Citadel Realty, LLC v. Endeavor Capital North, LLC

NOTICE: All slip opinions and orders are subject to formal
revision and are superseded by the advance sheets and bound
volumes of the Official Reports. If you find a typographical
error or other formal error, please notify the Reporter of
Decisions, Supreme Judicial Court, John Adams Courthouse, 1
Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-
1030; SJCReporter@sjc.state.ma.us
16-P-735 Appeals Court
CITADEL REALTY, LLC vs. ENDEAVOR CAPITAL NORTH, LLC, & others.1
No. 16-P-735.
Suffolk. November 7, 2017. - March 19, 2018.
Present: Wolohojian, Massing, & Wendlandt, JJ.
Practice, Civil, Interlocutory appeal, Motion to dismiss,
Declaratory proceeding. Lis Pendens. Declaratory Relief.
Mortgage, Foreclosure, Discharge. Notice, Foreclosure of
mortgage. Real Property, Mortgage.
Civil action commenced in the Superior Court Department on
January 29, 2016.
A special motion to dismiss was heard by William F.
Sullivan, J.
Jonas A. Jacobson for the plaintiff.
Scott K. DeMello (Rosemary A. Traini also present) for the
defendants.
WENDLANDT, J. This appeal presents occasion to clarify the
scope of this court's review of an interlocutory order denying a
1 Endeavor Capital Funding, LLC (formerly known as Endeavor
Capital Trust Funding, LLC); Endeavor High Yield Mortgage Fund,
LLC; and Ricochet Real Estate, LLC.
2
special 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.
3
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 Endeavor
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 with 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.
2 Endeavor is the parent company of each of the defendants
Endeavor Capital North, LLC, Endeavor Capital Funding, LLC, and
Ricochet Real Estate, LLC, and a shareholder of the defendant
Endeavor High Yield Mortgage Fund, LLC. We hereafter refer to
the defendants collectively as the "Endeavor subsidiaries."
3 As part of the transaction, Citadel was formed with Lozano
as its sole member; Lozano assigned the property to Citadel.
4 The subsidiary was Capital Trust Funding, LLC, which
subsequently changed its name to Endeavor Capital Funding, LLC.
4
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
5 The Endeavor subsidiary was Endeavor Capital North, LLC,
which assigned the 2014 mortgage to another Endeavor subsidiary,
Endeavor High Yield Mortgage Fund, LLC.
6 The loan was also used to pay taxes and other payments due
on the property.
7 In a separate action, Lozano filed a complaint in Superior
Court, seeking an injunction to stop the foreclosure
proceedings. A judge of that court denied relief, and the
action was dismissed without prejudice in September, 2015.
5
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
In 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' failure 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 (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
8 Following the sale, EHYMF conveyed the property by
foreclosure deed to another Endeavor subsidiary, Ricochet Real
Estate, LLC. Ricochet commenced summary process actions in the
Housing Court against Lozano and his daughter, who raised a
defense that Ricochet was not the owner of the property because
the foreclosure sale was void, essentially arguing the same
grounds as presented in the verified amended complaint in this
action. Following trial on the summary process complaints,
judgments entered for Ricochet, and the Lozanos subsequently
appealed to this court. We affirm the summary process judgments
in a memorandum and order pursuant to our rule 1:28 issued
today. See Ricochet Real Estate, LLC v. Lozano, 93 Mass. App.
Ct. (2018).
6
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
9 Although the special motion to dismiss was filed under
G. L. c. 184, § 15, the Endeavor subsidiaries further argued
that they had "valid legal defenses pursuant to [r]ule
12(b)(6)." It is clear that, as a general matter, the denial of
a rule 12(b)(6) motion is not appealable until the ultimate
disposition of the case. See Brum v. Dartmouth, 428 Mass. 684,
687 (1999). See also Wright & Miller, Federal Practice &
Procedure § 1357, at 772 (3d ed. 2004) ("[A] denial of a motion
to dismiss does not produce a final judgment").
7
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 (2008). See Fabre v. Walton, 436 Mass.
517, 520-521 (2002) ("[A]bsent special authorization . . . an
appellate court will reject attempts to obtain piecemeal review
of trial rulings that do not 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 (1979), quoting from Vincent v. Plecker, 319 Mass. 560,
563 n.1 (1946). As a result, "the denial of a motion to dismiss
is ordinarily not an appealable order." Fabre, supra at 521.
One exception to this general rule arises from G. L.
c. 184, § 15(d), of the lis pendens statute, which provides that
10The judge originally dismissed the declaratory judgment
count of Citadel's complaint, but later clarified the dismissal
of that count was in error.
8
any party aggrieved "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 (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 un-
adjudicated 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 that its purpose of its framers may be
11In the case where the memorandum of lis pendens is
approved ex parte, G. L. c. 184, § 15(c), also permits an
aggrieved party to move to dissolve the memorandum.
9
effectuated." Galipault v. Wash Rock Invs., LLC, 65 Mass. App.
Ct. 73, 80 (2005), quoting from Hanlon v. Rollins, 286 Mass.
444, 447 (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; in
10
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
seeks 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 (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 conclusions 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
11
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, quoting from
Edwin R. Sage Co. v. Foley, 12 Mass. App. Ct. 20, 25-26 (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.
12Under the lis pendens statute, an action or claim is
frivolous if "(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." G. L. c. 184,
§ 15(c).
13We reject the Endeavor subsidiaries' additional argument
that the declaratory judgment count fails to set forth an actual
controversy between the parties. The amended complaint alleges
that the Endeavor subsidiaries purchased the property at an
artificially deflated price through a foreclosure sale that
discouraged competing bidders by failing to discharge the 2011
mortgage in violation of the duty of good faith and reasonable
diligence. As a result, Citadel asserts that it remains the
rightful owner of the property, to which the Endeavor
12
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 (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 also 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 also 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
subsidiaries now claim legal title. These allegations are
sufficient to state an actual controversy between the parties.
Pazolt v. Director of the Div. of Marine Fisheries, 417 Mass.
565, 569 (1994).
13
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 (1990) ("[T]he presence of an undischarged
14The Endeavor subsidiaries argue that EHYMF (the mortgagee
for the 2014 mortgage) did not have an obligation to discharge
the 2011 mortgage when it was paid; they argue that the
obligation belonged to ECF, the 2011 mortgagee. In contrast,
Citadel argues that EHYMF had a duty to discharge the mortgage
because EHYMF and ECF are effectively the same entity. The
record before the trial judge showed that both the 2011 and 2014
term sheets were signed by Endeavor, the parent/shareholder of
each of the Endeavor subsidiaries. Endeavor determined which of
its subsidiaries would be the mortgagee in 2011 and in 2014.
Endeavor knew that the 2014 refinancing paid the loan underlying
the 2011 mortgage. Each of the Endeavor subsidiaries has the
same managers, and in both 2011 and 2014, Lozano negotiated with
the same Endeavor employee. Given the stage of the litigation,
the judge did not abuse his discretion in determining that
Citadel's claim is not frivolous.
15The Endeavor subsidiaries also argue that any potential
bidder who saw the 2011 mortgage on the record title would not
have been discouraged from bidding because that bidder would
know that it would not "be bound to complete the purchase if
there are encumbrances, other than those named in the mortgage
and included in the notice of sale, which are not stated at the
sale and included in the auctioneer’s contract with the
purchaser." G. L. c. 244, § 14, as appearing in St. 2012, c.
194, § 1. While this may provide a basis for a defense that may
help show that, in fact, no bidders were dissuaded from bidding
on the property, it does not render Citadel's claim devoid of
any reasonable factual or legal basis. See Maglione v.
Bancboston Mort. Corp., 29 Mass. App. Ct. 88, 88-89 (1990).
14
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 Citadel's declaratory judgment count is devoid of
reasonable factual and legal support.16
Order denying special motion
to dismiss affirmed.
16The Endeavor subsidiaries' request for attorney's fees on
appeal is denied.