Is Prudential Standing Jurisdictional and Immune from Waiver? — Circuit Split — Can Prudential Standing Be Divorced from Constitutional Standing & Assessed As a Non-Jurisdictional Issue Under Rule 12(b)(6)? (Raised but Undecided)

Martinez v. Bank of Am., N.A., 2016 U.S. App. LEXIS 20219 (3d Cir. Nov. 9, 2016):

Appellant Gelver Martinez appeals from orders of the District Court dismissing his complaint and denying his motion for reconsideration. We will affirm.

I.

This case concerns [*2]  a mortgage on real property in Passaic, New Jersey, and related foreclosure proceedings. On appeal, we accept as true Martinez's well-pleaded factual allegations. Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d 69, 73-74 (3d Cir. 2011).

According to Martinez, his mortgage was originated by First Residential Mortgage Services ("First Residential"), then was pooled with other loans, securitized and sold to a trust, for which Bank of America, N.A. ("BANA"), served as trustee. The promissory note secured by the mortgage was not deposited into the trust. Nationstar Mortgage ("Nationstar"), the loan servicer, did not timely notify Martinez of changes to certain characteristics of his mortgage. And Mortgage Electronic Registration Systems, Inc. ("MERS"), which served as nominee for First Residential, did not properly record the transfer of ownership interest in Martinez's property from First Residential and MERS to the trust. Martinez believed the foregoing conduct rendered his mortgage unenforceable.1

1   The chronology of Martinez's pleaded narrative ends here. We continue our background recitation using the Nationstar/MERS supplemental appendix (cited "App.").

In 2014, Nationstar filed a foreclosure complaint in the Superior Court of New Jersey, Chancery Division [*3]  (Passaic County). Nationstar alleged that Martinez was delinquent on his mortgage and, further, that it came into possession of the note and mortgage through two assignments: MERS to BANA; and BANA to Nationstar. Martinez answered the complaint, counterclaimed against Nationstar, and cross-claimed against BANA and MERS after joining them as third-party defendants. Martinez and Nationstar both moved for summary judgment. In June 2015, the state court denied Martinez's motion, granted Nationstar's, and transferred the action "back to the Office of Foreclosure to proceed as an uncontested matter." App. at 155-56. In November 2015, Martinez and Nationstar entered into a loan modification agreement.

In December 2015, Martinez filed this action against BANA, Nationstar, and MERS. His claims were, in essence, based on alleged defects in the securitization of the mortgage and the related transfers of ownership, described in relevant part above. Martinez requested money damages under a breach-of-contract theory, as well as a declaration under 28 U.S.C. § 2201 concerning the enforceability of the mortgage. He premised the District Court's subject matter jurisdiction on 28 U.S.C. § 1332(a).

MERS and Nationstar, joined by BANA (collectively, "Defendants"), [*4]  moved to dismiss Martinez's complaint under Fed. R. Civ. P. 12(b)(1) and 12(b)(6). Their motion asserted six bases for dismissal: (1) lack of subject matter jurisdiction, under Rooker-Feldman2; (2) res judicata; (3) collateral estoppel (4) New Jersey's Entire Controversy Doctrine; (5) lack of standing; and (6) mootness, in light of the loan modification.

2   D.C. Ct. of App. v. Feldman, 460 U.S. 462 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923).

The District Court granted Defendants' motion. It determined that Martinez's suit was barred by Rooker-Feldman, warranting dismissal under Fed. R. Civ. P. 12(b)(1). The District Court alternatively determined that Martinez's complaint failed to state a claim, warranting dismissal under Fed. R. Civ. 12(b)(6), because his allegations were "too conclusory and speculative" and because "it is clear within this District that a mortgagor does not have standing to allege [that] an assignment between two third parties is invalid." App. at 10.3 The District Court denied Martinez leave to amend and dismissed his suit with prejudice. Martinez unsuccessfully moved for reconsideration, and then timely appealed.

3   The District Court discussed Martinez's standing in the context of Rule 12(b)(6); i.e., not as a threshold jurisdictional issue. Cf. Lewis v. Alexander, 685 F.3d 325, 340 n.14 (3d Cir. 2012) (noting circuit split on whether prudential standing is jurisdictional and immune [*5]  from waiver). This appeal does not require us to decide whether prudential standing can be divorced from constitutional standing and assessed as a non-jurisdictional issue under Rule 12(b)(6) because, regardless of the answer, district courts are permitted to bypass jurisdictional inquiries in favor of other grounds for non-merits dismissal. See Davis Int'l, LLC v. New Start Grp. Corp., 488 F.3d 597, 604 (3d Cir. 2007).

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