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11th Cir. Dismisses Wrongful Foreclosure Appeal for Lack of Spokeo Standing

foreclosureThe U.S. Court of Appeals for the Eleventh Circuit recently dismissed an appeal for lack of Article III standing because the appellant did not allege the particularized injury necessary to confer standing and the co-appellant with standing settled and dismissed its appeal.

A copy of the opinion in Chittranjan Thakkar, et al v. Bay Point Capital Partners, LP is available at:  Link to Opinion.

The appellant and a corporate borrower had loans with a bank.  After the borrower filed for bankruptcy, the appellant and the borrower entered into an agreement with the bank regarding the debt owed on the loans. 

The agreement secured the loans with two properties. The agreement included a deed-in-lieu of foreclosure remedy which gave the bank the option upon default to record one or more of the deeds in lieu of foreclosure to transfer title of the two properties. The agreement also allowed the bank to foreclose the loans after a default.

The bank sold its interest in the agreement to a company. The borrower defaulted on the loans. The company then recorded both deeds and foreclosed on both loans. The borrower tried to tender the amounts owed before the foreclosure sale, but the company did not respond and sold the properties.

The appellant sued the company in state court and added the borrower as a party in an amended complaint. The appellant alleged that the borrower owned the properties, but claimed that he was affiliated with the borrower and that he had a beneficial interest in the two foreclosed properties. The amended complaint alleged that the company wrongly foreclosed on two properties causing the appellant to lose the collateral’s value exceeding the debt balance, and to suffer mental anguish.

The company removed the case to bankruptcy court and promptly moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c).  The bankruptcy court granted the company’s motion and entered judgment in favor of the company.  The district court subsequently affirmed the bankruptcy court’s judgment.

This appeal followed.

Before the Eleventh Circuit issued its opinion, the borrower and the company settled.  The Eleventh Circuit granted the borrower’s motion to dismiss its appeal leaving the appellant to challenge the foreclosures.

The Eleventh Circuit began its analysis by examining whether the appellant had standing. As you may recall, Article III standing “represents a jurisdictional requirement which remains open to review at all stages of the litigation.” Standing requires “an injury in fact—an invasion of a legally protected interest which is (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical.” Further, a particularized injury “affect[s] the plaintiff in a personal and individual way.”

A plaintiff must allege facts sufficient to demonstrate every element of standing. Spokeo, Inc. v. Robins578 U.S. ___, 136 S. Ct. 1540, 1547 (2016). Mere “conclusions,” or “naked assertions devoid of further factual enhancement” will not confer standing. Instead, the plaintiff must allege sufficient facts so that the right to relief is not speculative.

The Eleventh Circuit noted that when the only “party with standing in the lower court is absent as an appellant,” a party that lacks standing many not “piggyback on another party’s standing.”  Instead, the remaining party must demonstrate its own standing.

Here, the borrower had standing as the alleged owner of the two properties, but “its absence as an appellant requires that we examine our jurisdiction to entertain this appeal.” The appellant alleged that the foreclosure on the two properties somehow caused “him to lose the collateral’s value exceeding the debt balance, and to suffer mental anguish.” 

However, he also alleged that the borrower owned the properties and alleged no facts to demonstrate any “beneficial interest” that he may have had in the two properties. Without any specifically pleaded facts, the Eleventh Circuit could not say that any claimed loss the appellant suffered “is more than speculative.”  His “naked assertions devoid of further factual enhancement” failed to allege any actual injury that was personal to appellant.

The appellant also argued that his claimed mental anguish conferred standing because “[i]n a wrongful foreclosure action, an injured party may seek damages for mental anguish in addition to cancellation of the foreclosure,” quoting Blanton v. Duru, 543 S.E.2d 448, 452 (Ga. Ct. App. 2000). The Eleventh Circuit rejected this argument because unlike the foreclosed party in Blanton, the appellant did not allege that he owned the foreclosed properties. Rather, the amended complaint alleged that the borrower owned the properties. As such, Blanton does not help the appellant obtain standing because it “did not hold that a nonowner may seek damages for mental anguish.”

The appellant also argued that he has standing because: “1) he personally guaranteed the loans at issue; and (2) the property could satisfy or decrease his personal liability stemming from judgments that two creditors have against him individually.”  The Eleventh Circuit had little trouble rejecting these arguments because the appellant’s amended complaint did not make these allegations.  It is not apparent, the Court said, how the personal guarantee might harm the appellant when he is not a debtor in the bankruptcy and “the foreclosures satisfied the Settlement Agreement debt.”

In addition to Article III standing, the Eleventh Circuit has “adopted the person aggrieved doctrine as our standard for determining whether a party can appeal a bankruptcy court’s order.” In re Ernie Haire Ford, Inc., 764 F.3d 1321, 1325 (11th Cir. 2014). This standard is even more restrictive than Article III standing. “It ‘limits the right to appeal a bankruptcy court order to those parties having a direct and substantial interest in the question being appealed.’”  Thus, to appeal a bankruptcy order, a party must be “directly, adversely, and pecuniarily” affected by the order meaning it must “diminish his property, increases his burden, or impair his rights.”

Based on its aggrieved doctrine, the Eleventh Circuit also dismissed the appeal because the appellant “cannot clear the higher hurdle of showing that he is a person aggrieved.” The appellant did not allege a direct and substantial interest in the question appealed or allege that the dismissal order diminished his property, increased his burdens, or impaired his rights.

Thus, the Eleventh Circuit dismissed the appeal for lack of Article III standing.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.