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Knope v. Green Tree Servicing, LLC

Supreme Court of Maine

May 11, 2017


          Argued: June 9, 2016

         Reporter of Decisions

          Patrick S. Bedard, Esq. (orally), Bedard & Bobrow, P.C., Eliot, for appellants Dorothy and Wayne Knope

          Cathy A. Mohan, Esq., and Richard Briansky, Esq. (orally), McCarter & English, LLP, Hartford, Connecticut, and Paul J. Greene, Esq., Global Sports Advocates, LLC, Portland, for appellee Green Tree Servicing, LLC


          ALEXANDER, J.

         [¶1] Dorothy and Wayne Knope appeal from a judgment of the Superior Court (York County, O'Neil, /.), following a non-jury trial. The judgment applied principles of unjust enrichment to determine that the Knopes are liable for certain charges beyond undisputed amounts of principal and interest owed pursuant to a promissory note owned by Green Tree Servicing, LLC. The note had been secured by a mortgage, but an assignment failed to convey to Green Tree all of the rights created by the mortgage.

         [¶2] The Knopes contend that the contractual relationship between the parties, as established by the note, bars application of rules of unjust enrichment to allow retention of funds that were obligations pursuant to the ineffective mortgage but were not obligations pursuant to the note. Because the trial court, in its decision, did not sufficiently distinguish charges that were obligations pursuant to the note from charges that were obligations only pursuant to the mortgage, we vacate the judgment and remand for the court to determine what amount, if any, Green Tree may retain pursuant to the note.

         I. CASE HISTORY

         [¶3] The following facts were either alleged in the Knopes' complaint and deemed admitted because a default was entered against Green Tree, see M.R. Civ. P. 8(d); Ireland v. Carpenter, 2005 ME 98, ¶ 18, 879 A.2d 35, or found by the trial court and supported by the evidence in the record at trial. In November 2004, Dorothy and Wayne Knope executed and delivered a promissory note for $324, 940 payable to GMAC Mortgage Corporation, to purchase a house in Eliot. The house was to be an income-producing property, not a residence for the Knopes. To secure the debt, the Knopes executed a mortgage deed to Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for GMAC Mortgage Corporation.[1] In early 2013, Green Tree purchased various assets and mortgage servicing rights from GMAC, including the Knopes' loan. MERS purportedly assigned the mortgage to Green Tree in April 2013, but because MERS had acquired only the right to record the mortgage, the assignment to Green Tree conveyed nothing more than that right. See Bank of America, N.A. v. Greenleaf, 2014 ME 89, ¶¶ 15-16, 96A.3d7OO.

         [¶4] In January 2013, the pipes in the second floor of the house burst, resulting in severe water damage that rendered the house uninhabitable. Faced with significant costs to repair the house, the Knopes did not make any further mortgage payments except for the escrow portion of two monthly payments. In May 2014, pursuant to 14 M.R.S. § 6301 (2016), the Knopes sent Green Tree a written demand for an accounting of their liability under the note and mortgage, but, as with earlier attempts at contact by the Knopes, Green Tree did not respond.

         [¶5] In May 2014, the Knopes filed a complaint against Green Tree, seeking a declaratory judgment as to the amount owed to Green Tree on their note and mortgage, an accounting pursuant to section 6301, equitable relief, and a determination of impracticability of performance because the Knopes had been unable to make payments due to the loss of rental income. Shortly after the Knopes filed this action, Green Tree commenced a separate action for foreclosure.

         [¶6] Green Tree failed to file a timely answer to the Knopes' complaint, and on the Knopes' motion, the clerk entered a default. See M.R. Civ. P. 55(a). After Green Tree moved unsuccessfully to set aside the default, the court ordered that a hearing be held to determine the relief available to the Knopes.

         [¶7] While this action was pending, but before the hearing was held, the Knopes repaired and then sold the property. Pursuant to an agreement reached by the parties, the foreclosure action was dismissed, and the Knopes paid to Green Tree both the undisputed portion of their debt on the note and, subject to the outcome of this action, additional amounts that were in dispute. Specifically, the Knopes paid to Green Tree $338, 892.45, which included (1) the amount that the parties agreed was owed for principal and interest on the note, and (2) an additional amount of $19, 265.68 charged by Green Tree but contested by the Knopes. The disputed amount represented reimbursements for payments that had been made by Green Tree: $14, 701.49 in property taxes and insurance on the property; $945 in property preservation fees; $2, 769.19 in "foreclosure fees"; and $850 in "legal fees." The parties agreed that they would litigate the question of whether Green Tree was entitled to retain all or part of that disputed sum.

         [¶8] The court held a non-jury trial in July 2015, where the Knopes pressed only their claim for a judgment declaring that Green Tree was not entitled to retain the disputed sum. The evidence included a copy of the promissory note, which the Knopes agreed had been owned by Green Tree before it was discharged. The note provided that in the event of a default, the holder of the note would be entitled to recover the costs and expenses of enforcing the note, including reasonable attorney fees. A mortgage deed was also admitted into evidence. The mortgage deed specified that the lender would be entitled to reimbursement for its payment of property taxes; hazard and property insurance; costs to secure and protect the property; and, in the event of nonpayment on the note, attorney fees and costs to foreclose.

         [¶9] The Knopes argued at trial that the mortgage assignment from MERS to Green Tree was not effective to convey the mortgage-based rights for reimbursement of expenses paid by Green Tree and that Green Tree was therefore not entitled to retain payments for expenses that were allowed only by the mortgage. Because the Knopes had not previously raised a question regarding the effectiveness of the assignment, and in light of Green Tree's assertion of surprise, the court granted Green Tree leave to submit additional evidence on the issue and granted the parties leave to file post-trial briefs.

         [¶10] In September 2015, the court issued a judgment in favor of Green Tree based on a theory of unjust enrichment. The court determined that the mortgage assignment from MERS to Green Tree was not sufficient to give Green Tree "contractual authority to enforce rights created by the mortgage." "[T]o avoid unjust enrichment, " the judgment allowed Green Tree to retain the entire disputed amount because Green Tree had paid expenses that were the Knopes' responsibility under the mortgage to protect Green Tree's "security interest, " and to keep the property saleable while the Knopes were in default. The Knopes timely appealed.


         [¶11] The Knopes challenge the court's application of unjust enrichment to award Green Tree the right to retain the disputed sum. We review both a default judgment and a declaratory judgment for abuse of discretion. See Richter v. Ercolini, 2010 ME 38, ¶ 18, 994 A.2d 404; Linnehan Leasing v. State Tax Assessor, 2006 ME 33, ¶ 30, 898 A.2d 408.

         [¶12] To prevail on a claim for unjust enrichment, the complaining party must show that "(1) it conferred a benefit on the other party; (2) the other party had appreciation or knowledge of the benefit; and (3) the acceptance or retention of the benefit was under such circumstances as to make it inequitable for it to retain the benefit without payment of its value." Maine Eye Care Assocs., P.A. v. Gorman, 2008 ME 36, ¶ 17, 942 A.2d 707 (citation omitted). In this way, the doctrine of unjust enrichment allows "recovery for the value of the benefit retained when there is no contractual relationship, but when, on the grounds of fairness and justice, the law compels performance of a legal and moral duty to pay." Paffhausen v. Balano, 1998 ME 47, ¶ 6, 708 A.2d 269.

         [¶13] The existence of a contractual relationship between the parties that addresses the sums in dispute "precludes recovery on a theory of unjust enrichment." Nadeau v. Pitman,1999 ME 104, ¶ 14, 731 A.2d 863; Paffhausen,1998 ME 47, ¶ 6, 708 A.2d 269. Thus, a limiting principle on the availability of restitution based on unjust enrichment is that "[a] valid contract defines the obligations of the parties as to matters within its scope, displacing to that extent any inquiry into unjust enrichment." Restatement (Third) of Restitution & Unjust Enrichment § 2(2) (Am. Law Inst. 2011) (emphasis added). The rationale behind this rule is that courts should not intervene to redefine rights and obligations that parties have already defined for themselves through a voluntary contract. See Wal-Noon Corp. v. Hill,119 Cal.Rptr. 646, 651 (Cal.Ct.App. 1975) ("[W]here the parties have freely, fairly and voluntarily bargained for ...

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