Citadel Realty, LLC v. Endeavor Capital N., LLC, 98 N.E.3d 206, 93 Mass. App. Ct. 39 (2018)

March 19, 2018 · Massachusetts Appeals Court · No. 16–P–735
98 N.E.3d 206, 93 Mass. App. Ct. 39

CITADEL REALTY, LLC
v.
ENDEAVOR CAPITAL NORTH, LLC, & others.1

No. 16-P-735

Appeals Court of Massachusetts, Suffolk..

Argued November 7, 2017
Decided March 19, 2018

Jonas A. Jacobson for the plaintiff.

Scott K. DeMello (Rosemary A. Traini also present) for the defendants.

Present: Wolohojian, Massing, & Wendlandt, JJ.

WENDLANDT, J.

*39This appeal presents occasion to clarify the scope of this court's review of an interlocutory order denying a *40special motion to dismiss brought pursuant to G. L. c. 184, § 15, the lis pendens statute. Here, the defendants sought to dismiss the entire action, including (1) one claim supporting the memorandum of lis pendens and affecting title, and (2) other claims that were not the basis for the lis pendens. We hold that our review is limited to those portions of the interlocutory order supporting the memorandum of lis pendens.

Citadel Realty, LLC (Citadel), filed a complaint in the Superior Court against the defendants, seeking to void the foreclosure sale of Citadel's real property in the Dorchester section of Boston (property). In addition, Citadel sought damages and reformation of the underlying mortgages. Following the filing of its verified amended complaint, Citadel filed a motion for approval of a memorandum of lis pendens, pursuant to G. L. c. 184, § 15(b ), which was allowed. The defendants filed a motion opposing the approval of the memorandum of lis pendens and seeking to dismiss the complaint, which was, in part, a special motion to dismiss pursuant to G. L. c. 184, § 15(c ). The motion was denied. The defendants filed the present interlocutory appeal from the denial of their motion to dismiss, purporting to appeal the motion judge's decision declining to dismiss both the claim supporting the lis pendens and affecting title, and the claims that did not support the lis pendens.

Background. We set forth the facts from the verified pleadings and affidavits that were before the judge. G. L. c. 184, § 15(c ). In 2011, Mario Lozano approached *209Endeavor Capital, LLC (Endeavor),2 seeking a loan in connection with the property. Endeavor and Lozano entered into a term sheet, pursuant to which Citadel3 borrowed $250,000 from one of the Endeavor subsidiaries.4 The loan was secured by a first mortgage (2011 mortgage) on the property and was guaranteed by Lozano personally. The 2011 mortgage had a six-month term, a fourteen percent interest rate, and was subject to a six percent origination fee.

Citadel was unable to repay the principal within the six-month term. Thereafter, Citadel entered into a series of six-month extensions *41with Endeavor Capital Funding, LLC (ECF). Each time, Citadel was unable to refinance with another lender, and was under the threat of foreclosure. Each time, Citadel paid another six percent fee, and increased the principal balance. All told, Citadel paid $121,742.06 in interest-only payments, but was unable to repay the principal before termination of the last extension.

In 2014, Lozano approached Endeavor to discuss a potential refinancing. Lozano entered into a second term sheet with Endeavor, pursuant to which Citadel entered into a new mortgage agreement (2014 mortgage) with another Endeavor subsidiary as determined by Endeavor.5 This loan had a principal of $384,000 and was secured by a new first mortgage on the property. Like the 2011 mortgage, the 2014 mortgage had a six-month term, a fourteen percent interest rate, and was subject to a six percent origination fee. The loan was used, as the parties had agreed, to pay the outstanding principal of the 2011 loan;6 however, no discharge of the 2011 mortgage was recorded at the registry of deeds.

Citadel defaulted on the 2014 mortgage and foreclosure proceedings commenced.7 In May, 2015, the foreclosure sale of the property was held. One of the Endeavor subsidiaries, Endeavor High Yield Mortgage Fund, LLC (EHYMF), both conducted the sale and submitted the winning bid of $475,000.8

*210In January, 2016, Citadel filed a verified amended complaint against the Endeavor subsidiaries, seeking a declaratory judgment that the foreclosure sale was void because the Endeavor subsidiaries'

*42failure to discharge the 2011 mortgage violated their duty to conduct the sale in good faith and with reasonable diligence (declaratory judgment count). See U.S. Bank Natl. Assn. v. Ibanez, 458 Mass. 637, 647 n.16, 941 N.E.2d 40 (2011). Citadel claimed that because no discharge of the 2011 mortgage had been recorded in the registry of deeds, the appearance of the mortgage in the chain of title dissuaded otherwise interested bidders from bidding on the property, thereby allowing EHYMF to purchase the property for itself at a price that was lower than its market value. In addition, the complaint sought damages and reformation of the underlying mortgages on the grounds that (a) the Endeavor subsidiaries violated G. L. c. 183, § 55 ; (b) both mortgages were unconscionable; (c) the Endeavor subsidiaries were unjustly enriched; and (d) the Endeavor subsidiaries violated G. L. c. 93A. Citadel moved, pursuant to G. L. c. 184, § 15(b ), for approval of a memorandum of lis pendens to be recorded against the property. Citadel argued that the declaratory judgment count constituted a claim of right to title to real property. The Endeavor subsidiaries opposed the motion and filed a motion to dismiss all of the counts of the amended complaint. That motion was styled as a special motion to dismiss, pursuant to G. L. c. 184, § 15(c ), but also included arguments that the entire complaint should be dismissed for failure to state a claim under Mass.R.Civ.P. 12(b)(6), 365 Mass. 757 (1974).9 The judge approved the memorandum of lis pendens and denied the Endeavor subsidiaries' special motion.10 This appeal followed.

2. Discussion. We begin by clarifying the scope of our review of the interlocutory order. "As a general rule, an aggrieved litigant cannot as a matter of right pursue an immediate appeal from an interlocutory order unless a statute or rule authorizes it." Elles v. Zoning Bd. of Appeals of Quincy, 450 Mass. 671, 673-674, 881 N.E.2d 129 (2008). See Fabre v. Walton, 436 Mass. 517, 520-521, 781 N.E.2d 780 (2002) ("[A]bsent special authorization ... an appellate court will reject attempts to obtain piecemeal review of trial rulings that do *43not represent final dispositions on the merits" [quotation omitted] ). The rule is grounded in the policy that "a party ought not to have the power to interrupt the progress of the litigation by piecemeal appeals that cause delay and often waste judicial effort in deciding questions that will turn out to be unimportant." Borman v. Borman, 378 Mass. 775, 779, 393 N.E.2d 847 (1979), quoting from Vincent v. Plecker, 319 Mass. 560, 563 n.1, 67 N.E.2d 145 (1946). As a result, "the denial of a motion to dismiss is ordinarily not an appealable order." Fabre, supra at 521, 781 N.E.2d 780.

One exception to this general rule arises from G. L. c. 184, § 15(d ), of the lis pendens statute, which provides that any party *211aggrieved "by a ruling under [ § 15 ](c )" may file an interlocutory appeal. Section 15(c ), in turn, provides a mechanism for "expedited removal of an unjustified [memorandum of] lis pendens" by filing a special motion to dismiss.11 Wolfe v. Gormally, 440 Mass. 699, 705, 802 N.E.2d 64 (2004). See G. L. c. 184, § 15(c ). In particular, a party may file

"a special motion to dismiss the claimant's action if that party believes the action or claim supporting the memorandum of lis pendens is frivolous.... The special motion to dismiss shall be granted if the court finds that the action or claim is frivolous because (1) it is devoid of any reasonable factual support; or (2) it is devoid of any arguable basis in law; or (3) the action or claim is subject to dismissal based on a valid legal defense such as the statute of frauds.... In the event there are unadjudicated claims remaining after the dismissal of any claim pursuant to which the memorandum of lis pendens was recorded, the court shall order entry of partial judgment with respect to the claim dismissed pursuant to this section."

G. L. c. 184, § 15(c ), as appearing in St. 2002, c. 496, § 2 (emphases supplied).

"[A] statute must be interpreted according to the intent of the Legislature ascertained from all its words construed by the ordinary and approved usage of the language, considered in connection with the cause of its enactment, the mischief or imperfection to be remedied and the main object to be accomplished, to the end *44that its purpose of its framers may be effectuated." Galipault v. Wash Rock Invs., LLC, 65 Mass. App. Ct. 73, 80, 836 N.E.2d 1123 (2005), quoting from Hanlon v. Rollins, 286 Mass. 444, 447, 190 N.E. 606 (1934). The plain and ordinary meaning of the language of the statute here makes the special motion to dismiss mechanism available for the "action or claim supporting the memorandum of lis pendens." G. L. c. 184, § 15(c ). Where each of the claims of an action supports the memorandum of lis pendens, the special motion to dismiss is available for each claim. Importantly, however, where only some claims support the memorandum of lis pendens, the statute anticipates that other claims not giving rise to a memorandum of lis pendens, referred to as "unadjudicated claims," will not be subject to the special motion to dismiss mechanism. Because G. L. c. 184, § 15(d ), makes an interlocutory appeal available only as to "a ruling under [ § 15 ](c )," and because such rulings are limited to claims supporting the memorandum of lis pendens-that is, "affect[ing] the title to real property or the use and occupation thereof," G. L. c. 184, § 15(a ) -our review is available only as to the judge's rulings as to those claims.

Reviewing only the portion of the interlocutory order denying dismissal of claims supporting the memorandum of lis pendens is consistent with the purpose of the lis pendens statute to "add procedural safeguards to the formerly unfettered right to record a lis pendens," Wolfe, 440 Mass. at 703, 802 N.E.2d 64 ; in contrast, expanding our review to other claims does not specifically further that purpose. Accordingly, we hold that our review of an interlocutory order allowing a memorandum of lis pendens and otherwise denying a special motion to dismiss under § 15(c ) is limited to those claims supporting the memorandum of lis pendens.

Here, the memorandum of lis pendens was supported by one claim-namely the declaratory judgment count in which Citadel *212seeks to void the foreclosure sale of the property. The remaining counts did not support the memorandum of lis pendens. Accordingly, we decline to review the judge's denial of the motion to dismiss as to those counts.

b. Declaratory judgment. We review a judge's decision allowing a memorandum of lis pendens and denying a special motion to dismiss to determine whether the judge committed an error of law or abused his discretion. McMann v. McGowan, 71 Mass. App. Ct. 513, 519, 883 N.E.2d 980 (2008). "Our review ... involves an 'analysis [that] calls for an examination of the same factors properly considered by the judge in the trial court in the first instance. His *45conclusions of law are subject to broad review and will be reversed if incorrect. While weight will be accorded to his exercise of discretion, an order predicated solely on documentary evidence permits the appellate court to draw its own conclusions from the record ... [but] we must exercise special care not to substitute our judgment for that of the trial court where the records disclose reasoned support for its actions.' " Galipault, 65 Mass. App. Ct. at 82, 836 N.E.2d 1123, quoting from Edwin R. Sage Co. v. Foley, 12 Mass. App. Ct. 20, 25-26, 421 N.E.2d 460 (1981).

The Endeavor subsidiaries argue that the judge erred in allowing the memorandum of lis pendens and denying their special motion to dismiss because Citadel's challenge to the foreclosure sale is frivolous.12 In particular, they assert that the declaratory judgment count is devoid of a reasonable factual or legal basis because, in conducting the foreclosure sale, the Endeavor subsidiaries complied with each of the requirements of G. L. c. 244, § 14, to publish notice of the sale in a local newspaper, send notice of sale to the owner of the property, and send notice of the sale to all junior lienholders.13 G. L. c. 244, § 14.

Compliance with G. L. c. 244, § 14, alone does not excuse a mortgagee from the additional requirement to act in good faith and with reasonable diligence in connection with a foreclosure sale. Pehoviak v. Deutsche Bank Natl. Trust Co., 85 Mass. App. Ct. 56, 62, 5 N.E.3d 945 (2014) (in addition to abiding by procedures outlined in G. L. c. 244, § 14, "mortgagee is bound to exercise good faith and put forth reasonable diligence" and "[f]ailure in these particulars will invalidate the sale even though there be literal compliance with the terms of the [statute]" [quotation omitted] ). This duty of good faith and reasonable diligence is heightened where, as here, the mortgagee conducting the foreclosure sale is *46also the buyer of the property. Ibid. ("The mortgagee's duty is more exacting when it becomes the buyer of the property. When a party who is intrusted with a power to sell attempts *213also to become the purchaser, he will be held to the strictest good faith and the utmost diligence for the protection of the rights of his principal" [quotation omitted] ). Under these circumstances, "the mortgagee has a duty to obtain for the property as large a price as possible." Ibid.

The Endeavor subsidiaries concede that the 2011 mortgage was not discharged even though, pursuant to the 2014 refinancing, the principal of the loan was paid.14 As a result, at the time of the foreclosure sale, the 2011 mortgage appeared as an undischarged first mortgage of record in the chain of title. Citadel alleges that this information was readily available to a prospective purchaser, discouraging potential bidders15 and adversely affecting the price paid for the property. See Maglione v. Bancboston Mort. Corp., 29 Mass. App. Ct. 88, 88-89, 557 N.E.2d 756 (1990) ("[T]he presence of an undischarged mortgage-at least a recent one-in a record chain of title will serve [to] ... discourag[e] transactions in the encumbered property"). Thus, the judge did not abuse his discretion in finding that the Endeavor subsidiaries failed to show that *47Citadel's declaratory judgment count is devoid of reasonable factual and legal support.16

Order denying special motion to dismiss affirmed.