Mortgage Electronic Registration Systems, Inc. v. James O. Estrella and Laura Estrella, Cronus Projects, Llc, Intervenor-Appellant
Docket: 04-2078
Court: Court of Appeals for the Seventh Circuit; November 22, 2004; Federal Appellate Court
Mortgage Electronic Registration Systems (MERS) initiated a lawsuit against James and Laura Estrella to recover $306,000 owed on a mortgage note. The district court directed the sale of the property, appointing a Special Commissioner to auction it. MERS instructed the Commissioner to start bidding at $245,000 and to bid up to the amount owed if necessary. However, the Commissioner sold the property to Cronus Projects for $252,000, deviating from MERS' instructions. MERS successfully argued against the confirmation of this sale, citing Illinois law that allows denial if "justice was not done." The district judge found the sale unjust due to the Commissioner’s errors and the potential for a $54,000 deficiency judgment against the Estrellas, resulting in an order for a second sale.
Cronus appealed the decision before the second sale could occur. Both parties indicated that 28 U.S.C. § 1291 permitted the appeal, but the court questioned the finality of the decision, noting that litigation was ongoing and that the outcome of the new sale would determine the final resolution. The court likened the situation to an order for a new trial, asserting that orders denying confirmation of judicial sales are not final decisions. Past case law supported this view, with previous decisions dismissing appeals from similar orders.
Additionally, the court criticized Cronus's attorney, Stephen D. Richek, for failing to research federal appellate jurisdiction before filing the appeal. It also noted that MERS' attorney, James V. Noonan, misrepresented the jurisdictional completeness of Richek's statement, despite being aware of the issue. Noonan had argued for a prompt second sale, emphasizing that the order was not final and thus not appealable, but he did not inform the court of the jurisdictional problem as required by the Federal Rules of Appellate Procedure.
Both Richek and Noonan neglected to inform the panel about jurisdictional issues despite a prior briefing order in a similar case, Wells Fargo Bank v. Padua. After the court questioned jurisdiction on July 1, 2004, and highlighted the significance of the Levin case on October 26, both attorneys failed to address the lack of jurisdiction in their subsequent filings and during oral arguments on November 5, where they expressed surprise at the jurisdiction being questioned. Their repeated concessions of lacking appellate jurisdiction, first prompted by the court, reflect poorly on their professionalism. They have received public chastisement for their performance. Furthermore, there may be issues with subject-matter jurisdiction, as MERS, which operates as a membership organization for lenders, is not the lender itself. The citizenship of MERS, a Delaware corporation with its principal place of business in Virginia, does not establish complete diversity with the Estrellas, who are citizens of Illinois. Relevant case law indicates that the principal's citizenship, not the agent's, determines jurisdiction, suggesting that federal jurisdiction may be questionable. The district court identified Prism Mortgage as the lender, raising further doubts about jurisdiction. The panel notes that these jurisdictional questions have not been adequately addressed by the parties and directs that the district judge prioritize resolving the issue of subject-matter jurisdiction.
If the litigation is determined to belong in federal court, the district judge must assess MERS's admission that Illinois law does not recognize the Commissioner as the lender's agent. The auction must be conducted by a neutral party, yet MERS attempted to exert control over the Commissioner. The rationale for allowing MERS a second auction is unclear, especially given its failed attempt to influence the auctioneer. If the Commissioner acted as MERS's agent, any mistakes would adversely affect MERS, raising the question of why Cronus should be penalized for MERS's representative's errors. The district judge has the authority to deny the lender a deficiency judgment if an auction's poor outcome results from the negligence of the lender or its agent. Although the court lacks appellate jurisdiction to review the district court's decision, it recommends that the judge reconsider the case if federal jurisdiction is established. The appeal has been dismissed due to lack of jurisdiction.
