Federal National Mortgage Assn. v. Sharp

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NOT DESIGNATED FOR PUBLICATION

No. 118,972

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

FEDERAL NATIONAL MORTGAGE ASSOCIATION (FANNIE MAE),
Appellant,

v.

CAROL SHARP,
Appellee.

MEMORANDUM OPINION


Appeal from Wyandotte District Court; WILLIAM P. MAHONEY, judge. Opinion filed November
9, 2018. Reversed and remanded.

Tammee McVey, of SouthLaw P.C., of Overland Park, for appellant.

Carol A. Sharp, appellee pro se.

Before HILL, P.J., PIERRON and POWELL, JJ.

PER CURIAM: Federal National Mortgage Association (Fannie Mae) appeals the
district court's dismissal of its foreclosure action against Carol A. Sharp. After Fannie
Mae assigned the mortgage to Wilmington Savings Fund Society, FSB, d/b/a Christiana
Trust, not individually but as Trustee for Carlsbad Funding Mortgage Trust
(Wilmington), it moved to substitute Wilmington as a party. At about the same time,
Sharp moved to dismiss. The district court dismissed the foreclosure action, finding
Sharp would be prejudiced if it substituted Wilmington as a party and Fannie Mae no
longer had an interest in the litigation. We reverse and remand.

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In 2007, Sharp made and delivered a promissory note to Countrywide Bank, FSB
and made and delivered a mortgage securing the note. The mortgage was later assigned to
Bank of America, N.A. (BOA). In September 2012, BOA petitioned to foreclose on the
mortgage.

One month later, BOA assigned the mortgage to Fannie Mae. In March 2013,
BOA moved to substitute Fannie Mae as the plaintiff in the foreclosure action.

In August 2013, Fannie Mae moved for summary judgment. After some additional
discovery, Sharp responded to the motion in April 2014.

More than two years later, on June 22, 2016—without a ruling on the motion for
summary judgment—Fannie Mae moved for an order substituting Wilmington as the
party plaintiff because it had assigned the mortgage to Wilmington. The assignment of
the mortgage shows Fannie Mae assigned the mortgage on June 2, 2016, and the
assignment was recorded on June 15, 2016.

Eleven minutes after Fannie Mae filed the motion to substitute, Sharp filed a
motion to dismiss. She alleged Fannie Mae assigned the mortgage to Wilmington more
than two months prior but had not moved to substitute Wilmington as a party. She alleged
Fannie Mae failed to move to substitute within a reasonable time. Sharp also alleged the
extensive discovery would "amount to nothing" if Wilmington was substituted as a party.
She argued she would be prejudiced if the case was not dismissed.

The district court heard arguments on Sharp's motion to dismiss and Fannie Mae's
motion to substitute Wilmington as party plaintiff, took the matter under advisement, and
subsequently issued a written opinion. It granted the motion to dismiss and denied Fannie
Mae's motion for summary judgment.

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Fannie Mae moved to alter or amend the judgment. The district court denied the
motion. Fannie Mae appealed.

Fannie Mae challenges the district court's dismissal with prejudice. It argues the
court erred by dismissing the foreclosure action with prejudice for lack of standing, but
the court did not mention standing in its order of dismissal. Instead, the court dismissed
Fannie Mae's foreclosure action for four reasons:

"1. No motion was filed to substitute for nearly two months after an assignment was
made. Nothing was done and more than a reasonable amount of time has elapsed since
the assignment occurred.
"2. The Defendant has engaged in extensive discovery and will be prejudiced if forced to
proceed against a new Plaintiff.
"3. The discovery originally sought from Fannie Mae will not apply to Wilmington,
which will result in further delays and expense in litigation.
"4. The Response to the Motion for Summary Judgment will have to be modified and
rewritten, causing more delay and expense for Defendant."

"'The important distinction between the handling of a motion to dismiss on the
one hand and a motion for summary judgment on the other is that in the former the trial
court is limited to a review of the pleadings, while in the latter, the trial court takes into
consideration all of the facts disclosed during the discovery process—affidavits,
depositions, admissions, and answers to interrogatories. Thus, a party opposing a motion
for summary judgment may point to or provide depositions, affidavits, or other
documents to demonstrate that there are genuine issues of material fact, necessitating a
trial.'" Keiswetter v. State, 304 Kan. 362, 367-68, 373 P.3d 803 (2016) (quoting Beck v.
Kansas Adult Authority, 241 Kan. 13, 26, 735 P.2d 222 [1987]).

When a district court considers matters outside the pleadings, appellate courts treat
the district court's decision as one granting summary judgment instead of a motion to
dismiss. HM of Topeka v. Indian Country Mini Mart, 44 Kan. App. 2d 297, 300, 236 P.3d
535 (2010).
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Here, the district court considered matters outside the pleadings. It considered
Sharp's response to the motion for summary judgment. As a result, the summary
judgment standard applies.

"'Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as
a matter of law. The trial court is required to resolve all facts and inferences which may
reasonably be drawn from the evidence in favor of the party against whom the ruling is
sought. When opposing a motion for summary judgment, an adverse party must come
forward with evidence to establish a dispute as to a material fact. In order to preclude
summary judgment, the facts subject to the dispute must be material to the conclusive
issues in the case. On appeal, we apply the same rules and when we find reasonable
minds could differ as to the conclusions drawn from the evidence, summary judgment
must be denied.' [Citations omitted.]" Armstrong v. Bromley Quarry & Asphalt, Inc., 305
Kan. 16, 24, 378 P.3d 1090 (2016) (quoting Thoroughbred Assocs. v. Kansas City
Royalty Co. 297 Kan. 1193, 1204, 308 P.3d 1238 [2013]).

Furthermore, to the extent resolution of these issues requires statutory
interpretation, our review is unlimited. Neighbor v. Westar Energy, Inc., 301 Kan. 916,
918, 349 P.3d 469 (2015).

The district court granted Sharp's motion to dismiss in part because "[n]o motion
was filed to substitute for nearly two months after an assignment was made. Nothing was
done and more than a reasonable amount of time has elapsed since the assignment
occurred." Fannie Mae argues the court erred by finding it had to move to substitute
within a reasonable time. It also argues the court erroneously found it had waited more
than two months after assigning its interest to Wilmington before seeking to substitute
Wilmington. Finally, Fannie Mae argues the court's dismissal with prejudice served only
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to punish it and Wilmington for transferring the mortgage while the foreclosure action
was still pending. Fannie Mae's first argument is persuasive.

The district court erred when it dismissed Fannie Mae's foreclosure action because
Fannie Mae had not moved to substitute Wilmington as a party within "a reasonable
amount of time." K.S.A. 2017 Supp. 60-225(c) governs the substitution of parties after an
interest is transferred. It states, in relevant part: "If an interest is transferred, the action
may be continued by or against the original party unless the court, on motion, orders the
transferee to be substituted in the action or joined with the original party." (Emphasis
added.)

The most fundamental rule of statutory construction is that the intent of the
Legislature governs if that intent can be ascertained. State ex rel. Schmidt v. City of
Wichita, 303 Kan. 650, 659, 367 P.3d 282 (2016). When a statute is plain and
unambiguous, an appellate court should not speculate about the legislative intent behind
that clear language, and it should refrain from reading something into the statute that is
not readily found in its words. Ullery v. Othick, 304 Kan. 405, 409, 372 P.3d 1135
(2016).

Under K.S.A. 2017 Supp. 60-225(c)'s plain language, substitution is unnecessary.
The original party may continue to prosecute the action. Similarly, the statute does not
require a motion for substitution be filed within a "reasonable time" after the assignment
occurred in order for the assignee to continue the action. Further, K.S.A. 2017 Supp. 60-
225(a) states that, after a party dies, a motion for substitution of parties must be made
"within a reasonable time after service of a statement noting death" or the action must be
dismissed. If the Legislature had intended to require a motion for substitution within a
reasonable time after an assignment is made, the Legislature clearly knew how to require
it—the necessary language appears in K.S.A. 2017 Supp. 60-225(a). The plain language
of K.S.A. 2017 Supp. 60-225(c) does not require a motion for substitution of parties and
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makes no reference to any timing requirements for a motion for substitution after a
transfer of interest. Clearly, the Kansas Legislature did not intend to require a motion for
substitution within a reasonable time when a party transfers its interest in a case. The
district court erred when it dismissed Fannie Mae's foreclosure action for failing to move
to substitute Wilmington as a party within a reasonable time.

Even if K.S.A. 2017 Supp. 60-225(c) did require a motion for substitution within a
reasonable time of the assignment of a mortgage, the district court erred when it found
more than a reasonable amount of time had elapsed between Fannie Mae's assignment
and the motion to substitute. The letter attached to the motion to dismiss as Defendant's
Exhibit A shows the right to service Sharp's mortgage was assigned, sold, or transferred
effective May 2, 2016. The documents also appear to show Wilmington purchased the
loan effective March 30, 2016. However, the assignment of mortgage attached to the
motion for substitution shows an assignment date of June 2, 2016. It also shows the
assignment was recorded on June 15, 2016. Fannie Mae moved to substitute on June 22,
2016.

Fannie Mae moved to substitute Wilmington as a party within 7 days of the
recordation of the assignment and 20 days after it assigned the mortgage. While Fannie
Mae waited 84 days after selling Sharp's mortgage before moving to substitute
Wilmington as a party, it filed the motion within 20 days of assigning the mortgage and 7
days of recording the motion.

K.S.A. 2017 Supp. 60-225(c) does not require a motion to substitute parties when
a party transfers its interest during litigation. The statute certainly does not require a
motion to substitute be filed within a "reasonable time." Even if the statute did impose a
reasonable time requirement, Fannie Mae's motion to substitute—filed 20 days after
assignment of the mortgage and 7 days after the assignment was recorded—was filed
within a reasonable time of the transfer of interest. The district court erred when it
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granted Sharp's motion to dismiss because Fannie Mae did not move to substitute
Wilmington within a reasonable amount of time.

We note that Sharp would not have been prejudiced if forced to proceed
against Wilmington because Fannie Mae's discovery responses were admissible
against Wilmington.

The district court granted Sharp's motion to dismiss because Sharp had engaged in
extensive discovery and would be prejudiced if forced to proceed against a new plaintiff.
Similarly, it found the discovery sought from Fannie Mae would not apply to
Wilmington, which would result in further delays and expense in litigation. On appeal,
Fannie Mae argues the district court erred when it concluded Fannie Mae's discovery
responses would not apply to Wilmington.

A time-honored rule of law is that the assignee "'stands in the shoes of the
assignor.'" OXY USA, Inc. v. Colorado Interstate Gas Co., 20 Kan. App. 2d 69, 79, 883
P.2d 1216 (1994). As a result, "the obligations, defenses, etc., which burden the assignor
will equally burden the assignee." 20 Kan. App. 2d at 79-80. As assignee, Wilmington
stood in the shoes of Fannie Mae and was bound by the admissions and interrogatories
Fannie Mae had provided. Indeed, other courts have held an assignor's preassignment
declarations and admissions are admissible against the assignee. See Household Finance
Corp. v Mowdy, 13 Ill. App. 3d 822, 828, 300 N.E.2d 863 (1973); McMullin v. Borger,
806 S.W.2d 724, 731-32 (Mo. App. 1991); Johnson v. Riecken, 185 Neb. 78, 85, 173
N.W.2d 511 (1970). The discovery Sharp had obtained from Fannie Mae was admissible
against Wilmington. As a result, Sharp would not be prejudiced if she were forced to
proceed against Wilmington. The district court erred when it dismissed the foreclosure
action with prejudice because it incorrectly found the discovery sought from Fannie Mae
would not apply to Wilmington and Sharp would be prejudiced if forced to proceed
against Wilmington.
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Further, Sharp's response to Fannie Mae's motion for summary judgment
would not need to be rewritten because the district court had denied the motion.

The district court found Fannie Mae's arguments against dismissal lacked merit
because Sharp's response to Fannie Mae's motion for summary judgment would have to
be modified and rewritten, causing more delay and expense for Sharp. However, the
district court also denied Fannie Mae's motion for summary judgment. As a result, Sharp
would not need to modify and rewrite her response to Fannie Mae's motion for summary
judgment. There is no need to respond to a denied motion. This rationale does not support
a dismissal with prejudice. The district court erred when it granted Sharp's motion to
dismiss.

Reversed and remanded.