What’s on Their Minds: Pleading Requirements in Foreclosure Cases. To Attach or to Allege, that is the Question. Wells Fargo Bank, N.A. v. Brian T. Horn, et al.

Update: On April 22, 2015, the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

On January 14, 2015, the Supreme Court of Ohio heard oral argument in the case of Wells Fargo Bank, N.A. v. Brian T. Horn, et. al., 2013-1534. The issue in this case is whether Fed. Home Loan Mtge. Corp. v. Schwartzwald requires a plaintiff to attach evidence of standing to the complaint, or whether it is enough for the plaintiff to prove the standing alleged in the complaint through sufficient evidence provided at a later stage of the proceedings.

Case Background

In November 1993, appellee Brian Horn and his wife executed a promissory note in the principle amount of $49,323 in favor of Norwest Mortgage, Inc. (Norwest). To secure repayment of the note, the Horns also executed a mortgage in favor of Norwest.

Norwest endorsed the note in blank. In 2000, Norwest changed its name to Wells Fargo Home Mortgage, Inc. (WFHMI); WFHMI eventually merged into appellant Wells Fargo in October 2004.

On April 19, 2010, Wells Fargo filed to begin foreclosure proceedings. Attached to the complaint was a copy of the note indorsed in blank, and a copy of the mortgage. The complaint described Wells Fargo as the holder of the note and the corporate “successor by merger to [WFHMI], fka [Norwest].” No documents were attached to the complaint showing the mergers and name changes.

In July 2010, Wells Fargo filed a motion for summary judgment.  In his answer, one of Horn’s allegations was that Wells Fargo “may not be the real party in interest and lack standing to bring said claim against Defendant.” Wells Fargo filed an amended motion for summary judgment in April 2011 that contained the affidavit of Adam Seeman. Seeman testified he had personally reviewed the books and records of Wells Fargo and determined Wells Fargo to be the current holder of the note and the mortgage. The affidavit also described the series of mergers and name changes. The magistrate held that Wells Fargo was entitled to summary judgment. The trial court adopted the magistrate’s finding and issued a decree of foreclosure.

Horn appealed pro se, but did not raise the issue of standing. The Ninth District Court of Appeals reversed, deciding sua sponte that Wells Fargo had failed to demonstrate standing under Schwartzwald because it had not attached “documents evidencing a merger or name change” to the complaint. The appeals court ordered the case be dismissed without prejudice.

Read the oral argument preview of the case here.

Key Precedent

Civ.R. 10(D) requires attachment to the pleading of a copy of the written account or any other written instrument when a claim or defense is founded on those documents.

Fed. Home Loan Mtge. Corp. v. Schwartzwald, 2012-Ohio-5017. (Standing is required to invoke the jurisdiction of the common pleas court, and it is determined as of the filing of the complaint.)

Fletcher v. University Hospitals of Cleveland, 2008-Ohio-5379. (Civ.R. 10(D)(1)’s language does not require attached evidence to establish the adequacy of a complaint; failure to attach required evidence is properly addressed in a motion for a more definite statement under Civ.R. 12(E))

Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (At the pleading stage, general factual allegations of injury resulting from the defendant’s conduct may suffice. To survive a motion for summary judgment for lack of standing, a party must set forth by affidavit or other evidence specific facts to support its claim.)

At Oral Argument

Wells Fargo’s Argument

There are two issues in this foreclosure case. Does Schwartzwald require a plaintiff to attach evidence of its standing to the complaint, and if so must that evidence include an interest in both the note and the mortgage. The court should answer no to both questions.

Schwartzwald did not address pleading requirements at all. Schwartzwald held that standing had to exist as of the time of the filing of the complaint, but did not hold that all the documents proving that standing had to be attached to the complaint. The civil rules require that any claim based on a written instrument must be attached to the complaint. In this case, the note and mortgage were attached, satisfying that pleading requirement. The plaintiff also had summary judgment evidence to show that it had standing as of the time of the filing of the complaint, which is what Schwartzwald requires. Proof of the corporate succession was supplied as part of the motion for summary judgment.

At the pleading stage, standing can be alleged in the complaint, with a short plain statement. That allegation must then be proven at a later stage of the proceedings.  That is consistent with the holding from the U.S. Supreme Court in Lujan. Here the plaintiff alleged it was the holder of the note. A holder is statutorily defined as someone who is in possession of bearer paper. The attached note was endorsed in blank. The complaint in this case alleged enough on the issue of standing.

The Ninth District Court of Appeals has, sua sponte, imposed pleading documentation requirements found nowhere in Schwartzwald or in the civil rules, and must be reversed.

Additionally, should the court reach the issue, it is Wells Fargo’s position that an interest in either the note or the mortgage should suffice to confer standing, although it had both.

Horn’s Argument

This case was unusual in that Horn appeared pro se throughout the proceedings, but was represented at the Supreme Court level for the first time.  Horn’s lawyer, very seasoned in foreclosure law, had not been permitted to file anything in addition to Horn’s pro se brief, and was thus circumscribed in what he could argue.

Horn agreed that Schwartzwald does not require documents to be attached to a complaint to prove all the allegations with respect to standing, and agreed the court should adopt the standard from Lujan—a party must prove standing in a manner that is appropriate for that stage of the proceedings.  The note was attached, as required by Civ. R.10(D), but because the note was not directly payable to Wells Fargo, there had to be factual allegations in the complaint that Wells Fargo was the holder or otherwise entitled to enforce the note. Instead, the complaint contained conclusions of law rather than factual allegations. The fact of being the successor in interest to the note and mortgage was not stated in the complaint, but was only suggested in the case caption. A complaint should contain facts sufficient to establish all elements of the claim including standing.

Wells Fargo never proved it had standing in this proceeding. All the affidavits presented were conclusory; none gave the trial court the link to establish holder status. The trial court should not have granted summary judgment to Wells Fargo, because ultimately there was no proof of the right to enforce the note.

What Was On Their Minds

Schwartzwald, Mostly

Does Schwartzwald hold that evidence of standing must be attached to a complaint, asked Justice O’Donnell? Does the court need to clarify Schwartzwald? Are lenders confused about what is required? Are we talking about a substantive or a procedural issue here? Isn’t all we said in Schwartzwald that if you don’t have an injury you don’t have standing to bring a complaint?

Does Schwartzwald say that some sort of document has to be attached to a complaint that would evidence standing at the time of the filing of the complaint, asked Chief Justice O’Connor? In a key question of the day, she asked if the content of the complaint suffices, wouldn’t any argument over standing be sorted out with the trial court, and then documents produced to show the status of the claim at time of filing?

Is this really a Schwartzwald case at all, asked Justice O’Neill?

Doesn’t this case differ significantly from Schwartzwald because in this case the plaintiff did have standing at the time the complaint was filed, and in Schwartzwald they didn’t, asked Justice Pfeifer?

Standing

Was there a lack of standing in this case, or a lack of evidence of standing, asked Justice O’Neill? If a party doesn’t have standing as of the date of filing of the complaint, there could never be evidence of standing? (yes, conceded Wells Fargo, but that was not the case here.)

But in this case there was standing on the date suit was filed, asked Chief Justice O’Connor? (answer from Wells Fargo: yes)

Is there any time a lender could allege standing in a complaint without attaching either the note or the mortgage, asked Justice Lanzinger?

Is Horn arguing the trial court was wrong to grant summary judgment to Wells Fargo, asked Justice French?

The Complaint and Notice Pleading

At the time the complaint was filed, was the party with the claim Wells Fargo, asked Justice O’Donnell? Is there really any suggestion that it wasn’t? Is the lender required to attach to the complaint all the evidence that it needs to show standing at the time the complaint is filed? Facts must be alleged, but not legal conclusions? Aren’t allegations enough, with proof coming later through discovery?

Were the dismissals in this case without prejudice, asked Justice Lanzinger? (answer: yes) What type of factual allegation was missing here that would have made standing clearer? Later she commented that trying to determine if the statement “I am the holder of the note” is a fact or a legal conclusion has confounded many a lawyer, jurist, and law student.

Does a party have a duty to establish anything at the complaint stage, asked Justice O’Neill?

Isn’t identifying itself as successor by merger to Wells Fargo Home Mortgage fka Norwest Mortgage sufficient notice to all parties and to the court of what the background is here, asked Chief Justice O’Connor, in another key question of the day.

Interest in the Note, the  Mortgage, or Both?

Could you have an injury on a note without the mortgage, asked Justice O’Donnell?

How could you have an interest in the mortgage alone, asked Justice Pfeifer?

Is the document you have an interest in the one that has to be attached to the complaint, asked Justice Lanzinger?

 What Happened in the Appeals Court

Was standing contested in this case, asked Justice Pfeifer? (answer: yes at the trial court, but not at the appeals court). At the appellate level, was there an absence of proof that Wells Fargo was the holder in possession of the note?

Was the standing issue briefed, asked Justice O’Donnell? (answer: no) Is the 9th district’s take on Schwartzwald  unique among the appellate courts?

Was standing raised as an assignment of error from the trial court, asked Chief Justice O’Connor (answer: no) Was it appropriate for the appeals court to have decided this sua sponte without having remanded this to the trial court for a determination? She commented that procedurally, if the court sanctioned what the 9th district had done, it allows an appeals court to step into the shoes of an advocate.

Rules of Civil Procedure

Why not just make a motion for a more definite statement in a case like this, asked Justice Lanzinger?

Is this as a pleading case, something involving civil procedure, and not standing and not the interpretation of Schwartzwald,  asked Justice O’Donnell in a key question of the day. Just a Rule 10 case? Could this matter have been resolved by motion practice instead of dismissing the case outright?

Isn’t this really a Rule 56 case because there has never been a weighing of the evidence as to whether Wells Fargo is indeed the holder of the note, asked Justice O’Neill?

How it Looks From the Bleachers

To Professor Bettman

Beckie Campbell and I are in agreement—this looks like a win for Wells Fargo. For one thing, the two lawyers essentially agreed that Schwartzwald holds that standing must exist as of the date of the filing of the complaint, but that proof can come at a later stage of the proceedings.  They merely disagreed over whether the complaint sufficiently alleged standing, not over the documents that needed to be attached to the complaint.

This appears to be a pretty simple pleadings case with a Schwartzwald overlay.  I think the court will find, probably unanimously and quickly, that the complaint met the low bar set for notice pleadings under the Ohio civil rules, and that any lack of clarity should have been handled with a motion for a more definite statement rather than by dismissal. Specific to this case, I think the court will find that Wells Fargo sufficiently pled standing and sufficiently proved it an appropriate phase of the proceedings.

Also, Civ. R. 10(D) makes it clear that when any claim is based on a written instrument, it has to be attached to the complaint, which in this case was both the note and mortgage.  Although the issue came up secondarily as to whether an interest in one or the other but not both was sufficient, I don’t think the court is going to reach that issue because it is unnecessary to the resolution of this case and because that exact issue is being argued before the court in early February.

As author of Schwartzwald, Justice O’Donnell dominated the questioning, and repeatedly asked, as he did in Kuchta, if the court needed to clarify Schwartzwald.

My compliments to both lawyers for the professionalism shown here in difficult circumstances. Scott King has repeatedly done an excellent job for lenders, as has Andy Engel, for homeowners.  Mr. Engel in particular is to be complimented for stepping in at the eleventh hour to represent Mr. Horn, who had been pro se, and for arguing without the benefit of briefing.  That was a favor to the system, because it is undeniable that the justices prefer a contested hearing on such an important and charged issue as foreclosure. In Daniel v. Daniel, for example, Chief Justice O’Connor and Justice Lanzinger were completely uncomfortable with the one-sided argument presented on the issue of whether unvested military retirement benefits are marital property subject to division upon divorce.

Still, I think the court is going to reject Mr. Engel’s argument that the complaint alleged legal conclusions rather than facts, and that the caption isn’t part of the pleadings, and accept Mr. King’s position that standing was sufficiently alleged, and later appropriately established at the summary judgment stage. The court will likely adopt Wells Fargo’s proposed proposition of law–which is, “a plaintiff is not required to attach to the complaint all of the evidence upon which it will rely to show standing–as the syllabus here, and to which it might add, Schwartzwald followed and clarified. The Ninth District may be chided for the way in which it took this issue up sua sponte.

Given the current jurisprudence under the Federal Rules of Civil Procedure requiring heightened pleading standards for plaintiffs these days  (See, e.g. Bell Atlantic Corp v. Twombly;  Ashcroft v. Iqbal), there is a certain irony here in a plaintiff/lender being the party arguing for relaxed pleading standards.

To Student Contributor Rebecca Campbell

Ultimately, this case boils down to a nuts and bolts civil procedure issue; several justices pointed out that this case does not really flow in the Schwartzwald stream, but is an issue of the civil rules and statutory standards for determining who holds a note and a mortgage. The parties even agreed that Lujan is the appropriate standard to apply; there was very little to fight about between the two when it came to which document should be attached to the complaint, or even which document shows proof of standing.

Horn did pose an interesting argument specific to this case: he contested the complaint based on a failure of Wells Fargo to assert, within the body of the complaint, that it is the successor by merger of WFHMI and Norwest. As such, Horn asked the court to rule such assertions to be conclusions of law, not statements of fact, that must be proved before the issue of standing can be resolved. The court, however, was not really buying the argument as one they could adopt without causing more litigation in the future.

Toward the end of Horn’s argument, Justice Lanzinger highlighted the potential culprit of confusion within the lower courts. Reading from Schwartzwald, Justice Lanzinger posed the possibility that ¶ 24 could be read to require, at the time of filing, definite proof of standing. In working her way toward a question, she clarified that the paragraph is meant to read in a manner that allows for standing to be proven later in the proceeding, but the plaintiff must prove at that later time that they absolutely had standing to file the claim at the time the claim was filed.

I predict the Court will rule in favor of Wells Fargo. In doing so, it will clarify that the only documents that must be attached to a complaint are those required by Civ.R. 10(D), and any other issues concerning standing can be resolved later in the litigation through a Civ.R. 12(E) motion for more definite statement.

 

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3 Responses to What’s on Their Minds: Pleading Requirements in Foreclosure Cases. To Attach or to Allege, that is the Question. Wells Fargo Bank, N.A. v. Brian T. Horn, et al.

  1. Richard Davet says:

    “Given the current jurisprudence under the Federal Rules of Civil Procedure requiring heightened pleading standards for plaintiffs these days (See, e.g. Bell Atlantic Corp v. Twombly; Ashcroft v. Iqbal), there is a certain irony here in a plaintiff/lender being the party arguing for relaxed pleading standards.”

    Professor………………………………. a very astute observation. As Emeril would say “talk about opening the floodgates”. To relax pleading standards to plaintiffs in foreclosure cases is to step into the shoes of an advocate of what every major scholar on the subject calls a “fatally flawed Business Model’.

    It seems to me that standing once challenged by a party or a court it must be addressed in a forthwith fashion so as not to prolong the needless waste of judicial resources by phantom plaintiffs knowingly participating in a fatally flawed Business Model.

  2. Jack says:

    Let’s see if the Ohio Judges can test the plaintiff banks like this Missouri judge did yesterday.
    http://msfraud.org/LAW/Lounge/Holm-v-Wells-Fargo_Freddie_egregious-conduct_$2million-quiet-title_1-15.pdf

  3. frontncenter says:

    What about the fact most banks have not been able to provide sufficient evidence when a court required it, or the evidence was found to be fraudulent under scrutiny and examination?

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