Deutsche Bank Nat’l Trust Co. v. Parisella, No. S07 58-09 CnC (Toor, J., Oct. 25, 2010) [The text of this Vermont trial court opinion is un official. It has been reformatted from the origina l. The accuracy of the text and the accompanying data included in the Vermont trial cou rt opinion database is not guaranteed.] V ERMONT S UPERIOR C OURT C HITTENDEN U NIT C IVIL D IVISION │ DEUTSCHE BANK NATIONAL TRUST │ COMPANY, as Trustee for FFMLT Trust │ 2005-FF11, Mortgage Pass Through │ Certificates Series 2005-FF11, │ Plaintiff │ │

v. │ Docket No. S0758-09 CnC │ KEITH PARISELLA │ FIRST FRANKLIN FINANCIAL │ CORPORATION, │ Defendants │ │

RULING ON MOTION TO DISMISS Plaintiff Deutsche Bank National Trust Company, as Trustee for FFMLT Trust 2005-FF11, Mortgage Pass Through Certificates Serie s 2005-FF11 (Deutsche Bank) seeks to foreclose certain real property in Burling ton, Vermont owned by Defendant Keith Parisella. Among the motions currently pendi ng is Parisella’s motion to dismiss, in

which he asserts that Deutsche Bank has failed to a llege any facts that would establish its right to enforce the mortgage; that Deutsche Bank l acked standing to sue in foreclosure at the time it filed its complaint; and that the court therefore lacks subject matter jurisdiction. 1 Richard J. Volpe, Esq. represents Deutsche Bank; Grace B. Pazdan, Esq. has entered a limited appearance on Parisella’s beh alf for the purpose of filing and arguing the pending motion to dismiss.

1 Although Parisella says his motion to dismiss is p ursuant to V.R.C.P. 12(h)(3), the court treats it a s a motion pursuant to V.R.C.P. 12(b)(1). Rule 12(h)(3 ) merely assures that a Rule 12(b)(1) motion may be raised at any time. Poston v. Poston , 161 Vt. 591, 592 (1993) (mem.).2 Background In its complaint, Deutsche Bank alleges that Paris ella executed a note in favor of “Nationpoint” with a principal amount of $195,200.0 0. Compl. ¶ 5 (filed June 15, 2009). In support, Deutsche Bank cites Exhibit A, which it asserts is a copy of the note. Exhibit A appears to be a note executed by Parisell a in favor of Nationpoint, a Division of National City Bank of Indiana. At the top of th e exhibit is what appears to be a stamp stating “Certified to be a true and correct copy of the original,” with a signature over the stamp. The signature page of the note as it appear s in Exhibit A bears Parisella’s signature, but no endorsements. No allonge is atta ched to Exhibit A. Deutsche Bank also alleges that the note is secure d by a mortgage deed from Parisella to Nationpoint. Id . ¶ 6. In support, Deutsche Bank cites Exhibit B, which it asserts is a copy of the mortgage. Deutsche Bank f urther asserts that the mortgage was assigned to it. Id . In support, Deutsche Bank cites “Exhibit C.” No “Exhibit C” appears to accompany the complaint. Parisella filed his motion to dismiss on August 25 , 2010. As mentioned above, he argues in his motion that Deutsche Bank has failed to allege any facts that would establish its right to enforce the mortgage. Speci fically, he notes the absence of Exhibit C, and asserts that even if the mortgage de ed had been assigned to Deutsche Bank

that does not establish the bank’s entitlement to e nforce the underlying obligation. As to that obligation, Parisella points out that the note Deutsche Bank cited in Exhibit A is payable to Nationpoint (not Deutsche Bank) and bear s no endorsement from Nationpoint

to Deutsche Bank or otherwise.3

In opposition to Parisella’s motion, Deutsche Bank cites no authorities, but writes only as follows: NOW COMES the Plaintiff and respectfully requests t hat this Honorable Court DENY the Defendant’s Motion to Dismiss. The Plaintiff is the current holder of the note and assignee of the mort gage. 1. Plaintiff is the holder of the Note which is en dorsed in blank. Under the UCC, a note endorsed in blank is bearer paper a nd its holder has the right to enforce. 2. Further, the Plaintiff is the assignee of the m ortgage as evidenced by the assignment of mortgage attached hereto and also as recorded in the land evidence records. WHEREFORE, the Plaintiff respectfully requests that the Defendant’s Motion be DENIED. Opp’n (filed Sept. 7, 2010). Attached to Deutsche Bank’s opposition is what appears to be another copy of the note, except that the signat ure page bears two endorsements: one from NationPoint to First Franklin Financial Corpor ation (First Franklin) signed by Bill Cordray as the “Funder,” and a second in blank from First Franklin, also signed by Bill Cordray as the “Funder.” There is no indication as to the date of the endorsements. Also attached to the opposition is a copy of a document dated April 28, 2009 and entitled “Assignment of Mortgage” under which First Franklin assigns the mortgage to Deutsche

Bank. 2 The assignment appears to have been recorded in t he Burlington Land Records on May 22, 2009. In reply, Parisella makes two arguments. First, h e asserts that Deutsche Bank’s claim that it is the current holder of the mortgage note is “suspect” because: (1) Deutsche Bank has filed two different copies of the note, re presenting that each is an original copy; (2) the purported endorsements lack credibility bec ause both are signed by the same person acting as an agent of both the original lend er and the first transferee; and (3)

2 Presumably this is the document that Deutsche Bank was referencing when it cited “Exhibit C.”4

Deutsche Bank has not supplied an affidavit of a do cument custodian or any agent with personal knowledge of the purported assignments. S econd, Parisella argues that even if Deutsche Bank could prove that it is the current ho lder of the note, Deutsche Bank has provided no evidence that it held the note at the t ime it filed its complaint. Deutsche Bank has not filed a surreply.

Discussion The court begins with Parisella’s second argument, which raises an issue that has become a “‘hot topic’ in the wake of the sub-prime mortgage market collapse and the vast number of mortgage foreclosures filed nationwi de.” U.S. Bank Nat’l Ass’n v. Berg , 2010 WL 3932984, at *2 (N.J. Super. Ct. App. Div. O ct. 5, 2010) (per curiam). Parisella has cited two New York cases for the propositions t hat a party must have standing at the outset of litigation, and that a defect in standing at that time cannot be cured. In U.S.

Bank National Ass’n v. White , Mortgage Electronic Registration Systems, Inc. (M ERS) apparently assigned a note and mortgage to the plai ntiff-bank 202 days after the bank brought its foreclosure complaint. No. 32112/07/07 , 2009 WL 159588, at *1 (N.Y. Sup. Ct. Jan. 23, 2009). The White court concluded that the plaintiff lacked standing on the day it filed suit because it did not own the mortga ge and note on that day. Id . at *3. The

court therefore dismissed the case for lack of stan ding. See id . at *2 (“Plaintiff U.S. BANK lacks ‘standing’ to bring the instant action.” ). In Washington Mutual Bank v. Patterson , the plaintiff-bank instituted a foreclosure action on September 4, 2007. No. 33435 /07, 2008 WL 5233195, at *1 (N.Y. Sup. Ct. Dec. 15, 2008). MERS assigned rights to t he plaintiff on September 17, 2007, stating that the assignment was effective as of Jul y 29, 2007. Id . The court concluded5

that the plaintiff had failed to demonstrate that i t was the holder of the note and the mortgage at the outset, and thus had failed to esta blish that it had standing. Id . at *2. Some explanation of the standing doctrine is necess ary before proceeding further. “[S]tanding is a necessary component of the court’s subject-matter jurisdiction . . . .”

Bischoff v. Bletz , 2008 VT 16, ¶ 15, 183 Vt. 235. “Standing embodie s a core constitutional component and a prudential component of self-imposed judicial limits.” Hinesburg Sand & Gravel Co. v. State , 166 Vt. 337, 341 (1997). To have constitutional standing, a plaintiff “must have suffered a particu lar injury that is attributable to the defendant and that can be redressed by a court of l aw.” Bischoff , 2008 VT 16, ¶ 15. (quoting Parker v. Town of Milton , 169 Vt. 74, 77 (1998)); see also Hinesburg Sand &

Gravel Co. , 166 Vt. at 341 (listing constitutional elements a s “(1) injury in fact, (2) causation, and (3) redressability.”). “The prudential elements of standing include the ge neral prohibition on a litigant’s raising another person’s legal rights, t he rule against adjudication of generalized grievances, and ‘the requirement that a plaintiff’s complaint fall within the zone of interests protected by the law invoked.’” Hinesburg Sand & Gravel Co. , 166 Vt. at 341 (quoting Allen v. Wright , 468 U.S. 737, 751 (1984)); see also Bischoff , 2008 VT 16, ¶ 21 (“[O]ne of the fundamental principles underlying th e standing requirement . . . is a ‘general prohibition on a litigant’s raising anothe r person’s legal rights.’” (quoting Hinesburg Sand & Gravel Co. , 166 Vt. at 341)). It might be possible to analyze this case under the doctrine of prudential standing.

See In re Montagne , 421 B.R. 65, 79 (Bankr. D. Vt. 2009) (“[T]he ques tion of who may properly enforce a note is a question of prudential standing . . . .”). Indeed, one way of6

framing the question here is whether Deutsche Bank’ s complaint raised rights that actually belonged to Nationpoint or First Franklin. Under that analysis, one might

conclude that Deutsche Bank could cure a defect in prudential standing. See IP Innovation, L.L.C. v. Google, Inc. , 661 F. Supp. 2d 659, 663 (E.D. Tex. 2009) (“A plaintiff cannot cure constitutional standing defec ts after it files suit, but a plaintiff with constitutional standing may cure prudential standin g defects after it files suit.”); Lavaggi v. Republic of Argentina , No. 04 Civ. 5068(TPG), 2008 WL 4449347, at *2 (S. D.N.Y., Sept. 30, 2008) (“Unlike a deficiency in constituti onal standing, a failure to satisfy the prudential requirements of standing can be cured af ter the complaint is filed.”); Lucent Technologies, Inc. v. Gateway, Inc. , Civil Nos. 02CV2060-B(CAB), 03CV0699-B (CAB), 03CV1108-B (CAB), 2007 WL 1306535, at *4 (S. D. Cal. Apr. 27, 2007) (holding that a “party may cure” prudential standin g defects in patent litigation). That analysis notwithstanding, the court cannot av oid the question of Deutsche

Bank’s constitutional standing. See Household Fin. Corp. II v. Perkins , No. 972-12-08 Rdcv (Vt. Super. Ct. Oct. 28, 2009) (Cohen, J.), av ailable at http://www.vermontjudiciary.org/2006Present%20TCdec isioncvl/2009-10-29-4.pdf (“[T]he court is obligated to ensure that the plain tiff has standing to bring the foreclosure action.”). The material time for evaluating Deutsc he Bank’s constitutional standing is the time the complaint was filed. See Friends of the Earth, Inc. v. Laidlaw Envtl. Servi ces (TOC), Inc. , 528 U.S. 167, 189 (2000) (“The requisite personal interest . . . must exist at the commencement of the litigation . . . .” (quotin g Arizonans for Official English v.

Arizona , 520 U.S. 43, 68 n.22 (1997)); Lujan v. Defenders of Wildlife , 504 U.S. 555, 569 n.4 (1992) (“It cannot be that, by later participat ing in the suit, the State Department and7

AID retroactively created a redressability (and hen ce a jurisdiction) that did not exist at the outset.”); Robidoux v. Celani , 987 F.2d 931, 938 (2d Cir. 1993) (“material time” for purposes of constitutional standing was “the time t he complaint was filed”). The court concludes that a plaintiff seeking forec losure lacks standing unless it can show it was entitled to enforce the mortgage at the time it filed its complaint for

foreclosure. See St. Clair Intellectual Prop. Consultants, Inc. v. Palm, Inc. , No. 06-404- JJF-LPS, 2009 WL 1220546, at *6 (D. Del. May 4, 200 9) (if plaintiff had no legal interest at the time it initiated suit, then it lac ked constitutional standing, for which there could be no “retroactive remedy”); Proctor & Gamble Co. v. Paragon Trade Brands, Inc. , 917 F. Supp. 305, 310 (D. Del. 1995) (noting that “ [a]s a general matter, parties should possess rights before seeking to have them vindicat ed in court”; discussing the dangers of abstract disputes, multiple litigation, and delay; and concluding that “a party must have standing to bring a patent infringement claim at th e time it is brought”). In addition, if a plaintiff could file suit before it acquired any in terest in the litigation, the plaintiff might

be able to circumvent the statute of limitations. The court believes that plaintiffs seeking foreclosure should be required to articulate at the commencement of their case precisely how they are entitled to enforce the obligation. 3

Other courts have reached similar conclusions. See In re Foreclosure Cases , 521 F. Supp. 2d 650, 653 (N.D. Ohio 2007) (“[S]tanding is determined as of the time the complaint is filed. . . . To show standing, then, i n a foreclosure action, the plaintiff must

show that it is the holder of the note and the mort gage at the time the complaint was

3 Although the most recent changes to V.R.C.P. 80.1 do not affect this case, the new provisions will hopefully accomplish just that. See V.R.C.P. 80.1(b) (“The plaintiff shall attach to t he complaint copies of the original note and mortgage deed and proof of ow nership thereof, including copies of all original endorsements and assignments of the note and mortga ge deed.”).8

filed.”); Deutsche Bank Nat’l Trust Co. v. Bialobrz eski , 3 A.3d 183, 189 (Conn. App. Ct. 2010) (foreclosure case remanded for factual determ ination as to whether the foreclosing

bank owned or held the note at the time the action was commenced); Lasalle Bank Nat’l

Ass’n v. Ahearn , 875 N.Y.S.2d 595, 597 (N.Y. App. Div. 2009) (“Not ably, ‘foreclosure of a mortgage may not be brought by one who has no title to it’ and an assignee of such a mortgage does not have standing to foreclose unless the assignment is complete at the time the action is commenced . . . .” (citations om itted)); U.S. Bank Nat’l Ass’n v.

Kimball , No. 6-1-09 Gicv, slip op. at 4 (Vt. Super. Ct. Oc t. 27, 2009) (Joseph, J.), appeal

docketed , No. 2010-169 (“In order to enforce a mortgage not e, a plaintiff must show that it was the holder of the note at the time the Compl aint was filed.”) (citing In re Gilpin , No. 09-10696 (Bankr. D. Vt., Oct. 7, 2009)). The court recognizes that other courts have held to the contrary. See HSBC Bank USA v. Thompson , No. 23761, 2010 WL 3451130, at *12 (Ohio Ct. App. , Sept. 3, 2010) (“[A]t least in the view of some districts in Ohio, if the note had been properly negotiated to HSBC, HSBC may have been able to claim standing, based on equitable assignment of the mortgage, supplemented by the actual transfer o f the mortgage after the complaint was filed.”); Wachovia Bank, N.A. v. Cipriano , No. 09CA007A, 2009 WL 3308733, at *5 (Ohio Ct. App., Oct. 13, 2009) (although Wachovi a Bank was not the holder of the note when it filed its foreclosure complaint on Jun e 14, 2007, it was the real party in interest and holder prior to any judgment, and thus trial court had subject matter jurisdiction). The court declines to follow these cases. The parties have not cited, and this court has not found, any Vermont Supreme Court case addressing this particular issue. The c ourt is aware that the Vermont Supreme9

Court recently held that “where . . . a plaintiff a cquires capacity to sue after the suit is filed, and before the action is dismissed for lack of capacity, the acquisition of capacity relates back to the filing of the action for all pu rposes, including compliance with the statute of limitations.” Korda v. Chicago Ins. Co. , 2006 VT 81, ¶ 16, 180 Vt. 173. Korda is distinguishable because its holding was on the s pecific issue of capacity rather than standing. See id . ¶ 14 (“Although the parties have characterized th e issue as one of standing, the issue is really one of capacity.”). Nor does Mortgage Electronic Registration Systems, Inc. v. Saunders lead to a different conclusion. In that case, MERS filed a c omplaint for foreclosure, at which time Accredited Home Lenders, Inc. (Accredited) was actu ally the party entitled to enforce the rights granted in the mortgage. 2010 ME 79, ¶ 19, 2 A.3d 289. Five months after MERS filed suit, Accredited transferred the mortgage and note to Deutsche Bank National Trust Company. Id . Maine’s Supreme Judicial Court concluded that th e original plaintiff, MERS, was not the “mortgagee” and thus lacked stand ing to foreclose, 4 but that the trial court did not abuse its discretion by substituting Deutsche Bank for MERS. Id . ¶ 2.

Saunders is distinguishable because it involved the substit ution of the proper party, rather than a party who was improper at the outset attempt ing to remedy the problem midstream. “[T]he burden of proof on a Rule 12(b)(1) motion is on the party asserting that subject matter jurisdiction exists . . . .” 5B Wri ght, Miller & Kane, Federal Practice and Procedure: Civil 3d § 1350. Here, there is no evid ence in the record indicating that Deutsche Bank was the assignee of the note when it filed its complaint on June 15, 2009.

4 Which, the court notes, is a result consistent wit h Judge Cohen’s ruling in Mortgage Electronic Registration Service, Inc. v. Johnston , No. 420-6-09 Rdcv (Vt. Super. Ct. Oct. 28, 2009) (Cohen, J.), available at http://www.vermontjudiciary.org/TCDeci sionCvl/2009-11-3-1.pdf.10

Nor is there even an allegation to that effect. Th ere is an allegation that the mortgage was assigned to Deutsche Bank before it filed its compl aint, but since the note is a negotiable instrument, the transfer of the mortgage does not a lso transfer the note. See Restatement (Third) of Property, Mortgages § 5.4(b) & cmt. c. Therefore, for the reasons discussed above, the court concludes that Deutsche Bank’s com plaint should be dismissed for lack of standing.

Order Parisella’s motion to dismiss is granted. Dated at Burlington this 25th day of October 2010.

______________________________ Helen M. Toor Superior Court Judge