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Deutsche Bank National Trust Co. v. Hines

Court of Chancery of Delaware

November 21, 2017

Deutsche Bank National Trust Company, As Trustee for WaMu Mortgage Pass-Through Certificates Series 2006-AR3 Trust, Assignee of Washington Mutual Bank, F.A.
v.
Helene Hines, Jeffrey Hines and George Edward Kennedy

          Date Submitted: August 29, 2017

          E. Chaney Hall, Esquire Fox Rothschild, LLP

          Francis G. X. Pileggi, Esquire Eckert Seamans Cherin & Mellott, LLC

         Dear Counsel and Mr. Kennedy:

         Pending before me is a motion for default judgment or, in the alternative, for summary judgment filed by Plaintiff Deutsche Bank National Trust Company, As Trustee for WaMu Mortgage Pass-Through Certificates Series 2006-AR3 Trust, Assignee of Washington Mutual Bank, F.A. (hereinafter "Deutsche Bank") on April 17, 2017 against Defendant George Edward Kennedy (hereinafter "Kennedy") in an in rem mortgage foreclosure action. I recommend that the Court grant summary judgment to Deutsche Bank.

         BACKGROUND

         This litigation has a lengthy history. It began on April 30, 2009 as a mortgage foreclosure complaint against Defendants Helene Hines ("Helene") and Jeffrey Hines ("Jeffrey") in the Superior Court.[1] On December 30, 2005, Helene and Jeffrey borrowed $1, 598, 777 from Washington Mutual Bank, F.A., [2] executing an adjustable rate note and a mortgage as security, for vacation rental property located at 302 S. Ocean Drive, South Bethany Beach, Delaware ("the Property"). The mortgage and note were recorded on January 11, 2006.[3] At that time, the Property was owned by the Hineses, but shortly after the mortgage foreclosure action was started, the Hineses conveyed the property to Helene, who then conveyed the Property to a Delaware limited liability company called 302 S. Ocean Drive LLC ("302 LLC") on October 14, 2011. Helene assigned 20% of her interest in 302 LLC to Kennedy on October 13, 2011.[4]

         On November 5, 2012, Kennedy, acting as managing member of 302 LLC, unsuccessfully attempted to intervene in the Superior Court foreclosure action. A Sheriff's sale took place on April 16, 2013, and Deutsche Bank was the highest bidder but on May 1, 2013, Kennedy filed a pro se motion to set aside the Sheriff's sale. Deutsche Bank then realized that it had not given proper notice of the sale to 302 LLC and requested permission to file a new levari facias to schedule a new sale, which was granted by Superior Court. In response to Deutsche Bank's request, on June 5, 2013, Kennedy submitted a copy of a deed conveying the Property from 302 LLC to Kennedy on May 29, 2013.[5] But, in November 2014, Deutsche Bank belatedly discovered that the mortgage was not under seal and filed a notice of an election to transfer its case to the Court of Chancery, which was granted by the Superior Court on January 1, 2015.

         Deutsche Bank filed an equitable in rem foreclosure complaint in the Court of Chancery on November 17, 2014, naming Helene, Jeffrey, and Kennedy as defendants. Kennedy, acting pro se, filed an answer claiming that the action violated bankruptcy law, he did not owe any money to Deutsche Bank and the other defendants had not been properly served. On March 24, 2015, Master Ayvazian granted Deutsche Bank's motion for service by publication and posting as to Helene and Jeffrey, and on May 14, 2015, she granted an order for default judgment against Helene and Jeffrey in the principal amount of $1, 718, 748.18, plus fees and interest.

         Extensive motion practice followed. Deutsche Bank filed a motion for summary judgment against Kennedy on March 30, 2015, and on May 22, 2015, Kennedy moved to dismiss the complaint under Court of Chancery Rule 12(b)(6). On September 17, 2015, Master Ayvazian issued a final report denying both motions. Since Kennedy is an assignee of the original mortgagor and purported to be a bona fide purchaser for value of the Property, Master Ayvazian found that a genuine issue of material fact existed as to whether Kennedy would be unjustly enriched if the Court dismissed the in rem foreclosure action, which could not be determined without "a thorough investigation into the circumstances surrounding the recent conveyances of the Property."[6] The Court approved Master Ayvazian's September 17, 2015 final report after no exceptions were filed.

         On June 9, 2016, Kennedy filed a motion for summary judgment, arguing that Deutsche Bank had unclean hands and forfeited its right to equitable relief, because for years it had been illegally attempting to foreclose on mortgages not under seal in the Superior Court. Master Ayvazian denied Kennedy's motion on December 21, 2016.[7]

         On August 12, 2016, Deutsche Bank filed a motion to compel discovery responses from Kennedy because of his delay in providing responses to Deutsche Bank's first set of interrogatories, requests for production and for admission, and his failure to provide requested supplemental responses to address deficiencies in his responses. In a January 24, 2017 report, Master Ayvazian found Kennedy's responses to interrogatories and for production of documents were largely non-responsive and recommended the Court grant Deutsche Bank's motion to compel discovery, require Kennedy to comply with discovery requests, provide a rolling production of documents within 30 days of the report becoming final, and award Deutsche Bank its reasonable fees incurred in pursuing the motion. She stated that Kennedy's "failure to comply with this schedule may result in further sanctions, including further fee shifting and entry of a default judgment against Kennedy."[8]With no exceptions filed, that report was approved by the Court on February 8, 2017.

         On December 1, 2016, Deutsche Bank filed a motion to compel Kennedy to attend his deposition, asserting that Kennedy had failed to appear for his deposition on three separate occasions, and requesting the award of reasonable fees and costs associated with the rescheduling of the deposition and the motion to compel. Noting the motion was unopposed, Master Ayvazian granted the motion on December 21, 2016, ordering Kennedy to attend his deposition and awarding reasonable fees and costs incurred in connection with rescheduling the deposition and the motion to compel. Kennedy did not appear for his deposition scheduled for January 12, 2017 and his deposition was rescheduled to April 6, 2017. Deutsche Bank moved for sanctions against Kennedy on January 25, 2017 for violating the Court order compelling his attendance at his deposition.

         Master Ayvazian held a teleconference on April 3, 2017. Deutsche Bank was concerned that Kennedy's failure to attend his deposition or to comply with the Court's order compelling discovery would hamper the Bank's ability to present its case. During that teleconference, Kennedy asserted that he had been seriously ill and hospitalized from December 17, 2016 - January 21, 2017, and his recovery had been slow since then.[9] Master Ayvazian noted Kennedy's efforts to delay this litigation and indicated her inclination to grant a default judgment given the continued delay, if Deutsche Bank filed such a motion.[10]

         Deutsche Bank filed a motion for default judgment or, in the alternative, for summary judgment, on April 17, 2017, claiming that Kennedy has failed to comply with the Court's orders, obstructed discovery and will be unjustly enriched unless the mortgage is enforced, and requesting the Court to award fees and costs associated with Kennedy's discovery abuses.[11] Upon hearing no response from Kennedy, Deutsche Bank asked that the Court enter an order for default judgment, which Master Ayvazian granted on May 19, 2017. On May 25, 2017, Kennedy filed his response and objection to Deutsche Bank's motion, showing that the Bank's motion was sent to him at an incorrect address, which he asserted delayed its delivery to him until May 4, 2017. Kennedy claims that he has not failed to comply with court orders or obstructed the discovery process, particularly in light of his illness, and denies his unjust enrichment because Deutsche Bank's attorneys have misrepresented material facts concerning his health, criticized him for his failure to pay towards the mortgage and for keeping rental income, refused to "complete its commitment to conclude the assumption/modification paperwork" for the mortgage, and relied on a fraudulent note in this action.[12] This case was reassigned to me after Master Ayvazian's retirement. On August 9, 2017, I issued a draft report vacating the default judgment because the default judgment order did not specify whether it was entered as a result of Kennedy's failure to respond to the motion or as a sanction for discovery violations, and, given the address error, it was reasonable to assume that Kennedy met the 20-day time frame for responding that Master Ayvazian specified.[13] I stayed the time for taking exceptions to that draft order until this report was issued.

         Pending before me is Deutsche Bank's motion for summary judgment or, in the alternative, default judgment, and its motion for sanctions. This is my final report.

         STANDARD OF REVIEW

         The standard for reviewing a motion for summary judgment under Court of Chancery Rule 56 is well-known. Under Rule 56(c), summary judgment is granted "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The summary judgment standard places the initial burden on the moving party to demonstrate that are no genuine issues of material facts. Once the moving party has satisfied that burden, it falls on the non-moving party to show that there are factual disputes. Mere allegations or denials in a pleading, unless backed up by specific facts contained in admissible evidence, are insufficient to show that there is a genuine issue for trial.[14] If a material fact exists, or the Court desires to inquire "more thoroughly into the facts to clarify" how to apply the law to the circumstances in the case, then summary judgment will not be granted.[15] Evidence must be viewed "in the light most favorable to the non-moving party."[16]

         ANALYSIS

         1. Kennedy's unjust enrichment without the enforcement of Deutsche Bank's equitable lien on the Property

         Deutsche Bank argues that Kennedy will be unjustly enriched unless the equitable mortgage lien is enforced against the Property, because he purchased the multi-million-dollar Property in 2011, with notice of its pre-existing mortgage lien, for, at most, $10, 500, and has received over $100, 000 in rental income from the Property each year since then. Kennedy claims that he has not been unjustly enriched because Deutsche Bank refuses to allow him to assume a modified loan for the Hines mortgage and relies on a forged or fraudulent note as the basis for its claim.

         There is no genuine issue of material fact concerning the existence of an equitable lien on the Property. The mortgage document for the Property, with Helene and Jeffrey as borrowers of $1, 589, 977, was recorded in the Sussex County Recorder of Deeds Office on January 11, 2006. Although the mortgage lacks a seal, such mortgages are routinely recognized as equitable liens on the property.[17]

         Kennedy has not presented any credible evidence that the mortgage is not valid. He argues that the note is fraudulent because Helene's signature was "cut and pasted." He presented a letter from a purported handwriting expert in Florida (whose credentials indicate that he was "formerly licensed" in Massachusetts) providing his preliminary opinion that, because one of the copies of the adjustable rate note had Helene's "suggested true signature" and the other copy did not, he concluded that this "strongly suggests that [Helene's] signature was placed/created on [the first document] by means of a "cut and paste" procedure."[18] But, he also proffers that the mortgage, adjustable rate rider and second home rider, which were dated the same date as the note, bear the "reported true signature of Helene."[19] I do not find that letter is sufficient to create a genuine issue of a material fact in this case. Kennedy has presented no factual basis to conclude the mortgage, and the debt secured by the note, are invalid. Kennedy, Helene or Jeffrey have presented no evidence in this case to suggest that Helene and Jeffrey, the borrowers and then owners of the Property, and Washington Mutual Bank F.A., the original mortgagee, did not intend for the mortgage to bind the Property when it was executed, or that the mortgagee failed to satisfy the terms of the agreement.

         A person acquiring property with notice of an existing equitable interest or lien on that property takes subject to that lien.[20] "[I]t is well-established that a third party's actual or constructive notice of an equitable lien is sufficient to render the lien enforceable in relation to that party."[21] "[R]ecordation of an otherwise valid mortgage that lacks a ...


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