WELLS FARGO BANK, N.A. v. FRANK E. BENNETT, JR

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

WELLS FARGO BANK, N.A.,

Plaintiff-Respondent,

v.

FRANK E. BENNETT, JR.,

Defendant-Appellant,

and

MRS. FRANK E. BENNETT, JR.,

Defendant.

____________________________________

July 20, 2016

Submitted May 10, 2016 Decided

Before Judges St. John and Vernoia.

On appeal from the Superior Court of New Jersey, Chancery Division, Sussex County, Docket No. F-017280-13.

Tomas Espinosa, attorney for appellant.

Reed Smith, LLP, attorneys for respondent (Henry F. Reichner and Siobhan A. Nolan, on the brief).

PER CURIAM

In this mortgage foreclosure action, defendant Frank E. Bennett, Jr., appeals1 the Chancery Division's July 11, 2014 order denying his motion to dismiss the complaint and rejecting his objections to the entry of final judgment in plaintiff's favor, and the court's September 19, 2014 Final Judgment of foreclosure of property located in Newton, New Jersey. Based upon our review of defendant's arguments in light of the record and applicable law, we affirm.

I.

On March 18, 2008, defendant executed a $388,647 promissory note payable to Mortgage Loan Solutions, LLC (Lender). The loan was secured by a March 18, 2008 mortgage on the Newton property. The named mortgagee was Mortgage Electronic Registration Systems, Inc. (MERS), "solely as nominee for Lender and Lender's successors and assigns." The mortgage was recorded on March 25, 2008.

On July 16, 2010, the mortgage and note were assigned from MERS, as nominee for the Lender, to plaintiff Wells Fargo Bank, N.A. The Assignment was recorded on July 20, 2010.

Defendant does not dispute that he defaulted on the note on November 1, 2009. Plaintiff served defendant with a Notice of Intention to Foreclose on August 19, 2011.

On May 23, 2013, plaintiff filed a foreclosure complaint against defendant. On August 20, 2013, defendant filed an answer, affirmative defenses, counterclaims, and third-party complaint.

On September 24, 2013, plaintiff filed a motion to strike defendant's answer and affirmative defenses, dismiss the counterclaims and jury demand with prejudice, and sever the third-party complaint. A third-party defendant filed a motion to dismiss the third-party complaint. Defendant opposed the motions.

On November 8, 2013, the court entered an order and written statement of reasons granting plaintiff's motion striking defendant's answer and affirmative defenses as non-contested and dismissing his counterclaims with prejudice.2 The order referred the matter to the Office of Foreclosure. On December 16, 2013, the court entered an order finding the "matter is deemed uncontested and referred to the Office of Foreclosure" and cancelling a status conference which had been scheduled.

On May 20, 2014, plaintiff filed a motion for entry of judgment against defendant. Defendant filed an opposition to plaintiff's motion and a motion to vacate final judgment if entered3 and to dismiss plaintiff's complaint. Defendant argued that final judgment should not be entered because plaintiff was not a real party in interest, plaintiff was not a non-holder in possession of the note with the rights of a holder, and plaintiff defrauded defendant because the loan belonged to a "REMIC trust."

On July 11, 2014, the court entered an order granting plaintiff's application to proceed to the Office of Foreclosure and denying defendant's objection to the entry of final judgment. The order also denied defendant's motion to dismiss the complaint based on defendant's argument that plaintiff lacked standing. On September 19, 2014, the court entered a Final Judgment of foreclosure. This appeal followed.

II.

We first address defendant's argument that the court erred by denying his motion to dismiss the complaint and entering a Final Judgment of foreclosure because plaintiff was not a real party in interest at the time the complaint was filed, was not a "nonholder in possession" of the promissory note who has the rights of a holder, and therefore lacked standing to bring the foreclosure action. We disagree.

A party initiating a foreclosure proceeding "must own or control the underlying debt" obligation at the time an action is initiated to demonstrate standing to foreclose a mortgage. Deutsche Bank Nat'l Trust Co. v. Mitchell, 422 N.J. Super. 214, 222 (App. Div. 2011) (quoting Wells Fargo Bank, N.A. v. Ford, 418 N.J. Super. 592, 597 (App. Div. 2011)). Absent a showing of ownership or control, a "plaintiff lacks standing to proceed with the foreclosure action and the complaint must be dismissed." Ibid. (quoting Ford, supra, 418 N.J. Super. at 597). "[E]ither possession of the note or an assignment of the mortgage that predated the original complaint confer[s] standing." Deutsche Bank Trust Co. Ams. v. Angeles, 428 N.J. Super. 315, 318 (App. Div. 2012).

The record supports the court's finding that plaintiff had standing to bring the foreclosure complaint. The Assignment of the mortgage to plaintiff, which was executed and recorded on July 20, 2010, predated the May 23, 2013 filing of the foreclosure complaint by nearly three years. Cf. Mitchell, supra, 422 N.J. Super. at 222 (finding that the plaintiff lacked standing because "when it filed the original complaint . . . it did not have an assignment nor did it demonstrate that it possessed the note at that time").

Although the Assignment of the mortgage to plaintiff prior to the filing of the foreclosure complaint conferred standing upon plaintiff, Angeles, supra, 428 N.J. Super. at 318, we also consider and reject defendant's argument that plaintiff lacked the authority to enforce the note. Defendant claims that plaintiff was not entitled to enforce the note because it was not a "'person entitled to enforce' the instrument under N.J.S.A. 12A:3-301."

The promissory note here is a negotiable instrument within the meaning of N.J.S.A. 12A:3-104. Plaintiff's authority to enforce the note "is governed by Article III of the Uniform Commercial Code (UCC), N.J.S.A. 12A:3-101 to -605, in particular N.J.S.A. 12A:3-301." Ford, supra, 418 N.J. Super. at 597. To qualify as a "'[p]erson entitled to enforce' an instrument," under N.J.S.A. 12A:3-301, the plaintiff must show it fell within one of the "three categories of persons." Mitchell, supra, 422 N.J. Super. at 222-23. N.J.S.A. 12A:3-301 provides

"Person entitled to enforce" an instrument means the holder of the instrument, a nonholder in possession of the instrument who has the rights of a holder, or a person not in possession of the instrument who is entitled to enforce the instrument pursuant to 12A:3-309 or subsection d. of 12A:3-418. A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

Under the first category of "person entitled to enforce" a negotiable instrument, "N.J.S.A. 12A:3-201(a) provides that for a person other than the one to whom a negotiable instrument is made payable to become a 'holder,' there must be a 'negotiation[.]'" Mitchell, supra, 422 N.J. Super. at 223 (alteration in original) (quoting Ford, supra, 418 N.J. Super. at 598). "'Negotiation' means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder." N.J.S.A. 12A:3-201(a). "[I]f an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder." N.J.S.A. 12A:3-201(b). Indorsement is defined as "a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of negotiating the instrument." N.J.S.A. 12A:3-204(a).

In Ford, the court held that the plaintiff-bank was not a "holder of the instrument" under N.J.S.A. 12A:3-301 because, "even if [plaintiff] had presented satisfactory evidence that it was in 'possession' of the note executed by defendant . . ., [plaintiff] admittedly presented no evidence of 'its indorsement by [the original holder].'" Ford, supra, 418 N.J. Super. at 598.

Here, the record includes a certification of authentication of the note defendant signed on March 18, 2008, and a certification from plaintiff's agent that plaintiff is the "current controller" of the note. The note does not contain an indorsement and thus plaintiff is not a "person entitled to enforce the instrument" as a "holder" under N.J.S.A. 12A:3-301. Ibid.

We are however satisfied that plaintiff was entitled to enforce the note because it was a "nonholder in possession of the [note] who ha[d] the rights of a holder" under the second category of "person entitled to enforce" the note. N.J.S.A. 12A:3-301. To qualify as a "nonholder in possession of the [note] who has the rights of the holder," plaintiff must have demonstrated that the note was transferred. Mitchell, supra, 422 N.J. Super. at 224; Ford, supra, 418 N.J. Super. at 598-99.

Transfer of an instrument occurs "when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument." N.J.S.A. 12A:3-203(a). Such a delivery, "whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument." N.J.S.A. 12A:3-203(b).

[Mitchell, supra, 422 N.J. Super. at 224 (quoting Ford, supra, 418 N.J. Super. at 599).]

In Ford, we held that a certification that the plaintiff was the holder and owner of the note and mortgage and a "properly authenticated" document certifying to a valid assignment of the mortgage were "sufficient to establish that [the plaintiff] was a 'nonholder in possession of the [note] who has the rights of a holder.'" Ford, supra, 418 N.J. Super. at 598-99 (second alteration in original). The record here, including the Assignment of the mortgage and plaintiff's agent's certification, amply supports the conclusion that plaintiff was a nonholder in possession and entitled to enforce the promissory note. N.J.S.A. 12A:3-301; Ford, supra, 418 N.J. Super. at 598-99. We are therefore satisfied that the court correctly concluded that plaintiff had standing to bring the foreclosure complaint.

Defendant next argues that the court erred in dismissing his counterclaims under Rule 4:6-2(e). The counterclaims alleged predatory unfair deceptive practice (count one); failure to provide information concerning a loan modification (count two); plaintiff's lack of standing (count three); violation of the New Jersey Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -195 (count four); securitization (second count numbered four);4 unjust enrichment (count five); quiet title (count six); fraud (count seven); fraud in the inducement (count eight); and bad faith (count nine).

Under Rule 4:6-2(e), a party may raise as a defense in response to a counterclaim that the claim fails "to state a claim upon which relief can be granted." In reviewing a claim dismissed under Rule 4:6-2(e), we "search[] the complaint in depth and with liberality to ascertain whether the fundament of a cause of action may be gleaned even from an obscure statement of claim, opportunity being given to amend if necessary." Major v. Maguire, 224 N.J. 1, 26 (2016) (quoting Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989)). Our review of an order of dismissal under Rule 4:6-2(e) "is plenary and we apply the same test as the Law Division." Smerling v. Harrah's Entm't, Inc., 389 N.J. Super. 181, 186 (App. Div. 2006).

We are not persuaded by defendant's argument that the court erred in dismissing his counterclaims. The counterclaims alleged in counts three, the second count four, five, six, and nine are founded upon the premise that plaintiff did not have the lawful authority to enforce the mortgage and collect the sums due under the note. As we have noted, however, plaintiff possessed the legal authority to enforce defendant's obligations under the note and had standing to foreclose on the mortgage. We are therefore satisfied that defendant's counterclaims based upon plaintiff's purported lack of standing were correctly dismissed.

We also reject defendant's assertion that the court erred in dismissing the second count four of the counterclaim. Defendant argues that the plaintiff lacked standing because the loan was allegedly securitized and subject to a Pooling and Service Agreement (PSA). Even assuming that the loan was securitized and subject to a PSA, defendant did not assert a valid cause of action because he did not allege that he was a party to the putative PSA. Thus, his pleading did not allege sufficient facts to support a finding that he had standing to enforce any rights based upon plaintiff's alleged violation of the PSA. See In re Estate of F.W., 398 N.J. Super. 344, 354 (App. Div. 2008) (holding "a litigant may not [ordinarily] claim standing to assert the rights of a third party," unless "the litigant can show sufficient personal stake and adverseness so that the [c]ourt is not asked to render an advisory opinion" (alterations in original) (quoting Jersey Shore Med. Ctr. v. Estate of Baum, 84 N.J. 137, 144 (1980))); see also Bank of New York v. Raftogianis, 418 N.J. Super. 323, 350 (Ch. Div. 2010) ("[L]itigants generally have no standing to assert the rights of third parties.").

Defendant's additional counterclaims alleging predatory unfair deceptive practices (count one), a violation of the CFA (count four), fraud (count seven), fraud in the inducement (count eight), and bad faith (count nine) are based upon the allegation that he was the victim of fraud at the time he entered into the mortgage and note in 2008. Plaintiff, however, was not assigned the mortgage and note until more than two years later on July 16, 2010.

Defendant does not allege that plaintiff had any involvement in defendant's granting of the mortgage and execution of the note in 2008, and therefore plaintiff could not as a matter of law have responsibility for any predatory lending practices (count one) or violations of the CFA (count four) committed at the time defendant granted the mortgage or executed the note. See, e.g., Psensky v. Am. Honda Fin. Corp, 378 N.J. Super. 221, 231-32 (App. Div. 2005) (finding that an assignee can only be held liable under the CFA where there is an allegation that it actively and directly participated in the alleged fraud); O'Loughlin v. Nat'l Cmty. Bank, 338 N.J. Super. 592, 605-06 (App. Div. 2001) (finding successor in interest not liable for alleged violations of the CFA for the conduct of the original developer of property).

Additionally, we are satisfied that the court did not err in dismissing defendant's CFA (count four), fraud (count seven), and fraud in the inducement (count eight) counterclaims because they were not pled with the particularity required under Rule 4:5-8. The Rule requires that "[i]n all allegations of misrepresentation, fraud, mistake, breach of trust, willful default or undue influence, particulars of the wrong, with dates and times if necessary, shall be stated in so far as practicable." R. 4:5-8. Common-law fraud and claims under the CFA require compliance with Rule 4:5-8(a). Hoffman v. Hampshire Labs, Inc., 405 N.J. Super. 105, 115 (App. Div. 2009).

"To establish a common-law fraud" claim, it must be alleged that there was "(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the [defending party] of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages." Banco Popular N. Am. v. Gandi, 184 N.J. 161, 172-73 (2005) (quoting Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997)). To assert a claim under the CFA, a party must allege "(1) an unlawful practice, (2) an 'ascertainable loss,' and (3) 'a causal relationship between the unlawful conduct and the ascertainable loss.'" Gonzalez v. Wilshire Credit Corp. 207 N.J. 557, 576 (2011) (quoting Lee v. Carter-Reed Co., 203 N.J. 496, 521 (2010)).

We agree with the court's conclusion that defendant's "pleadings [fell] short of a sufficient claim for fraud" and defendant "only provided vague and conclusory statements" and failed to plead his fraud and CFA claims with the specificity required under Rule 4:5-8. In addition, and as noted, the CFA claims failed because they alleged CFA violations by plaintiff's predecessor in interest to the mortgage and note, and therefore did not state legally viable claims against plaintiff.

We are therefore convinced that the court reviewed defendant's counterclaims "in depth and with liberality," and correctly determined that each failed to state the "fundament of a cause of action" upon which relief could be granted. Major, supra, 224 N.J. at 26. The court did not err in dismissing each of the claims under Rule 4:6-2(e).5

We last address defendant's argument that plaintiff's motion should have been denied because it was a "disguised motion for summary judgment." Defendant argues that the court's reliance upon various documents related to the mortgage and note transformed plaintiff's motion to dismiss under Rule 4:6-2(e) into a motion for summary judgment under Rule 4:46. Under Rule 4:6-2(e), a motion to dismiss based on a "failure to state a claim upon which relief can be granted" is treated as a motion for "summary judgment and disposed of as provided by R. 4:46" if matters outside the pleading are presented.

"In reviewing a complaint dismissed under Rule 4:6-2(e), [our] inquiry is limited to examining the legal sufficiency of the facts alleged on the face of the complaint." Flinn v. Amboy Nat'l Bank, 436 N.J. Super. 274, 286 (App. Div. 2014) (quoting Printing Mart, supra, 116 N.J. at 746). Courts, however, may properly consider documents referred to in a complaint and provided by way of a motion to dismiss the complaint under Rule 4:6-2(e), without converting the motion into a motion for summary judgment. New Jersey Citizen Action, Inc. v. Cty. of Bergen, 391 N.J. Super. 596, 605 (App. Div.), certif. denied, 192 N.J. 597 (2007).

Plaintiff supported its motion to dismiss defendant's counterclaims with documents related to the mortgage and note, and the court relied upon the documents in making its ruling. Plaintiff's and the court's reliance upon the documents did not convert plaintiff's request into a summary judgment motion because the documents were referred to in the complaint, answer, and counterclaims and could properly be considered in deciding plaintiff's motion to dismiss defendant's counterclaims. Ibid.

Defendant's remaining arguments lack sufficient merit to warrant further discussion in a written opinion. R. 2:11-3(e)(1)(E).

Affirmed.

1 Mrs. Frank E. Bennett, Jr., did not participate in this appeal.

2 On November 8, 2013, the court also entered an order and written statement of reasons granting the third-party defendant's motion to dismiss the third-party complaint without prejudice. Defendant does not challenge the court's dismissal of the third-party complaint on appeal.

3 In defendant's motion, he requested that the court vacate a final judgment before final judgment had been entered.

4 The counts of defendant's counterclaims are mis-numbered and include two counts numbered four.

5 We do not address the court's dismissal of count two of defendant's counterclaim because he makes no argument regarding the dismissal on appeal.