Provident Funding Assocs., L.P. v. Campney, No. 2-1-12 Rdcv (Teachout, J., June 27, 2012)

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                                                STATE OF VERMONT

SUPERIOR COURT                                                                                    CIVIL DIVISION
Rutland Unit                                                                                  Docket No. 2-1-12 Rdcv


PROVIDENT FUNDING ASSOCIATES, L.P.,
    Plaintiff

v.

ARNOLD and PEGGY CAMPNEY, et al.,
    Defendants


                                    DECISION
           Defendant Joan Campney’s Motion to Dismiss, filed January 24, 2012

        Defendant Joan Campney moves to dismiss Plaintiff’s Complaint on the grounds
that Plaintiff’s present claim has previously been dismissed and may not be brought again
under Rule 41 of the Vermont Rules of Civil Procedure. Defendant Joan Campney is
represented by John J. Welch, Jr., Esq. Plaintiff Provident Funding Associates, L.P. is
represented by Andrew H. Montroll, Esq.

         Plaintiff brings this action for foreclosure on a note and mortgage executed by
Defendants Arnold and Peggy Campney. Defendant Joan Campney is a junior lien
holder. This is the fourth foreclosure action that Plaintiff has filed based on alleged
default under the note. The first action, Provident Funding Associates, L.P. v. Campney,
No. 812-10-08 Rdcv, was dismissed without prejudice on Plaintiff’s initiative on January
7, 2009. The second action, Provident Funding Associates, L.P. v. Campney, No. 563-8-
09 Rdcv, was dismissed by the Superior Court on January 12, 2010, because of Plaintiff’s
failure to prosecute its case. The Court stated that Plaintiff lacked standing to foreclose
because of its failure to produce an endorsed note The third action, Provident Funding
Associates, L.P. v. Campney, No. 917-12-10 Rdcv, was dismissed by the Superior Court
on August 10, 2011, because of Plaintiff’s failure to prosecute its case; Plaintiff had
failed to serve its First Amended Complaint on Defendants. The Court denied a
Plaintiff’s motion to reopen because Plaintiff had not cured a number of problems nor
responded to a notice of dismissal.

        Defendant argues that the doctrine of res judicata bars Plaintiff’s present attempt
to bring this claim. Defendant’s argument is premised on the interplay between V.R.C.P.
41(b)(2) and V.R.C.P. 41(b)(3). Rule 41(b)(2) allows a defendant to move for the
dismissal of an action for failure of the plaintiff to prosecute or to comply with a court
order.

           Defendant relies on Rule 41(b)(3) which provides:
       Unless the court in its order for dismissal otherwise specifies, a
       dismissal under this subdivision (b) and any dismissal not provided
       for in this rule, other than a dismissal for lack of jurisdiction, for
       improper venue, or for failure to join a party under Rule 19,
       operates as an adjudication upon the merits.

V.R.C.P. 41(b)(3). Normally, this rule functions to bar “further litigation of the same
cause of action seeking the same relief between the same parties.” Cody v. Cody’s Estate,
134 Vt. 113, 115 (1976). The Vermont Supreme Court has stated in reference to Rule
41(b)(3) that “the adjudication should be seen as having resolved only the merits of what
was actually adjudged.” Pennconn Enters. Ltd. v. Huntington, 148 Vt. 603, 609-10
(1987). In Costello v. United States, 365 U.S. 265, 286 (1961), the Court held that
preclusive dismissal under F.R.C.P. 41(b)(3) is appropriate where the defendant must
incur the inconvenience of preparing to meet the merits. The Court’s analysis in Costello
has not been accepted as entirely well-founded, however. 18A Fed. Prac. & Proc. Juris. §
4435 (2d ed.)

        The Vermont Supreme Court recently had the opportunity to discuss the operation
of V.R.C.P. 41(b)(3) in the context of a foreclosure case. In U.S. Bank Nat’l Ass’n v.
Kimball, the Court held that a plaintiff, where its foreclosure complaint had been
dismissed for a lack of standing at time of filing suit, could not be precluded from
pursuing foreclosure on the merits later should it be able to prove the necessary elements.
2011 VT 81, ¶ 22. The Court made it clear that dismissal for lack of standing does not
cancel the underlying note or mortgage obligations or make them unenforceable for later
breaches: “[a]bsent adjudication on the underlying indebtedness, the dismissal cannot
cancel [the debtor’s] obligation arising from an authenticated note, or insulate her from
foreclosure proceedings based on proven delinquency.” Id. at ¶ 22-23.

        The question raised in the present motion is not whether this suit may proceed
against the mortgagor defendants, but whether the dismissal in the third case was of a
nature that Plaintiff should be precluded from seeking foreclosure in this fourth attempt
against Defendant Joan Campney, who is a junior lienholder.

        Plaintiff argues that in this case, unlike the situation in Cody v. Cody’s Estate, it
has not simply refiled a claim identical to the one that was dismissed. Rather, it contends
that further defaults have occurred since the previous claim was filed, making the current
foreclosure claim a new claim. See, e.g., Cowan v. MTGLQ Investors, L.P., No. 2:09-cv-
472-FtM-29SPC, 2010 WL 3701779, at *4 (M.D. Fla. Sept. 14, 2010) (“[T]he fact that a
prior mortgage foreclosure action was dismissed with prejudice does not preclude a
subsequent foreclosure action for later defaults.”). This is consistent with the holding in
Kimball. That does not resolve the issue of whether the action should be dismissed as it
pertains to Joan Campney, who is a junior lienholder.

        There is an extensive discussion in Federal Practice and Procedure of the
difficulty and complexity of determining whether specific involuntary dismissals on
procedural grounds should preclude subsequently filed actions under Rule 41(b). 18A



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Fed. Prac. & Proc. Juris. § 4435 (2d ed.) Applying the suggestion in that treatise that
analysis should be based on particularized legal contexts, this case is governed by the
opinion of the Vermont Supreme Court in Kimball, in which the Court denied preclusive
effect of the trial court’s dismissal with prejudice of the foreclosure action against
mortgagor defendants, but recognized that the trial court has discretion to exercise
equitable powers if based on specific findings. In reversing the trial court dismissal with
prejudice, the Court noted that the trial court failed to make specific findings as a basis
for its ruling that the dismissal should be with prejudice.

        In this situation, the record shows undisputed facts that support dismissal with
prejudice. Joan Campney has hired counsel for each of the four times the complaint has
been filed against her. In the first case, through her attorney she challenged Plaintiff’s
standing, and Plaintiff dismissed its case. In the second case, she again obtained counsel,
and again the case was dismissed for failure to prosecute when Plaintiff did not establish
standing.

       In the third case, the critical one for purposes of this analysis, she again hired
counsel and filed a verified Answer and Counterclaim. The case was filed on December
7, 2010. On June 17, 2011, the Court issued a notice of potential dismissal pursuant to
V.R.C.P. 41(b)(1)(iii) giving notice that unless good cause was shown for continuance by
July 22, 2011, over seven months after filing, the case would be dismissed for failure to
complete service on the defendants. Plaintiff filed nothing, and on August 10, 2011, the
case was dismissed. Plaintiff subsequently filed a motion to reopen the case. A hearing
was held to give Plaintiff the opportunity to show good cause, and Joan Campney was
represented at that hearing by her lawyer. The Court denied the motion as good cause to
reopen was not shown for specific reasons identified in the record.

        Joan Campney has had to hire an attorney and respond to legal issues in three
prior cases brought against her in which the Plaintiff was not prepared to proceed, and her
attorney was obliged to attend a hearing in the third case at which the Plaintiff did not
show good cause to reopen after the case was dismissed. In all cases the court was
prepared to reach the merits of the case but Plaintiff was not prepared. The third case
was dismissed based on the Plaintiff’s own failure to pursue its case in accordance with
the requirements of the Rules of Civil Procedure, even after a Notice of Potential
Dismissal from the court. Joan Campney has incurred the inconvenience of preparing to
meet the merits and she has incurred significant expense and inconvenience of hiring an
attorney. In the third case in particular, the Plaintiff, after failing to show standing on
two prior occasions, did not even properly serve the defendants as required by the rules,
and did not respond on time to the Court’s notice of potential dismissal when that was
called to Plaintiff’s attention.

         As the Court noted in Kimball, foreclosures are equitable proceedings in which
the trial court has some discretion, and plaintiffs seeking equitable relief against a
defendant must have “clean hands.” Based on the specific findings showing that
Plaintiff has repeatedly filed unprepared cases against Joan Campney, calling upon her to
have to hire counsel and incur attorneys fees to address the merits only to fail to meet its



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own obligations and thereby imposing unnecessary costs on Defendant Campney, the
Court concludes that there is no good reason to permit Plaintiff to pursue yet another case
against her. She does not have a debt obligation to Plaintiff, but has been inconvenienced
and financially disadvantaged by Plaintiff’s actions. The equities call for the Court to
exercise its discretion to preclude Plaintiff from obtaining foreclosure relief against Joan
Campney’s interest in the property on which it may hold a mortgage.


        For the foregoing reasons, Joan Campney’s Motion to Dismiss the suit against her
is granted. Thus Plaintiff is precluded from foreclosing against her interest in the
property. This does not affect other defendants.

                                             ORDER

       Defendant Joan Campney’s Motion to Dismiss is granted.

       Dated this 26th day of June, 2012.

                                                                    ________________________
                                                                Hon. Mary Miles Teachout
                                                                     Superior Court Judge




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