Court Opinion

ID: 4256144
Source: CourtListenerOpinion
Date Created: 2018-03-20 12:11:07.926218+00
Date Added: 2024-06-11T14:45:14.777272
License: Public Domain

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16-P-735                                              Appeals Court

CITADEL REALTY, LLC     vs.   ENDEAVOR CAPITAL NORTH, LLC, & others.1

                              No. 16-P-735.

           Suffolk.     November 7, 2017. - March 19, 2018.

           Present:   Wolohojian, Massing, & Wendlandt, JJ.

Practice, Civil, Interlocutory appeal, Motion to dismiss,
     Declaratory proceeding. Lis Pendens. Declaratory Relief.
     Mortgage, Foreclosure, Discharge. Notice, Foreclosure of
     mortgage. Real Property, Mortgage.

     Civil action commenced in the Superior Court Department on
January 29, 2016.

     A special motion to dismiss was heard by William F.
Sullivan, J.

     Jonas A. Jacobson for the plaintiff.
     Scott K. DeMello (Rosemary A. Traini also present) for the
defendants.

     WENDLANDT, J.     This appeal presents occasion to clarify the

scope of this court's review of an interlocutory order denying a

     1 Endeavor Capital Funding, LLC (formerly known as Endeavor
Capital Trust Funding, LLC); Endeavor High Yield Mortgage Fund,
LLC; and Ricochet Real Estate, LLC.
                                                                    2

special motion to dismiss brought pursuant to G. L. c. 184,

§ 15, the lis pendens statute.   Here, the defendants sought to

dismiss the entire action, including (1) one claim supporting

the memorandum of lis pendens and affecting title, and (2) other

claims that were not the basis for the lis pendens.    We hold

that our review is limited to those portions of the

interlocutory order supporting the memorandum of lis pendens.

    Citadel Realty, LLC (Citadel), filed a complaint in the

Superior Court against the defendants, seeking to void the

foreclosure sale of Citadel's real property in the Dorchester

section of Boston (property).    In addition, Citadel sought

damages and reformation of the underlying mortgages.    Following

the filing of its verified amended complaint, Citadel filed a

motion for approval of a memorandum of lis pendens, pursuant to

G. L. c. 184, § 15(b), which was allowed.    The defendants filed

a motion opposing the approval of the memorandum of lis pendens

and seeking to dismiss the complaint, which was, in part, a

special motion to dismiss pursuant to G. L. c. 184, § 15(c).

The motion was denied.   The defendants filed the present

interlocutory appeal from the denial of their motion to dismiss,

purporting to appeal the motion judge's decision declining to

dismiss both the claim supporting the lis pendens and affecting

title, and the claims that did not support the lis pendens.
                                                                   3

     Background.   We set forth the facts from the verified

pleadings and affidavits that were before the judge.   G. L.

c. 184, § 15(c).   In 2011, Mario Lozano approached Endeavor

Capital, LLC (Endeavor),2 seeking a loan in connection with the

property.   Endeavor and Lozano entered into a term sheet,

pursuant to which Citadel3 borrowed $250,000 from one of the

Endeavor subsidiaries.4   The loan was secured by a first mortgage

(2011 mortgage) on the property and was guaranteed by Lozano

personally.   The 2011 mortgage had a six-month term, a fourteen

percent interest rate, and was subject to a six percent

origination fee.

     Citadel was unable to repay the principal within the six-

month term.   Thereafter, Citadel entered into a series of six-

month extensions with Endeavor Capital Funding, LLC (ECF).     Each

time, Citadel was unable to refinance with another lender, and

was under the threat of foreclosure.   Each time, Citadel paid

another six percent fee, and increased the principal balance.

     2 Endeavor is the parent company of each of the defendants
Endeavor Capital North, LLC, Endeavor Capital Funding, LLC, and
Ricochet Real Estate, LLC, and a shareholder of the defendant
Endeavor High Yield Mortgage Fund, LLC. We hereafter refer to
the defendants collectively as the "Endeavor subsidiaries."

     3 As part of the transaction, Citadel was formed with Lozano
as its sole member; Lozano assigned the property to Citadel.

     4 The subsidiary was Capital Trust Funding, LLC, which
subsequently changed its name to Endeavor Capital Funding, LLC.
                                                                     4

All told, Citadel paid $121,742.06 in interest-only payments,

but was unable to repay the principal before termination of the

last extension.

     In 2014, Lozano approached Endeavor to discuss a potential

refinancing.   Lozano entered into a second term sheet with

Endeavor, pursuant to which Citadel entered into a new mortgage

agreement (2014 mortgage) with another Endeavor subsidiary as

determined by Endeavor.5   This loan had a principal of $384,000

and was secured by a new first mortgage on the property.      Like

the 2011 mortgage, the 2014 mortgage had a six-month term, a

fourteen percent interest rate, and was subject to a six percent

origination fee.   The loan was used, as the parties had agreed,

to pay the outstanding principal of the 2011 loan;6 however, no

discharge of the 2011 mortgage was recorded at the registry of

deeds.

     Citadel defaulted on the 2014 mortgage and foreclosure

proceedings commenced.7    In May, 2015, the foreclosure sale of

     5 The Endeavor subsidiary was Endeavor Capital North, LLC,
which assigned the 2014 mortgage to another Endeavor subsidiary,
Endeavor High Yield Mortgage Fund, LLC.

     6 The loan was also used to pay taxes and other payments due
on the property.

     7 In a separate action, Lozano filed a complaint in Superior
Court, seeking an injunction to stop the foreclosure
proceedings. A judge of that court denied relief, and the
action was dismissed without prejudice in September, 2015.
                                                                   5

the property was held.   One of the Endeavor subsidiaries,

Endeavor High Yield Mortgage Fund, LLC (EHYMF), both conducted

the sale and submitted the winning bid of $475,000.8

     In January, 2016, Citadel filed a verified amended

complaint against the Endeavor subsidiaries, seeking a

declaratory judgment that the foreclosure sale was void because

the Endeavor subsidiaries' failure to discharge the 2011

mortgage violated their duty to conduct the sale in good faith

and with reasonable diligence (declaratory judgment count).     See

U.S. Bank Natl. Assn. v. Ibanez, 458 Mass. 637, 647 n.16 (2011).

Citadel claimed that because no discharge of the 2011 mortgage

had been recorded in the registry of deeds, the appearance of

the mortgage in the chain of title dissuaded otherwise

interested bidders from bidding on the property, thereby

allowing EHYMF to purchase the property for itself at a price

that was lower than its market value.   In addition, the

     8 Following the sale, EHYMF conveyed the property by
foreclosure deed to another Endeavor subsidiary, Ricochet Real
Estate, LLC. Ricochet commenced summary process actions in the
Housing Court against Lozano and his daughter, who raised a
defense that Ricochet was not the owner of the property because
the foreclosure sale was void, essentially arguing the same
grounds as presented in the verified amended complaint in this
action. Following trial on the summary process complaints,
judgments entered for Ricochet, and the Lozanos subsequently
appealed to this court. We affirm the summary process judgments
in a memorandum and order pursuant to our rule 1:28 issued
today. See Ricochet Real Estate, LLC v. Lozano, 93 Mass. App.
Ct.        (2018).
                                                                     6

complaint sought damages and reformation of the underlying

mortgages on the grounds that (a) the Endeavor subsidiaries

violated G. L. c. 183, § 55; (b) both mortgages were

unconscionable; (c) the Endeavor subsidiaries were unjustly

enriched; and (d) the Endeavor subsidiaries violated G. L.

c. 93A.   Citadel moved, pursuant to G. L. c. 184, § 15(b), for

approval of a memorandum of lis pendens to be recorded against

the property.   Citadel argued that the declaratory judgment

count constituted a claim of right to title to real property.

The Endeavor subsidiaries opposed the motion and filed a motion

to dismiss all of the counts of the amended complaint.   That

motion was styled as a special motion to dismiss, pursuant to

G. L. c. 184, § 15(c), but also included arguments that the

entire complaint should be dismissed for failure to state a

claim under Mass.R.Civ.P. 12(b)(6), 365 Mass. 757 (1974).9     The

     9 Although the special motion to dismiss was filed under
G. L. c. 184, § 15, the Endeavor subsidiaries further argued
that they had "valid legal defenses pursuant to [r]ule
12(b)(6)." It is clear that, as a general matter, the denial of
a rule 12(b)(6) motion is not appealable until the ultimate
disposition of the case. See Brum v. Dartmouth, 428 Mass. 684,
687 (1999). See also Wright & Miller, Federal Practice &
Procedure § 1357, at 772 (3d ed. 2004) ("[A] denial of a motion
to dismiss does not produce a final judgment").
                                                                    7

judge approved the memorandum of lis pendens and denied the

Endeavor subsidiaries' special motion.10   This appeal followed.

     2.   Discussion.   We begin by clarifying the scope of our

review of the interlocutory order.   "As a general rule, an

aggrieved litigant cannot as a matter of right pursue an

immediate appeal from an interlocutory order unless a statute or

rule authorizes it."    Elles v. Zoning Bd. of Appeals of Quincy,

450 Mass. 671, 673-674 (2008).   See Fabre v. Walton, 436 Mass.
517, 520-521 (2002) ("[A]bsent special authorization . . . an

appellate court will reject attempts to obtain piecemeal review

of trial rulings that do not represent final dispositions on the

merits" [quotation omitted]).    The rule is grounded in the

policy that "a party ought not to have the power to interrupt

the progress of the litigation by piecemeal appeals that cause

delay and often waste judicial effort in deciding questions that

will turn out to be unimportant."    Borman v. Borman, 378 Mass.
775, 779 (1979), quoting from Vincent v. Plecker, 319 Mass. 560,

563 n.1 (1946).   As a result, "the denial of a motion to dismiss

is ordinarily not an appealable order."    Fabre, supra at 521.

     One exception to this general rule arises from G. L.

c. 184, § 15(d), of the lis pendens statute, which provides that

     10The judge originally dismissed the declaratory judgment
count of Citadel's complaint, but later clarified the dismissal
of that count was in error.
                                                                         8

any party aggrieved "by a ruling under [§ 15](c)" may file an

interlocutory appeal.   Section 15(c), in turn, provides a

mechanism for "expedited removal of an unjustified [memorandum

of] lis pendens" by filing a special motion to dismiss.11        Wolfe

v. Gormally, 440 Mass. 699, 705 (2004).      See G. L. c. 184,

§ 15(c).   In particular, a party may file

     "a special motion to dismiss the claimant's action if that
     party believes the action or claim supporting the
     memorandum of lis pendens is frivolous. . . . The special
     motion to dismiss shall be granted if the court finds that
     the action or claim is frivolous because (1) it is devoid
     of any reasonable factual support; or (2) it is devoid of
     any arguable basis in law; or (3) the action or claim is
     subject to dismissal based on a valid legal defense such as
     the statute of frauds. . . . In the event there are un-
     adjudicated claims remaining after the dismissal of any
     claim pursuant to which the memorandum of lis pendens was
     recorded, the court shall order entry of partial judgment
     with respect to the claim dismissed pursuant to this
     section."

G. L. c. 184, § 15(c), as appearing in St. 2002, c. 496, § 2

(emphases supplied).

     "[A] statute must be interpreted according to the intent of

the Legislature ascertained from all its words construed by the

ordinary and approved usage of the language, considered in

connection with the cause of its enactment, the mischief or

imperfection to be remedied and the main object to be

accomplished, to the end that its purpose of its framers may be

     11In the case where the memorandum of lis pendens is
approved ex parte, G. L. c. 184, § 15(c), also permits an
aggrieved party to move to dissolve the memorandum.
                                                                     9

effectuated."   Galipault v. Wash Rock Invs., LLC, 65 Mass. App.

Ct. 73, 80 (2005), quoting from Hanlon v. Rollins, 286 Mass.
444, 447 (1934).   The plain and ordinary meaning of the language

of the statute here makes the special motion to dismiss

mechanism available for the "action or claim supporting the

memorandum of lis pendens."    G. L. c. 184, § 15(c).   Where each

of the claims of an action supports the memorandum of lis

pendens, the special motion to dismiss is available for each

claim.   Importantly, however, where only some claims support the

memorandum of lis pendens, the statute anticipates that other

claims not giving rise to a memorandum of lis pendens, referred

to as "unadjudicated claims," will not be subject to the special

motion to dismiss mechanism.   Because G. L. c. 184, § 15(d),

makes an interlocutory appeal available only as to "a ruling

under [§ 15](c)," and because such rulings are limited to claims

supporting the memorandum of lis pendens -- that is,

"affect[ing] the title to real property or the use and

occupation thereof," G. L. c. 184, § 15(a) -- our review is

available only as to the judge's rulings as to those claims.

    Reviewing only the portion of the interlocutory order

denying dismissal of claims supporting the memorandum of lis

pendens is consistent with the purpose of the lis pendens

statute to "add procedural safeguards to the formerly unfettered

right to record a lis pendens," Wolfe, 440 Mass. at 703; in
                                                                  10

contrast, expanding our review to other claims does not

specifically further that purpose.   Accordingly, we hold that

our review of an interlocutory order allowing a memorandum of

lis pendens and otherwise denying a special motion to dismiss

under § 15(c) is limited to those claims supporting the

memorandum of lis pendens.

    Here, the memorandum of lis pendens was supported by one

claim –- namely the declaratory judgment count in which Citadel

seeks to void the foreclosure sale of the property.    The

remaining counts did not support the memorandum of lis pendens.

Accordingly, we decline to review the judge's denial of the

motion to dismiss as to those counts.

    b.   Declaratory judgment.    We review a judge's decision

allowing a memorandum of lis pendens and denying a special

motion to dismiss to determine whether the judge committed an

error of law or abused his discretion.    McMann v. McGowan, 71
Mass. App. Ct. 513, 519 (2008).   "Our review . . . involves an

'analysis [that] calls for an examination of the same factors

properly considered by the judge in the trial court in the first

instance.   His conclusions of law are subject to broad review

and will be reversed if incorrect.   While weight will be

accorded to his exercise of discretion, an order predicated

solely on documentary evidence permits the appellate court to

draw its own conclusions from the record . . . [but] we must
                                                                  11

exercise special care not to substitute our judgment for that of

the trial court where the records disclose reasoned support for

its actions.'"   Galipault, 65 Mass. App. Ct. at 82, quoting from

Edwin R. Sage Co. v. Foley, 12 Mass. App. Ct. 20, 25-26 (1981).

     The Endeavor subsidiaries argue that the judge erred in

allowing the memorandum of lis pendens and denying their special

motion to dismiss because Citadel's challenge to the foreclosure

sale is frivolous.12   In particular, they assert that the

declaratory judgment count is devoid of a reasonable factual or

legal basis because, in conducting the foreclosure sale, the

Endeavor subsidiaries complied with each of the requirements of

G. L. c. 244, § 14, to publish notice of the sale in a local

newspaper, send notice of sale to the owner of the property, and

send notice of the sale to all junior lienholders.13   G. L.

c. 244, § 14.

     12Under the lis pendens statute, an action or claim is
frivolous if "(1) it is devoid of any reasonable factual
support; or (2) it is devoid of any arguable basis in law; or
(3) the action or claim is subject to dismissal based on a valid
legal defense such as the statute of frauds." G. L. c. 184,
§ 15(c).

     13We reject the Endeavor subsidiaries' additional argument
that the declaratory judgment count fails to set forth an actual
controversy between the parties. The amended complaint alleges
that the Endeavor subsidiaries purchased the property at an
artificially deflated price through a foreclosure sale that
discouraged competing bidders by failing to discharge the 2011
mortgage in violation of the duty of good faith and reasonable
diligence. As a result, Citadel asserts that it remains the
rightful owner of the property, to which the Endeavor
                                                                   12

     Compliance with G. L. c. 244, § 14, alone does not excuse a

mortgagee from the additional requirement to act in good faith

and with reasonable diligence in connection with a foreclosure

sale.   Pehoviak v. Deutsche Bank Natl. Trust Co., 85 Mass. App.

Ct. 56, 62 (2014) (in addition to abiding by procedures outlined

in G. L. c. 244, § 14, "mortgagee is bound to exercise good

faith and put forth reasonable diligence" and "[f]ailure in

these particulars will invalidate the sale even though there be

literal compliance with the terms of the [statute]" [quotation

omitted]).   This duty of good faith and reasonable diligence is

heightened where, as here, the mortgagee conducting the

foreclosure sale is also the buyer of the property.    Ibid. ("The

mortgagee's duty is more exacting when it becomes the buyer of

the property.   When a party who is intrusted with a power to

sell attempts also to become the purchaser, he will be held to

the strictest good faith and the utmost diligence for the

protection of the rights of his principal" [quotation omitted]).

Under these circumstances, "the mortgagee has a duty to obtain

for the property as large a price as possible."   Ibid.

     The Endeavor subsidiaries concede that the 2011 mortgage

was not discharged even though, pursuant to the 2014

subsidiaries now claim legal title. These allegations are
sufficient to state an actual controversy between the parties.
Pazolt v. Director of the Div. of Marine Fisheries, 417 Mass.
565, 569 (1994).
                                                                13

refinancing, the principal of the loan was paid.14   As a result,

at the time of the foreclosure sale, the 2011 mortgage appeared

as an undischarged first mortgage of record in the chain of

title.    Citadel alleges that this information was readily

available to a prospective purchaser, discouraging potential

bidders15 and adversely affecting the price paid for the

property.   See Maglione v. Bancboston Mort. Corp., 29 Mass. App.

Ct. 88, 88-89 (1990) ("[T]he presence of an undischarged

     14The Endeavor subsidiaries argue that EHYMF (the mortgagee
for the 2014 mortgage) did not have an obligation to discharge
the 2011 mortgage when it was paid; they argue that the
obligation belonged to ECF, the 2011 mortgagee. In contrast,
Citadel argues that EHYMF had a duty to discharge the mortgage
because EHYMF and ECF are effectively the same entity. The
record before the trial judge showed that both the 2011 and 2014
term sheets were signed by Endeavor, the parent/shareholder of
each of the Endeavor subsidiaries. Endeavor determined which of
its subsidiaries would be the mortgagee in 2011 and in 2014.
Endeavor knew that the 2014 refinancing paid the loan underlying
the 2011 mortgage. Each of the Endeavor subsidiaries has the
same managers, and in both 2011 and 2014, Lozano negotiated with
the same Endeavor employee. Given the stage of the litigation,
the judge did not abuse his discretion in determining that
Citadel's claim is not frivolous.

     15The Endeavor subsidiaries also argue that any potential
bidder who saw the 2011 mortgage on the record title would not
have been discouraged from bidding because that bidder would
know that it would not "be bound to complete the purchase if
there are encumbrances, other than those named in the mortgage
and included in the notice of sale, which are not stated at the
sale and included in the auctioneer’s contract with the
purchaser." G. L. c. 244, § 14, as appearing in St. 2012, c.
194, § 1. While this may provide a basis for a defense that may
help show that, in fact, no bidders were dissuaded from bidding
on the property, it does not render Citadel's claim devoid of
any reasonable factual or legal basis. See Maglione v.
Bancboston Mort. Corp., 29 Mass. App. Ct. 88, 88-89 (1990).
                                                                  14

mortgage -- at least a recent one -- in a record chain of title

will serve [to] . . . discourag[e] transactions in the

encumbered property").   Thus, the judge did not abuse his

discretion in finding that the Endeavor subsidiaries failed to

show that Citadel's declaratory judgment count is devoid of

reasonable factual and legal support.16

                                   Order denying special motion
                                     to dismiss affirmed.

     16The Endeavor subsidiaries' request for attorney's fees on
appeal is denied.