HSBC BANK USA, N.A. v. ANTHONY D. NINI

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

HSBC BANK USA, N.A., AS

TRUSTEE ON BEHALF OF ACE

SECURITIES CORP. HOME EQUITY

LOAN TRUST AND FOR THE REGISTERED

HOLDERS OF ACE SECURITIES CORP.

HOME EQUITY LOAN TRUST, SERIES

2005-HE6, ASSET BACKED PASS-

THROUGH CERTIFICATES,

Plaintiff-Appellant,

v.

ANTHONY D. NINI AND GINA M. NINI,

Defendants-Respondents.

__________________________________

April 30, 2014

Before Judges Lihotz and Maven.

On appeal from the Superior Court of New Jersey, Chancery Division, Mercer County, Docket No. F-17266-07.

Warren S. Wolf argued the cause for appellant (Goldberg & Wolf, LLC, attorneys; Mr. Wolf, on the briefs).

Francis LoBosco argued the cause for respondents.

PER CURIAM

Plaintiff HSBC Bank USA, N.A. (HSBC), the putative mortgagee in this highly contested foreclosure action, appeals from an order granting attorney's fees to defendants Anthony and Gina Nini, the mortgagors. Unable to comply with a motion compelling the deposition of its responsible officer, HSBC moved to voluntarily dismiss its complaint without prejudice. The trial judge granted HSBC's motion, and entertained defendants' application for attorney's fees and costs. Following review, the judge awarded defendants $54,068.46.

On appeal, HSBC argues the trial judge abused her discretion in awarding attorney's fees, and alternatively, erred as a matter of law, by not offsetting the fee award against the mortgage debt owed by defendants. We reject these arguments and affirm.

I.

When Gina purchased residential realty in 2005, she borrowed funds from FGC Commercial Mortgage Finance, d/b/a Fremont Mortgage (Fremont) and executed a promissory note agreeing to repay the loan amount plus interest. To secure payment of the note, both Gina and Anthony executed a mortgage encumbering the realty, in favor of Fremont through Mortgage Electronic Registration Systems, Inc. ("MERS"), as nominee for Fremont.1 Contemporaneously, Fremont executed an assignment of the note to Fremont Investment and Loan. Defendants defaulted on the loan obligation and have not made a payment on the note since March 1, 2007. The mortgage was not recorded at that time.

The note was purchased and owned by HSBC on December 21, 2005. MERS assigned the mortgage to HSBC on July 17, 2007, and recorded it two days later with the Mercer County Clerk's Office in Mortgage Book 1032, page 156. Prior to the assignment of the mortgage, on July 13, 2007, HSBC sent defendants a notice of intention to foreclose and thereafter, filed a complaint for foreclosure.

Defendants contested the foreclosure proceeding and filed numerous counterclaims. Thereafter, the litigation intensified. Defendants filed third-party complaints against Fremont and others. A third-party defendant successfully removed the action to federal court, but the matter was returned to state court where several issues were settled. Defendants also initiated a separate action against HSBC's loan servicer.2 Gina filed bankruptcy, discharging any deficiency judgment that might result if the security interest did not satisfy the debt determined due.

Following some discovery, defendants moved to dismiss the complaint, alleging HSBC lacked standing to foreclose because it could not produce a chain of title for the note. The motion was denied, as were other discovery applications. Defendants narrowed the issues in dispute, resolving or dismissing all claims except those challenging HSBC's ownership of the note and mortgage and its loan servicing actions.

Defendants filed additional discovery motions, including a motion to compel depositions of Scott Anderson, an officer of HSBC's authorized servicing agent, who executed the assignment of mortgage from MERS to HSBC, and Gina Johnson, HSBC's corporate designee. The trial court granted defendants' deposition requests on October 1, 2010. Unable to produce Anderson, HSBC moved to voluntarily dismiss its complaint without prejudice. See R. 4:37-1(b). Defendants opposed the request arguing any dismissal must be with prejudice and also sought an award of counsel fees and costs. The trial court granted HSBC's motion, allowing dismissal without prejudice but conditioned upon HSBC paying "all reasonable costs (i.e. filing fees, postage, etc.) incurred by defendants." The judge reserved final decision on the amount of counsel fees, pending counsel's submission of an affidavit of services rendered.

Defendants' fee request was $140,490 along with $3729.52 in costs. HSBC opposed any award; in the alternative it argued the sums sought were neither reasonable nor necessary. Finally, HSBC maintained any fee award should be offset against the amount owed on the mortgage loan. Following oral argument, the trial court issued a written statement of reasons supporting the fee award in favor of defendants in the amount of $52,122 and costs of $1946.46. Also, the judge denied HSBC's assertion to offset any award against the mortgage loan, stating:

The court found no New Jersey cases where preexisting debt was used to offset an award of attorney's fees. The lack of precedent in New Jersey courts, and limited precedent outside New Jersey, weighs against the use of offset in this case. Further, [HSBC] must establish standing [to foreclose] under present New Jersey case law before a court can rule that there is a mutual creditor-debtor relationship that would allow consideration of offset. Thus, the court declines to use the amount of the mortgage lien to offset the award of attorney's fees.

The order awarding defendants attorney's fees and costs was recorded as a lien. HSBC appealed and the trial judge stayed payment of the award pending appeal, conditioned upon HSBC providing a supersedeas bond for $58,000. R. 2:9-6 and R. 1:133.

Initially, we summarily dismiss assertions raised by defendants, seeking to dismiss HSBC's appeal. Because defendants failed to file a cross-appeal, Rule 2:3-4, we have no jurisdiction to consider claims raised in their brief. See Seacoast Builders Corp. v. Jackson Twp. Bd. of Educ., 363 N.J. Super. 373, 381-82 (App. Div. 2003); Marjarum v. Twp. of Hamilton, 336 N.J. Super. 85, 101 (App. Div. 2000).

We turn to the questions presented on appeal. HSBC attacks the appropriateness of the counsel fee award and maintains the judge erred in denying its request to offset any sum determined due to defendants against their debt to HSBC.

An award of counsel fees is a decision that rests within the discretion of the trial judge, limiting our review to whether the judge misapplied that discretion. Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 443-44 (2001). "'[F]ee determinations by trial courts will be disturbed only on the rarest of occasions, and then only because of a clear abuse of discretion.'" Id. at 444 (quoting Rendine v. Pantzer, 141 N.J. 292, 317 (1995)). To that end, an abuse of discretion is found where "the 'decision [was] made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis.'" United States v. Scurry, 193 N.J. 492, 504 (2008) (alteration in original) (quoting Flagg v. Essex Cnty. Prosecutor, 171 N.J. 561, 571 (2002)).

Traditionally, our courts have adhered to the American Rule, whereby litigants are expected to bear their own counsel fees, because "'sound judicial administration will best be advanced by having each litigant bear his own counsel fees.'" First Atl. Fed. Credit Union v. Perez, 391 N.J. Super. 419, 425 (App. Div. 2007) (quoting Gerhardt v. Cont'l Ins. Co., 48 N.J. 291, 301 (1966)). See also Rendine, supra, 141 N.J. at 322. However, our court rules recognize certain exceptions to this proposition, and include authority to order fee shifting in certain circumstances. See Kellam Assocs. v. Angel Projects, LLC, 357 N.J. Super. 132, 138 (App. Div. 2003); R. 4:42-9(a)(1)-(8).

In this matter, HSBC's voluntary dismissal was pursuant to Rule 4:37-1(b), which permits dismissal by court order "upon such terms and conditions as the court deems appropriate." Entry of dismissal "leaves the situation as if the action never had been filed." Arena v. Borough of Jamesburg, 309 N.J. Super. 106, 110 (App. Div. 1998) (citation and internal quotation marks omitted). See also Czepas v. Schenk, 362 N.J. Super. 216, 228 (App. Div.) ("A dismissal without prejudice means that there has been no adjudication on the merits and that a subsequent complaint alleging the same cause of action will not be barred by reason of its prior dismissal."), certif. denied, 178 N.J. 374 (2003); Woodward-Clyde Consultants v. Chem. & Pollution Scis., Inc., 105 N.J. 464, 472 (1987) ("A dismissal without prejudice is not an adjudication on the merits and does not bar reinstitution of the same claim in a later action."). It is well established that once a plaintiff obtains a voluntary dismissal without prejudice "[a]nother action may be instituted and the same facts urged, either alone or in company with others as the basis of a claim for relief." Arena, supra, 309 N.J. Super. at 110 (alteration in original) (citation and internal quotation marks omitted).

This court has instructed, when entertaining a voluntary dismissal request, the trial court must undergo "'three sequential inquiries: (a) whether the matter should be dismissed without prejudice, (b) if so, whether terms should be imposed, and (c) if so, what terms will alleviate any prejudice to the defendant and prevent injury to the efficient administration of justice generated by the ensuing delay and duplication of effort.'" Burns v. Hoboken Rent Leveling & Stabilization Bd., 429 N.J. Super. 435, 445 (App. Div. 2013) (quoting Shulas v. Estabrook, 385 N.J. Super. 91, 98 (App. Div. 2006)). "Resolution of these inquiries rests within the trial judge's discretion[,]" but in doing so "the court is chiefly required to protect the rights of the defendant" from duplicative litigation costs. Id. at 445-46 (citations and internal quotation marks omitted). A likely condition of granting a plaintiff's motion to dismiss without prejudice is reimbursement of the defendant's expenses, including counsel fees. Shulas, supra, 385 N.J. Super. at 104; Mack Auto Imports, Inc. v. Jaguar Cars, Inc., 224 N.J. Super. 254, 260 (App. Div. 1990). On the other hand, fees should not be awarded for work that may be useful in continuing litigation and work which would not arise in a subsequent action. Union Carbide Corp. v. Litton Precision Prods., Inc., 94 N.J. Super. 315, 317-18 (Ch. Div. 1967).

Frankly, HSBC readily recognizes that when it sought dismissal without prejudice, relief could be conditioned upon payment of fees and costs. However, it finds the award unfair in light of defendants' loan default in 2007, and their continued occupancy of the realty without payment, while HSBC bears the expense for taxes and insurance, as well as the risk of loss. HSBC argues the judge abused her discretion by failing to account for the fact that the length of the litigation resulted largely from defendants' litigiousness, not its bad faith. Also, HSBC suggests defendants would not be entitled to recover counsel fees if they had prevailed on their counterclaims. These arguments ignore the intent and purpose behind Rule 4:37-1(b)'s protections.

Notwithstanding the "relatively scant judicial treatment of the contours of Rule 4:37-1," it clearly serves to prevent the "intolerable manipulation of the [c]ourt's calendar and the defendants' resources." Burns, supra, 429 N.J. Super. at 446 (alteration in original) (citations and internal quotation marks omitted). Indeed,

"[t]he evil aimed at by the rule is present in any instance in which a defendant is damaged by being dragged into court and put to expense with no chance whatever (if there is a dismissal without prejudice) of having the suit determined in his favor. The obvious purport of our rule is to protect a litigant where a termination of the proceedings without prejudice will place him in the probable position of having to defend, at additional expense, another action based upon similar charges at another time."

[Id. at 445 (quoting Shulas, supra, 385 N.J. Super. at 97 (citation omitted).]

Here, defendants challenged HSBC's standing to foreclose. See Wells Fargo Bank, N.A. v. Ford, 418 N.J. Super. 592, 597 (App. Div. 2011) ("As a general proposition, a party seeking to foreclose a mortgage must own or control the underlying debt. In the absence of a showing of such ownership or control, the plaintiff lacks standing to proceed with the foreclosure action and the complaint must be dismissed.") (citation and internal quotation marks omitted). The trial judge's written statement of reasons acknowledges defendants produced evidence suggesting Anderson was a "robo-signer," who lacked authority to execute the assignment from MERS to HSBC. If the mortgage was not properly assigned, HSBC could not foreclose, even if it validly owned the note. On the other hand, a valid assignment of the mortgage means defendants remain subject to a future foreclosure action by HSBC or another acquiring the mortgage, and may again incur attorney's fees and costs to defend that future action. The question of HSBC's standing remains unresolved and the likely duplication of litigation efforts under these circumstances exemplifies the type of prejudice the rule aims to alleviate.

Having considered all facts and circumstances in light of the applicable law, we conclude the trial judge's imposition of a counsel fee award does not constitute an abuse of discretion. We next consider the amount of the fees awarded.

After excluding attorney's fees incurred for work "involving [defendants'] claims against third parties [(54.7 hours),] including work related to removal proceedings in court initiated by a third party" (33.4 hours), any time incurred solely related to defendants' actions, and half the remaining time found "likely be useful to [d]efendants in the event of a future foreclosure action" or in the related action pending against HSBC's servicer, the total hours remaining was 204.4. The judge calculated the fee award as $52,122 plus costs of $1946.46. On appeal, HSBC does not challenge the trial judge's allocation of time or the total hours found compensable. Nor does HSBC contest the contractual $255 hourly rate charged to defendants. Rather, HSBC challenges the grant of any award.

We have found the determination to grant fees a reasonable exercise of discretion in this matter. Because we have found no basis to question the amount of the award, we uphold the judge's determination.

HSBC's final argument seeks to offset the fee award against sums due on the note. HSBC has maintained the note obligation exceeds $700,000, yet the collateral is merely $361,000. Therefore, HSBC argues defendants should not receive any payment but rather a reduction of their debt. We reject this argument for two reasons.

First, Gina filed bankruptcy and secured a discharge of any deficiency judgment. Further, Anthony, who never signed the note, also filed bankruptcy. Therefore, HSBC's ability to collect against defendants is limited to the value of the collateral, notwithstanding its claims of the amount of the total debt. The record does not contain sufficient information regarding the bankruptcy filings to determine whether the fee payment realized in the litigation should have been disclosed to defendants' respective bankruptcy trustees.

Second, it remains undetermined whether HSBC obtained a valid assignment of the mortgage, conferring standing to foreclose the mortgage and force the sale of the realty. The dismissal of this action before adjudication of the question precludes a final determination of the amount due and owing to HSBC.

HSBC's reliance on Astrue v. Ratliff, 560 U.S. 586, 130 S. Ct. 2521, 177 L. Ed. 2d 91 (2010), is misplaced. Astrue addressed a motion for attorneys' fees under the Equitable Access to Justice Act (EAJA), 28 U.S.C.A. 2412(d). Astrue, supra, 560 U.S. at 589, 130 S. Ct. at 2524, 177 L. Ed. 2d at 97. The Supreme Court explained the EAJA provides, in pertinent part, that "a court shall award to a prevailing party . . . fees and other expenses . . . in any civil action . . . brought by or against the United States . . . unless the court finds that the position of the United States was substantially justified." Id. at 560 U.S. at 588, 130 S. Ct. at 2524, 177 L. Ed. 2d at 97, (quoting 28 U.S.C.A. 2412(d)(1)(A)). The statute's terms expressly provide fees belonged to the litigant and not to the attorney, and therefore, an award could offset a litigant's debt owed to the United States. Id. at 560 U.S. at 590, 130 S. Ct. at 2525, 177 L. Ed. 2d at 98. The holding, however, is limited to statutorily prescribed attorneys' fees under the EAJA. Id. at 560 U.S. at 589-90, 130 S. Ct. at 2524, 177 L. Ed. 2d at 98.

Although HSBC's suggestion to use offset is a practical solution and, in different circumstances, even an appropriate one, we conclude it does not apply under these facts. Most importantly, we reach this conclusion because the amount of HSBC's debt is not specifically ascertainable. Although the initial debt set forth in the note is certain, by operation of the bankruptcy discharge, Gina owes only the sum equal to the value of the realty securing the underlying debt, and no more. 11 U.S.C.A. 727. Additionally, as we have already noted, the validity of HSBC's assignment of the mortgage remains subject to judicial review, making the actual obligation to HSBC unclear.

HSBC argues it previously had standing to foreclose after producing the original documents. Therefore, it has proven a debt to which offset should apply. We disagree.

Although standing is generally based on the ownership of the underlying debt, Deutsche Bank Nat'l Trust Co. v. Mitchell, 422 N.J. Super. 214, 222 (App. Div. 2011), HSBC must also demonstrate the validity of the mortgage assignment to complete foreclosure of the mortgage. Id. at 225. See also N.J.S.A. 46:9-9; Raftogianis, supra, 418 N.J. Super. at 327-28. Here, not only had HSBC filed for foreclosure before it received an assignment of the mortgage, but it also failed to produce Anderson for deposition, denying defendants the opportunity to discern his legal authority to execute the document and prove valid ownership of the mortgage. The challenge to HSBC's ownership remains subject to judicial review and precludes offset.

Affirmed.

1 As the name suggests, MERS is meant only as a tracking system for mortgages; in essence, it is a private recording system meant to make transfers between lenders simpler. By using MERS as a nominee, lenders are able to transfer their interests "without having to record the transactions in the public record." Bank of N.Y. v. Raftogianis, 418 N.J. Super. 323, 332 (Ch. Div. 2010).

2 See Nini v. Ocwen Fin. Corp., No. L-1569-10 (Law Div. Jan. 4, 2012).