Merit Decision: Standing and Subject Matter Jurisdiction. A Field Day for Civil Procedure Geeks. Bank of Am., N.A. v. Kuchta

On October 8, 2014, the Supreme Court of Ohio handed down a merit decision in Bank of Am., N.A. v. Kuchta, 2014-Ohio-4275. In a 5-2 opinion written by Chief Justice O’Connor, for herself and Justices Lanzinger, O’Donnell, French, and Kennedy, the court answered the following certified conflict question in the negative:

“When a defendant fails to appeal from a trial court’s judgment in a foreclosure action, can a lack of standing be raised as part of a motion for a relief from judgment?”

The court held that a Civ. R. 60(B) motion cannot be used as a substitute for an appeal on the issue of standing in a foreclosure action, and cannot be used to collaterally attack the judgment. Res judicata applies to bar a party from asserting lack of standing in a motion for relief from judgment. Additionally, the court held that a court that has subject-matter jurisdiction over an action does not lose that jurisdiction because a party to the action does not have standing.

Justice O’Neill wrote a dissent, joined by Justice Pfeifer. The case was argued January 8, 2014.

Case Background

In December of 2002, George and Bridget Kuchta signed a note and mortgage with Wells Fargo Home Mortgage, Inc.

The Complaint in Foreclosure

On June 1, 2010, Bank of America, N.A. (the Bank) filed a complaint in foreclosure against the Kuchtas, attaching a copy of the original note and mortgage to the complaint, and claiming to be the holder of the note and the assignee of the mortgage. But at the time the Bank filed this foreclosure action, it was neither.

The Kuchtas filed an answer pro se, challenging the standing of the Bank to bring suit, arguing there was no proof of assignment of the mortgage to the Bank. Later in June of 2010, after suit was filed, the Bank cleaned up the paperwork, receiving the proper assignment of the note and mortgage and recording the assignment. In August of 2010, the Bank moved for summary judgment with the proper paperwork attached. The Kuchtas did not respond to this motion. In June of 2011, the trial court granted summary judgment to the Bank, and entered a decree of foreclosure to the Bank. But the Kuchtas did not appeal this judgment. A sheriff’s sale of the property was scheduled for September 29, 2011.

Relief From Judgment Proceedings

About a week before the scheduled sheriff’s sale, the Kuchtas filed a Civ. R. 60(B)(3) motion to set aside the foreclosure judgment, arguing among other things that the Bank lacked standing to bring the action because it wasn’t the owner of the note or mortgage when suit was filed, and that the Bank had committed fraud by falsely claiming it was the owner. The trial court overruled the motion for relief from judgment.

The Ninth District Court of Appeals reversed on the authority of Fed. Home Loan Mortg. Corp. v. Schwartzwald, 2012-Ohio-5017, and certified a conflict to the high court, which accepted this certified question:

“When a defendant fails to appeal from a trial court’s judgment in a foreclosure action, can a lack of standing be raised as part of a motion for a relief from judgment?”

Certified Conflict Case

PNC Bank, Nat’l Ass’n v. Botts, 2012-Ohio-5383 (10th dist.) (plaintiff’s lack of standing cannot be challenged in a post judgment motion; lack of standing does not destroy subject matter jurisdiction of a court; fraud in establishing standing not type of fraud cognizable under Civ. R. 60(B)(3))

Useful Precedent

GTE Automatic Elec., Inc. v. ARC Industries, Inc., 47 Ohio St.2d 146, 351 N.E.2d 113 (1976) (to succeed on a motion for relief from judgment under Civ.R. 60(B), a movant must establish (1) a meritorious defense or claim to present, in the event that relief from judgment is granted, (2) entitlement to relief under one of the provisions in Civ.R. 60(B)(1) through (5), and (3) compliance with the rule’s time requirements).

Civ.R 60(B)(3) (on motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order or proceeding for the following reasons. . . (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation or other misconduct of the adverse party).

Fed. Home Loan Mortg. Corp. v. Schwartzwald, 2012-Ohio-5017 (a plaintiff’s standing is to be determined as of the filing of the complaint and standing is necessary to invoke the jurisdiction of the common pleas court)

Harris v. Anderson, 109 Ohio St.3d 101, 2006-Ohio-1934, 846 N.E.2d 43 (a Civ.R. 60(B) motion cannot be used as a substitute for an appeal and that the doctrine of res judicata applies to such a motion).

Pratts v. Hurley, 2004-Ohio-1980 (subject-matter jurisdiction can be challenged at any time and a court’s lack of subject-matter jurisdiction renders that court’s judgment void ab initio. The term “jurisdiction” is also used when referring to a court’s exercise of its jurisdiction over a particular case. This category of jurisdiction encompasses the trial court’s authority to determine a specific case within that class of cases that is within its subject matter jurisdiction. It is only when the trial court lacks subject matter jurisdiction that its judgment is void; lack of jurisdiction over the particular case merely renders the judgment voidable.)

State ex rel.Jones v. Suster, 84 Ohio St.3d 70, 77 (1998)(Lack of standing challenges the capacity of a party to bring an action, not the subject matter jurisdiction of the court.)

Morrison v. Steiner, 32 Ohio St.2d 86, 87, 290 N.E.2d 841 (1972) (subject matter jurisdiction is the power of a court to entertain and adjudicate a particular class of cases).

Robinson v. Williams, 62 Ohio St. 401, 408, 57 N.E. 55 (1900) (actions in foreclosure are within the subject matter jurisdiction of a court of common pleas).

Ohio Pyro, Inc. v. Ohio Dept. of Commerce, 115 Ohio St.3d 375, 2007-Ohio-5024 (a determination of standing necessarily looks to the rights of the individual parties to bring the action, as they must assert a personal stake in the outcome of the action in order to establish standing).

Read the oral argument preview of this case here and the analysis of that argument here.

Merit Decision

Challenges to Standing

Under the Rules of Civil Procedure

The Kuchtas argued that the Bank’s lack of standing at the time suit was filed entitled them to relief due to fraud, and gave them a meritorious defense. They relied on Civ.R.60(B)(3), which allows for relief from judgment for fraud, misrepresentation, or other misconduct of an adverse party.

The majority rejected the Kutcha’s reliance on Civ.R. 60(B) for two reasons.

First, the court agreed with the position of the court of appeals in Botts, the conflict case, that the type of fraud referenced in Civ. R.60(B)(3) refers to fraud or misconduct by a party to procure a judgment, like attaching a false affidavit to a motion for summary judgment, or persuading a party not to defend the case by offering a false promise to dismiss the case– and not to conduct (like lack of standing) that would have been a defense in the underlying action.

Second, the court held that the challenge to standing should have been raised during the foreclosure proceedings, and an adverse ruling on that issue should have been appealed. Since it wasn’t, res judicata prevents the use of Civ.R.60(B) as a substitute to collaterally attack the judgment. This argument was repeatedly made by the Bank’s lawyer at oral argument.

“In this case the Kuchtas filed a Civ.R.60(B) motion in order to relitigate an issue that they had raised at the start of litigation and which they failed to appeal. Thus, the doctrine of res judicata bars their attempted collateral attack against the judgment in foreclosure,” wrote O’Connor.

Applicability of the Schwartzwald Case Here

In Schwartzwald, the court held that a plaintiff’s standing is to be determined at the time the complaint is filed, and standing is necessary to invoke the jurisdiction of the court. It was on this basis that the Ninth District Court of Appeals reversed and remanded this case. That was wrong, said the high court. “Because Schwartzwald involved a direct appeal, it is of limited applicability to the attempted collateral attack in the present case,” O’Connor wrote.

Clarification of Subject Matter Jurisdiction

The Kuchtas argued that the Bank’s lack of standing meant the court lacked subject matter jurisdiction over the case, and thus the judgment was void ab initio. This certainly seemed like a logical argument to make after Schwartzwald, but the court rejected it.

So, the court felt a need in this case to clarify jurisdiction over the subject matter.

First, the definition-subject matter jurisdiction is the “power of a court to entertain and adjudicate a particular class of cases,” a power that exists without regard to any particular parties to a particular case. It is beyond dispute that Ohio’s common pleas courts, which are created by the Ohio constitution, have subject matter jurisdiction over foreclosure actions. So the Medina County Court of Common Pleas had subject matter jurisdiction over foreclosure actions. A party’s lack of standing—in this case, the Bank—means that party has no power to invoke the court’s subject matter jurisdiction over that particular case, but it does not mean the court lacks subject matter jurisdiction over these kinds of cases. Lack of standing does not render a judgment void for lack of subject matter jurisdiction.

Majority Conclusions

The majority conclusions are the case syllabus:

  1. An allegation that a plaintiff fraudulently claimed to have standing may not be asserted as a ground for vacating the judgment under Civ.R. 60(B)(3).
  2. Lack of standing is an issue that is cognizable on appeal, and therefore it cannot be used to collaterally attack a judgment in foreclosure.
  3. Although standing is required in order to invoke the jurisdiction of the court of common pleas over a particular action, lack of standing does not affect the subject-matter jurisdiction of the court.

Justice O’Neill’s Dissent-Schwartzwald Controls

O’Neill sees this case as both simple and as controlled by Schwartzwald-the Bank lacked standing to invoke the jurisdiction of the common pleas court. He would find that a lack of a justiciable controversy does affect the subject-matter jurisdiction of the court, most fundamentally.

O’Neill points out that the court in Schwartzwald stated more than once that standing is jurisdictional, that a party must have standing to invoke the jurisdiction of the common pleas court, that standing must be determined as of the time of filing the action, and cannot be cured post-filing.  He cannot accept, then, the logic or the implication of the majority’s view that in this case the Bank’s lack of standing at the time of filing “does not affect the subject-matter jurisdiction of the court in which the party is attempting to obtain relief. ”

“What does this rule mean in practical terms? Does it mean that if the defendant in any given case fails to challenge standing on appeal, then the standing issue is forfeited in favor of the party who did not have standing to invoke the jurisdiction of the common pleas court in the first place, ” O’Neill wrote. “The Ninth District got this case right when it concluded that the Kuchtas’ Civ.R. 60(B)(3) motion contained sufficient operative facts to warrant a hearing and remanded the case to the trial court for application of Schwartzwald. Instead of affirming the Ninth District, this court goes to great lengths to preserve a void judgment. And in so doing, it undermines this court’s own rule in Schwartzwald and creates uncertainty in foreclosure cases that will operate in favor of careless banks while eroding the rule of law in Ohio. ”

Justice Pfeifer joined this dissent.

Case Syllabus

1. An allegation that a plaintiff fraudulently claimed to have standing may not be asserted as a ground for vacating the judgment under Civ.R. 60(B)(3)

2. Lack of standing is an issue that is cognizable on appeal, and therefore it cannot be used  to collaterally attack a judgment in foreclosure.

3. Although standing is required in order to invoke the jurisdiction of the court of common pleas over a particular action, lack of standing does not affect the subject-matter jurisdiction of the court.

Concluding Observations

I did call this one for the Bank, but I’ve really had to think this one over, and I’m not sure I have done so satisfactorily. The part of the decision based on Civ. R. 60(B) was clear and easy to understand. Civ. R.60(B) is not a substitute for appeal.  Never has been.  Had the Kuchtas raised lack of standing in a direct appeal, they would have won, on the authority of Schwartzwald. And because they didn’t, the rules of res judicata apply to bar the collateral attack on the judgment. But the subject matter jurisdiction issue is trickier.

I was correct when I predicted that the court needed to clarify what it meant about standing and jurisdiction in Schwartzwald, which did cause confusion about the interplay between standing and subject matter jurisdiction. Schwartzwald clearly stated several times that “standing to sue is required to invoke the jurisdiction of the common pleas court.”

At oral argument, Justice O’Donnell (author of Schwartzwald) was clearly very concerned that Schwartzwald was being misinterpreted. He was a very aggressive questioner in Kuchta, commenting that what the court had said about lack of standing  “has morphed into a lack of subject matter jurisdiction of a court to hear a foreclosure case—that isn’t anything at all what we said—it is being transcended into something that it doesn’t say—maybe we referenced jurisdiction, but the fact is it is the right of the litigant to present a claim.  If you don’t have an injury you don’t have a right.” He specifically asked if the court needed to clarify its holding in Schwartzwald. And the lawyer for Bank of America clearly argued that it did.

Here is part of what the Bank’s lawyer said:

Since Schwartzwald was decided there has been confusion about standing and subject matter jurisdiction. They are not the same thing.  If a common pleas court tried to hear a patent case, there is no subject matter jurisdiction.  But what is lacking in this case is not subject matter jurisdiction. Common Pleas courts have subject matter jurisdiction over foreclosure cases.  Where a court does have jurisdiction over that type of dispute, the question becomes whether that jurisdiction was erroneously invoked. What was lacking in this case was a justiciable controversy.  The Court needs to clarify that when it repeatedly said in Schwartzwald  that standing was necessary “to invoke the jurisdiction of the court,” it did not mean the common pleas court lacked subject matter jurisdiction.

But in Kuchta, I’m (Prof. Bettman) not sure the court did satisfactorily clarify the relationship between standing and subject matter jurisdiction.  Certainly, it clarified the fact that common pleas courts have subject matter jurisdiction over foreclosure cases. I think the syllabus would have been clearer if it had incorporated the reasoning from Botts, the certified conflict case. Botts held that lack of standing isn’t subject to challenge for lack of subject matter jurisdiction, but rather for failure of the plaintiff to state a claim on which relief can be granted. But I don’t know if Botts was right about that, or if the dissenters have it right here. I’d be delighted to take comments on this from those more in the know about all this.

One last thing–the lawyer for Bank of America made some interesting arguments and concessions about standing issues in cases involving default judgments. Since this wasn’t such a case (although counsel for the homeowners suggested it was equivalent to those), the court did not take up that line of argument.

 

 

 

 

 

 

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5 Responses to Merit Decision: Standing and Subject Matter Jurisdiction. A Field Day for Civil Procedure Geeks. Bank of Am., N.A. v. Kuchta

  1. Troy Doucet says:

    As to the second part of the Kuchta decision:

    Despite the language used by the court, it appears to me that it overlooked the constitutional threshold issue of whether the common pleas court had a justicable matter before it. It instead focused on the secondary issue of whether the trial court had statutory authority to hear this particular kind of case (foreclosure).

    The court should have started with whether there was a justicable matter between the parties. That is, whether there was an actual case or controversy because of the lack of a conflict between the plaintiff and defendant at the time of filing. This was what Schwartzwald seemed to demand. However, instead of reinforcing Schwartzwald, the court jumps down the line to whether the trial court could hear that kind of matter pursuant to statute. It suggests statutory authority for a trial court to hear a particular type of case trumps the constitutional mandate that a justiciable matter exists between the litigants. This is very troubling.

    You reference Botts, which is further muddled by the Finney case, also out of the 10th (our firm’s case). Finney expands the analysis regarding jurisdiction to essentially create a new “third kind” of jurisdiction in Ohio. Finney was accepted by the supreme court and held for a decision in Kuchta. It will be interesting to see what the court does with Finney now. As you note, the court was not clear on how cases should be analyzed moving forward for standing versus for justiciable matters raised under what we have traditionally known as subject matter jurisdiction.

    While I can appreciate the court’s holding about 60(b)(3), the jurisdiction portion is problematic. The court needs to be very careful about reinforcing any concept of three kinds of jurisdiction in Ohio, or the law of unintended consequences will certainly come into play. Read far enough, Kuchta could mean the end of any kind of meaningful argument about subject matter jurisdiction in any case (so long as the case is the kind that can be heard by the court).

    • MBettman says:

      Thanks Troy. The Supreme Court does seem to be mixing up lack of subject matter jurisdiction and lack of a justiciable controversy between the parties. In the classic sense, when the Bank filed suit without being owner or assignee of the paper, it had no suffered an injury, and thus failed to state a claim on which relief could be granted. And that notion of a “third kind” of jurisdiction is lurking in the undertow. We’ll keep our eye on the Finney case.
      Professor Bettman

  2. Troy Doucet says:

    Thanks! I appreciated the opportunity to comment on your blog.

    Troy

  3. Ron says:

    I’m no legal expert (though I did sleep at a Holiday Inn last night), but it seems to me that this decision represents a blatant attempt for the Court to ‘close the barn door’ that they correctly opened in Schwartzwald that properly recognized the well-established position that a ‘void judgment can be attacked at any time’.

    I hate to be so cynical, but it smells to the high-heavens of the bankster lobby getting in the ear of the right people and making the case that the sky will fall since more and more people are realizing that virtually all of the judgments in foreclosure cases are void if one peels even a few layers off of the onion.

    However, once the Courts start down the road of essentially creating public policy–especially one so blatantly directed to covering-up the crimes of big banks–we’re well on our way to a banana republic, if we’re not there already.

    It will be interesting to see what challenges arise from this ill-considered opinion in terms of violations of the Equal Protection Clause of the Constitution since justiciability is a bedrock legal principle of our entire judicial system, unless of course you’re in Ohio’s Courts of Common Pleas.

  4. DONNY MYERS says:

    It appears to me that the little guy is getting shafted. If you look at a note and it is not endorsed to or attachments to an asset backed security claimed by the trustee showing the chain of endorsements before summary judgment, then you have a judicial error fault of the court, and the judgment is void at any time, you just don’t let a bank say well we can over look it because we are a bank . I have a case in Oklahoma where there are no assignments, no chain of endorsements, note does not belong to Wells Fargo and none of this was ever changed until I took them to Bankruptcy court and they robo signed robo stamped a note to a totally different asset backed security with an assignment of mortgage 3 yrs post judgment and the proof is clear s writing on the wall, there only defense, Rooker Feldman doctrine, if you are an attorney and you would like a fraud case in Oklahoma call me 405-824-2981

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