Oral Argument Preview: Some Post Schwartzwald Foreclosure Standing Stuff. Bank of America v. Kuchta.

Update: On October 8, 2014, the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

Read the analysis of the oral argument in this case here.

On January 8, 2014, the Supreme Court of Ohio will hear oral argument in the case of Bank of American, N.A. v. George M. Kuchta, et al., 2013-0304. At issue in this case is whether defendants can bring a lack of standing challenge in a post-judgment motion without having appealed the judgment. This case comes to the Supreme Court of Ohio by way of certified question.

Case Background

On December 19, 2002, the defendants-appellees, George and Bridget Kuchta, took out a mortgage on their home for the principal amount of $650,000. The original mortgage loan was made through Wells Fargo bank and the Kuchtas executed a promissory note made payable to Wells Fargo.

On June 1, 2010, Bank of America, the plaintiff-appellant, filed a complaint of foreclosure against the Kuchtas claiming it was the holder of the promissory note and assignee of the mortgage. In response, the Kuchtas filed an answer on July 2, 2010, stating that there was no proof in the complaint that the mortgage had been assigned to Bank of America.  It was undisputed that Bank of America was not assigned the mortgage until nine days after the complaint was filed.

On August 10, 2010, Bank of America filed a motion for summary judgment seeking the balance due on the note and to foreclose the mortgage. On June 27, 2011, the trial court granted the motion and entered judgment in favor of Bank of America; the Kuchtas did not appeal the judgment. After filing a motion to stay a sheriff’s sale, the Kuchtas filed a Civ. R. 60(B) motion to vacate the judgment of foreclosure. The Kuchtas argued that the Bank was neither the owner nor assignee of the note and mortgage at the time the complaint was filed, and therefore the final judgment should be vacated.

On September 29, 2011 (pre-Schwartzwald) the trial court denied the 60(B) motion to vacate after finding that the Kuchtas did not present a meritorious defense of fraud. The case was subsequently delayed due to bankruptcy but was re-activated on March 26, 2013. The Ninth District Court of Appeals reversed the trial court’s denial of the motion to vacate, finding that the 60(B) motion contained operative facts warranting relief from judgment pursuant to the Supreme Court of Ohio’s recent decision in Schwartzwald. With its decision, the Ninth District certified the question at issue: “When a defendant fails to appeal from a trial court’s judgment, can a lack of standing be raised as a part of a motion for relief from judgment?”

Key Precedent

Fed. Home Loan Mortg. Corp. v. Schwartzwald, 134 Ohio St.3d 13 (2012) (a plaintiff’s standing is to be determined as of the filing of the complaint and is a jurisdictional requirement necessary to invoke the subject matter jurisdiction of the court). (Read the blog’s analysis of this decision here.)

Conflict Case

PNC Bank, Nat’l Ass’n v. Botts, 2012-Ohio-5383 (10th dist.) (plaintiff’s lack of standing cannot be raised in a post-default-judgment motion to dismiss or a motion to set aside the judgment).

Bank of America’s Argument

Bank of America argues that although the Kuchtas raised standing in their answer, they did not raise the issue in opposition to the Bank’s summary judgment motion, nor did they appeal the trial court’s adverse ruling.  Thus, they cannot now re-raise a lack of standing in their 60(B) motion to vacate the judgment of foreclosure.

First, the Bank distinguishes the present case from Schwartzwald by pointing out the procedural dissimilarities. Specifically, the defendants in Schwartzwald never filed a motion to vacate but instead filed a timely appeal.

Second, the Bank argues that the doctrine of res judicata precludes the Kuchtas from using a motion to vacate to re-litigate an issue that was already in controversy. Pursuant to R.C. 2323.07, a common pleas court has subject matter jurisdiction over foreclosure actions, so a court’s implicit finding of jurisdiction is subject to res judicata. If the trial court was wrong in entering final judgment because the Bank had no standing, the Kuchtas should have appealed that judgment.

Allowing the Kuchtas to re-raise standing would allow defendants to hide the defense in their “back pocket,” and would give defendants a second attack if they first lose on other defense theories.

Lastly, the Bank argues that allowing the Kuchtas to re-raise standing would allow a party who participated in litigation to extend the time for filing an appeal by using a post-judgment motion. A post judgment motion cannot be used as a substitute for an appeal.

Kuchtas’ Argument

First, the Kuchtas argue that res judicata does not bar them from filing a post-judgment challenge to a lack of jurisdiction because they cannot consent to subject matter jurisdiction and subject matter jurisdiction can never be waived. Furthermore, any judgment that is rendered without subject matter jurisdiction is void ab initio, and has no legal effect whatsoever. Res judicata cannot attach to such a judgment.

Second, the Kuchtas argues that the court is a gatekeeper and must vacate a judgment when it becomes aware of a lack of subject matter jurisdiction, regardless of when or how the court becomes aware. Therefore, it is irrelevant that the Kuchtas re-raised a lack of standing defense as part of a post-judgment motion.

Lastly, the Kuchtas argue that the public policy concerns raised by the Bank cannot be afforded greater weight than the Ohio Constitution and the limits of subject matter jurisdiction. Furthermore, the Kuchtas argue that no one has a vested right or interest in a judgment that is void so there can be no public policy consideration that affords finality to an interest that does not exist.

Bank of America’s Proposed Propositions of Law in Response to the Certified Question

1. Res judicata bars a defendant who participated in litigation from using a post-judgment motion to contest standing.

2.   When a party who participated in litigation could have raised an issue as part of a direct appeal but did not do so, that party cannot extend the time for filing an appeal by using that issue as a basis for a motion for relief from judgment.

Amicus Briefs in support of the Kuchtas

The Advocates for Basic Legal Equality, Community Legal Aid Services, Legal Aid of Western Ohio, Legal Aid of Society of Cleveland, Legal Aid Society of Columbus, Legal Aid Society of Southwest Ohio, ProSeniors, and Southeastern Ohio Legal Services filed a single brief in support of the Kuchtas.

In the brief, the amici first argue that the Ohio Supreme Court’s case law states that (1) the lack of standing is a jurisdictional defect that cannot be waived and can be raised at any time; (2) if a court lacks jurisdiction, then the judgment is void, and a void judgment is a nullity; and (3) the power to vacate void judgments comes from a court’s inherent powers, not procedural rules. Second, the amici argue that public policy favors a homeowner’s ability to raise the lack of jurisdiction at any time.

In addition, two Ohio homeowners in foreclosure proceedings, Joseph and Loria LaPierre, filed an amicus in support of the Kuchtas. In their brief, the LaPierres similarly argue that the doctrine of res judicata is only applicable when there is subject matter jurisdiction and that the ability to raise subject matter jurisdiction cannot be waived.

Student Contributor: Cameron Downer

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3 Responses to Oral Argument Preview: Some Post Schwartzwald Foreclosure Standing Stuff. Bank of America v. Kuchta.

  1. Shawn Newman says:

    What about the case scenario where a servicer fraudulently claims to “own” a loan that was sold by the originator to a GSE (Freddie or Fannie)? Consider the standard “Note” (agreement) defines “Note Holder” as “The lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note…” So, while the servicer may have physical possession and “hold” a digital version of the note, the GSE is the party “entitled to receive payments under this Note.” The mortgage debt (promissory note), having been carved from possession of the Note, is a personal property interest under Art. 9. Since most provisions of UCC Art. 3 may be varied by agreement, the servicer’s status as a PETE would be trumped by the terms of the agreement. Further, if the GSE did not perfect its security interest in the promissory note (i.e. a payment intangible) then the debt is unsecured and, arguably, wiped out in bankruptcy.

  2. Roderick Lagumbay says:

    I have a similar case in Florida, in the 20th Judicial Circuit in and for Charlotte county. My previous lawyers dropped me and I was not notified . The Plaintiff ‘s lawyers who have not prosecuted the case for almost two and a half years took advantage of the case having turned into uncontested case, and was able to get a judgment. I do not think they even tried to notify me or if they did, they took their time because after about two years
    after a supposed judgment, I received a motion to show cause why I should not be held in contempt for not replying to their motion for discovery in aid of execution. Up to the present, I do not have knowledge of what that judgment is all about. Plaintiff’s lawyers I believe, kept me in the dark. I just engaged a Florida to defend me and raise the issues of lack of standing post judgment. Does anybody knows if the defense in the Kuchtas and Schwartzwald case applicable can be used in Florida. Please somebody help me.

  3. JohnR says:

    Out of state decisions can be used to “influence” another states judiciary… but they are not binding. I’m pulling the below out of an Ohio pleading but there are references to decisions from other states and the Fed. in it… Good Luck!
    “a judgment rendered by a court lacking subject matter jurisdiction is void ab initio. Consequently, the authority to vacate a void judgment is not derived from Civ. R. 60(B), but rather constitutes an inherent power possessed by Ohio courts. See Staff Notes to Civ. R. 60(B); Lincoln Tavern, Inc. v. Snader (1956), 165 Ohio St. 61, 59 O.O. 74, 133 N.E.2d 606, paragraph one of the syllabus; Westmoreland v. Valley Homes Corp. (1975), 42 Ohio St.2d 291, 294, 71 O.O. 2d 262, 264, 328 N.E.2d 406, 409.” PATTON v. DIEMERNo. 86-1867. 35 Ohio St. 3d 68 (1988)

    2 Void judgments are those rendered by a court which lacked jurisdiction, either of the subject matter or the parties, Wahl v. Round Valley Bank 38 Ariz. 411, 300 P. 955 (1931); Tube City Mining & Milling Co. v. Otterson, 16 Ariz. 305, 146 P. 203 (1914); and Milliken v. Meyer, 311 U.S. 457, 61 S.Ct. 339, 85 L.Ed. 2d 278 (1940).

    3 A void judgment which includes judgment entered by a court which lacks jurisdiction over the parties or the subject matter, or lacks inherent power to enter the particular judgment, or an order procured by fraud, can be attacked at any time, in any court, either directly or collaterally, provided that the party is properly before the court, Long v. Shorebank Development Corp., 182 F.3d 548 ( C.A. 7 Ill. 1999).

    4 Void judgment under federal law is one in which rendering court lacked subject matter jurisdiction over dispute or jurisdiction over parties, or acted in manner inconsistent with due process of law or otherwise acted unconstitutionally in entering judgment, U.S.C.A. Const. Amed. 5, Hays v. Louisiana Dock Co., 452 n.e.2D 1383 (Ill. App. 5 Dist. 1983).

    5 A “void judgment” as we all know, grounds no rights, forms no defense to actions taken there under, and is vulnerable to any manner of collateral attack (thus here, by ). No statute of limitations or repose runs on its holdings, the matters thought to be settled thereby are not res judicata, and years later, when the memories may have grown dim and rights long been regarded as vested, any disgruntled litigant may reopen the old wound and once more probe its depths. And it is then as though trial and adjudication had never been. 10/13/58 FRITTS v. KRUGH. SUPREME COURT OF MICHIGAN, 92 N.W.2d 604, 354 Mich. 97. On certiorari this Court may not review questions of fact. Brown v. Blanchard, 39 Mich 790. It is not at liberty to determine disputed facts (Hyde v. Nelson, 11 Mich 353), nor to review the weight of the evidence. Linn v. Roberts, 15 Mich 443; Lynch v. People, 16 Mich 472. Certiorari is an appropriate remedy to get rid of a void judgment, one which there is no evidence to sustain. Lake Shore & Michigan Southern Railway Co. v. Hunt, 39 Mich 469. Emphasis mine

    Void judgment is one entered by court without jurisdiction to enter such judgment, State v. Blankenship 675 N.E. 2d 1303, (Ohio App. 9 Dist. 1996).

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