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Anybody can sue you for anything, particularly if you let them. And, according to a recent appellate case, you can even be sued by a company that no longer exists.

In Security Pacific National Bank v. Evans, a defunct bank was permitted to maintain a foreclosure proceeding against a homeowner who had defaulted on a mortgage.

How is that possible, you ask?

Well, ultimately, it all boiled down to the fact that the homeowner failed -- within the context of the case -- to timely object to the bank's status and thereby forfeited the right to question the bank's ability to bring the case.

In 1988, Tracie Evans obtained a loan from First Nationwide Bank, secured by a home mortgage on her cooperative apartment. One year later, this mortgage was assigned to the Security Pacific National Bank (Security Pacific). In 1992, Security Pacific merged with Bank of America National Trust and Savings Association (Bank of America), and Security Pacific ceased operations. After the merger, Evans defaulted on her mortgage. For some unknown reason, the foreclosure proceedings against Evans were commenced in the New York County Supreme Court by the defunct bank (rather than Bank of America). And, on July 21, 1994, the court granted Security Pacific's motion for summary judgment and entered a judgment of foreclosure against Evans.

Apparently, Evans refused to vacate the unit and a holdover proceeding in the New York County Civil Court ensued. Eventually, by stipulation of settlement, dated November 19, 1998, Evans agreed to surrender possession on April 19, 1999. Rather than leave, as represented, Evans moved the Civil Court for an order vacating the agreement on the grounds that the bank lacked the requisite legal ability or "capacity" to maintain a court case against her. When the Civil Court disagreed, Evans returned to Supreme Court and reiterated the "capacity" argument in that forum where the court was of the opinion that the defense had been waived. And, on appeal, the Appellate Division, First Department, concurred. As the AD noted:

The record, however, demonstrates that Evans waived the defense of lack of capacity. The issue of lack of capacity does not implicate the jurisdiction of the court; it is merely a ground for dismissal if timely raised as a defense ... The statute is clear that the defense of lack of capacity must be raised in a pre-answer motion to dismiss or the answer, or else it will be waived ... Here, despite the fact that the merger preceded the commencement of this action, Evans never moved to dismiss based on lack of capacity and never included such defense in her answer. Instead, she first raised the defense four years later in a related holdover proceeding commenced by plaintiff. Based on these undisputed facts, the defense was waived and she is barred from raising it in this action.
In a dissent, two Justices of the Appellate Division were of the opinion that the bank's "defunct" status, deprived the court of "subject matter jurisdiction." As the dissenters observed:
The majority's contention that the Court has jurisdiction because New York Supreme Court is of original, unlimited and unqualified jurisdiction is irrelevant to a resolution of the dispute. While it is true that New York Supreme Court has subject matter jurisdiction over foreclosure brought pursuant to the RPAPL, it is not competent to hear a suit brought by a nonexistent party, foreclosure or not, because there is no aggrieved party and thus no genuine controversy. The court has no subject matter jurisdiction where there is no genuine controversy.
We believe the majority got it right and that "subject matter jurisdiction" was not truly in controversy. (After all, the Supreme Court has the power to hear foreclosure disputes.) The issue was whether Evans had timely objected to an entity's capacity to maintain a lawsuit against her -- a waivable defense. Once waived, a litigant should not be permitted to resurrect "lost" claims or defenses in the guise of a "subject matter jurisdiction" argument. (Such an outcome would render provisions of New York Civil Practice Law and Rules -- such as, CPLR 3211 -- meaningless and ineffective.)

Hopefully, if this case makes it to the state's highest court, the Court of Appeals will afford litigants (and their counsel) some procedural certainty and affirm the AD's decision.

For a copy of the Appellate Division's decision in Security Pacific National Bank v. Evans


For our prior blog posts on "subject matter jurisdiction," please use the following links: Tenant Allowed to Challenge HPD's Decision in Housing Court , When Subject Matter Matters , Security Ain't Rent .