Law360, Miami (February 13, 2013, 8:02 PM ET) -- The Florida Supreme Court missed an opportunity to address the robosigning crisis in a recent ruling that allows banks to avoid facing sanctions for possibly fraudulent foreclosure proceedings by voluntarily dismissing the actions, foreclosure defense attorneys say.
The high court acknowledged the problem of fraud in foreclosure proceedings, but said in a narrow ruling Feb. 7 that the court said the state's rules of civil procedure bar judges from reinstating a foreclosure proceeding that may have been voluntarily dismissed because of allegedly fraudulent actions if the bank didn't receive any relief because of the actions.
"They acknowledge that the wolf is in the hen house, yet they're not willing to get the wolf out of the hen house," foreclosure defense attorney Roy Oppenheim of Oppenheim Law said. "They're willing to close the barn door and leave the wolf there."
In the underlying case, homeowner Roman Pino sought sanctions against The Bank of New York Mellon Corp. for allegedly backdating the assignment of a mortgage that was attached to the bank's amended complaint, according to the ruling. The firm involved in the foreclosure proceeding was that of David J. Stern, who has since been disbarred and whose so-called foreclosure mill closed after the state's attorney general accused him of filing false or misleading mortgage foreclosure documents.
Following the allegations of fraud, but before any depositions or evidentiary hearings were held, BNY Mellon voluntarily dismissed the case, according to the ruling. Five months later, the bank filed a second foreclosure proceeding against Pino, who then moved to reopen the first case and have it dismissed with prejudice because of fraud on the court.
Florida's high court decided to take up the narrow question of whether or not an allegation of fraud empowers the trial court to strike a notice of voluntary dismissal. In its ruling, the high court said that under a plain reading of the rules of civil procedure, the court does not have such power, unless the plaintiff received some sort of relief — which, in this case, would have been the bank taking control of Pino's house — because of the allegedly fraudulent conduct.
The Supreme Court said the trial court "has jurisdiction to reinstate the dismissed action only when the fraud, if proven, resulted in the plaintiff securing affirmative relief to the detriment of the defendant and, upon obtaining that relief, voluntarily dismissing the case to prevent the trial court from undoing the improperly obtained relief."
The ruling surprised Pino's lawyers, who were hopeful that the high court's decision to take up the case after the parties had already settled would lead to decisive change in the law.
"Really what they came back with was nothing," Pino's attorney, Amanda Lundergan of Ice Legal PA, said. "They didn't change the law, didn't add or take anything away. They basically sent the message that if you want to use fraud as a litigation strategy, you can do it."
But Arnstein & Lehr LLP's W. Patrick Ayers, who often represents banks in foreclosure proceedings, said that had the court ruled the other way, it could have had a temporary chilling effect on foreclosure proceedings, as banks likely would have held back on filing the suits.
Ayers said honest mistakes in paperwork happen, and the one free voluntary dismissal gives banks the opportunity to correct these mistakes.
"That's one of the benefits of a free dismissal — to correct paperwork errors," Ayers said. "I think most attorneys that are prosecuting these foreclosure actions are not looking to fraudulently create documents to make their clients' case."
He added that the high court had pointed out other avenues for relief, including seeking attorneys' fees and costs for the first action and filing a complaint with the Florida Bar against the attorney allegedly filing fraudulent documents.
But Lundergan said that while the Florida Bar can reprimand, fine or even disbar an attorney, it can do nothing to reprimand the bank if it was involved and can provide no monetary relief to the homeowner.
And the Supreme Court was silent on an issue Lundergan said she had brought up in the case, regarding whether or not Pino could request sanctions in the second case for the allegedly fraudulent conduct that occurred in the first proceeding. Pino's attorneys had asked for clarification on the issue, given that the high court had ruled in a 1986 decision that prior fraudulent acts by a party could not be brought up in a second case.
"One of the justices seemed to be of the opinion that ... you can bring it up in the second case, but there is that other Supreme Court case," she said. "And that's presuming that the homeowners have the means to keep fighting these cases. [Banks] might get away with it just by default because the homeowner can't continue to fight it."
In its ruling, the high court acknowledged the crisis and asked the state's civil procedure rules committee to review the issue and make a recommendation on whether or not the trial courts should be granted explicit sanction authority even after a case is voluntarily dismissed.
But foreclosure defense attorneys don't seem to think there is much political will to make such rule changes.
"We've seen this general belief by politicians that these cases just need to be cleared off our dockets — that these homeowners are deadbeats who don't deserve due process," Lundergan said.
Despite its application to just Florida, real estate and foreclosure attorneys around the country have been keeping tabs on the case, according to Brooklyn Law School professor David Reiss. The ruling highlights a trend around the country of foreclosure mills and debt collection firms "making thousands of filings and paying very little attention to whether the filings are accurate," he said.
Reiss said the court could have taken broader action by stating clearly that fraudulent filings undercut the rule of law.
"You could easily imagine a court saying that the kind of behavior alleged here does impugn the litigation process and [that] the court can take actions to remedy it," Reiss said. "I'm not saying they made a mistake, but if you are aware of behavior that is taking advantage of the judicial system, I think I can imagine another set of judges saying, 'We have the inherent authority to handle that.'"
Attorneys for BNY Mellon could not be reached for comment.
Pino is represented by Amanda L. Lundergan and Thomas E. Ice of Ice Legal PA.
The bank is represented by Katherine Eastmoore Giddings, Nancy Mason Wallace and William Patrick Heller of Akerman Senterfitt LLP and by Bruce S. Rogow and Tara A. Campion of Bruce S. Rogow PA.
The case is Pino v. The Bank of New York et al., case number SC11-697, in the Supreme Court of Florida.