Court Opinion

ID: 2997354
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:35:40.267367+00
Date Added: 2024-06-11T12:11:23.594852
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 04-2078
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,
                                              Plaintiff-Appellee,
                               v.

JAMES O. ESTRELLA and LAURA ESTRELLA,
                                         Defendants-Appellees.

CRONUS PROJECTS, LLC,
                                          Intervenor-Appellant.

                         ____________
       Appeal from the United States District Court for the
         Northern District of Illinois, Eastern Division.
         No. 03 C 3796—George W. Lindberg, Judge.
                         ____________
  ARGUED NOVEMBER 5, 2004—DECIDED NOVEMBER 22, 2004
                         ____________

 Before EASTERBROOK, MANION, and SYKES, Circuit
Judges.
  EASTERBROOK, Circuit Judge.          Mortgage Electronic
Registration Systems (MERS) filed this suit under the di-
versity jurisdiction to collect $306,000 owed by James and
Laura Estrella on a note secured by a mortgage. The dis-
trict court ordered the property sold and, applying Illinois
law, appointed a Special Commissioner to conduct an
2                                                  No. 04-2078

auction. MERS told the Commissioner to act as its agent,
opening at $245,000 and bidding increments of $1,000 up to
the amount of the debt, if necessary to best any competition.
The Commissioner did not follow those instructions, how-
ever, and knocked down the property to Cronus Projects at
$252,000.
   MERS persuaded the district judge not to confirm this
sale. Illinois permits a court to deny confirmation if “justice
was . . . not done” at the sale, see 735 ILCS 5/15-1508(b)(iv),
and the judge thought the outcome unjust for two reasons:
first, the Commissioner had fouled up; second, the Estrellas
would be saddled with a deficiency judgment of $54,000
that could have been reduced or eliminated had bidding
continued. The judge ordered a second sale to be held.
   Before that could occur, Cronus filed an appeal. Both
sides assured us in their jurisdictional statements that 28
U.S.C. §1291 authorizes an appeal. Yet how could the deci-
sion be “final” when the judge has ordered a new sale? This
litigation is ongoing; sale of the property given as security
is a means to collect the debt, which is the underlying
claim. Only after a fresh sale will we know who gets the
property, at what price, and what deficiency judgment (if
any) will be entered against the Estrellas. Only then will
the litigation be over. An order refusing confirmation and
directing a new sale to be held is no more “final” than an
order setting aside a jury’s verdict and directing a new trial
to be held. On an appeal from the result of a new sale (or
new trial), the court may conclude that the initial outcome
was correct and direct that it be reinstated. So it has long
been established that orders denying confirmation to
judicial sales are not final decisions. See, e.g., Butterfield v.
Usher, 91 U.S. 246 (1896); Levin v. Baum, 513 F.2d 92 (7th
Cir. 1975) (Stevens, J.); SEC v. American Board of Trade,
829 F.2d 341 (2d Cir. 1987). (Levin dismissed an appeal
from an order vacating the confirmation of a sale; it was not
No. 04-2078                                                 3

final, the court held, because another sale lay in prospect.
That’s the very situation that obtained when Cronus
appealed.)
   Stephen D. Richek, who represents Cronus, failed to do
any research into the requirements of federal appellate
jurisdiction before filing this appeal. Worse, James V.
Noonan of Noonan & Lieberman, who represents MERS,
represented to this court that Richek’s jurisdictional state-
ment was “complete and correct” although he knew of the
jurisdictional problem. Noonan had asked the district court
to hold the second sale promptly, contending that Richek’s
appeal did not affect the district court’s control over the
litigation because the order was not a final decision and
thus was not appealable. Noonan’s memorandum cited only
Illinois decisions, which are irrelevant to the interpretation
of §1291, but it captured the essential point. Noonan failed
in his duty to alert this court to a jurisdictional problem.
See Fed. R. App. P. 28(a)(4)(B); Circuit Rule 28(a)(3) and
(b); Espinueva v. Garrett, 895 F.2d 1164, 1166-67 (7th Cir.
1990).
   Worse still, both Richek and Noonan failed to flag the
problem for this panel even after the court issued a juris-
dictional briefing order in Wells Fargo Bank v. Padua,
No. 04-2636, an essentially identical appeal that Richek had
filed, and in which Noonan & Lieberman represents the
appellee. On July 1, 2004, the court’s staff questioned
jurisdiction and directed Richek to explain why that appeal
should not be dismissed. On October 26 a motions panel in
Padua drew the parties’ attention to Levin and directed both
sides to address its significance. Their responsive memor-
anda conceded that the appeal had been filed without
jurisdiction. Yet neither Richek nor Noonan drew the prob-
lem to this panel’s attention—either after July 1 (MERS
filed its main brief, and Cronus its reply brief, after that
date) or after October 26. When oral argument occurred on
November 5 both lawyers expressed surprise that appellate
4                                               No. 04-2078

jurisdiction was at issue—after all, the court had not issued
a comparable order in this appeal. Both counsel and the
judiciary must inquire whether jurisdiction exists. That a
court inquires at oral argument rather than by earlier order
does not justify or excuse lawyers’ indifference to the
subject. In memoranda filed at our direction after oral argu-
ment, both sides again conceded (as they had in Padua) that
appellate jurisdiction is lacking. This is something they
should have said without prodding—and without conveying
the impression that they would have been delighted to have
the court overlook the shortcoming and issue a decision on
the merits. This has been a sorry performance by members
of our bar. Both Richek and Noonan deserve (and hereby
receive) a public chastisement.
  As it happens, there may be a problem with subject-
matter jurisdiction as well. MERS is not the lender. It is a
membership organization that records, trades, and fore-
closes loans on behalf of many lenders, acting for their
accounts rather than its own. Its web site, , describes its organization and opera-
tion. MERS is a Delaware corporation with its principal
place of business in Virginia, and as the Estrellas are
citizens of Illinois everyone (including the district judge)
has treated complete diversity as established. Yet it is the
citizenship of the principal, and not that of the agent, that
matters. See, e.g., Indiana Gas Co. v. Home Insurance Co.,
141 F.3d 314, 318-19 (7th Cir. 1998); Northern Trust Co. v.
Bunge Corp., 899 F.2d 591 (7th Cir. 1990).
  A trustee with title to the corpus is treated as a principal
even though someone else enjoys the beneficial interest, see
Navarro Savings Association v. Lee, 446 U.S. 458 (1980),
but as far as we can see MERS is not a trustee. It is a
nominee only, holding title to the mortgage but not the
note. Each lender appears to be entitled not only to pay-
ment as the note’s equitable (and legal) owner but also to
control any litigation and settlement. The arrangement is
No. 04-2078                                                  5

similar to that in Coal Co. v. Blatchford, 78 U.S. (11 Wall.)
172 (1871), which held that the lender’s citizenship controls.
Cf. 28 U.S.C. §1359. Papers filed in the district court
identify Prism Mortgage, an Illinois corporation, as the
lender, so federal jurisdiction is doubtful. Perhaps, however,
we are missing something (the parties have not briefed this
question), and at all events lack of appellate jurisdiction
prevents us from finally resolving the question whether
subject-matter jurisdiction exists. This should be the
district judge’s next order of business.
  If despite appearances this litigation belongs in federal
court, then before holding a new sale the district judge also
should consider the significance of a concession MERS has
made in this court: that there is no basis in Illinois law for
treating the Commissioner as the lender’s agent. Whoever
conducts the auction and certifies the results should be a
neutral, yet MERS tried to make the Commissioner its
puppet. It is not clear to us why MERS should benefit from
a second auction after its effort to conscript the auctioneer
failed. Moreover, to the extent that the Commissioner really
was MERS’s agent, then his errors redound to its detri-
ment. Why should Cronus suffer for a gaffe by MERS’s
agent? See Lomas & Nettleton Co. v. Wiseley, 884 F.2d 965
(7th Cir. 1989). It is easy to protect the Estrellas: the
district judge has discretion to deny the lender a deficiency
judgment, when a price shortfall at an auction results from
negligence of the lender or its agent. Because we lack
appellate jurisdiction, we cannot review the merits of the
district court’s decision, but we urge the judge to look at
this again if the federal court has jurisdiction to resolve the
dispute at all.
  The appeal is dismissed for want of jurisdiction.
6                                         No. 04-2078

A true Copy:
      Teste:

                    ________________________________
                    Clerk of the United States Court of
                      Appeals for the Seventh Circuit

               USCA-02-C-0072—11-22-04