Supreme Court, Suffolk County Index No /08. Supreme Court of the State of New York Appellate Division Second Department LASALLE BANK, N.A.

2011-03219 To be argued by: Laura Etlinger Time requested: 10 minutes Supreme Court, Suffolk County Index No. 15822/08 Supreme Court of the State of New York Appellate Division Second Department LASALLE BANK, N.A., -AGAINST- PLAINTIFF-RESPONDENT, JAMES F. PACE AND LINDA PACE, AND DEFENDANTS-APPELLANTS, NATIONAL CITY BANK AND JOHN DOES AND JANE DOES, BARBARA D. UNDERWOOD Solicitor General ANDREW D. BING Deputy Solicitor General LAURA ETLINGER Assistant Solicitor General of Counsel DEFENDANTS, NEW YORK ATTORNEY GENERAL, INTERVENOR. BRIEF OF THE ATTORNEY GENERAL ERIC T. SCHNEIDERMAN Attorney General of the State of New York Intervenor The Capitol Albany, New York 12224-0341 (518) 474-2256 Dated: March 1, 2012 Reproduced on Recycled Paper

TABLE OF CONTENTS PAGE TABLE OF AUTHORITIES... iii PRELIMINARY STATEMENT... 1 STATEMENT OF THE CASE... 2 A. Documented Abuses in Mortgage Foreclosure Proceedings Led to State and Federal Investigations... 3 B. The Legislature Responded to the Mortgage Foreclosure Crisis With Comprehensive Legislation and a Delegation of Specific Rulemaking Authority to the Chief Administrative Judge... 10 C. The Chief Administrative Judge Issued an Administrative Order and a Rule to Protect the Integrity of New York Judicial Proceedings... 13 D. Supreme Court Invalidates Administrative Order 431-11 and Rule 202.12-a(f)... 17 ARGUMENT 1. Proceedings Below... 17 2. Decision of Supreme Court Granting LaSalle Bank Summary Judgment and Ordering Appointment of a Receiver... 18 THE CHIEF ADMINISTRATIVE JUDGE WAS AUTHORIZED TO ISSUE THE ADMINISTRATIVE ORDER AND THE RULE PURSUANT TO HER PLENARY CONSTITUTIONAL POWER OVER ADMINISTRATIVE MATTERS AND PURSUANT TO A VALID DELEGATION OF AUTHORITY BY THE LEGISLATURE... 22 A. The Chief Administrative Judge s Order Requiring the Attorney Affirmation Was a Valid Exercise of Her Plenary Administrative Powers... 23 i

ARGUMENT (cont d) Table of Contents (cont d) PAGE B. The Chief Administrative Judge s Order Was Also a Proper Exercise of Authority Delegated by the Legislature... 31 1. The Judiciary Law and 2009 foreclosure legislation authorize the order and the rule... 31 2. The order and the rule are consistent with limitations on the Chief Administrative Judge s authority... 34 CONCLUSION... 38 ADDENDUM AO 431-11 AO 548-10...A1...A7 Administrative Order 01-2010 of the New Jersey Acting Administrative Director of the Courts...A10 Revised Residential Mortgage Foreclosure Affidavit Policy of the Cuyahoga County Court of Common Pleas...A28 Order 2011-05-02-01 of the Chief Justice of South Carolina...A30 Maryland Rules of Procedure, Rule 14-207.1...A35 ii

CASES TABLE OF AUTHORITIES PAGE A.G. Ship Maintenance Corp., Matter of v. Lezak, 69 N.Y.2d 1 (1986)... 32,34 Corkum v. Bartlett, 46 N.Y.2d 424 (1979)... 25 Levenson v. Lippman, 4 N.Y.3d 280 (2005)... 25,27 McQuigan v. Delaware, Lackawanna & W.R.R. Co., 129 N.Y. 50 (1891)... 34 Met Council, Inc., Matter of v. Crosson, 84 N.Y.2d 328 (1994)... 24,25 People v. Correa, 15 N.Y.3d 213 (2010)... 24,25 People v. Ramos, 85 N.Y.2d 678 (1995)... 34,35,37 Scoralick, Matter of v. Milonas, 207 A.D.2d 159 (3d Dep t), lv. denied, 86 N.Y.2d 707 (1995)... 24,25 STATE CONSTITUTION N.Y. Const. Art. 6 28... 23,24 28(a)... 23n 28(b)... 1,23,26 30... 1-2,23,31 iii

STATE STATUTES Table of Authorities (cont d) PAGE CPLR 1012(b)(1)... 1,21 3212... 18 3401... 12,33 3408(a)... 12 3408(b)... 12 3408(d)... 11 3408(e)... 12 Executive Law 71... 1,21 Judiciary Law 210(2)... 23n 211... 32 211(1)(b)... 2,23,32 212... 32 212(2)(d)... 2,23,32 RPAPL 1302... 11 1303... 11 1304... 11 1321... 18 L. 2008, ch. 472... 10,26 1... 10 2... 10 3... 10 3-a... 10 L. 2009, ch. 507... 10,26 1... 10,11n 1-a... 10,11n 4... 10,11n 5-10... 10,11n 10-a(1)... 2,12,23,33 iv

Table of Authorities (cont d) STATE RULES AND REGULATIONS PAGE 22 N.Y.C.R.R. 80.1(a)... 24 80.1(b)(6)... 24,26 130-1.1(c)(3)... 28,36 130-1.1a(b)... 28 202.7... 28 202.12... 28 202.12-a... 13 202.12-a(b)... 14 202.12-a(c)... 14 202.12-a(f)... 1,13,15,18 205.17... 28 205.49... 28 205.52... 28 Part 1200, rule 4.1... 28,36 MISCELLANEOUS Administrative Order 431-11...passim 548-10...passim Administrative Order 01-2010 of the New Jersey Acting Administrative Director of the Courts (Dec. 10, 2010)... 17 Congressional Oversight Panel, Examining the Consequences of Mortgage Irregularities for Financial Stability and Loss Mitigation (Nov. 16, 2010), available at: http://cybercemetery.unt.edu/archive/cop/20110402010313/http://cop.senate.g ov/documents/cop-111610-report.pdf... 3 David Streitfeld, Backlog of Cases Gives a Reprieve on Foreclosures, N.Y. Times (June 19, 2011), available at: http://www.nytimes.com/2011/06/19/business/19foreclosure.html... 16 v

Table of Authorities (cont d) MISCELLANEOUS PAGE Federal Reserve System, Office of the Comptroller of the Currency & Office of Thrift Supervision, Interagency Review of Foreclosure Policies and Practices (April 20111), available at: http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47a.pdf.. 9 Gretchen Morgensen, New York Subpoenas 2 Foreclosure-Related Firms, N.Y. Times (Apr. 8, 2011), available at: http://www.nytimes.com/2011/04/09/business/09foreclose.html... 4-5 Hon. Ann Pfau, Chief Administrative Judge, New York Courts First in Country to Institute Filing Requirement to Preserve Integrity of Foreclosure Process (Oct. 20, 2010), available at: http://www.nycourts.gov/press/pr2010_12.html... 15 Hon. Ann Pfau, 2010 Report of the Chief Administrator of the Courts Pursuant to Chapter 507 of the Laws of 2009 (State of New York Unified Court System 2010), available at: http://www.nycourts.gov/publications/pdfs/foreclosurereportnov2010.pdf 3n,10 Hon. Ann Pfau, 2011 Report of the Chief Administrator of the Courts Pursuant to Chapter 507 of the Laws of 2009 (State of New York Unified Court System 2011), available at: http://www.nycourts.gov/publications/pdfs/foreclosurereportnov2011.pdf.. 16 Maryland Rules of Procedure, Rule 14-207.1 (2011)... 17 Memorandum in Support of Governor s Program Bill #46R, reprinted in Bill Jacket to Chapter 507 of the Laws of 2009... 11n Office of the New York Attorney General, Attorney General Cuomo Expands Probe of New York Foreclosure Actions, Press Release (Oct. 12, 2010), available at: http://www.ag.ny.gov/media_center/2010/oct/oct12b_10.html... 4 vi

MISCELLANEOUS Table of Authorities (cont d) PAGE Office of the New York Attorney General, AG Schneiderman and Federal Officials Detail Joint Investigation Into Mortgage Crisis, Press Release (Jan. 27, 2012), available at: http://www.ag.ny.gov/media_center/2012/jan/jan27a_12.html... 7-8 Office of the New York Attorney General, AG Schneiderman Announces Major Lawsuit Against Nation s Largest Banks for Deceptive and Fraudulent Use of Electronic Mortgage Registry, Press Release (Feb. 3, 2012), available at: http://www.ag.ny.gov/media_center/2012/feb/feb03a_12.html... 6 Office of the New York Attorney General, A.G. Schneiderman Secures $136 Million for Struggling New York Homeowners in Mortgage Servicing Agreement, Press Release (Feb. 9, 2012) available at: http://www.ag.ny.gov/media_center/2012/feb/feb09a_12.html... 7 Office of the White House Press Secretary, Remarks by the President on the Housing Settlement (Feb. 9, 2012), available at: http://www.whitehouse.gov/the-press-office/2012/02/09/remarks-presidenthousing-settlement... 7 Order 2011-05-02-01 of the Chief Justice of South Carolina (May 2, 2011)... 17 Philip A. Lehman, Assistant Attorney General, North Carolina Dept. of Justice, Executive Summary of Multistate/Federal Settlement of Foreclosure Misconduct Claims, available at: http://www.nationalmortgagesettlement.com/... 7 Revised Residential Mortgage Foreclosure Affidavit Policy of the Cuyahoga County Court of Common Pleas (Dec. 22, 2010) www.nationalmortgagesettlement.com... 17 Robbie Whelan, GMAC Spotlight On Robo-Signer, Wall St. J. (Sept. 22, 2010), available at: http://online.wsj.com/articles/sb1000142405274870339940457550630383123 5126.html... 3-4 vii

MISCELLANEOUS Table of Authorities (cont d) PAGE Senate Memorandum in Support of S8143A, reprinted in Bill Jacket to Chapter 472 of the Laws of 2008... 10 United States Government Accountability Office (GAO), Mortgage Foreclosures: Documentation Problems Reveal Need for Ongoing Regulatory Oversight, GAO 11-433 (May 2011), available at: http://www.gao.gov/new.items/d11433.pdf... 8,9 viii

PRELIMINARY STATEMENT The Attorney General submits this brief in intervention pursuant to Executive Law 71 and Civil Practice Law and Rules ( CPLR ) 1012(b)(1) in this mortgage foreclosure appeal to defend the constitutionality of Administrative Order 431-11 (originally issued as Administrative Order 548-10) and Rule 202.12-a(f), 22 N.Y.C.R.R. 202.12-a(f). The administrative order and the rule require attorney certification of the accuracy of the plaintiffs filings in mortgage foreclosure actions. The Chief Administrative Judge of the State of New York adopted the administrative order and rule to curb documented widespread abuses in mortgage foreclosure proceedings that threatened the integrity of the judicial process. Supreme Court, Suffolk County (Whelan, J.), mistakenly concluded that the Chief Administrative Judge lacked the authority to issue the order and the rule. In fact, the Chief Administrative Judge was authorized to adopt the order and rule under (1) her constitutional authority to regulate the administration of the courts, see N.Y. Const. Art. 6, 28(b), (2) the Legislature s valid delegation of its authority to regulate practice and procedure in the courts, see N.Y. Const. Art. 6,

30; Judiciary Law 211(1)(b), 212(2)(d), and (3) a specific legislative delegation of rule-making authority in 2009 legislation providing for a foreclosure settlement process, see New York Laws of 2009, ch. 507, 10-a(1). Each of these sources of authority alone would be sufficient to sustain the validity of the administrative order and rule. Together they overwhelmingly support the Chief Administrative Judge s authority to adopt the administrative order and the rule. Accordingly, the administrative order and rule are authorized and thus constitutional. STATEMENT OF THE CASE This section of the brief first documents the abuses that led the Legislature and the Chief Administrative Judge to take action to ensure that mortgage foreclosure actions are fairly and properly conducted. The brief next describes the Legislature s 2008 and 2009 enactments and the Chief Administrative Judge s order and rule. Finally, the Supreme Court proceedings in this case and the decision below are summarized. This background information demonstrates that the administrative order and the rule respond to the crisis in mortgage foreclosure proceedings and are constitutional because they are within the Chief Administrative Judge s constitutional and statutory authority. 2

A. Documented Abuses in Mortgage Foreclosure Proceedings Led to State and Federal Investigations. The abuses committed in recent years by mortgage servicers in mortgage foreclosure proceedings are well documented. Multiple employees of the major servicers have admitted in sworn testimony that they perpetrated systematic fraud on the courts in foreclosure proceedings by "robo-signing" affidavits -- i.e., attesting to personal knowledge about mortgages and properties despite having no such knowledge. These abuses occurred in hundreds of thousands of proceedings nationwide. 1 See, e.g., Congressional Oversight Panel, Examining the Consequences of Mortgage Irregularities for Financial Stability and Loss Mitigation (Nov. 16, 2010), at 7, available at http://cybercemetery.unt.edu/archive/cop/20110402010313/http://cop.sen ate.gov/documents/cop-111610-report.pdf; Robbie Whelan, GMAC Spotlight On 'Robo-Signer', Wall St. J. (Sept. 22, 2010), available at 1 The dramatic increase in the number of foreclosure proceedings being commenced compounded the problem. In 2005, 22,601 foreclosure actions were filed in New York, and by 2010 the number of annual filings had increased to 42,356. Hon. Ann Pfau, 2010 Report of the Chief Administrator of the Courts Pursuant to Chapter 507 of the Laws of 2009, at Appendix 3 and 4 (State of New York Unified Court System 2010),available at http://www.nycourts.gov/publications/pdfs/ foreclosure reportnov2010.pdf. During 2009, there were approximately 54,500 mortgage foreclosure proceedings pending in New York courts and during 2010, the number of pending actions increased to over 77,800. Id. at 4. 3

http://online.wsj.com/article/sb1000142405274870339940457550630383 1235126.html. The wide-spread practice of robo-signing has prompted a number of investigations by governmental authorities, including several by the New York Attorney General to determine the scope of the fraud committed against the courts of this State. In October 2010, the Attorney General sought documentation from four major servicers and demanded that they suspend foreclosure actions until they could ensure the legality and integrity of their procedures. See Office of the New York Attorney General, Attorney General Cuomo Expands Probe of New York Foreclosure Actions, Press Release (Oct. 12, 2010), available at htpp://www.ag.ny.gov/media_center/2010/oct/oct12b_10.html. In April 2011, Attorney General Schneiderman issued subpoenas to Steven J. Baum P.C., one of the major mortgage foreclosure legal firms in New York State, and a related service provider, Pillar Processing, LLP, requesting information about its foreclosure-related practices, including the documentation that its employees filed with the courts. See Gretchen Morgenson, New York Subpoenas 2 Foreclosure-Related Firms, N.Y. Times (Apr. 8, 2011), at B1, available at http://www.nytimes. 4

com/2011/04/09/business/09foreclose.html. The Attorney General recently entered an assurance of discontinuance of its investigation with the principals of these firms that includes prospective relief and a significant payment to the State. Based on its investigation, the Attorney General found that the law firm engaged in improper verification of pleadings in foreclosure cases, failed to conduct due diligence to ensure that plaintiffs had standing to bring foreclosure proceedings, and failed to timely file the attorney affirmation required by AO 431-11, which had the effect of delaying formal settlement conferences. Matter of Investigation of Attorney General of N.Y. of Steven J. Baum, P.C., Assurance of Discontinuance (Feb. 16, 2012). The Attorney General also challenged a settlement between Bank of New York Mellon and Bank of America based, in part, on the allegation that Bank of New York Mellon -- the trustee for various pools of residential mortgage-backed securities -- had failed to respond appropriately to robo-signing and other foreclosure abuses. See Verified Pleading in Intervention 27, Doc. # 104, Matter of Bank of New York Mellon, Index No. 651786/2011 (Sup. Ct., N.Y. County Aug. 5, 2011). Most recently, the Attorney General initiated litigation against a number of 5

the nation s largest banks and MERSCORP, Inc. alleging that the creation and use of a private national mortgage electronic registry known as "MERS" has resulted in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal bankruptcy courts. The lawsuit specifically asserts that the defendants repeatedly submitted to courts documents containing false and misleading information that made it appear that the foreclosing party had standing to foreclose when in fact it may not have. See Office of the New York Attorney General, AG Schneiderman Announces Major Lawsuit Against Nation s Largest Banks for Deceptive and Fraudulent Use of Electronic Mortgage Registry, Press Release (Feb. 3, 2012), available at http://www.ag.ny.gov/media_center/2012/feb/feb03a_12.html; Complaint, People v. JPMorgan Chase Bank, Index No. 2768/2012 (Sup. Ct., Kings County Feb. 3, 2012). New York s efforts have been part of a nation-wide focus on mortgage foreclosure abuses. Federal officials and the Attorneys General from 49 states, including New York, recently reached a landmark joint federal-state settlement with the nation s largest banks regarding abusive mortgage servicing and foreclosure practices, 6

including robo-signing. The investigation that resulted in this settlement began in October 2010 with a primary focus on the use of robo-signed affidavits in foreclosure proceedings. See Philip A. Lehman, Assistant Attorney General, North Carolina Dept. of Justice, Executive Summary of Multistate/Federal Settlement of Foreclosure Misconduct Claims, available at www.nationalmortgagesettlement.com; Office of the New York Attorney General, A.G. Schneiderman Secures $136 Million for Struggling New York Homeowners in Mortgage Servicing Agreement, Press Release (Feb. 9, 2012), available at http://www.ag.ny.gov/media_center/2012/feb/feb09a_12.html; Office of the White House Press Secretary, Remarks by the President on the Housing Settlement (Feb. 9, 2012), available at http://www.whitehouse. gov/the-press-office/2012/02/09/remarks-president-housing-settlement. And President Obama recently established a federal-state Residential Mortgage-Backed Securities Working Group, co-chaired by Attorney General Schneiderman, which is charged with investigating those individuals and entities that were responsible for the misconduct that contributed to the financial crisis through the pooling and sale of residential mortgage-backed securities. See Office of the New York 7

Attorney General, A.G. Schneiderman and Federal Officials Detail Joint Investigation Into Mortgage Crisis, Press Release (Jan. 27, 2012), available at http:// www.ag.ny.gov/ media_center/2012/jan/ jan27a_12. html. Robo-signing and related abuses had also prompted a coordinated review by federal regulators including the Office of the Comptroller of the Currency, the Federal Reserve, the Office of Thrift Supervision and the FDIC into the policies, procedures, and internal controls of fourteen major mortgage servicers. United States Government Accountability Office (GAO), Mortgage Foreclosures: Documentation Problems Reveal Need for Ongoing Regulatory Oversight, GAO 11-433 (May 2011), at 30, available at http://www.gao.gov/new.items/d114433. pdf. This review revealed not only problems in the preparation of foreclosure documents, but also inadequate policies, staffing and oversight of internal foreclosure processes. Id. at 26, 30-31. In their report, the federal regulators concluded that most servers had affidavit signing protocols that expedited the processes for signing foreclosure affidavits without ensuring that the individuals who signed the affidavits personally conducted the review or possessed the level of 8

knowledge of the information that they attested to in those affidavits.... Examiners also found the majority of servicers had improper notary practices that failed to conform to state legal requirements. Federal Reserve System, Office of the Comptroller of the Currency & Office of Thrift Supervision, Interagency Review of Foreclosure Policies and Practices (April 2011), at 8, available at http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47a.pdf. Insufficient staff and the lack of guidance to staff and external law firms regarding affidavit requirements contributed to the preparation and filing of inaccurate affidavits. Id. Regulators also found that the amounts of indebtedness were often inaccurate, most times adversely to the borrower. Id. Finally, the federal regulators found inadequacies in the servicers management and oversight of outside law firms involved in mortgage foreclosure document preparation. Id. at 9. The regulators took formal action against all fourteen major servicers. GAO, Mortgage Foreclosures: Documentation Problems Reveal Need for Ongoing Regulatory Oversight, GAO 11-433 (May 2011), at 30-31. 9

B. The Legislature Responded to the Mortgage Foreclosure Crisis With Comprehensive Legislation and a Delegation of Specific Rulemaking Authority to the Chief Administrative Judge. The New York State Legislature responded to the residential mortgage crisis with comprehensive legislation. See New York Laws of 2009, ch. 507; New York Laws of 2008, ch. 472. This legislation enhanced consumer protection laws and imposed new regulatory requirements and enforcement measures on mortgage brokers and servicers. The legislation also specifically addressed the procedures applicable to mortgage foreclosure proceedings. See New York Laws of 2009, ch. 507, 1, 1-a, 4, 5-10; New York Laws of 2008, ch. 472, 1, 2, 3, 3-a; Senate Memorandum in Support of S8143A, reprinted in Bill Jacket to Chapter 472 of the Laws of 2008, at 7-9. The provisions governing the mortgage foreclosure judicial process were intended to address the high number of defaults by unrepresented defendants in these proceedings. See Hon. Ann Pfau, 2010 Report of the Chief Administrator of the Courts Pursuant to Chapter 507 of the Laws of 2009 (State of New York Unified Court System 2010). 10

The new legislation provides several layers of protection for homeowners involved in foreclosure proceedings. 2 Complaints in proceedings relating to high-cost and subprime home loans must contain specific allegations relating to the plaintiff s ability to institute the action and its compliance with specific Banking Law requirements applicable to such loans. See Real Property Actions and Proceedings Law ( RPAPL ) 1302. At least 90 days before commencing foreclosure proceedings, mortgage lenders, assignees and loan servicers must provide homeowners with specific notices describing the availability of housing counseling, foreclosure prevention services, and other information about their legal rights. See RPAPL 1303, 1304. When the plaintiff files its request for judicial intervention (RJI), the court must notify the appropriate local housing counseling agencies designated by the Division of Housing and Community Renewal so that those agencies can provide advice and counsel to the defendant homeowner. See CPLR 3408(d). Additionally, the legislation established a mandatory settlement conference procedure. Within 60 2 While the 2008 legislation focused primarily on the subprime and nontraditional loan market, the 2009 legislation extended these protections to foreclosure proceedings involving traditional residential mortgages. See New York Laws of 2009, ch. 507, 1, 1-a, 4, 5-10; Memorandum in Support of Governor s Program Bill #46R, reprinted in Bill Jacket to Chapter 507 of the Laws of 2009. 11

days of the filing of proof of service, the court must hold a mandatory settlement conference, to which the plaintiff must bring specified key documents, including: the mortgage and note, or the name, address, and phone number of the legal holder of the mortgage if it is not the plaintiff; payment history; and an itemization of the amounts needed to cure and pay off the loan. See CPLR 3408(a),(e). Defendants who appear at the initial settlement conferences pro se are deemed to have moved for poor person s relief, including assignment of counsel. Id. 3408(b). The purpose of the settlement conference is to evaluate alternatives to foreclosure, including modified payment schedules, payment plans, or other workout options. See CPLR 3408(a). The 2009 legislation authorized the Chief Administrator of the Courts to adopt such additional rules as may be necessary to ensure the just and expeditious processing of all settlement conferences hereunder. New York Laws of 2009, ch. 507, 10-a(1); see also CPLR 3401 (directing the Chief Administrative Judge to adopt rules regulating the hearing of causes ); CPLR 3408(e) (providing that the notice of the settlement conference shall be in a form prescribed by the office of court administration ). To fulfill the mandate of the legislation, 12

and consistent with this delegation, the Chief Administrative Judge adopted Rule 202.12-a of the Uniform Civil Rules for Supreme Court and County Court. See 22 N.Y.C.R.R. 202.12-a. As described below, in December 2010, the Chief Administrative Judge amended Rule 202.12-a by adding new subsection (f), which requires counsel to comply with affirmation requirements concerning the accuracy of residential foreclosure filings. This brief addresses the Chief Administrative Judge s authority to enact that amendment, and a related administrative order. C. The Chief Administrative Judge Issued an Administrative Order and a Rule to Protect the Integrity of New York Judicial Proceedings. In response to the documented abuses in mortgage foreclosure proceedings, the Chief Administrative Judge issued an administrative order on October 20, 2010, to address the effect of these abuses on the courts. See Administrative Order (AO) 548-10 (see A1-A9). 3 The order 3 The Administrative Order (AO 548-10) was reissued on March 2011, as Administrative Order 431-11 (effective Nov. 18, 2010). In response to feedback from the plaintiffs bar, the form affirmation was revised and a companion form affidavit for use by a representative of the plaintiff was made available. The language of the rule is otherwise the same. See AO 431-11. Copies of the Administrative Orders and accompanying forms are included in an addendum to the Attorney General s brief (see A1-A9). 13

was issued at the direction of the Chief Judge and in consultation with the Administrative Board of the Courts. The administrative order directs plaintiff s counsel in residential foreclosure actions to affirm that they have communicated with plaintiff s employees who have reviewed the accuracy of the relevant records and confirmed the accuracy of the court filings, including the summons and complaint. The order also requires counsel to affirm that the documents filed with the court contain no false statements. See AO 431-11. Consistent with the legislation and court rule governing mandatory settlement conferences, the affirmation must be filed with the court when the RJI is filed. 4 See AO 431-11; 22 N.Y.C.R.R. 202.12-a(b),(c). The administrative order was issued to protect the integrity of the foreclosure process and prevent wrongful foreclosures and to help ensur[e] that the documents judges rely on will be thoroughly examined, accurate, and error-free before any judge is asked to take the 4 In cases where the proceeding was commenced before the November 18, 2010 effective date of the administrative order, but no judgment of foreclosure has been entered as of the effective date, the affirmation is to be filed with the proposed order of reference or with the proposed judgment of foreclosure. In cases where a judgment of foreclosure has been entered but the property has not yet been sold as of the administrative order s effective date, the affirmation is to be filed five days before the scheduled auction, with a copy to be served on the referee. AO 431-11. 14

drastic step of foreclosure. Hon. Ann Pfau, Chief Administrative Judge, New York Courts First in Country to Institute Filing Requirement to Preserve Integrity of Foreclosure Process (Oct. 20, 2010), available at http://www.nycourts.gov/press/pr2010_12.shtml. The filing of the affirmation furthers the Legislature s policy objective by ensuring that the mandatory settlement conference is grounded in accurate and proper documentation that has been made available to the defendant and the court. The new affirmation requirement was subsequently incorporated in the courts rules. In December 2010, the Chief Administrative Judge, with the advice and consent of the Administrative Board of the Courts, amended Rule 202.12-a of the Uniform Civil Rules for Supreme Court and County Court by adding new subsection (f). This provision authorizes the Chief Administrator of the Courts to continue to require counsel to file affidavits or affirmations confirming the scope of inquiry and the accuracy of papers filed in residential mortgage foreclosure actions. 22 N.Y.C.R.R. 202.12-a(f). The administrative order and rule had an immediate and dramatic effect on residential foreclosure actions when plaintiffs 15

counsel discovered that they could not verify the accuracy of foreclosure information with plaintiff s employees, as the administrative order and rule now require. See David Streitfeld, Backlog of Cases Gives a Reprieve on Foreclosures, N.Y. Times (June 19, 2011), available at http:// www.nytimes.com/ 2011/ 06/ 19/ business/ 19foreclosure.html. According to the Office of Court Administration, an average of over 3,500 RJIs were filed per month in foreclosure proceedings in 2010 before the administrative order was issued, while the average number of such filings during the 12-month period after the order was issued was 775 per month. See Hon. Ann Pfau, 2011 Report of the Chief Administrator of the Courts Pursuant to Chapter 507 of the Laws of 2009, at 2 (State of New York Unified Court System 2011), available at http://www.nycourts.gov/publications/pdfs/foreclosuresreportnov2011. pdf. New York was not the only state to respond to the residential mortgage foreclosure crisis with new administrative orders and court rules designed to protect the integrity of the judicial process and the accuracy of filed documents. For example, the New Jersey court system has issued an administrative order that is substantively identical to 16

New York s. Administrative Order 01-2010 of the New Jersey Acting Administrative Director of the Courts (Dec. 10, 2010) (A10-A27). 5 Local courts in a number of states have also issued similar directives, see, e.g., Revised Residential Mortgage Foreclosure Affidavit Policy of the Cuyahoga County Court of Common Pleas (Dec. 22, 2010) (A28-A29), and other state judicial systems approached the same problem from different perspectives, see, e.g., Order 2011-05-02-01 of the Chief Justice of South Carolina (May 2, 2011) (A30-A34) (requiring notice of loan modification/loss mitigation procedures in residential foreclosure proceedings); Maryland Rules of Procedure, Rule 14-207.1 (2011) (A40- A41) (authorizing courts in foreclosure proceedings to screen petition and review accuracy of affidavits). D. Supreme Court Invalidates Administrative Order 431-11 and Rule 202.12-a(f). 1. Proceedings Below Plaintiff LaSalle Bank commenced this mortgage foreclosure proceeding in April 2008 against defendants James F. Pace and Linda Pace seeking to recover more than $1,330,000 secured by a mortgage on 5 Copies of the administrative orders and court rules from other jurisdictions are included in an Addendum to this brief. 17

residential property located in Hampton Bays, New York (R. 35-43). After the defendants filed an answer with counter-claims, in May 2010 LaSalle Bank moved for summary judgment pursuant to CPLR 3212 and RPAPL 1321, and for appointment of a receiver to compute the amount due if summary judgment was awarded (R. 21-22, 25-30). The defendants argued that summary judgment was improper for a number of procedural and substantive reasons, including that plaintiff s counsel had not filed the attorney affirmation required by Administrative Order 548-10 and Rule 202.12-a(f) (R. 207). The sur-reply papers submitted on behalf of the plaintiff bank included an attorney affirmation of the type required by AO 548-10 (R. 159-60). 2. Decision of Supreme Court Granting LaSalle Bank Summary Judgment and Ordering Appointment of a Receiver. In a memorandum decision dated February 22, 2011, and an accompanying order, Supreme Court, Suffolk County (Whelan, J.) granted the motion of plaintiff LaSalle Bank ( LaSalle ) for summary judgment and referred the matter to a referee to compute the amount owed (R. 9-16, 17-20). For two reasons, the court rejected the Pace defendants argument that the motion should be denied based on 18

LaSalle s failure to provide the attorney affirmation with its motion for summary judgment and proposed order of reference. First, the court held that the administrative order did not require LaSalle to file the attorney affirmation with the proposed order of reference. In this case, which was pending when the administrative order was issued, the court reasoned that the order does not require the filing of the affirmation on motions for accelerated judgments that are submitted in conjunction with orders of reference, as the affirmation may be supplied on the motion for the judgment of foreclosure of sale (R. 11). Second, the court determined that the administrative order was not a permissible exercise of the rulemaking authority vested in the Chief Administrative Judge (R. 11). On this point, the court held that the administrative order and rule were not administrative in nature, and therefore not authorized by the Chief Administrative Judge s constitutional authority to adopt rules relating to the efficient and orderly transaction of business in the trial courts (R. 13). In reaching this conclusion, the court viewed the affirmation requirement as imposing additional, substantive requirements on plaintiffs seeking foreclosure. 19

Accordingly, Supreme Court determined that the affirmation requirement regulated the practice and procedure of the courts and, because the court found the Legislature had not delegated authority to the Chief Administrative Judge to adopt this requirement, it was not authorized under the Chief Administrative Judge s delegated authority (R. 13-14). The court also concluded that the rule and order are unauthorized based on the court s conclusion that the attorney affirmation requirement affects the legal relationship between the parties to a foreclosure proceeding. Here, the court relied not only on its view that the administrative order required the plaintiff to submit additional proof of its entitlement to foreclosure, but also on evidence that there had been a dramatic decrease in the successful prosecution of foreclosure proceedings since the order was adopted (R. 14). For these same reasons, the court found the affirmation requirement improperly diminished the court s constitutional jurisdiction to adjudicate foreclosure disputes (R. 15). Accordingly, the court held that the administrative order and rule exceed the rulemaking authority of the Chief Administrative Judge (R. 15). 20

Following the Paces appeal of the order granting plaintiff summary judgment and referring the matter to a referee, the Attorney General was notified of the constitutional challenge presented by this appeal. The Attorney General intervenes in this proceeding pursuant to Executive Law 71 and CPLR 1012(b)(1) to defend the constitutionality of the administrative order and rule. In its brief, LaSalle asserts that Supreme Court s conclusion regarding the constitutionality of the order was not necessary to the court s holding that LaSalle was entitled to summary judgment. LaSalle argues that the court held that the order did not require LaSalle to submit an attorney affirmation until later in the proceeding, and thus the court s further conclusion that the order was not authorized was dicta. LaSalle Br. at 6-7. In this brief, we express no view whether Supreme Court s conclusion that the order and the rule were not authorized should be characterized as holding or dicta. We submit this brief to explain that, however characterized, Supreme 21

Court s constitutional conclusion was wrong, and should not be adopted by this Court. 6 ARGUMENT THE CHIEF ADMINISTRATIVE JUDGE WAS AUTHORIZED TO ISSUE THE ADMINISTRATIVE ORDER AND THE RULE PURSUANT TO HER PLENARY CONSTITUTIONAL POWER OVER ADMINISTRATIVE MATTERS AND PURSUANT TO A VALID DELEGATION OF AUTHORITY BY THE LEGISLATURE The Chief Administrative Judge, who is appointed by the Chief Judge of the State with the advice and consent of the Administrative 6 Although this brief does not express a concluded judgment whether Supreme Court erred in finding that the administrative order did not require the filing of the affirmation in this case until a later stage of the proceeding, we observe that this finding is contrary to the overall purpose and intent of the provisions of the administrative order that address when the affirmation is to be filed, see footnote 4 supra. When read as a whole, these provisions evince an intention that the affirmation should be filed at an early point in the litigation. Thus, in cases brought after the order became effective, the affirmation is to be filed with the RJI so that the accuracy of the documents may be affirmed before judicial oversight commences. In cases such as this case, which were pending on the effective date of the administrative order and in which no judgment of foreclosure had yet been entered, the affirmation shall be filed "at the time of filing either the proposed order of reference or the proposed judgment of foreclosure." Where there is contemplated both a proposed order of reference and a subsequent proposed judgment of foreclosure, the purpose of the administrative order is better served by having the affirmation filed with the proposed order of reference before the court determines whether the final steps toward foreclosure should be taken. Under this view, a plaintiff bank seeking summary judgment and an order of reference should file the attorney affirmation when it submits its proposed order of reference with its motion for summary judgment. 22

Board of the Courts, 7 has two sources of authority relevant here: plenary constitutional authority to supervise the administration and operation of the unified court system, N.Y. Const. Art. 6, 28(b), and authority delegated by the Legislature pursuant to its constitutional powers with respect to regulation of the jurisdiction and proceedings of the courts, N.Y. Const. Art. 6, 30; Judiciary Law 211(1)(b), 212(2)(d); New York Laws of 2009, ch. 507, 10-a(1). Each of these sources of authority independently supports the Chief Administrative Judge s power to issue the administrative order and rule at issue on this appeal. A. The Chief Administrative Judge s Order Requiring the Attorney Affirmation Was a Valid Exercise of Her Plenary Administrative Powers. The New York Constitution directly authorizes the Chief Administrative Judge, on behalf of the Chief Judge, to supervise the administration and operation of the unified court system. N.Y. Const. Art. 6, 28. In exercising her constitutional administrative functions, the Chief Administrative Judge has the powers and duties delegated to 7 The Administrative Board of the Courts is comprised of the Chief Judge of the Court of Appeals, who serves as its chair, and the presiding justices of the four appellate divisions. N.Y. Const. Art. 6 28(a); Judiciary Law 210(2). Before the 1978 amendment of the New York Constitution, the Administrative Board of the Courts served in the role of chief administrator of the court system. 23

her by the Chief Judge and any additional powers and duties provided by law. Id. The Chief Judge has delegated to the Chief Administrative Judge full authority to supervise the administration and operation of the unified court system, including authority to adopt administrative rules for the efficient and orderly transaction of business in the trial courts. 22 N.Y.C.R.R. 80.1(a) and (b)(6). With respect to administrative functions, the Chief Administrator s powers are complete. Matter of Met Council, Inc. v. Crosson, 84 N.Y.2d 328, 335 (1994); Matter of Scoralick v. Milonas, 207 A.D.2d 159, 160 (3d Dep t), lv. denied, 86 N.Y.2d 707 (1995). When administrative authority is exercised in conformity with the consultation and approval requirements, [Unified Court System] administrators possess broad express and implied powers to take whatever actions are necessary for the proper discharge of their responsibilities. People v. Correa, 15 N.Y.3d 213, 223 (2010). [T]he Legislature could not by statute divest the Chief Administrator of [her] [constitutional] authority... to supervise the administration and operation of the Unified Court System on behalf of the Chief Judge. 24

Levenson v. Lippman, 4 N.Y.3d 280, 291 (2005); see Matter of Met Council, Inc. v. Crosson, 84 N.Y.2d at 335. As the Court of Appeals has explained, in this context the term administrative is elastic; whether an act is administrative depends on the context in which it is exercised. Corkum v. Bartlett, 46 N.Y.2d 424, 429 (1979). Courts have considered the following matters administrative powers vested by the Constitution in the Chief Judge and Chief Administrative Judge: the establishment of personnel classification plans for court employees, id., the appointment of judicial and non-judicial court personnel, Matter of Met Council, Inc. v. Crosson, 84 N.Y.2d at 335; Matter of Scoralick v. Milonas, 207 A.D.2d at 160; the transfer of cases among courts, People v. Correa, 15 N.Y.3d at 224, and the establishment of a process for administrative review of assigned counsel fee awards, Levenson v. Lippman, 4 N.Y.3d at 290-91. Here, the Chief Administrative Judge was performing an administrative act in issuing the administrative order requiring an affirmation from plaintiff s attorney establishing that he performed due diligence in determining that a representative of the plaintiff had reviewed the accuracy of the information in the complaint, 25

accompanying papers, and any affidavits, and in promulgating a rule authorizing the affirmation requirement. The administrative order and rule govern the administration and operation of the unified court system, N.Y. Const. Art. 6 28(b), and establish a policy for the efficient and orderly transaction of business in the trial courts, 22 N.Y.C.R.R. 80.1(b)(6). In particular, the administrative order and the rule further the purpose of the legislatively required settlement conference in residential mortgage foreclosure actions by establishing an administrative process whereby plaintiff confirms the accuracy of the foreclosure documents, including the plaintiff s chain of title to the mortgage, at an early stage before the settlement conference begins. The Legislature responded to the residential mortgage foreclosure crisis by creating a new process to govern foreclosure proceedings, including the right to a prompt settlement conference and notice of the availability to foreclosure defendants of counseling assistance, see New York Laws of 2008, ch. 472; New York Laws of 2009, ch. 507. The administrative order and rule are designed to administer the process that the Legislature established. The affirmation requirement helps to 26

ensure that the courts are overseeing settlement conferences in cases that in fact warrant judicial intervention, that the documents forming the basis of the settlement conference are accurate and truthful, and that the settlement conferences serve the functions that the Legislature intended. Additionally, requiring plaintiffs to confirm the accuracy of the underlying foreclosure facts and documents during the initial stages of the litigation promotes judicial efficiency. Settlement conferences are commenced in only those cases where plaintiff has confirmed its factual and legal basis to seek foreclosure. This also conserves judicial time and resources that might otherwise be expended in reviewing and deciding motions to dismiss if factual inaccuracies in the foreclosure documents are later discovered. Thus, the administrative order and rule further the legislative purpose and promote the efficiency of the courts in addressing the identified problem. Cf. Levenson v. Lippman, 4 N.Y.3d at 291 (concluding that rule establishing administrative review of assigned counsel fee awards filled gap left by legislation establishing assigned counsel fees). 27

Moreover, the affirmation requirement is similar to many other rules promulgated by the Chief Administrative Judge requiring the filing of an affirmation and governing administration of proceedings in the trial courts. See, e.g., 22 N.Y.C.R.R. 202.7 (requiring that an attorney s affirmation accompany a motion relating to disclosure or a bill of particular); id. 202.12 (requiring that an affirmation or affidavit accompany the note of issue and certificate of readiness in certain cases); id. 205.17 (requiring the filing of a sworn permanency report in family court permanency hearings); id. 205.49 (requiring the filing of an attorney s affirmation where a proceeding to terminate parental rights of a foster child is brought before a different judge than the one who presided over the last related proceeding); id. 205.52 (same, adoption); see generally id. 130-1.1-a(b) (attorney s or party s signature on a paper certifies that, based on reasonable inquiry, contentions therein are not frivolous); id. 130-1.1(c)(3) (defining frivolous conduct to include the assertion of false material facts); 22 N.Y.C.R.R. Part 1200, rule 4.1 (prohibiting attorneys from knowingly make a false statement of fact or law to a third person in the course of representing a client). The due diligence requirements in the administrative order and rule at 28

issue here are not different in kind or extent from similar requirements that have been part of the administration of the court system for years. Further, contrary to the conclusion of the court below, requiring the attorney s affirmation in residential foreclosure proceedings governs the administration of proceedings because it does not impose any additional procedural or substantive requirements on the parties, alter the procedural rules governing these proceedings, or change the burden of proof. The administrative order and rule do not require the plaintiff mortgage holder to submit additional information to prove its case. Rather, the attorney must affirm simply that the plaintiff has reviewed the documents that it relies on to establish its right to foreclosure and confirmed their accuracy. This does not change the quantum or burden of proof, or otherwise alter the procedure of a foreclosure action. In the absence of the affirmation requirement, the plaintiff would have had no right to submit false or inaccurate information. Finally, the purpose of the affirmation fits squarely within the Chief Administrative Judge s obligation to protect the integrity of the judicial process and to prevent continuation of the fraud that was being perpetrated upon the court. The acknowledged wide-spread practice of 29

robo-signing affidavits by mortgage servicers in residential foreclosure proceedings demonstrated that existing requirements regarding attestations as to truth and accuracy of information in pleadings and affidavits were insufficient to protect the integrity of the courts. Plaintiffs in residential mortgage foreclosure actions were routinely flouting the requirement that the individual signing pleadings and affidavits attest to the truth and accuracy of the information contained therein -- in many cases the signer was unfamiliar with the underlying facts and documents or had not even reviewed the affidavit he was signing. Thus, the attorney affirmation requirement was imposed as an additional check on existing requirements regarding the accuracy and truthfulness of documents submitted to the court. The administration of justice demands that foreclosure proceedings are based on truthful and accurate pleadings, and that the public perceive this is so. The administrative order and rule constitute a minimal precaution intended to guard against the well-documented proliferation of neglect and fraud. Accordingly, the administrative order and the rule were authorized by 30

the Chief Administrative Judge s plenary constitutional authority to supervise the administration of the court system. B. The Chief Administrative Judge s Order Was Also a Proper Exercise of Authority Delegated by the Legislature. The Constitution authorizes the Legislature to regulate court practice and procedure and permits the Legislature to delegate its regulatory authority to a trial court, the appellate division, or the Chief Administrative Judge. N.Y. Const. art. 6, 30. Thus, while the Chief Judge and Chief Administrative Judge exercise plenary, complete authority over the administration of the courts, see Point A above, the Chief Administrative Judge may also exercise authority to regulate practice and procedure that the Legislature has delegated by statute. In this case, the administrative order and the rule are supported both by the broad delegation of authority contained in the Judiciary Law and by the specific grant of authority contained in the 2009 foreclosure legislation. 1. The Judiciary Law and 2009 foreclosure legislation authorize the order and the rule. In the Judiciary Law, the Legislature delegated broad authority to the Chief Judge regarding court practice and procedure. Pursuant to 31

Judiciary Law 211(1)(b), the Chief Judge may adopt rules and orders regulating practice and procedure in the courts, subject to the reserved power of the [L]egislature provided for in section thirty of article six of the constitution. See also Judiciary Law 212(2)(d) (authorizing the Chief Administrative Judge to adopt rules and orders regulating practice in the courts as authorized by statute ). The administrative order and the rule regulate court practice and procedure within the meaning of sections 211 and 212 of the Judiciary Law. They require simply that the plaintiff s counsel affirm the accuracy of the pleadings and documents, and file the affirmation at the time that the RJI is filed. The Court of Appeals has recognized similar requirements as procedural for this purpose. See Matter of A.G. Ship Maintenance Corp. v. Lezak, 69 N.Y.2d 1, 6 (1986) (recognizing that, in the exercise of their delegated authority to regulate practice and procedure, courts may proscribe frivolous conduct and impose sanctions). In addition to the broad general grant of authority contained in the Judiciary Law, the Legislature has specifically authorized the Chief Administrative Judge to adopt rules to implement the mortgage foreclosure settlement conference process. In establishing the 32