                                      COURT OF CHANCERY
                                            OF THE
                                      STATE OF DELAWARE
SELENA E. MOLINA                                                      LEONARD L. WILLIAMS JUSTICE CENTER
                                                                       500 NORTH KING STREET, SUITE 11400
 MASTER IN CHANCERY                                                           WILMINGTON, DE 19801-3734



                                   Final Report: May 6, 2020
                                  Draft Report: April 16, 2020
                                Date Submitted: January 24, 2020

   Seth L. Thompson, Esquire                        Mr. Timothy Burley
   Parkowski, Guerke & Swayze, P.A.                 620 N. Broom Street
   1105 N. Market Street, 19th Floor                Wilmington, DE 19805
   Wilmington, DE 19801                             burleytimothy35@yahoo.com


           Re:        Deutsche Bank Tr. Co. Ams. v. Burley
                      C.A. No. 2017-0912-SEM

   Dear Counsel and Parties:

           Pending before me is a motion for partial judgment on the pleadings. The

   plaintiff seeks judgment in its favor, and against the defendant, on an equitable

   subrogation claim. The plaintiff contends that its predecessor-in-interest satisfied

   defendant’s mortgage in a refinancing transaction, the defendant has not paid it back,

   and equity dictates judgment for the plaintiff on the balance due (plus interest). The

   defendant disagrees that equity tips in the plaintiff’s favor arguing that the

   refinancing was fraudulent and, as such, the plaintiff should not be able to recover

   anything from the defendant. I find I cannot dispose of the equitable subrogation

   claim on the pleadings. I, therefore, recommend that the motion for partial judgment

   on the pleadings be denied to allow for discovery into the refinancing transaction
C.A. No. 2017-0912-SEM
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Page 2

and the factual predicate necessary to determine which way equity shifts in this

matter. This is my final report. 1

I.     BACKGROUND 2

       On or about July 30, 2004, the defendant Timothy Burley (“Defendant”)

purchased property located at 611 North Harrison Street in Wilmington, Delaware

(the “Property”) for $85,000.00.3 Defendant made a $7,000.00 down payment and

financed the remainder through a mortgage with Pike Creek Mortgage Services Inc.,

nominee Mortgage Electronic Registration Systems Inc. (“MERS”) (the “First

Mortgage”). 4

       The First Mortgage was satisfied on March 30, 2007 by Homecomings

Financial, LLC (“Homecomings”).5 In recognition of the payoff, a mortgage was

executed, purportedly between Homecomings, nominee MERS, and Defendant (the

“Second Mortgage”).6 I use “purportedly” because Defendant contends the Second

Mortgage was fraudulent and his signature thereon forged. Defendant did, however,


1
  This report makes the same substantive findings and recommendations as my April 16,
2020 draft report, to which no exceptions were filed.
2
  The facts in this report reflect the well-pled facts, taken in the light most favorable to the
defendant as the non-moving party.
3
  Docket Item (“D.I.”) 6.
4
  Id.
5
  D.I. 1, Ex. G; D.I. 9. In addition to the well-pled factual allegations, I also consider the
exhibits attached thereto, giving each the weight it deserves. See Mehta v. Mobile Posse,
Inc., 2019 WL 2025231, at * 2 (Del. Ch. May 8, 2019).
6
  D.I. 1, Ex. A.
C.A. No. 2017-0912-SEM
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Page 3

make payments under the Second Mortgage through 2015, although Defendant pled

that the payments were meant to apply to the First Mortgage.7 When Defendant

became aware of the Second Mortgage and underlying fraud, sometime in 2015,

Defendant stopped making payments.8

       On November 16, 2016, the Second Mortgage was assigned to plaintiff,

Deutsche Bank National Trust Company Americas, as Trustee for Residential

Accredit Loans, Inc., Mortgage Asset-Backed Pass-Through Certificates, Series

2007-QS6 (“Plaintiff”). 9    With the Second Mortgage in default, Plaintiff, on

December 22, 2017, filed a Verified Complaint for foreclosure on the Property. 10

Plaintiff sought foreclosure in rem under scire facias proceedings and under an

equitable subrogation claim. Defendant answered the complaint on January 26,

2018. 11 Plaintiff then filed this motion for partial judgment on the pleadings on July

19, 2019, 12 it was heard on January 17, 2020, 13 and it was submitted for decision on

January 24, 2020, when the supplemental submissions I requested were filed. 14




7
  D.I. 6.
8
  Id.
9
  D.I. 1, Ex. B.
10
   D.I. 1.
11
   D.I. 6-11.
12
   D.I. 15.
13
   D.I. 26.
14
   D.I. 30.
C.A. No. 2017-0912-SEM
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Page 4

II.   ANALYSIS

      Plaintiff moves for judgment on the pleadings for its equitable subrogation

claim under Court of Chancery Rule 12(c). Plaintiff’s motion may be granted if “no

material issue of fact exists and [Plaintiff] is entitled to judgment as a matter of

law.” 15 I am “required to view the facts pleaded and the inferences to be drawn from

such facts in a light most favorable to the non-moving party[;]” 16 here, Defendant.

      Equitable subrogation “is an equitable remedy originally borrowed from the

civil law[.]” 17 In the refinancing context, it can be invoked such that “[o]ne who

fully performs an obligation of another, secured by a mortgage, becomes by

subrogation the owner of the obligation and the mortgage to the extent necessary to

prevent unjust enrichment.” 18 Delaware courts require any party seeking equitable

subrogation to establish five factors:

      (1) payment must have been made by the subrogee to protect his or her
          own interest; (2) the subrogee must not have acted as a volunteer;
          (3) the debt paid must have been one for which the subrogee was
          not primarily liable; (4) the entire debt must have been paid; and (5)
          subrogation must not work any injustice to the rights of others. 19

15
   Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199,
1205 (Del. 1993).
16
   Id.
17
   E. States Petroleum Co. v. Universal Oil Prods. Co., 44 A.2d 11, 15 (Del. Ch. 1945).
18
   E. Sav. Bank, FSB v. CACH, LLC, 2014 WL 3827496, at *4 (Del. Super. July 31, 2014)
(quoting Restatement (Third) of Property (Mortgages) § 7.6(a) (1997)).
19
   E. Sav. Bank, FSB v. CACH, LLC, 124 A.3d 585, 590 (Del. 2015) (quoting Reserves
Dev. LLC v. Severn Bank, FSB, 2007 WL 4054231, at *17 (Del. Ch. Nov. 9, 2007), aff’d,
961 A.2d 521 (Del. 2008)).
C.A. No. 2017-0912-SEM
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      As these factors demonstrate, equitable subrogation has its limits. It cannot

be used by a mere volunteer: “one who pays the debt of another upon his own

initiative, and without invitation, compulsion or the necessity for self-

protection[.]” 20 A claim of equitable subrogation is also susceptible to equitable

defenses (e.g., unclean hands). 21 And, “[m]oreover, Delaware courts have refused

to apply subrogation when it would ‘work any injustice to the rights of others.’” 22

      Although Plaintiff attempts to couch its equitable subrogation claim in

simplistic terms, viewing the pleadings in a light most favorable to Defendant (as I

must under Rule 12(c)), its likelihood of success is less than clear. Accepting

Defendant’s allegations that he did not request nor approve the Second Mortgage,

the refinancing was fraudulent, and his signature was forged on the refinancing

documents, I have more questions than answers. For example, was Plaintiff (through

its predecessor-in-interest) a mere volunteer when it paid off the First Mortgage?

Or, was Plaintiff’s predecessor-in-interest induced by fraud to pay Defendant’s debt,

ripening an equitable subrogation claim? Or, did Plaintiff’s predecessor-in-interest

engage in, know of, or reasonably should have known of the underlying fraud to



20
   E. States Petroleum Co., 44 A.2d at 15. But, on the other hand, “one who is induced by
fraud to pay the debt of another is, ordinarily, not a mere volunteer, and may rely on
subrogation.” Id.
21
   See Oldham v. Taylor, 2003 WL 21786217, at *5 (Del. Ch. Aug. 4, 2003).
22
   E. Sav. Bank, FSB v. CACH, LLC, 124 A.3d at 593.
C.A. No. 2017-0912-SEM
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such extent that equity shifts away from Plaintiff and in Defendant’s favor? I cannot

answer these questions on the limited, disputed record. Stated another way, I cannot

determine which way equity tilts without a more complete factual record.

        Plaintiff urges me to follow the lead of Oldham v. Taylor. 23 In Oldham, a

refinancing occurred without the involvement or consent of one joint owner. Justice

Jacobs (sitting by designation) found, however, that the non-consenting joint owner

was still personally liable, under an equitable subrogation theory, for the benefit she

received from the new mortgage. In so holding, Justice Jacobs overruled the joint

owner’s argument that a defect in the refinancing (namely, that there was no

Delaware attorney at the closing) amounted to unclean hands, barring recovery,

because there was no violation of the “public policy or law of Delaware[.]” 24

        Oldham is distinguishable, however, in its procedural posture and on its

merits. First, Oldham was decided after a full trial on the merits, lending support to

my inclination to require that these equitable issues be more fully developed before

disposition. Second, the alleged inequities in Oldham pale in comparison to the

inequities alleged here. Defendant’s allegations not only smell of equitable defenses

but also call into question whether Plaintiff can establish the five equitable

subrogation factors.

23
     2003 WL 21786217.
24
     Id. at *5.
C.A. No. 2017-0912-SEM
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Page 7

       To be clear, the inequities alleged here are disputed. I make no findings of

fact or conclusions of law regarding the enforceability of the refinancing transaction

and Second Mortgage. What I do find is that discovery should commence and the

matters should be teed up for resolution on a more-developed record. 25

III.   CONCLUSION

       For the foregoing reasons, I recommend that the motion for partial judgment

on the pleadings be denied.        I find I cannot dispose of Plaintiff’s equitable

subrogation claim on the pleadings and that discovery into the many lingering

questions is necessary.     The equitable issues at stake should be weighed and

adjudged on a more-developed factual record. This is a final report and exceptions

may be taken pursuant to Court of Chancery Rule 144.

                                                Respectfully submitted,

                                                /s/ Selena E. Molina

                                                Master in Chancery




25
  See, e.g., Claros Diagnostics, Inc. S’holders Rep. Comm. v. OPKO Health, Inc., 2020
WL 829361, at *13 (Del. Ch. Feb. 19, 2020) (explaining, typically, “application of unclean
hands is based upon a developed factual record”).
