Court Opinion

ID: 2755208
Source: CourtListenerOpinion
Date Created: 2014-11-25 21:00:53.430263+00
Date Added: 2024-06-11T10:28:42.285012
License: Public Domain

United States Court of Appeals
                      For the First Circuit

No. 14-1195

                        JOSEPH CASTAGNARO,

                      Plaintiff, Appellant,

                                v.

                   THE BANK OF NEW YORK MELLON,

                       Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF NEW HAMPSHIRE

       [Hon. Joseph A. DiClerico, Jr. U.S. District Judge]

                              Before

                    Howard, Lipez and Barron,
                         Circuit Judges.

     Stephen T. Martin, with whom The Law Offices of Martin &
Hipple, PLLC was on brief, for appellant.
     Elizabeth T. Timkovich, with whom Phoebe N. Coddington and
Winston & Strawn LLP were on brief, for appellee.
     Stephanie A. Bray and New Hampshire Legal Assistance on brief,
amicus curiae in support of appellant.

                        November 20, 2014
          HOWARD,    Circuit     Judge.    This   case   presents    the

labyrinthine question of whether New Hampshire law requires a

foreclosing entity to hold both mortgage and note before it can

exercise a power of sale under N.H. Rev. Stat. Ann. ("RSA") §

479:25. In turn, that issue splinters into two distinct inquiries:

whether either the common law or state statute mandates the unity

of the two and, if so, whether parties can override that baseline

rule by agreement.    Because controlling state precedent does not

provide definitive guidance on how to resolve these queries, and

since consequential federalism interests are implicated, we will

certify the questions to the New Hampshire Supreme Court.           N.H.

Sup. Ct. R. 34.

                                   I.

          In April 2007, Plaintiff-Appellant Joseph Castagnaro

executed a promissory note in favor of Regency Mortgage Corporation

("Regency") and a mortgage to Mortgage Electronic Registration

Systems, Inc. ("MERS") as nominee for the lender and lender's

successors and assigns.        From that point forward, the mortgage

document (evidencing the security interest in the property) and the

note (evidencing the underlying agreement to repay the loan on the

property secured by the mortgage) traveled different routes.

          On December 3, 2010, MERS assigned the mortgage to BAC

Home Loan Servicing ("BAC").        Subsequently, it was assigned to

                                   -2-
Defendant-Appellee Bank of New York Mellon ("BNYM").             BNYM is the

current mortgagee.

           Two versions of the note are found in the record.                The

first   shows   an   undated   indorsement     from   Regency    to   American

Residential Mortgage.      The phrase "certified true copy" has been

excised in this version.       The second version includes an undated

assignment from Regency to American Residential Mortgage, and an

undated indorsement to Countrywide Bank FSB.                 An allonge (in

essence, an attachment) to this note reveals an undated assignment

from Countrywide Bank FSB to Countrywide Home Loans, followed by an

undated indorsement in blank.

           After     Castagnaro    failed     to   make    certain     mortgage

payments, BNYM moved to foreclose.          Just days before the scheduled

foreclosure     sale,   however,   Castagnaro      obtained     an    ex   parte

injunction in New Hampshire state court.                  Invoking diversity

jurisdiction, BNYM removed the case.

           Once in federal court, Castagnaro amended his complaint,

which BNYM swiftly moved to dismiss. In January 2014, the district

court allowed BNYM's motion. It concluded that the parties' intent

to separate the mortgage and note at the onset of the transaction

trumped any common law rule requiring unity.          The court based this

decision on analogous cases from the federal district court of New

Hampshire, see, e.g., Galvin v. EMC Mortg. Corp., No. 12-cv-320-JL,

2013 WL 1386614 (D.N.H. Apr. 4, 2013)("Galvin I"), and a state

                                    -3-
superior court decision, Dow v. Bank of N.Y. Mellon Trust Co., No.

218-2011-cv-1297, 2012 N.H. Super. LEXIS 52 (N.H. Super. Ct.

Rockingham Cnty. Feb. 7, 2012).      As mortgagee, BNYM could thus

proceed with the foreclosure under RSA § 479:25, which authorizes

"mortgagee[s]" to conduct non-judicial foreclosures where, as here,

the mortgage document contains a clause allowing them.

          Castagnaro timely appealed, and he requests that we

certify the issues to the New Hampshire Supreme Court.

                               II.

          We may certify a question to the New Hampshire Supreme

Court when the issue of state law "may be determinative" of the

case, and if "it appears [that] . . . there is no controlling

precedent in the decisions of" the New Hampshire Supreme Court.

N.H. Sup. Ct. R. 34.   Though we are generally reluctant to do so

when a party requests certification for the first time on appeal,

see Boston Car Co., v. Acura Auto. Div., Am. Honda Motor Co., 971
F.2d 811, 817 n.3 (1st Cir. 1992), that delay alone does not tie

our hands, see Easthampton Sav. Bank v. City of Springfield, 736
F.3d 46, 50 n.4 (1st Cir. 2013) (referencing our sua sponte

authority to certify questions of law).

          Here, the relevant requirements are satisfied such that

the New Hampshire Supreme Court is "better suited to address the

issue[s]," Pagán-Colón v. Walgreens of San Patricio, Inc., 697 F.3d
1, 18 (1st Cir. 2012).      Definitive answers to the certified

                               -4-
questions will either resolve the entire case or position us to

wrap up this appeal.      Yet, existing New Hampshire law does not

forecast the answers to the questions as they have emerged in the

context of the modern real-estate market. A brief discussion shows

why.

A.           Must an entity foreclosing under RSA § 479:25 hold both
             the mortgage and note?

             Though BNYM held the mortgage when the foreclosure was

initiated, it is unclear who held the underlying promissory note.

Thus, the baseline issue in this case is whether, as a general

rule, a party must possess both instruments in order to foreclose

under RSA § 479:25.    Two sources of law may affect the resolution

of this question:     the common law and New Hampshire's statutory

regime.   Neither, however, permits us as a federal court to answer

the question with confidence.

             The relevant case law dates back to the nineteenth and

early twentieth centuries.    These cases suggest that the mortgage

and note are inseparable and thus a party would need both to

foreclose.     See Platts v. Auclair, 108 A. 167, 168 (N.H. 1919)

("This evidence was sufficient to sustain the plaintiff's burden of

proof to establish his ownership of the note and mortgage."); see

also Page v. Pierce, 26 N.H. 317, 322 (1853); Smith v. Moore, 11
N.H. 55, 62 (1840).    Indeed, several New Hampshire superior court

decisions have invoked the common law to hold just that.       See,

e.g., Deutsche Bank Nat'l Trust Co. v. Monchgesang, No. 09-C-00200,

                                  -5-
2012 N.H. Super. LEXIS 56 (N.H. Super. Ct. Hillsborough Cnty. Mar.

27, 2012); Newitt v. Wells Fargo Bank N.A., No. 213-2011-cv-00173,

2011 N.H. Super. LEXIS 60 (N.H. Super. Ct. Chesire Cnty. July 14,

2011); Zecevic v. U.S. Bank, Nat'l Ass'n, No. 10-E-196, 2011 WL
7110237 (N.H. Super. Ct. Belknap Cnty. Jan. 20, 2011).

           Yet, there exists another interpretation of the common

law that may reconcile those cases with modern market practices.

The early decisions emphasize the debt (rather than the note) as

being tethered to the mortgage.     See, e.g., Southerin v. Mendum, 5
N.H. 420, 430 (1831) ("Unless he [or she] at the same time

transfers the debt, nothing will pass by his [or her] deed.")

Though the note may serve as evidence of that debt, see Howland v.

Spencer, 14 N.H. 580, 584 (1844), according to BNYM, it is the

mortgagee's connection to the debt, rather than to the note, that

permits the mortgagee to move forward with a foreclosure.             BNYM

goes on to argue that if a mortgagee retains legal title to the

mortgage, while the note holder possesses an equitable interest in

the   mortgage,    see,   e.g.,   Culhane   v.   Aurora   Loan   Servs.   of

Nebraska, 708 F.3d 282, 291-92 (1st Cir. 2013)(stating that, under

Massachusetts law, "[t]he noteholder possesses an equitable right

to demand and obtain an assignment of the mortgage"), then the

mortgage and debt are inexorably tied together (regardless of where

the note may travel), and the mortgage alone should be sufficient

to foreclose.     This is true even if the mortgagee then has an

                                   -6-
obligation to account to the note-holder.         This perspective, BNYM

proffers, is the one that best comports with a real-estate market

in which instruments are routinely divided and sold off.

           Even if the New Hampshire Supreme Court rejected that

argument, it might view this question (as the Massachusetts Supreme

Judicial Court did) as one governed by "principles of agency." See

Eaton v. Fed. Nat'l Mortg. Ass'n, 969 N.E.2d 1118, 1129 n.20 (Mass.

2012).   It could therefore hold that although a mortgagee must

generally possess the note to foreclose under RSA § 479:25, it can

also foreclose "as the agent of the note holder."           Id.   If the New

Hampshire court were to follow that approach, it would also need to

decide whether language in the mortgage document in this case

naming   MERS   "nominee   for   lender   and   lender's    successors   and

assigns" creates an agency relationship allowing foreclosure under

RSA § 479:25.    Id. at 1134 n.29 (noting that possibility but not

resolving it). It would further need to resolve whether the use of

the term "nominee" to describe that relationship imposes any burden

on the mortgagee to show specific authorization from the note

holder before foreclosing.       Cf. Dwire v. Sullivan, 642 A.2d 1359,

1360 (N.H. 1994)("Unlike in a 'true trust,' the trustees of a

nominee trust have no power, as such, to act in respect of the

trust property but may only act at the direction of (in effect, as

agents   for)    the   beneficiaries."     (internal       quotation   marks

                                    -7-
omitted)). We see nothing in existing New Hampshire precedent that

provides a clear answer to these questions.

            Even if the common law were clear a cogent argument can

be made that, regardless of the common law, the statute governing

non-judicial foreclosures independently requires an entity to hold

both the mortgage and note.        RSA § 479:25.      Though the law itself

does not explicitly address the rights or responsibilities of the

note-holder, several provisions assume that the borrower will be

paying   the    mortgagee;   in    other   words,    it   presumes   that    the

mortgagee and note-holder would be one in the same. See, e.g., RSA

§§ 479:7a, 479:10, 479:13, 479:18.         This could theoretically imply

that the legislature intended to impose this requirement, and

considered the proposition so obvious that it had no need to state

it.

            Of course, that argument is somewhat undercut by the

statute's      plain   language.     Indeed,   one    could   read   the    term

"mortgagee" as referring solely to the holder of the mortgage. See

Galvin v. EMC Mortg. Corp., ___ F. Supp. 3d ___, 2014 WL 4823657 at

*10 (D.N.H. Sept. 25, 2014)(examining the plain meaning of the word

"mortgagee" at the time that § 479:25 was enacted)("Galvin II").

Equally problematic, neither party points us to authority that

illuminates the legislature's intent.

            On balance, we are left with cases that tend to suggest

that the two instruments are inseparable, but which may not have

                                     -8-
foreseen (or been responsive to) modern market practices.          We also

have   an   arguably   ambiguous   statute     without   the   benefit   of

associated, interpretive case law. The New Hampshire Supreme Court

has not expressed its views on either in the context of the

contemporary marketplace, and, therefore, the most appropriate

course of action is to seek its guidance.

B.          Can the parties' intent override the unity rule
            and, if so, does separating the note and mortgage at
            the onset of the transaction indicate such an intent?

            If in fact possession of the note is generally required

to foreclose under RSA § 479:25 -- either by statute, common law,

or both -- we are still left with a perplexing issue that has

divided courts within New Hampshire: whether the parties can

contract around that rule. Several New Hampshire state courts have

said no. See, e.g., Zecevic, 2011 WL 7110237. These courts simply

ask whether the mortgagee also possesses the note; the parties'

intent is irrelevant.

            Yet, at least one state superior court has diverged from

the others.    In Dow v. Bank of New York Mellon Trust Co., the

court, focusing extensively on the common law, held that even if

ownership of the note is generally required to foreclose, the

parties' intent can override that obligation.            2012 N.H. Super

LEXIS. at *21-28.      Moreover, the litigants' decision to separate

the two instruments at the beginning of the transaction manifested

their desire to bypass that rule.        Id.   This interpretation, the

                                   -9-
court reasoned, avoided the possibility that the mortgage was void

ab initio.    Id. at *9-10.   Notably, decisions from the federal

District of New Hampshire have consistently considered Dow to be

the most persuasive state authority.    See, e.g., Worrall v. Fed.

Nat'l Mortg. Ass'n, No. 13-cv-330-JD, 2013 WL 6095119, at *4

(D.N.H. Nov. 20, 2013); Galvin I, 2013 WL 1386614 at *7-8.

           Embedded here is an additional dispute about how best to

determine the parties' intent.      The Dow approach, finding the

initial separation of the two instruments to be dispositive, is

easy to administer.   But, it is also not inevitable.   The question

of intent could also easily turn on further factual findings or

involve an analysis of the plain terms of the mortgage agreement.

See, e.g., Littlefield v. Acadia Ins. Co., 392 F.3d 1, 10 (1st Cir.

2004).   For instance, it is conceivable that the parties separated

the instruments at the beginning of the transaction solely to

permit MERS to act as the recording agent for the lender, but with

an expectation that the two instruments would be reunited at the

time of any foreclosure.   Cf. Bank of Am. v. Greenleaf, 96 A.3d 700

(Me. 2014)(finding MERS to only have the right to record a mortgage

as nominee for the lender).    Although the law may require us to

sift through the parties' shared intent, no controlling authority

from New Hampshire conveys how to properly do so in this situation.

           Finally, even if we were able to answer those questions

with respect to New Hampshire common law, the exercise could be

                                -10-
academic   if     the   foreclosure     statute      (previously    discussed)

independently requires possession of both the mortgage and note.

RSA § 479:25.     That is, even if parties can circumvent the common

law rule, it is unclear whether they could do the same with respect

to the statute.     On one hand, section 479 permits parties to waive

certain aspects of the law or to alter them through explicit terms

in the mortgage. See, e.g., RSA § 479:25(IV) (permitting waiver of

notice prerequisites). This logic could theoretically apply to the

putative requirement at issue here.           Conversely, the fact that the

legislature expressly provided for waivers or exceptions in certain

circumstances, but may have failed to do so in this context, could

signify that the rule is immutable.           Without controlling case law

on point, we simply cannot settle this question.

           After considering the arguments from all angles, only one

thing is clear: the law is not.          Such uncertainty animates us to

certify this case to the state Supreme Court.1

                                      III.

           In addition to satisfying the technical requirements of

New   Hampshire    Supreme   Court     Rule    34,    this   case   implicates

      1
       If one must possess the mortgage and note, an additional
issue is whether the note must be the "blue-ink" original. The
district court had no reason to tackle that question and reasonably
sidestepped it. For us, it only becomes relevant if remand to the
district court is necessary. If that path is required, our review
would benefit from the district court's consideration of the
question in the first instance. See Montalvo v. Gonzalez-Amparo,
587 F.3d 43, 49 nn.5-6 (1st Cir. 2009). Thus, we will neither
resolve nor certify this question.

                                      -11-
compelling    federalism   considerations   which   strongly   militate

towards certification.     See, e.g., United States v. Howe, 736 F.3d
1, 5 (1st Cir. 2013).      Though we have recently had occasion to

traverse the muddled world of MERS, this case, unlike our recent

decisions, presents a question of first principles respecting how

New Hampshire will address the ongoing foreclosure saga. It is one

with significant implications for the state of New Hampshire, and

thus should ultimately be decided by its Supreme Court. See, e.g.,

Bucci v. Lehman Bros. Bank FSB, 68 A.3d 1069 (R.I. 2013); Eaton,

969 N.E.2d 1118.

                                  IV.

             Accordingly, we certify the following questions to the

New Hampshire Supreme Court:

             1) Does New Hampshire common law and/or RSA § 479:25
             require a foreclosing entity to hold both the mortgage
             and note at the time of a nonjudicial foreclosure? If
             so, can an agency relationship between the note
             holder and the mortgage holder meet that requirement,
             and does language in the mortgage naming the mortgagee
             "nominee for lender and lender's successors and
             assigns" suffice on its own to show an adequate agency
             relationship?

             2) Assuming that the common law and/or RSA § 479:25
             requires a unity of the mortgage and note at the time
             of a nonjudicial foreclosure, and that an agency
             relationship between the note holder and the mortgage
             holder does not satisfy such a requirement, can the
             parties' intent to separate the two overcome the unity
             rule? If so, does separating the mortgage and
             note at the onset of the transaction indicate such
             intent as a matter of law?

                                 -12-
          We are cognizant that the New Hampshire Supreme Court

currently may be considering similar issues in Bergeron v. New York

Community Bank, (14-0185) (N.H. argued Oct. 15, 2014) (another

reason why we should not be too quick to act).          We defer to that

court on how it chooses to handle the logistics of resolving the

overlapping questions. We would also welcome any other comments on

relevant points of state law that the New Hampshire Supreme Court

should wish to share.

          The clerk of this court is instructed to transmit to the

New Hampshire Supreme Court, under the official seal of this court,

a copy of the certified questions and our opinion in this case,

along   with   copies   of   the   parties'   briefs,    appendix,   and

supplemental filings under Rule 28(j) of the Federal Rules of

Appellate Procedure.    We retain jurisdiction over this appeal.

          So Ordered.

                                   -13-