McCarthy v. WPB Partners, LLC

          ORDER

          Landya McCafferty United States District Judge

         Mary Hersey McCarthy brings suit, alleging claims against WPB Partners, LLC (“WPB”) that arose from WPB's foreclosure and sale of McCarthy's mortgaged property. Following the court's orders on WPB's motion to dismiss and McCarthy's motion for summary judgment, see doc. nos. 10 & 27, the only remaining claims in this case are McCarthy's claims for violation of the duty of due diligence and violation of the duty of good faith.

         WPB now moves for summary judgment on those claims, ^[1] and McCarthy objects.

         STANDARD OF REVIEW

         A movant is entitled to summary judgment if it “shows that there is no genuine dispute as to any material fact and [that it] is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). In reviewing the record, the court construes all facts and reasonable inferences in the light most favorable to the nonmovant. Kelley v. Corr. Med. Servs., Inc., 707 F.3d 108, 115 (1st Cir. 2013).

         BACKGROUND^[2]

         Through a promissory note dated December 21, 2006, McCarthy, whose name was then Mary Hersey, borrowed $350, 000 from Investment Realty Funding, Inc. and signed a mortgage the same day to secure the loan. The mortgaged property was undeveloped land on Mirror Lake in Tuftonboro, New Hampshire (“the property”). WPB acquired the note and mortgage in August 2009 after Investment Realty filed for bankruptcy protection. When the note matured on December 21, 2009, WPB demanded payment. McCarthy failed to pay, and WPB began foreclosure proceedings, scheduling a foreclosure sale for October 22, 2010.

         I. Previous Litigation Regarding the Foreclosure

         On October 4, 2010, McCarthy filed an action in state court seeking a temporary restraining order to halt the foreclosure sale. The state court did not grant McCarthy's request for a temporary restraining order but did grant a preliminary injunction following a hearing. The state court then granted leave to McCarthy to amend her complaint to add new claims and leave to WPB to assert a counterclaim for breach of contract based on the note. WPB then removed the case to this court. See Hersey v. WPB Partners, LLC, 11-cv-207-SM (D.N.H. 2011).^[3]

         Once in federal court, McCarthy amended her complaint again, adding several claims. WPB then moved to dismiss the complaint. While that motion was pending, McCarthy notified the court that she had filed for bankruptcy relief under Chapter 13 in the bankruptcy court for the District of New Hampshire. See McCarthy I, doc. nos. 27 & 28; In re Mary Hersey McCarthy, 11-13342-JMD (Bankr. N.H. Apr. 6, 2012). Although WPB's counterclaim was initially stayed under 11 U.S.C. § 362, the bankruptcy court lifted that stay to the extent necessary to resolve the issues in McCarthy I, including determining the validity of WPB's mortgage. In re McCarthy, doc. no. 93 at 1. The court in McCarthy I also permitted McCarthy to continue prosecuting her claims against WPB after the bankruptcy trustee abandoned those claims on behalf of the bankruptcy estate. See McCarthy I, endorsed order, Jan. 4, 2013.

         In January 2013, WPB moved to dismiss all of McCarthy's claims, and McCarthy objected. The court granted WPB's motion to dismiss, in part, paring the claims remaining in the case to McCarthy's usury claim and WPB's breach of contract claim on the note.

         WPB then filed separate motions for summary judgment on each of the remaining claims. On February 11, 2014, the court issued an order granting both motions. With respect to the damages due on WPB's counterclaim, the court explained that “[f]ollowing a discussion with respect to the existence of any material dispute related to calculating the liquidated damages amount, the parties agreed that the amount of $443, 443.03, as of September 6, 2011 (a date contemporaneous with the filing of the bankruptcy petition) would be appropriate.” Doc. no. 64 at 4.^[4]The court then entered judgment in favor of WPB on its counterclaim for breach of contract and liquidated damages. McCarthy I, doc. no. 65. McCarthy appealed, and the First Circuit Court of Appeals affirmed the judgment on February 12, 2015.

         II. Permission to Foreclose

         WPB filed the summary judgment order in the bankruptcy court, forwarding a copy of the filing to McCarthy's counsel. See In re McCarthy, doc. no. 177. WPB then moved in the bankruptcy court for relief from 11 U.S.C. § 362(d)'s automatic stay to allow it to foreclose on the property. In support, WPB asserted that McCarthy owed it $576, 664.46 under the note, an amount which included the judgment in McCarthy I and the interest and costs that had accrued since September 6, 2011. In response, McCarthy argued that foreclosure was inappropriate because she had enough equity in the property to adequately protect WPB's interest.

         The bankruptcy court held a hearing on WPB's motion to foreclose. During that hearing, the parties presented evidence concerning the value of WPB's claim and the value of the property. In re McCarthy, doc. no. 244, at 3. WPB presented evidence showing that its secured claim now totaled $672, 079.24, including interest, attorneys' fees, and costs. Id. McCarthy did not present any evidence contesting these claims. Id. As for the value of the property, each side elicited expert testimony from an appraiser. Id. WPB's appraiser testified, consistent with his appraisal, that the fair market value of the property was $535, 000. Id. at 4. On the other hand, McCarthy's appraiser testified, consistent with her appraisal, that the value of the property was $900, 000. Id. at 5.

         The bankruptcy court granted WPB's motion for relief from the automatic stay, concluding that McCarthy had a less than 5% equity cushion in the property and that, as a result, WPB's secured claim against McCarthy was not adequately protected. Id. at 8. In doing so, the court concluded that WPB possessed a claim on McCarthy's estate for $672, 079.24, a figure which included the judgment in McCarthy I plus other interest, attorneys' fees, and costs. Id. at 3. The court accepted WPB's testimony concerning the claim because “[t]he debtor presented no evidence to the contrary.” Id.

         The court also concluded that the fair market value of the property was $705, 000. Id. at 8. The court's analysis into fair market value evaluated both appraisals, taking into consideration their respective strengths and weaknesses, as revealed by the direct and cross examination of the parties. Id. at 6-8. Based on the bankruptcy court's order, WPB initiated foreclosure proceedings on the property.

         III. The Auction

         WPB scheduled the foreclosure sale for March 20, 2016. It hired James R. St. Jean, a licensed auctioneer to conduct the auction. To market the auction, WPB published the legal notice of the sale in the New Hampshire Union Leader for three consecutive weeks. See R.S.A. 479:25, I. In addition to publishing the notice, WPB (or its agents) placed ads in the Boston Herald, the Manchester Union Leader, the New Hampshire Sunday News, the Laconia Citizen, and the Concord Monitor. Further, the sale was advertised on St. Jean's website and details of the sale were emailed “to over 7, 500 individuals on [St. ...