duty to respond to the Smith Offers in a timely manner by specifically requesting that Shaw re-list the McFaul Court property for sale and forward all accepted short sale offers directly to Attorney Colt Dodrill, CMI’s counsel of record at that point. However, the court has reviewed the evidence submitted at trial and finds that it does not support Shaw’s argument or interpretation of the December conversation that Shaw had with Attorney Dodrill. Attorney Dodrill testified that he told Shaw that if he accepted any short sale offers on the McFaul Court property that such offers should be submitted directly to him as counsel of record for CMI, but did not tell Shaw to put the property back up for sale or that he would be able to handle any short sale offers. Instead, Attorney Dodrill testified that Shaw needed to submit any offers to him directly because by that point in time, Shaw had initiated litigation against CMI and was not allowed to directly contact CMI as an adverse party. Thus, the court finds that based on this testimony, CMI did not create a specific duty to respond to the Smith Offers.

 

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

DEUTSCHE BANK NATIONAL TRUST COMPANY
AS TRUSTEE FOR AMERICAN HOME MORTGAGE
ASSET TRUST 2006-6, MORTGAGE-BACKED
PASS-THROUGH CERTIFICATES SERIES
2006-6

Plaintiff,

-against-

ROYAL BLUE REALTY HOLDINGS,
INC., JOHN SOUTO A/K/A JOHN
R. SOUTO, AS HEIR TO THE
ESTATE OF SERGE J. SOUTO
A/K/A SERGE SOUTO, MIDLAND
FUNDING LLC, SING YU INTERNATIONAL
INC SY MARBLE & GRANITE IMPORTORS,
CORNICELLO TENDLER & BAUMEL-CORNICELLO,
JESSE HERMAN, THOMAS HASKINS, G-NET
CONSTRUCTION CORP., JORDAN BUTTORFF,
LESLIE BUTTORFF, NEW YORK
ENVIRONMENTAL CONTROL BOARD
THE BOARD OF MANAGERS OF 130
BARROW STREET CONDOMINIUM, NEW
YORK STATE DEPARTMENT OF TAXATION
AND FINANCE, UNITED STATES OF
AMERICA,

Deutsche Bank Natl. Trust Co. v Royal Blue Realty by DinSFLA on Scribd

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

Decided on March 9, 2016

 

101249/08

(P)Hogan Lovells US LLP875 Third AvenueNew York, NY 10022

(D)Nicholas Moccia

60 Bay Street

Staten Island, NY 10301
Philip S. Straniere, J.

The following items were considered in the review of this Motion to Vacate, Cross Motion and Motion to Vacate:

PapersNumbered

Notice of Motion 1

Notice of Cross-Motion 2

Notice of Motion 3

Plaintiff’s Memorandum in Opposition 4

Defendants’ Affirmation in Opposition 5

Plaintiff’s Reply Memorandum of Law 6

Exhibits Attached to Papers

HON. PHILIP S. STRANIERE, J.

Upon the foregoing cited papers, the Decision and Order on this Motion is as follows:

Plaintiff, Wells Fargo Bank, NA, commenced this residential foreclosure proceeding against the defendants, Rose Marie Russo a/k/a Rosemarie Russo, New York City Environmental Control Board, New York City Transit Adjudication Bureau, Connie Russo and Michael Russo. The defendants have never answered although they have participated in conferences in regard to this action at least since 2013. Plaintiff and the defendants Rosemarie Russo and Michael Russo are represented by counsel.

Currently before the court is plaintiff’s motion to:

1. appoint a referee to ascertain the amount due plaintiff and to sell the parcels;

2. amend the caption to substitute Connie Russo and Michael Russo in place of the “John Doe” defendants; and

3. amend the caption to reflect the plaintiff to be Deutsche Bank National Trust Company, as Trustee for GSAA Home Equity Trust 20067-18 Asset-Backed Certificates, Series 2006-18 (Deutsche).

Defendant Rosemarie Russo, defendant Michael Caruso s/h/a Michael Russo have cross-moved to:

1. schedule a settlement conference;

2. stay plaintiff’s motion in light of the Special Referee finding plaintiff negotiated in bad faith in violation or CPLR §3408;

3. dismiss the complaint pursuant to CPLR §3215(c) for plaintiff’s failure to enter a judgment within one year of defendant’s default; and

4. vacate defendant’s default and permitting defendants to file an answer with counterclaims; and production of the original note.

There is a second motion by the plaintiff to vacate the findings of lack of good faith in negotiating modification of the loan by the referee including any financial penalties imposed. Defendants opposed the motion.

Background:

The records of the Richmond County Clerk reveal the following information.

On February 26, 2004, defendant Rose Marie Russo (Russo) purchased the subject premises 1276 Drumgoole Road East, Staten Island, New York for $572,400.00. The sellers were Richard Bonanno and Connie Bonanno, husband and wife. The premises is a legal two-family with a certificate of occupancy having been issued on October 29, 2002.

To finance the purchase Russo secured a mortgage from Berkshire Financial Group, Inc. with a 30 year term in the amount of $475,000.00. The mortgage document had the name “Michael Catanzaro” as an additional borrower. It did not identify what his legal relationship was to Russo or the property. Catanzaro’s name was crossed-out on the mortgage and he did not execute the instrument.

In March 2005, Russo took a second mortgage with a 15 year term from The CIT Group/Consumer Finance, Inc. (NY) in the amount of $106,000.00. The mortgage indicated her status as “married.” The name of the spouse is not disclosed on the instrument and the loan is only in her name.

On May 19, 2006 defendant Rose Marie Russo individually, borrowed $635,000.00 from Wells Fargo Bank, NA (Wells) and executed a promissory note in that amount which was secured by a mortgage which she also signed on that date. Neither document indicates her marital status. The proceeds of the Wells mortgage were used to satisfy both the Berkshire and the CIT Group loans. Satisfactions were filed for both debts in June 2006.

Russo defaulted on the terms of the Wells agreement in late 2007 and on January 7, 2008 Wells issued a notice of default to her. In March 2008 Wells commenced this litigation by filing a summons and complaint and notice of pendency. Russo neither appeared nor answered. In June 2008 Wells sought the appointment of a referee owing to the failure of any defendant to appear or answer. An application for judgment of foreclosure and sale was rejected by the court in February 2009.

Thereafter a tortured procedural history ensued with much of the problems arising because the original attorney of record was Steven J. Baum, PC, whose office practices were called into question by regulators and which resulted in a consent order being entered into with the New York Attorney General. Baum was forced to cease all foreclosure litigation representation. Thereafter, new counsel appeared for plaintiff Wells.

Observations:

1.If the mortgage industry had put in one-tenth of the time in screening borrowers and properties before making this and other loans as it does in having to litigate bad loans and negotiate foreclosure modifications, the court probably would not be involved at all. The financial services industry in the first decade of this century failed to adhere to the “Humpty Dumpty Rule” which is that all the sovereign’s horses and all the sovereign’s men couldn’t put Humpty together again (the court has made the nursery rhyme gender neutral and notes that the obituary in the New York Times referred to Humpty either as Mr. or Ms. Dumpty as the case may be). Had lenders and the federal government focused on making sure that Humpty never got on top of the wall in the first place, the courts would not be buried in “eggs-crement.”

In fact the mortgage industry would have been better served by purchasing Snow White’s wicked stepmother’s magic mirror at her estate sale and asking it to pass on borrower’s mortgage applications rather than relying on mortgage brokers. At least the mirror’s response would be truthful.

2.The record establishes that Wells made this loan in 2006 to Russo without her having any source of income. This being the case, maybe Wells got exactly what it bargained for, a mortgagor who could not repay the loan. Based on this, why was Wells surprised it had to foreclose. Maybe the action should be barred because of Well’s initial unwarranted optimism. [*2]On the other hand, even a murder of crows had to eat their words when they observed that an elephant could fly.

Perhaps the mortgage broker who structured this transaction should be put under oath to explain how this loan was supposed to be paid back. Unfortunately that might result in the court having to endure a modern version of “Pinocchio” as witnesses would have to relate the details of this transaction under oath. Parenthetically when the court inquired as to who and where the broker was, it got a shocked response from counsel similar to that of the first little pig (Fifer Pig in Disney’s version) when his straw house was blown down by the Big Bad Wolf. Perhaps the answer is that the broker’s name was Rumpelstiltskin and he disappeared when inquiry about or mention of his name is made.

The fact that some bureaucrat in the federal government thought it was a good idea to permit the financial services industry to create mortgage products where homeowners could borrow large sums of money without any source of income only reinforces the belief that “Fairy tales can come true. It can happen to you…^[FN1] ” was the theme song of lender’s marketing these loan products. Because neither party has produced Russo’s application so as to permit the court the opportunity to rationally examine the origin of this defaulted loan, the court is forced to speculate as to how this happened. There are several possibilities as to how Wells believed repayment would be made.

A possible explanation is that Wells was convinced that Russo would repay the money from some magic beans she acquired which would permit her to ascend to the clouds and steal a giant’s gold. Or maybe while other Staten Islanders were dodging turkeys Russo had found a goose that laid golden eggs. Another source of repayment might be if Russo had inherited a spinning wheel that turned straw into gold.

A more reasonable possibility might be that Russo was planning to “flip” the house within a short period of time and needed monies to make some repairs in order to increase its market value. Although this is pure speculation by the court, there may be some credence to this scenario because the prepayment clause of the note which provided for no prepayment penalty was amended by a rider permitting Wells to charge a 3% penalty for prepayment during the first year of the loan. A similar rider is attached to the mortgage. Why included such a clause unless Wells was under the impression that the loan would be repaid shortly and it would not generate all of the anticipated income over the loans thirty year term.

Based on how this transaction has turned out, Wells would have been better off with one of the “fairy tale” solutions. At least in some of them everyone “lives happily ever after.”

Legal Issues Presented:

A. Does the Defendant Have a Right to a Mandatory Settlement Conference?

Defendant Russo as well as the other individually named defendants defaulted in appearing and answering. Eventually defendant Russo and Caruso retained counsel and moved to vacate their default and file an answer. Defendant also sought a mandatory settlement conference pursuant Civil Practice Law & Rules §3408. The current statute effective February 13, 2010 provides:

In any residential foreclosure action involving a home loan as such term is defined in section thirteen hundred four of the real property actions and proceedings law, in which the defendant is a resident of the property subject to foreclosure, plaintiff shall file proof of service within twenty days of such service, however service is made, and the court shall hold a mandatory conference within sixty days after the date when proof of such service upon such defendant is filed with the county clerk, or on such adjourned dates as has been agreed to by the parties, for the purpose of holding settlement discussions pertaining to the relative rights and obligations of the parties under the mortgage loan documents, including, but not limited to determining whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home, and evaluating the potential for a resolution in which payment schedules or amounts may be modified or other workout options may be agreed to, and for whatever other purposes the court deems appropriate.

However, this action was commenced with the filing of summons and complaint on March 24, 2008 before the above statute went into effect. At that time CPLR §3408 contained different language which limited the ability to have a mandatory settlement conference only to certain loans. It provided:

In any residential foreclosure action involving a high-cost home loan consummated between January first two thousand three and September first, two thousand eight, or a sub-prime or nontraditional loan, as those terms are defined under section thirteen hundred four of the real property actions and proceedings law, in which the defendant is a resident of the property subject to foreclosure, the court shall hold a mandatory conference within sixty days after the date when proof of service is filed with the county clerk, or such adjourned date as has been agreed to by the parties, for the purpose of holding settlement discussions pertaining to the relative rights and obligations of the parties under the mortgage loan documents, including but not limited to determining whether the parties can reach a mutual agreeable resolution to help the defendant avoid losing his or her home and evaluating the potential for a resolution in which payment schedules or amounts may be modified or other workouts options may be agreed to, and whatever other purposes the court deem appropriate.

Case law has determined that the form of the statute in effect when the action was commenced governs the procedure to obtain a CPLR §3408 mandatory settlement conference [Federal National Mortgage Association v Anderson, 119 AD3d 892 (2014)]. This means that in order for Russo to be entitled to a settlement conference the underlying loan must be either a “high-cost home loan,” or a “sub-prime or nontraditional loan.” There is nothing in the record by which the court could determine if defendant was entitled to a mandatory settlement conference when the action was commenced in 2008. Neither side has addressed this issue.

There are some conclusions in papers submitted by counsel for plaintiff in regard to prior motions where plaintiff’s counsel unilaterally concludes that the defendants did not qualify for a [*3]mandatory settlement conference in 2008 because it was not either a high-cost, sub-prime or nontraditional loan. In fact, plaintiff’s counsel alleged that the loan is not even a “home” loan under Banking Law §6-l(1)(e)(i) which provides:

“Home loan” means a loan,…(i) The principal amount of the loan at origination does not exceed the conforming loan size limit (including any applicable special limit for jumbo mortgages) for a comparable dwelling as established from time to time by the federal national mortgage association;…

In an effort to substantiate this allegation, plaintiff submitted a chart showing the Fannie Mae Historical Conventional Loan Limits. In 2006 when the loan was made to Russo, the loan limit was $533,850.00. The Wells mortgage amount was $635,000.00. Absent a showing that this loan exceeded the appraisal value, it must be concluded it was a “jumbo mortgage” made within lending guidelines. The loan is 19% above the Fannie Mae limit in 2006. The interest rate of 7.85% may also reflect that it is a jumbo loan as that may be a higher rate than was being charged for conventional loans in 2006. Traditionally, jumbo loans have higher interest rates. The information provided by plaintiff is of no use in determining if the loan is either a high-cost, sub-prime or nontraditional loan under the Banking Law because none of the numbers needed to evaluate the loan in that regard have been provided. This makes plaintiff’s representation unsubstantiated.

The record appears to reflect that in spite of the defendants’ failure to appear or answer, once they did the parties treated the litigation as being subjected to the post 2010 criteria for a mandatory settlement conference. The parties did in fact conference the case with the court record disclosing numerous attempts to modify the loan. None of them were successful, but negotiations were ongoing between the parties over the last few years beginning in 2009. It should be noted that although not a party to the note and mortgage based on the transcript from the hearing in June 2014, Caruso apparently has participated in the settlement discussions even providing evidence of his financial status so as to be considered a contributor to the household income under modification guidelines.

The question must be asked, if the defendant had no right to a settlement conference under the statute, how can the plaintiff be held to have failed to negotiate in “good faith” as the court appointed referee found. Especially if the defendant defaulted in appearing and answering.

The Rules of the Supreme Court governing Residential Mortgage Foreclosure Actions; Settlement Conference [22 NYCRR §202.12-a] gives some guidance. Once again there is difference between the current law and that which existed in 2008. Both rules require a notice being sent promptly by the court after the filing of the Request for Judicial Intervention (RJI) to “all parties or their attorneys” scheduling a settlement conference within 60 days. The statute does not indicate whether “parties” refers to “named parties” or “answering parties.”

The RJI was filed on June 25, 2008. As the purpose of the statute is to prevent foreclosure on residential properties if possible, this would seem to give the defendants the right to participate in a settlement conference irrespective of their failure to appear and answer in the litigation. Why a defendant would opt to participate in settlement conferences without answering does not [*4]make sense. But apparently that is what happened in this case starting in 2013, although there is some indication that defendants may have retained counsel in 2011 and negotiations took place even at that time.

That being the case, there is a major difference between the current Rule 202.12-a and the one in effect in 2008 when a conference could have been requested. The Rule now in effect at section (c)(1) specifically makes the conference subject to CPLR §3408 while the 2008 version does not contain that reference. There are other differences.

Paragraph (4) of the current Rule requires:

The parties shall engage in settlement discussions in good faith to reach a mutually agreeable resolution, including a loan modification if possible. The court shall ensure that each party fulfills its obligation to negotiate in good faith and shall see that the conferences not be unduly delayed or subject to dilatory tactics so that the rights of the parties may be adjudicated in a timely manner.

No such language exists in the Rule in effect in 2008. Which means that only the general common law duty to negotiate in good faith governed these conferences as opposed to the one now imposed in CPLR §3408(f) and Rule 202.12-a.

On the one hand it could be argued that public policy and the desire to try to resolve residential foreclosures if at all possible so as to keep persons in their homes, dictates applying the current rule to the negotiations between the parties. But doing so places the plaintiff in a less favorable position then it would be in had the defendants either timely appeared and answered or even just showed up and requested as settlement conference. In fact, the current Rule warns against rewarding parties for “dilatory” practices. Defendants doing nothing for over five years, not providing a reasonable explanation for the delay and then seeking to negotiate at a time when there are new restrictions on the plaintiff, seems to be a delaying tactic that the Rule would want to discourage. To apply the “good faith” standard of the post-2010 Rule, would reward the defendants for their failure to take any steps to protect their rights.

It must be concluded that the defendants even if never appearing and answering had the right to a settlement conference in 2008 after the RJI was filed and they never took advantage of that opportunity at that time. Irrespective of their default, they eventually took some interest in the litigation, sometime in 2011 according to the referee, and have in fact negotiated with the plaintiff in an effort to settle the matter at various times since that date.

The facts reveal that the defendants have in fact had the advantage of participating in settlement conferences even though they remain in default.

B. What Are Defendants’ Rights in this Matter?

It is uncontroverted that the action was commenced in March 2008 and that the defendants failed to appear and answer. Apparently in November 2013, defendants awoke from their five plus year slumber (beating Rip Van Winkle by fifteen years and Sleeping Beauty by ninety-five), [*5]retained counsel and sought to vacate their default and file an answer by submitting a motion to do so returnable in January 2014. Unfortunately there is nothing in the court record to indicate if this motion was granted or denied. Instead the matter was referred to a referee to “hear and report/determine” the issues of “whether interest should be decreased, whether 6000 should be deducted and all other arguments concerning mitigation of damages.”

In the current motions before the court, plaintiff asserts that the issue of whether the defendants could appear and answer was never ruled upon by Judge McMahon. Defendants do not challenge that and have resubmitted their motion to vacate their default and file an answer. This course of action leads to the conclusion the issue was not addressed and defendants are still technically in default.

The above being said, if the defendants are in default, and they have no statutory right to a mandatory settlement conference, then what was there to send to the referee to “hear and report/determine?” As noted above, the rule in effect in 2008 did not require statutorily imposed good faith negotiations, so how can the plaintiff be found to have been not in good faith when a serious question exists as to whether the defendants even had a right to a settlement conference at this point in the litigation. The referee should have applied the standards used for settlement conferences in 2008 and not as currently structured. Based on the language used in the report that is not what was done.

The referee in the “contentions of the parties” section of the report recites that the defendants argue that the plaintiff violated the “good faith” requirements of CPLR §3408. As pointed out above, when this action was commenced, there was no “good faith” requirement imposed by the statute. The rules in effect in 2008 are those which govern this transaction. This being the case, the referee’s conclusions must be rejected because the current standards were applied and not those in 2008. The analysis of good faith must be based on the common law standard and not the statutory standard of 2014 or the case law which developed over the period since “good faith” was added to the statute. It does not appear that this was the standard used.

The court record discloses that at least since 2013 when five settlement conferences took place, the parties have been engaged in modification or settlement negotiations, irrespective of defendants’ lack of a right to compel participation in such a process. In fact, according to the record of the hearing, there were modification discussions since 2009. Just because the court did not order or supervise modification negotiations does not change the essential nature of the parties actions. Allegations that defendants’ rights to settle this matter have somehow been impaired are not supported by the facts. The fact that the matter was not resolved on terms satisfactory to the defendants does not automatically rise to the level of lack of good faith on the part of the plaintiff.

The defendants’ rights have not been violated. They have fully participated in settlement negotiations. The imposition of penalties by the referee for lack of good faith must be vacated.

C. Are Defendants Permitted to Vacate Their Default and Answer?

Currently before the court is defendants’ motion to vacate their default and file a late answer. A previous cross-motion by defendants was made in January 2014 and remains in litigation limbo as there is no decision of the court specifically addressing that application. Defendants are seeking to vacate their default pursuant to CPLR §317 and not CPLR §5015 which also gives a defaulting defendant a remedy. CPLR §317 provides:

Defense by person to whom summons not personally delivered.

A person served with a summons other than by personal delivery to him…, who does not appear may be allowed to defend the action within in one year after he obtains knowledge of entry of the judgment, but in no event more than five years after such entry, upon a finding of the court that he did not personally receive notice of the summons in time to defend and has a meritorious defense.

Plaintiff’s process server achieved service on defendants by conspicuous or “affix and mail” service pursuant to CPLR§308(4). The notice was affixed on the door of the premises on April 8, 2008 and mailed on April 10, 2008 to defendants at 1276 Drumgoole Road East. Although this is considered “personal service” under the statute, it is not “personal delivery,” therefore defendants ostensibly qualify to assert this statute in an effort to vacate their default.

The argument that the process server affixed the summons and complaint to the neighbor’s house is a complete misinterpretation of the affidavits of service. They clearly state that the pleadings were posted on the property address 1276 Drumgoole Road East and that the process server confirmed it as the defendants’ address with the neighbor at 1272 Drumgoole Road East. As noted in plaintiff’s opposition to defendants’ motion, a mere denial of receipt of process generally is insufficient to invoke the protections of the statue so as to invalidate service.

Unfortunately, defendants have not met the second prong of the test so as permit vacating their default, that is, the existence of a meritorious defense. A claim that they were not properly served is not a “meritorious defense.” There is nothing contained in their proposed answer which challenges the essential allegations of the complaint that Russo borrowed the money and has failed to make payments as agreed.

On the other hand it appears that defendants’ time to act may not have run as yet because plaintiff has not yet entered a judgment against the defendants. Plaintiff’s original counsel sought an order of reference in July 2008, which was signed by Judge McMahon on July 22, 2008 and appointed a referee to compute and determine if the property may be sold. Thereafter plaintiff submitted an application for a Judgment of Foreclosure and Sale dated February 23, 2009, which allegedly was rejected by the court for formatting issues.

In November 2009, plaintiff submitted a new request for a Judgment of Foreclosure and Sale which was returnable on January 19, 2010. Plaintiff alleges that because it was processing a loan modification pursuant to the Home Affordable Modification Program (HAMP) which indicated that defendant Russo would qualify, they voluntarily withdrew the application for a Judgment of Foreclosure and Sale. If that information is correct, it means that the defendants were participating in the settlement conference procedure in 2010 even though they failed to appear or answer.

In August 2013, plaintiff voluntarily withdrew its Order of Reference existing from 2008 and sought a new Order of Reference in 2013. Plaintiff now has moved to file a new Order of Reference and entry of Judgment of Foreclosure and Sale.

This leads to the conclusion that there is no viable judgment in this action from which to trigger defendants’ right to seek to vacate its default. There is no impediment to them filing an answer even at this late date. Therefore, defendants’ motion to vacate their default and answer is not barred.

D. Should Plaintiff’s Action be Dismissed for Failure to Enter a Judgment Within One Year?

Defendants allege that pursuant to CPLR §3215(c) this action should be dismissed because of plaintiff’s failure to enter a judgment against the defendants within one year of defendants default. The statute provides:

(c) Default not entered within one year. If the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or motion, unless sufficient cause is shown why the complaint should not be dismissed. A motion by the defendant under this subdivision does not constitute an appearance in the action.

Plaintiff in opposition asserts that prior counsel did “take proceedings” for the entry of a judgment in that it sought and received an Order of Reference in July 2008. Plaintiff points out that a Judgment of Foreclosure was submitted in February 2009 but rejected by the court for formatting issues. Plaintiff asserts that this meets the criterion for taking steps to enter the judgment. Also based on the history of the litigation with its record of attempts to modify the mortgage with court supervision, it is clear that it was never abandoned.

Defendants gave evidence to the referee that since 2010 they have been negotiating with the plaintiff in an effort to modify the terms of the loan. Is it “good faith” by the defendants to assert the plaintiff’s action should be deemed abandoned when the defendants have yet to appear and answer, while the parties negotiated modifications at various times over the last few years?

The court agrees with plaintiff. The history of this litigation establishes that there is “sufficient cause” to establish that this action has never been abandoned and the complaint should not be dismissed as permitted by the statute. Plaintiff may continue to pursue its right to foreclose once there is compliance with all statutory procedures.

E. May Plaintiff Amend the Caption and Complaint So As to Correct the Defendants’ Names?

Plaintiff wants to amend the complaint to change the “John Doe” defendants to Michael Russo and Connie Russo. Why it would want to do so when even these names may not be correct makes no sense. It seems that Michael Russo’s name is actually Michael Caruso and he is the husband of Russo and was at the time the mortgage was made. You would think the lender would have such information from Russo’s application. But perhaps those documents disappeared with “Rumpelstiltskin” the mortgage broker. None of this information is disclosed in [*6]the mortgage documents currently before the court. It was revealed in the motion papers. Because Wells now has the correct name why would plaintiff want to amend the caption to the wrong name?

There is nothing submitted as to whether Connie Russo is her correct name or is it Caruso or something else. One of the persons selling the property to Russo in 2004 was “Connie Bonanno.” Is it a coincidence that the first name of the defendant is the same first name of the person who sold the property or does she still reside there as a tenant? There is no indication as to what is Connie Russo’s connection to the premises. Is she a relative of Russo or a tenant or perhaps both?

The question must be asked how does plaintiff even have jurisdiction over persons sued with a name different than that of the actual persons residing at the premises especially when service of process was not made by personal delivery to the named defendants? Changing “John Doe” defendants to a named defendant with the wrong name in order to obtain a default judgment against them when the correct name is now known seems to raise a due process issue which even the Queen of Hearts might recognize as being a problem even though she was famous for ordering “off with their heads” for lesser infractions. The plaintiff cannot obtain personal jurisdiction over improperly named defendants served by conspicuous service whose true names are know and who may have occupancy rights in the premises.

Plaintiff has not obtained valid “affix and mail” service over any improperly named defendant. Had the process been personally delivered to the improperly named defendant, perhaps valid service been concluded. It would be hard for a party to claim the party was not served when process was actually delivered to that party when their actual name was unknown and they have some interest in the litigation requiring receipt of notice so as to meet due process requirements. How can conspicuous service over an improperly named defendant who fails to appear be valid? Plaintiff cannot be seriously arguing that personal jurisdiction was obtained over Caruso and Connie Russo in this manner. Because they have no ownership interest in the property nor are they obligated on the note and mortgage, perhaps there is no statute of limitations problem in serving them at this time. Although the parties have not specifically addressed this issue.

Plaintiff’s motion to amend the caption and complaint is granted to the extent that they submit a new complaint with the proper names of Caruso and Connie Russo and their relationship to the premises. Like the Three Bear’s House where there are two unacceptable bowls of porridge, plaintiff has not as yet become Goldilocks and found the bowl which is “just right.” Whether the court has jurisdiction over them is another issue not addressed by the parties in this action.

F. May Plaintiff Amend the Caption to the Name of the Current Note and Mortgage Holder?

Plaintiff seeks to amend the caption to change its name from Wells to Deutsche. Why Wells wants to amend the plaintiff’s name to Deutsche when Deutsche did not become owner of the note and mortgage until September 14, 2011 three and one-half years after the litigation was [*7]commenced is anybody’s guess. On the other hand, when some third party observer looks at this litigation and sees how messed up it is, it becomes apparent why Wells would not want to have its name being sullied by being linked to it. Especially if Deutsche was the owner of the debt in 2006.

CPLR §1018 permits the litigation to continue in the name of the original parties whenever there is a change in interest during the pendency of the action. It provides:

Upon any transfer of interest, the action may be continued by or against the original parties unless the court directs the person to whom the interest is transferred to be substituted or joined in the action.

This raises another question. Why on earth would Deutsche purchase a mortgage loan in September 2011 which had been in default since late 2007 and was already in the court system as a foreclosure action? Did Deutsche believe you really do not get turned into a donkey on Pleasure Island? Or maybe the explanation is that the note with the undated endorsement to Deutsche was actually sold shortly after the loan was made in 2006 and the assignment of the mortgage did not take place until 2011. Which would mean that Wells did not own the debt when the foreclosure was commenced. The 2006 purchase date would seem to comport with the 2006-18 number assigned by Deutsche to both the Asset Backed Certificate Series as well as for the GSAA Home Equity Trust. It may be an assumption but it would seem if Deutsche bought the debt in a year other than 2006, the number assigned would be for that year.

In fact, the assignment of mortgage makes no reference to the note and is labeled a “Default Assignment.” It would seem to indicate that Deutsche already had possession of the promissory note and, pursuant to the agreement between Wells and Deutsche, now was the proud holder of the mortgage as well.

Plaintiff is permitted to amend its name in the caption to reflect that Deutsche is the current owner of the debt. It does not affect defendants’ rights and obligations under the instruments. It does not change the fact that it is not Red Riding Hood’s grandmother in the bed. It still is the wolf. Defendants may still raise the defense that Wells did not having standing to commence this action in 2008 because it did not own or hold the debt at that time.

G. Is the Referee’s Report Valid?

Judge McMahon in March 2014 referred this matter Edward V. Corrigan, as Referee to “hear and determine” certain issues in this case. It is unclear whether the order was to hear and determine or hear and report as both words are underlined. However, the referee interpreted it as “hear and determine” and the parties participated in the process under that assumption.

Pursuant to CPLR §4001 & CPLR §4319 a reference to hear and determine becomes a finding of the court. The referee conducted a hearing over two days in June 2014 and must be applauded for his diligence in conducting the hearing and wading through the at times unexplainable history of this litigation.

Among the findings of the referee was one that plaintiff had acted not in good faith when it improperly calculated Michael Caruso’s overtime in making an offer to modify the mortgage in an amount the defendants could not reasonably pay. According to HAMP guidelines a non-borrower household member can become a “contributor” for refinancing purposes. Interestingly, Michael Caruso s/h/a Michael Russo was not signator to either the note or mortgage in 2004 yet apparently was married to Russo at the time. Only in the world of mortgage foreclosures would a bank lend money to a borrower without a source of income and then deny a refinancing of the debt based on income from someone who has no obligation to them and to whom they never looked to originally to secure the debt. Although this court may not have held that to be a lack of good faith, the referee who conducted the hearing did. To rectify this, the referee imposed penalties on the plaintiff which tolled interest and fees on the loan from July 17, 2013 forward.

As pointed out above, the court must now reject the referee’s findings as he applied the mortgage foreclosure rules in effect on the date of the hearing and not in effect when the action was commenced. Also, reviewing the submissions in regard to the motions and the transcripts of the hearings, it becomes apparent that plaintiff was not negotiating with a lack of “good faith.” There were numerous attempts to modify the mortgage. Plaintiff made legitimate business decisions based on HAMP guidelines. There is no showing that plaintiff violated those guidelines. The court feels on the merits the findings of the referee’s report must be rejected. There was no lack of good faith on the part of the plaintiff and the penalties imposed were not justified and should be vacated.

In fact, there is just as much evidence that the defendants did not negotiate in good faith. Exhibits presented to the referee included copies of paychecks to Caruso as well as tax returns for both Russo and Caruso. What makes these documents interesting is that the checks were mailed to Caruso at a Freehold, New Jersey address. In addition, their federal tax return also has the New Jersey address as their “home address.” If their tax return is correct, then the Drumgoole Road address is not their home. If that is the case, they are not entitled to modify the mortgage and may be committing bank fraud in applying and may have done so if that was not Russo’s address when she obtained the mortgage. If the tax return is wrong, then are they committing tax fraud? It also appears that they filed New Jersey resident returns. Defendants must explain this anomaly.

There is another disclosure in the hearing transcript which questions the defendant’s good faith. There was testimony that the rental from the apartment was sporadic from the tenant implying that this contributed to their difficulty in paying the mortgage. If income from the apartment or apartments was considered by the lender in making the original mortgage, then defendants rather than giving the tenant a free ride leading to Russo defaulting on the mortgage, should have taken steps to evict the tenant, recover possession of the apartment, and put in a paying tenant. There is no indication that this was done by Russo.

At times it seems that HAMP should really be called HAMPER, because the rules impose guidelines which actually restrict the negotiation process. Foreclosure actions are litigation, and litigation gets settled. However, when the court’s efforts to do so are encumbered by federal or state regulations imposed after the fact or the loan has been sold to some unknown investor who [*8]can dictate the terms of the settlement, rather than help the situation it makes the process more difficult to resolve. Hence, HAMPER. Home Affordable Modification Program Eliminating Resolution.

The record does not establish lack of “good faith” by the plaintiff. The referee’s report is vacated along with the penalties imposed therein.

H. Why Was the Mortgage Document Changed by Hand?

The certificate of occupancy for the premises discloses that it is a legal two-family. Yet at the closing someone altered by hand the “one or two family” clause in the mortgage to state it is a “two or three family” home. Does this mean that Russo was collecting rent from one legal apartment and rent from an illegal one? Was rental income included when the loan was made? If yes, then from how many units? That information is not available. In spite of generating rent from one or two rental units Russo did not pay the mortgage nor has she apparently put aside any money to try to bring the loan current. A mortgage foreclosure is an equitable proceeding. Therefore the fact that Russo may have an illegal apartment may be a factor to consider in granting her relief in this proceeding as she may not have “clean hands.”

Defendants have to explain why the mortgage was altered, who is the tenant, and if the tenant does not pay rent, why no steps were taken to evict the tenant.

I. May the Court Allow the Correction of Defects?

Analysis of the issues and problems in the case at bar, and strict application of the law may lead to the action being dismissed owing to technical defects in plaintiff’s pleadings with the results that the defendant gets a “free mortgage” with no obligation to repay the money borrowed. Unlike Hansel and Gretel who were able to enjoy the benefits of a gingerbread house and eventually escape the clutches of the wicked witch, people who borrow money do have an obligation to pay it back and not use the legal system to evade responsibility.

Likewise, in regard to the defendants, application of the law might result in negating the fact that for the last several years they have actively participated through retained counsel in an effort to reinstate a payment plan and that they have raised numerous issues which might constitute a legal defense to the proceeding. Defendants should have the opportunity to have the court determine if they have sprinkled enough of Tinkerbell’s pixie dust over the litigation so as to transport their obligation to Never Never Land and negotiate a settlement or dismissal of the actions.

Article 20 of the CPLR gives the court discretionary power to address most of the procedural errors that have dogged this litigation since its inception.

Based on the forgoing the court is opting on the side of doing justice and will use its statutory and equitable powers to treat this action in the manner the court and the parties have over at least since 2013. Rather than continue to run around with a glass slipper looking for the [*9]foot on which it fits, the court is hopefully going directly to Cinderella’s house with its decision. The parties will have the opportunity to participate in settlement negotiations and enforce their respective rights once they correct their procedural problems.

Conclusion:

Had we used our common sense.

Been worthy of our discontents.

We’d be happy….

To get the money, to save the house.^[FN2]

It is therefore Ordered:

1. Plaintiff’s motion in regard to the referee’s report is granted. The referee’s report is vacated and is a nullity. All penalties imposed are lifted. There was no lack of good faith in the settlement negotiations between the parties.

2. Plaintiff’s motion to amend the caption to properly name the defendants is granted on the condition that plaintiff actually amend the named defendants to their correct names.

3. Defendants are to provide and document the names of all persons occupying the premises and their relationship to the property and Russo within 15 days of the date of this decision.

4. Plaintiff’s motion to amend the name of the plaintiff from Wells to Deutsche is granted. As to why they want to do this is anybody’s guess, but apparently it is important to plaintiff and will make them feel better.

5. Plaintiff will serve and file an amended summons and complaint correcting the above mentioned defects and any others identified in the decision within 30 days of the date of this decision.

6. Plaintiff has not abandoned this action.

7. Defendants’ motion to vacate its default and file an answer is granted. Defendants will serve and file an answer to the amended complaint within thirty days after the date of receipt of that pleading. However, any affirmative defense of lack of personal jurisdiction, procedural defects or the running of the statute of limitations is waived and cannot be raised by the defendants. Only substantive or statutory defenses will be entertained including the right to challenge the standing of Wells to be the plaintiff who commenced this action in 2008.

8. The parties will appear for a settlement conference on Monday, June 6, 2016 at 11:00 AM at the Courthouse, 927 Castleton Avenue, Staten Island, New York in Part 19 before Judge [*10]Straniere. Unless stipulated to by the parties, the rules governing settlements in 2008 when the action was commenced will govern the negotiations and not those currently in effect.

9. The parties will consider the following terms recommended by the Court as a possible outline for a settlement of this action.

a. Plaintiff is to repurchase the debt from the investor, keep the loan in its portfolio and negotiate a settlement as if this were litigation and not a transaction now subject to post closing rules and regulations imposed by investors or regulators non-existent at the time of the loan.

b. The parties will determine how much the defendants are able to pay each month for principal, interest, taxes and insurance including in the calculations income from Russo and Caruso and any other adults who may be able to contribute; make that amount the monthly payment at a current interest rate over a forty-year payout with a balloon payment at the end of the term.

c. Require that a new note and mortgage be executed to be signed by all persons whose income is being relied upon by the lender.

d. Any agreement will contain a clause that upon default in any payment, upon defendants’ failure to cure within thirty days, plaintiff may apply in this action for an order of reference and judgment of foreclosure be issued forthwith.

The parties may also want to consider an alternative of entering a money judgment only against Russo on the note, entering into a plan to pay down the judgment and foregoing the mortgage foreclosure.

The foregoing constitutes the decision and order of the court.

The foregoing constitutes the order of the court.

ENTER,

DATED:

______________________________

Philip S. Straniere

Acting Justice of the Supreme Court

Footnote 1:“Young At Heart” music and lyrics by Johnny Richards and Carolyn Leigh.

Footnote 2: “Ever After” from “Into the Woods” music and lyrics by Stephen Sondheim.

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