IN THE SUPERIOR COURT OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY

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Harvey Elliott
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1 IN THE SUPERIOR COURT OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY DEUTSCHE BANK NATIONAL ) TRUST COMPANY, as Trustee for ) Morgan Stanley ABS CAPITAL 1, ) INC. TRUST 2005-HE2, ) ) Plaintiff, ) ) v. ) C.A. No. 08L CEB ) NANCY GOLDFEDER c/o ) EMIL MIKHAIL, Guardian Ad ) Litem, ) ) Defendant. ) Date Submitted: October 24, 2014 Date Decided: December 9, 2014 OPINION Upon Consideration of Plaintiff s Motion to Dismiss Counterclaims II-IV. GRANTED. Lisa R. Hatfield, Esquire, Morris Schneider Wittstadt, LLC, Newark, Delaware. Attorney for Plaintiff. Leo John Ramunno, Esquire, Law Office of Leo John Ramunno, Wilmington, Delaware. Attorney for Defendant. BUTLER, J.

2 This well travelled piece of litigation is now six years old. Further description of its history will be deferred in favor of a recitation of its salient facts and a ruling on plaintiff s pending motion to dismiss several of defendant s recently filed counterclaims. Defendant Nancy Goldfeder took out a mortgage to secure refinancing of a previous mortgage on property located on North Union Street in the city of Wilmington. The mortgage fell into default as a result of nonpayment and the mortgage came to be owned by plaintiff Deutsche Bank which foreclosed. Before the foreclosure could be fully consummated with a writ of possession, the Court became aware of the fact that Ms. Goldfeder is and has been for some time incompetent to handle her own affairs and indeed, a guardian ad litem has now been appointed to handle this litigation. The Court entered orders staying the writ of possession and ordering Ms. Goldfeder to file an answer and defend the foreclosure on the merits. Ms. Goldfeder has filed an Answer to which she has appended a counterclaim which, predictably enough, the bank has sought to dismiss. Goldfeder s counterclaims are several and generally aver that she was incompetent to enter into the debt in question. In Count I, Goldfeder claims contractual recission because she lacked competency to sign the note and mortgage. Oddly enough, she requests the Court 1

3 to rescind the loan in its entirety and award compensatory and punitive damages, as well as attorney fee and cost. But a rescission is intended to return the parties to the status quo ante 1 and such a remedy would, in effect, dispossess the defendant of the property and require her to repay all monies given her by plaintiff or its predecessor a remedy that looks remarkably like the one sought by plaintiff. It is not a tort and compensatory and punitive damages are not available; indeed, rescission is itself a remedy, not a cause of action. 2 Perhaps that is why plaintiff has not moved to dismiss Count I. The plaintiff does seek dismissal of Counts II-IV. In Count II, defendant claims a lack of standing wrongful foreclosure. The thought expressed here is that the bank failed to perfect a security interest in the note and mortgage and therefore cannot show a valid interest as a real party in interest. Moreover, according to the counterclaim, plaintiff did not seek relief from an automatic stay in bankruptcy to file the action and therefore the bank should pay the debtor compensatory and punitive damages and attorney fees and costs. 1 Norton v. Poplos, 443 A.2d 1, 4 (Del. 1982) ( [T]he equitable remedy of rescission results in abrogation or unmaking of an agreement, and attempts to return the parties to the status quo. ); Creative Research Mfg. v. Advanced Bio-Delivery LLC, CIV.A N, 2007 WL , at *7 (Del. Ch. Jan. 30, 2007) ( The party seeking rescission bears the burden of establishing that the court can restore the status quo between the parties. ). 2 Eni Holdings, LLC v. KBR Grp. Holdings, LLC, CV 8075-VCG, 2013 WL , at *24 (Del. Ch. Nov. 27, 2013) ( Rescission is not a cause of action but a remedy available only where facts indicate equity so requires. ). 2

4 It fairly appears from the pleadings that the mortgage in question was not originated between Ms. Goldfeder and plaintiff Deutsche Bank. 3 Rather, the original lender is alleged to have been Home Funds Direct, an outfit that allegedly dealt in sub-prime mortgages and, like many others, disappeared into bankruptcy in or about This complaint was filed on or about October Since this is the only bankruptcy referenced in defendant s counterclaim, we may safely assume that defendant believes Deutsche Bank filed this complaint notwithstanding the ongoing bankruptcy of its predecessor, Home Funds Direct. This all may well be true, and indeed, we are constrained to accept it as true for present purposes, yet still ask: and what of that? Does the mortgage debtor inherit some rights to defend an action on the debt by arguing that the party to whom the debt was originally owed went into bankruptcy and therefore the automatic stay provisions of the bankruptcy code apply? Do mortgage debts go on holiday when the original creditor goes into bankruptcy? We suspect not. The automatic stay in bankruptcy protects only the debtor and the estate of the debtor. 4 The automatic stay may not be invoked by third parties such as 3 Apparently, the mortgage was assigned. 4 See 11 U.S.C.A. 362(a)(1) (The automatic stay operates as a stay of the commencement or continuation, including the issuance or employment or process, of a judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title. ). 3

5 sureties, guarantors, co-obligors, or others with a similar legal or factual nexus to the... debtor. 5 Accordingly, the automatic stay may not be invoked by parties who have absolutely no legal or factual nexus to a debtor in bankruptcy. It follows that Ms. Golfeder, who has not indicated that she has ever filed bankruptcy, may not invoke the protections of the automatic stay when a creditor, who is also not in bankruptcy, seeks to foreclose on her mortgage. The automatic stay in bankruptcy simply has nothing to do with this case. What all of this tells us is that the bankruptcy of the original creditor is of no moment to the defendant as she acquired no rights to defend against her nonpayment of the debt because of it and, we understand, the principal problem here is that she has not paid on the mortgage for quite some time. Defendant s alternate claim in Count II of her counterclaim is that plaintiff did not perfect its security interest and therefore is not a real party in interest in this 5 Lynch v. Johns-Manville Sales Corp., 710 F.2d 1194, 1196 (6th Cir. 1983) ( It is universally acknowledged that an automatic stay of proceeding accorded by 362 may not be invoked by entities such as sureties, guarantors, co-obligors, or others with a similar legal or factual nexus to the Chapter 11 debtor. ) (citing In re Fintel, 10 B.R. 50 (Bkrtcy.Or.1981) (surety); Matter of Earth Lite, Inc., 9 B.R. 440 (Bkrtcy.Fla.1981) (guarantor); In re The Van Shop, Inc., 8 B.R. 73 (Bkrtcy.N.D.Ohio 1980) (co-obligor); In re Aboussie Brothers Construction Co., 8 B.R. 302 (E.D.Mo.1981) (individual partners of bankrupt partnership); GMAC v. Yates Motor Co., 159 Ga.App. 215, 283 S.E.2d 74 (1981) (joint tortfeasors); In re Smith, 14 B.R. 956 (Bkrtcy.D.C.Conn.1981) (guarantor on student loan); In re The Bank Center, Ltd., 15 B.R. 64 (Bkrtcy.W.D.Pa.1981) (partners of bankrupt partnership); In re Larmar Estates, Inc., 5 B.R. 328 (Bkrtcy.E.D.N.Y.1980) (guarantors of loan); In re Cloud Nine, 3 B.R. 202 (Bkrtcy.D.N.Mex.1980) (co-debtors); In re Trammel Road Townshouses, Ltd., 5 B.C.C. 314 (N.D.Ga.1977); Globe Construction Co. v. Oklahoma City Housing, 571 F.2d 1140 (10th Cir.1978)). 4

6 litigation. In a foreclosure action, it is the plaintiff s burden to establish, by a preponderance of the evidence, that it is the proper party to bring the action. 6 While Defendant labels this a counterclaim, it is actually an element of a foreclosure action that Plaintiff bears the burden of establishing. Defendant has affirmatively admitted she signed the mortgage upon which plaintiff sues herein. This included an undertaking to make payments which, we understand, are deep in arrears The claim that Plaintiff is not the proper party to bring the suit coming as it does in this context is singularly out of place. In Count III of her counterclaim, defendant claims slander of title, a term that, in context, means that defendant alleges that the plaintiff bank, knowing it did not have a right to do so, nonetheless filed to foreclose on defendant s mortgage and, in doing so, it disparaged defendant s title to the property. 7 The bank complains that this counterclaim, if it has any currency at all, does not belong in this lawsuit but rather should be brought in a subsequent lawsuit after 6 Deutsche Bank Nat. Trust Co. v. Moss, 99 A.3d 226 (Table), 2014 WL , at *3 (Del. 2014) ( [Defendant] argues that this evidence fell short of that which might be considered necessary to prove that Deutsche Bank was the current owner of the mortgage and note and had the right to foreclose. But that failure is one that would be fatal to Deutsche Bank if it were moving for summary judgment for itself, and would justify the denial of its motion and force Deutsche Bank to face a trial where it would bear the burden of proving its right to foreclose. ); CitiMortgage, Inc. v. Bishop, No. CIV.A. 09L CLS, 2013 WL , at *4 (Del. Super. Mar. 4, 2013) ( Plaintiff has proven, by a preponderance, that it was the assignee to the mortgage at the time of the foreclosure action and, as such, it was the proper party to bring the action. ). 7 Application of Motivational Ctr., Inc., 1987 WL 14626, at *2 (Del. Ch. Nov. 3, 1987) ( The elements of [an action for slander of title] include the (1) malicious (2) publication of (3) false matter concerning the state of title of property which (4) causes special damages. ) (citing 50 Am.Jur.2d Libel and Slander 541.). 5

7 the underlying dispute is resolved. We agree with the bank. If the bank is guilty of slandering defendant s title, defendant is entitled to the difference between the value of the property as it exists today and its value had the bank not slandered the title. 8 Here, defendant claims entitlement to attorney s fees and punitive damages, apparently foregoing any claim to diminution of value (the traditional measure of damages in such cases) or even a claim for compensatory damages. These claimed damages are not unimportant, as they demonstrate the defect in defendant s pleading. Although the cases in Delaware regarding slander of title are rare, it is the case virtually everywhere that in order to recover damages for an injurious falsehood regarding title to land, the claimant must be able to show 8 See Restatement Torts 2d 633; See generally Sanders v. Brown, 257 Ga. App. 566, 568, 571 S.E.2d 532, 535 (2002) ( The owner can recover in [a slander of title] action only such special damages as he actually sustained as a consequence of the wrongful acts, which damages must be pled and proven with particularity. ); Copeland v. Carpenter, 45 S.E.2d 197 (1947). ( Costs of litigation and attorney fees arising from such action do not constitute the special damages necessary to support [a slander of title] action. ); MSD Energy, Inc. v. Gognat, 507 F. Supp. 2d 764, 775 (W.D. Ky. 2007) ( Plaintiff's did allege specifically the types of damages suffered due to the alleged slander [of title], namely (a) the diminution of the fair market value of their various leasehold and oil and gas rights and interests in western Kentucky, (b) the incurrence of attorney's fees and court costs, and (c) the loss of profits and lost business opportunities in the form of lease acquisitions and lease sales.... ); Selby v. Taylor, 290 S.E.2d 767, 769 (1982) ( [Plaintiff] argue[s] forcefully that the complaint states a cause of action and sufficiently alleges special damages. We agree. Plaintiff alleges that because of the reading of the paper writing published by defendants, Weyerhauser and others did not bid on the property and plaintiff, as a result of that suffered a $20,000 loss. ); Duncan Land & Exploration, Inc. v. Littlepage, 984 S.W.2d 318, 333 (Tex. App. 1998) ( Special damages are those damages that proximately, naturally, and reasonably result from the alleged slander. In order to recover special damages, the plaintiff must prove the loss of a specific, pending sale that was defeated by the slander. A plaintiff may recover the amount he would have realized from the sale less the amount for which he could have sold the lease at the time of the trial with the cloud removed. ) (internal citations omitted); See 4 A.L.R.4th 532 (collecting cases). 6

8 special damages in the form of pecuniary loss and not general damages. 9 In this case, the pecuniary loss suffered by the defendant would necessarily be the loss in value of her property because the bank foreclosed on her mortgage. But it has been the bank not the defendant that has been complaining that defendant has kept the property in such disrepair that the value of its collateral has dissipated to an extreme degree. Defendant has not alleged any damage at all except for attorney fees and a generalized claim for punitive damages. These are not special damages within the meaning of a slander of title action. The Court hastens to add that we make no ultimate decision here that there are no circumstances under which the bank could be held liable for slander of title. It is, however, our conclusion that such an action has no place in a foreclosure action ab initio, which is primarily in rem and intended to remain somewhat limited and focused in scope. In the event defendant were to succeed in her defense of the foreclosure action and, in the course of the litigation, become aware of facts that would justify a claim of intentional wrongdoing by the bank, she would conceivably have a cause of action against the bank. But for now, we think the appropriate course is to dismiss this action unless and until such time as plaintiff can make a claim of slander based upon a record developed after the foreclosure action has concluded. 9 See supra notes

9 Count IV alleges destruction of personal property. Defendant alleges that Plaintiff destroyed Defendant s personal property that was stored at the property, including, but not limited to furniture, antiques, personal property and did excessive damages to the property. Permissive counterclaims may not be brought as part of a Scire Facias action, but they may be brought as part of a combined in rem and in personam action. 10 This case is an in rem scire facias sur mortgage action brought by Deutsche Bank. A permissive counterclaim is a claim against an opposing party not arising out of the same transaction that is the subject matter of the opposing party s claim. 11 The transaction that is the subject matter of Deutsche Bank s action is the consummation of a mortgage, and the performance of rights and obligations under that mortgage. Even if Defendant s claim for destruction of property is true, it is a tort claim for damages unrelated to the formation or performance of the mortgage contract. Therefore, defendant s counterclaim for destruction of personal property is also dismissed. 10 Manley v. MAS Associates, LLC, 968 A.2d 492 (Del. 2009) (citing Gordy v. Preform Bldg. Components, Inc., 310 A.2d 893, 894 (Del.Super.1973)). 11 Delaware Superior Court Rule of Civil Procedure 13(b). 8

10 Based on the foregoing, Plaintiff s Motion to Dismiss Counterclaims II-IV is hereby GRANTED. IT IS SO ORDERED. /s/ Charles E. Butler Judge Charles E. Butler 9

Case jrs Doc 273 Filed 03/23/17 Entered 03/23/17 11:18:05 Desc Main Document Page 1 of 10

Case jrs Doc 273 Filed 03/23/17 Entered 03/23/17 11:18:05 Desc Main Document Page 1 of 10 Document Page 1 of 10 IT IS ORDERED as set forth below: Date: March 23, 2017 James R. Sacca U.S. Bankruptcy Court Judge UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF GEORGIA GAINESVILLE DIVISION