Merit Decision: Foreclosure: Standing Required at Filing; Proof Allowed Later. Wells Fargo Bank, N.A. v. Horn.

On April 22, 2015, the Supreme Court of Ohio handed down a merit decision in Wells Fargo Bank, N.A. v. Horn,  2015-Ohio-1484. In a unanimous opinion written by Justice Kennedy, the court held that in a foreclosure action, while a plaintiff must have standing at the time suit is filed (this was the holding in Fed. Home Loan Mtge. Corp. v. Schwartzwald, 2012-Ohio-5017), proof of that standing may be submitted later in the proceedings. The case was argued January 14, 2015.

Case Background

Wells Fargo Bank filed a foreclosure action against Brian and Carol Horn. Because the Horns had filed bankruptcy, they were personally immune from liability on the note, so Wells Fargo sought only to foreclose the mortgage. The caption of the complaint listed the plaintiff as “Wells Fargo Bank, N.A., successor by merger to Wells Fargo Home Mortgage, Inc. fka Norwest Mortgage, Inc.” Attached to the complaint were a copy of a promissory note endorsed in blank, and a copy of the mortgage, both identifying Norwest Mortgage as the lender and the Horns as the borrowers. No documents were attached to the complaint showing the mergers and name changes.

Initially, Brian Horn acted pro se, but hired counsel after Wells Fargo filed a motion for summary judgment. Horn’s attorney filed a formal answer asserting numerous defenses, including Wells Fargo’s lack of standing to bring the action.

Wells Fargo then filed an amended motion for summary judgment, which included an affidavit of one Adam Seeman, a “Default Litigation Specialist,” who set forth the chain of mergers and name changes from Norwest Mortgage Inc. to Wells Fargo. The affidavit also averred that Wells Fargo was the holder of the note and mortgage before the filing of the complaint, with supporting documentation.

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 filed a pro se appeal. None of his assignments of error challenged the issue of Wells Fargo’s standing, but 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.

After the Supreme Court of Ohio accepted this case on discretionary appeal, Horn’s brief was not responsive to Wells Fargo’s standing issues. But after the case was fully briefed, Horn obtained counsel who argued on his behalf at the oral argument (but was not permitted to supplement Horn’s brief).

Read the oral argument preview of the case here, and the analysis of the argument 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.)

Cheap Escape Co., Inc. v. Haddox, L.L.C., 2008-Ohio-6323. (Subject matter jurisdiction of a court connotes the power to hear and decide a case upon its merits and defines the competency of a court to render a valid judgment in a particular action. (Quoting Morrison v. Steiner, 32 Ohio St.2d 86 (1972).)

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.)

Bank of Am., N.A. v. Kuchta, 2014-Ohio-4275. (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. An inquiry into a party’s ability to invoke a court’s jurisdiction speaks to jurisdiction over the particular case, not subject-matter jurisdiction.)

Chase Home Fin., L.L.C. v. Mentschukoff, 2014-Ohio-5469 (11th Dist). (At the pleading stage, a plaintiff is not required to establish its standing beyond the allegations 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).)

Merit Decision

The decision begins with some fundamentals about standing, emphasizing that standing is necessary to invoke the jurisdiction of a court of competent jurisdiction, but re-emphasizes a key point from the Kuchta case—that a party’s ability to invoke a court’s jurisdiction speaks to jurisdiction over that particular case, not to subject matter jurisdiction.

Clarifying Schwartzwald

In virtually every oral argument since Schwartzwald, the justices, and Schwartzwald opinion author O’Donnell especially, have asked if the holding in that case needed to be clarified. Because the Ninth District Court of Appeals expressly relied on Schwartzwald in its holding that foreclosure plaintiffs must attach evidence of standing to the complaint, the court decided the time was right for further explanation. The explanation is this. While Schwartzwald clearly holds that a plaintiff in a foreclosure action must have standing at the time it files suit, that opinion does not hold that the plaintiff must also submit proof of standing at that time. That proof can be provided later.

Rationale for Why Proof of Standing Can Come Later

It’s back to basics. Ohio is a notice-pleading state, which just requires a complaint to contain a short plain statement of entitlement to relief. Requiring actual proof of standing at the pleading stage runs afoul of this first principle of civil procedure. Many of the justices suggested this with their questions at oral argument.

Civ. R. 10 Doesn’t Apply Here

Even though the court concluded that this rule doesn’t even apply here, it addressed it because both parties did so at argument.

Civ.R. 10(D)(1) states that when a claim or defense is based on an account or other written instrument, a party must attach a copy of the account or written instrument to the pleading. Appellate courts that have interpreted this rule to require plaintiffs seeking foreclosure to attach documentation about the loan to the complaint are incorrect. Failing to attach documents pursuant to Civ.R.10(D)(1) does not equate to lack of standing. A defendant’s recourse is to file a motion for a more definite statement under Civ.R.12(E).

Case Conclusion

Wells Fargo pled enough here. “The complaint’s allegation that Wells Fargo was the holder of the Horns’ note was sufficient to show for pleading purposes that Wells Fargo was the real party in interest and that it was arguably entitled to a decree of foreclosure.” That allegation was later properly supported through documentation attached to Wells Fargo’s amended motion for summary judgment. The court of appeals was reversed, the foreclosure action was reinstated, and the case was sent back to the court of appeals to resolve Horn’s remaining assignments of error.

Case Syllabus

Although the plaintiff in a foreclosure action must have standing at the time suit is commenced, proof of standing may be submitted subsequent to the filing of the complaint. (Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, 979 N.E.2d 1214, explained.)

Concluding Observations

Here’s what I wrote after the argument:

“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.”

‘Nuff said.

 

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