Caranchini v. Nationstar Mortgage LLC et al
Filing
128
ORDER granting 40 motion for sanctions against Plaintiff Gwen Caranchini and Plaintiff's Counsel Gregory Leyh. Signed on 9/2/21 by District Judge Greg Kays. (Law Clerk)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
GWENDOLYN G. CARANCHINI,
Plaintiff,
v.
NATIONSTAR MORTGAGE, LLC,
and MARTIN LEIGH, P.C.,
Defendants.
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Case No. 4:17-cv-00775-DGK
ORDER GRANTING MOTION FOR SANCTIONS
In 2006, Plaintiff Gwendolyn Caranchini took out a $300,000 loan secured by a mortgage
on her home. In 2009, Plaintiff stopped making payments on the loan. Since then she has filed a
series of meritless lawsuits against the various note holders, loan servicers, and trustees on the
deed of trust to prevent foreclosure.
The present case is Plaintiff’s fourth such lawsuit.
Two days before a scheduled
foreclosure sale, Plaintiff, by and through her Counsel Gregory Leyh (“Leyh”), sued loan servicer
Nationstar Mortgage, LLC (“Nationstar”), and successor trustee Martin Leigh, P.C. (“Martin
Leigh”).
Now before the Court is Martin Leigh’s Motion for Sanctions Against Plaintiff and Leyh.
Martin Leigh initially moved for sanctions under Missouri Rule of Civil Procedure 55.03 (“Rule
55.03”). Mot., ECF No. 40. In its reply brief, Martin Leigh argued that, by continuing in federal
court to advocate positions taken in state court prior to removal, Leyh is subject to sanctions under
Federal Rule of Civil Procedure 11 (“Rule 11”). 1 Reply Br. at 1–2, ECF No. 93. The motion is
In its reply brief, Martin Leigh’s also moved for sanctions under the Court’s inherent authority. Reply Br. at 10,
ECF No. 93. The Court declines to consider imposing sanctions under its inherent authority because Martin Leigh
failed to develop this argument in its briefing or during the sanctions hearing.
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GRANTED, and the Court holds as follows: (1) Plaintiff and Leyh knowingly made false
statements in the First Amended Verified Petition; (2) Leyh lacked a good-faith basis to allege
Martin Leigh owed a duty to investigate who held the Note before foreclosing; (3) Leyh knowingly
brought frivolous claims against Martin Leigh; and (4) Leyh brought these frivolous claims for the
improper purpose of defeating this Court’s diversity jurisdiction and delaying foreclosure
proceedings. The Court sanctions Plaintiff by ordering her to pay $5,000 of Martin Leigh’s
reasonable attorneys’ fees and costs. The Court sanctions Leyh and his law firm, Gregory Leyh,
P.C., by ordering them to reimburse Martin Leigh its reasonable attorneys’ fees and costs incurred
defending this litigation, including the cost of litigating the motion for sanctions, and to pay
$50,000 into the Court as a monetary penalty.
Standard
Rule 55.03 provides:
(c) Representation to the Court. By presenting and maintaining a
claim, defense, request, demand, objection, contention, or argument
in a pleading, motion, or other paper filed with or submitted to the
court, an attorney or party is certifying that to the best of the person’s
knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances, that:
(1) The claim, defense, request, demand, objection, contention, or
argument is not presented or maintained for any improper purpose,
such as to harass or to cause unnecessary delay or needless increase
in the cost of litigation;
(2) The claims, defenses, and other legal contentions therein are
warranted by existing law or by a nonfrivolous argument for the
extension, modification, or reversal of existing law or the
establishment of new law;
(3) The allegations and other factual contentions have evidentiary
support or, if specifically so identified, are likely to have evidentiary
support after a reasonable opportunity for further investigation or
discovery. An attorney providing drafting assistance may rely on the
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otherwise self-represented person’s representation of facts, unless
the attorney knows that such representations are false . . . .
Mo. Sup. Ct. R. 55.03(c)(1)–(3). Rule 55.03 imposes an objective standard of conduct. State ex
rel. Accurate Const. Co. v. Quillen, 809 S.W.2d 437, 440 (Mo. Ct. App. 1991).
The sanction a court may impose under Rule 55.03 is “limited to that which is sufficient to
deter repetition of the conduct or comparable conduct by others similarly situated.” Mo. Sup. Ct.
R. 55.03(d)(2). The sanction may include “directives of a nonmonetary nature, an order to pay a
penalty into court, or, if imposed on motion and warranted for effective deterrence, an order
directing payment to the movant of some or all of the reasonable attorney’s fees and other expenses
incurred as a direct result of the violation.” Id. When a party is represented, the sanction for
bringing a frivolous claim falls solely on the attorney. Mo. Sup. Ct. R. 55.03(d)(2)(A).
“Rule 11 of the Federal Rules of [Civil] Procedure is the source of Rule 55.03 and, with
the exception of one inconsequential sentence in the Federal Rule, Rule 55.03 is the virtual
equivalent of Federal Rule 11.” Quillen, 809 S.W.2d at 440; see also Dillard Dept. Stores, Inc. v.
Muegler, 775 S.W.2d 179, 186 (Mo. Ct. App. 1989) (“Rule 55.03 is substantially the same as
Federal Rule 11, and it is appropriate to look to that provision for construction.”). Hence,
“[f]ederal decisions construing Rule 11 are persuasive in applying Rule 55.03.” Quillen, 809
S.W.2d at 440.
Although the Eighth Circuit has not addressed whether a federal district court may issue
sanctions under Rule 55.03 for pleadings filed prior to removal, several federal courts of appeal
and the United Stated District Court for the Eastern District of Missouri have held a federal district
court may impose sanctions under a state court counterpart to Rule 11 for pre-removal conduct.
See Tompkins v. Cyr, 202 F.3d 770, 787 (5th Cir. 2000) (“If the state pleading rules [could not be
enforced in federal court], then nothing would govern the original pleadings in these cases, and a
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party who filed in bad faith might escape any penalty.” (citation omitted)); Griffen v. City of Okla.
City, 3 F.3d 336, 341 (10th Cir. 1993) (noting any other outcome “would mean that a plaintiff
could file utterly baseless papers in state court and escape sanctions that otherwise would have
been imposed on him by that court because . . . the defendant removed the case to Federal District
Court.” (citation omitted)); see also World Outreach Conference Ctr. v. City of Chicago, 591 F.3d
531, 538 (7th Cir. 2009); Davis v. MCI Commc’ns Servs., Inc., 421 F. Supp. 2d 1178, 1183 n.2
(E.D. Mo. 2006). And as the Court noted in its prior order, Caranchini v. Nationstar Mortg. LLC,
Case No. 4:17-CV-00775-DGK, 2019 WL 1519308, at *3 (W.D. Mo. Apr. 8, 2019), it finds federal
appellate authority holding it has power to issue sanctions under Rule 55.03 to be persuasive.
Rule 11(b) provides:
[b]y presenting to the court a pleading, written motion, or other paper-whether by signing, filing, submitting, or later advocating it--an attorney or
unrepresented party certifies that to the best of the person's knowledge,
information, and belief, formed after an inquiry reasonable under the
circumstances:
(1) it is not being presented for any improper purpose, such as to harass,
cause unnecessary delay, or needlessly increase the cost of litigation;
(2) the claims, defenses, and other legal contentions are warranted by
existing law or by a nonfrivolous argument for extending, modifying, or
reversing existing law or for establishing new law;
(3) the factual contentions have evidentiary support or, if specifically so
identified, will likely have evidentiary support after a reasonable
opportunity for further investigation or discovery
Fed. R. Civ. P. 11(b). Like Rule 55.03, Rule 11 imposes an objective standard of conduct. Isakson
v. First Nat. Bank, 985 F.2d 984, 986 (8th Cir. 1993) (“When determining whether a Rule 11
violation has occurred, a court must apply an objective reasonableness standard to determine
whether the pleading was frivolous, groundless, or advanced for an improper purpose.” (citation
omitted)).
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Like Rule 55.03 sanctions, Rule 11 sanctions are “limited to what suffices to deter
repetition of the conduct or comparable conduct by others similarly situated.” Fed. R. Civ. P.
11(c)(4). Rule 11 sanctions may likewise include “nonmonetary directives; an order to pay a
penalty into court; or, if imposed on motion and warranted for effective deterrence, an order
directing payment to the movant of some or all of the reasonable attorney’s fees and other expenses
incurred as a direct result of the violation.” Id. When a party is represented, Rule 11 sanctions for
bringing a frivolous claim fall solely on the attorney. Fed. R. Civ. P. 11(c)(5).
The Court generally does not consider arguments formally raised for the first time in a
reply brief. See Mahaney v. Warren Cnty., 206 F.3d 770, 771 n.2 (8th Cir. 2000). The Court will
do so in this case, however, because both rules apply the same standard, see Dillard Dept. Stores,
Inc. v. Muegler, 775 S.W.2d 179, 186 (Mo. Ct. App. 1989), and both rules apply here. 2 Thus any
of Plaintiff’s or Leyh’s conduct which runs afoul of Rule 55.03 necessarily runs afoul of Rule 11.
Most importantly, neither Plaintiff nor Leyh are prejudiced by the Court’s considering sanctions
under Rule 11 since their arguments against Rule 55.03 sanctions also serve as arguments against
Rule 11 sanctions. In fact, Plaintiff and Leyh cite to multiple cases imposing sanctions under Rule
11 and to the 1991 Committee Comments to Rule 11 as persuasive authority on whether and to
what extent the Court should impose a sanction under Rule 55.03. See Post-Hearing Br. at 9–11,
15, 17, 18, ECF No. 122.
Rule 55.03 applies here because Leyh filed the initial pleading in Missouri state court. Notice of Removal, ECF No.
1. Rule 11 applies here because, after removal, Leyh advocated for the initial pleading by arguing in a motion to
remand and his responses to the instant motion for sanctions that the claims were colorable. Mot. to Remand, ECF
No. 8; Suggestions in Opp’n., ECF No. 84; Post-Hearing Br., ECF No. 122; Suppl. Br., ECF No. 124.
2
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Background
Based on the record and the credible evidence presented at the sanctions hearing on October
13, 2020, the Court finds the following facts.
Creation of the Note and the Deed of Trust
On June 10, 2006, Plaintiff borrowed $300,000 from Aegis Lending Corporation (“Aegis”)
and executed an adjustable-rate note (“Note”) payable to Aegis in the original principal sum of
$300,000 with interest, until the Note matured on July 1, 2036. The Note explicitly provided it
could be transferred. As part of the transaction, Plaintiff executed and delivered to Aegis a deed
of trust (“Deed of Trust”), which granted the Note holder a security interest in Plaintiff’s home
(“the Property”). The Deed of Trust provided that the Note may be sold and the loan servicer
changed. It also provided for the removal and appointment of trustees on the Deed of Trust.
History of the Note and Deed of Trust
After Plaintiff executed the Note, Aegis transferred the Note and Deed of Trust to Aegis
Mortgage Corporation, which endorsed the Note in blank without recourse. Plaintiff’s loan was
then bundled with hundreds of other loans in the Merrill Lynch Mortgage Investors Trust Series
2006-HE5 (“MLMI Trust Series 2006-HE5”) pool of assets. The Note and Deed of Trust were
subsequently transferred to various loan servicers, trustees, and successor trustees.
The transfers relevant to this motion are as follows:
1. On November 2, 2007, Citibank, N.A., the trustee for MLMI Trust Series 2006-HE5,
removed Todd Hamby, the initial trustee of the Deed of Trust, and appointed Kozeny
& McCubbin, LLC (“Kozeny & McCubbin”), as successor trustee of the Deed of Trust.
Appointment of Successor Trustee, Ex. H to Suggestions in Supp. of Mot. for Summ.
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J., Caranchini v. Bank of Am., N.A., Case No. 4:10-CV-00672-DGK (W.D. Mo. Sept.
20, 2012), ECF No. 259-12.
2. On July 1, 2013, Bank of America (the loan’s servicer on that date), transferred its
duties as loan servicer to Nationstar. Janati Aff. ¶ 13, Ex. C to Suggestions in Supp. of
Mot. for Summ. J., ECF No. 32-3 at 3; see also Welcome Letter, Ex. C to Suggestions
in Supp. of Mot. for Summ. J., ECF No. 32-3 at 32.
3. At some point before June 28, 2016, “Wilmington Trust, N.A., as Successor Trustee to
Citibank, N.A., as Trustee for Merrill Lynch Mortgage Investors Trust, Mortgage Loan
Asset-Backed Certificates, Series 2006-HE5” (“Wilmington Trust”), became the Note
holder. Appointment of Successor Trustee, Ex. 4 to V. Pet., ECF No. 9-6 at 52.
4. On June 28, 2016, Nationstar, acting as Wilmington Trust’s attorney-in-fact, appointed
Martin Leigh as successor trustee of the Deed of Trust, replacing Kozeny & McCubbin.
Id. at 52–53.
Nationstar had physical possession of the Note on June 28, 2016 when it appointed Martin Leigh
successor trustee, and Martin Leigh obtained physical possession of the Note on July 26, 2016.
Nationstar remained the loan’s servicer and Martin Leigh remained the trustee on the Deed of
Trust through the remaining life of the loan.
Plaintiff’s History Litigating the Note and Deed of Trust
In 2009, Plaintiff defaulted under the Note and Deed of Trust by failing to make the
required monthly payments. Nevertheless, the Property was not foreclosed on until May 2019,
because Plaintiff filed a series of meritless lawsuits to delay the process and increase the cost of
foreclosure, dissuading the Note holder and others from foreclosing.
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Plaintiff, a disbarred attorney, 3 brought a pro se lawsuit (“Lawsuit I”) on April 29, 2010,
in the Circuit Court of Jackson County, Missouri, against a variety of entities who possessed or
interacted with the Note or Deed of Trust up to that point, including Bank of America, Aegis, and
the Mortgage Electronic Registration System, Inc. (“MERS”), all of whom were citizens of
different states than Plaintiff. Plaintiff’s petition brought claims for breach of a loan modification
agreement, injunctive relief to prohibit defendants from foreclosing on the property, and a
declaratory judgment quieting title in her favor. 4 Plaintiff primarily alleged that the Note and Deed
of Trust were not enforceable because of defects in transferring the Note and in communicating
with Plaintiff about these transfers and a potential loan modification.
Defendants removed the case to federal court on July 6, 2010, invoking the Court’s
diversity jurisdiction. Plaintiff then filed multiple motions to remand, all of which the Court
denied.
While this first lawsuit was pending, Plaintiff filed a second pro se lawsuit (“Lawsuit II”)
on September 20, 2010, in the Circuit Court of Jackson County, Missouri. Lawsuit II brought
claims that were substantially similar to those in Lawsuit I and some additional claims. Relevant
to the motion for sanctions, count three brought a breach of fiduciary duty claim against a new
defendant, Kozeny & McCubbin, a Missouri citizen, for its actions undertaken as trustee on the
Deed of Trust. Lawsuit II alleged that a trustee has a duty to investigate a property’s title, Kozeny
Prior to her disbarment, Plaintiff was repeatedly sanctioned for violating Rule 11. Another court in this district
previously sanctioned Plaintiff and her client for falsifying a document and knowingly offering it into evidence. The
court dismissed the client’s case, sanctioned Plaintiff $25,000, and sanctioned the client $8,882.50. See Pope v. Fed.
Express Corp., 49 F.3d 1327, 1328 (8th Cir. 1995) (upholding the district court’s sanctions under Rule 11). A federal
court in another district also sanctioned Plaintiff $50,000 for asserting a claim without conducting a reasonable inquiry
into whether it was well grounded in fact, advancing the action for an improper purpose, and needlessly increasing
the cost of litigation. White v. Gen. Motors Corp., Inc., 908 F.2d 675, 679–80 (10th Cir. 1990) (holding the district
court did not abuse its discretion in deciding to impose sanctions under Rule 11).
3
Notice of Removal, Caranchini v. Bank of Am., N.A., Case No. 4:10-CV-00672-DGK (W.D. Mo. July 6, 2010), ECF
No. 1; Pet., Case No. 4:10-CV-00672-DGK, ECF No. 1-2; Am. Pet., Case No. 4:10-CV-00672-DGK, ECF No. 1-3.
4
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& McCubbin breached this duty by failing to investigate, and, as a result, Kozeny & McCubbin
had placed a cloud on the title of her home, damaging her. 5
Defendants removed Lawsuit II to federal court despite the presence of Kozeny &
McCubbin, arguing Kozeny & McCubbin was a nominal party which Plaintiff fraudulently joined
to defeat diversity.
The Court agreed and denied Plaintiff’s motion to remand. 6
After
consolidating the two lawsuits, the Court granted Kozeny & McCubbin’s motion to dismiss,
holding Plaintiff failed to state a claim against it. Caranchini v. Bank of Am., N.A., Nos. 4:10-CV0672-DGK, 4:11-CV-0464, 2012 WL 1833396 (W.D. Mo. May 18, 2012) (“2012 dismissal”).
The Court observed in the 2012 dismissal that, under Missouri law, “[t]he duties and powers of a
trustee are fixed by the terms of the contract, namely, the deed of trust.” Caranchini v. Bank of
Am., N.A., 2012 WL 1833396, at *3. The Court held that, under the Deed of Trust, Kozeny &
McCubbin’s duties were limited to “giving notice of any foreclosure sale, selling the property at a
public auction to the highest bidder, conveying the property by trustees’ deed, and applying the
sale proceeds,” and did not include “an affirmative duty to investigate the property’s title or remove
any clouds that a third-party places upon it.” Id.
On September 26, 2013, the Court granted summary judgment to the remaining defendants
on all claims, finding that after Plaintiff executed the Note,
Aegis subsequently endorsed the Note to Aegis Mortgage
Corporation without recourse. Aegis Mortgage Corporation then
endorsed the Note in blank without recourse. Aegis Mortgage
Corporation transferred the Note to Merrill Lynch Mortgage
Notice of Removal, Caranchini v. Bank of Am., N.A., Case No. 4:11-CV-0464-DGK (W.D. Mo. May 4, 2011), ECF
No. 1; Second Am. Pet. at ¶¶ 50–55, Case No. 4:11-CV-0464-DGK, ECF No. 1-4. Notably, Plaintiff also pled that
“Removal to Federal Court is not available as Kozeny & McCubbin, one of the defendants, as well as the ‘mortgaged
residence’, are both Missouri Defendants making removal based upon diversity impossible.” Second Am. Pet. at ¶ 2,
Case No. 4:11-CV-0464-DGK, ECF No. 1-4.
5
Order Den. Mot. to Remand at 4–7, Caranchini v. Bank of Am., N.A., Case No. 4:11-CV-0464-DGK (W.D. Mo.
Nov. 28., 2011), ECF No. 41.
6
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Lending (“Merrill Lynch”). Pursuant to a Pooling and Servicing
Agreement (“PSA”), the Note was transferred to CitiBank, N.A., as
Trustee for the MLMI Trust Series 2006–HE5.
Caranchini v. Bank of Am., N.A., Nos. 4:10-CV-00672-DGK, 4:11-cv-0464, 2013 WL 5407206,
at *3 (W.D. Mo. Sept. 26, 2013) (granting the MERS Defendants summary judgment) (emphasis
added); see also Caranchini v. Bank of Am., N.A., Case No. 4:10-CV-00672-DGK, 2013 WL
6987190, at *3 (W.D. Mo. Sept. 26, 2013) (similar wording in order granting remaining defendants
summary judgment). Plaintiff then appealed, arguing the Court erred in denying her earlier
motions for remand. Caranchini v. Bank of Am. Nat. Ass’n, 566 F. App’x 549 (8th Cir. 2014).
On May 20, 2014, while her appeal was pending, Plaintiff filed a third pro se lawsuit
(“Lawsuit III”) in the Circuit Court of Jackson County, Missouri, seeking to prevent foreclosure.
This time she sued Nationstar and Kozeny & McCubbin. Her petition sought to quiet title in
Plaintiff’s home free and clear of the Deed of Trust, a declaratory judgment that the Note was null
and void, and a declaratory judgment that Kozeny & McCubbin was not a valid trustee. 7
Nationstar removed the case to federal court. Plaintiff moved for remand and Nationstar
moved to dismiss. While the motions were pending, the Eighth Circuit issued its order affirming
the Court’s denials of remand in Lawsuit II. Id. Plaintiff then voluntarily dismissed Lawsuit III
without prejudice. 8
Plaintiff’s Present Lawsuit
Plaintiff brought the present lawsuit, her fourth lawsuit challenging enforcement of the
Note and Deed of Trust, in Jackson County Circuit Court on August 15, 2017, two days before a
7
Notice of Removal, Caranchini v. Nationstar Mortg. LLC, Case No. 4:14-CV-00480-DGK (W.D. Mo. May 30,
2014), ECF No. 1; Pet., Case. No. 4:14-CV-00480-DGK, ECF No. 1-2.
Pl.’s Mot. to Dismiss, Caranchini v. Nationstar Mortg. LLC, Case No. 4:14-CV-00480-DGK (W.D. Mo. Sept. 3,
2014), ECF No. 17; Order Granting Mot. to Dismiss, Case No. 4:14-CV-00480-DGK (W.D. Mo. Sept. 23, 2014),
ECF No. 21.
8
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scheduled foreclosure sale of the Property. Pet., ECF No. 9-3. This time Plaintiff retained an
attorney, Leyh, to represent her. Along with her Petition, Plaintiff filed a motion for a temporary
restraining order, as well as preliminary and permanent injunctions. Pet., ECF No. 9-3; Mot. ECF
No. 9-1; Mem. In Supp., ECF No. 9-2.
The next day, the Jackson County Court granted Plaintiff’s preliminary injunction request
but required her to post a $5,000 bond. Order Granting Inj., ECF No. 9-4. That same day, Plaintiff
filed her First Amended Verified Petition (“the Verified Petition”) which is the operative pleading
in this case. V. Pet., ECF No. 9-6. Consistent with its being captioned a “Verified Petition,” the
last page contains a sworn statement from Plaintiff before a licensed notary that “she has read the
foregoing First Amended Verified Petition . . . and the facts contained therein are true and accurate
according to her best information, knowledge, and belief.” V. Pet. at 24.
The Verified Petition brought claims against Martin Leigh for negligent misrepresentation
(Count One) and violation of the Missouri Merchandising Practice Act (“MMPA”) (Count Three),
and claims against Nationstar for negligent misrepresentation (Count Two) and violation of the
MMPA (Count Four).
Relevant to the motion for sanctions, the Verified Petition alleged:
8.
Plaintiff does not owe any money pursuant to the terms of
the Note.
9.
Plaintiff is not in default on the Note.
10.
Plaintiff has not dishonored her Note.
...
14.
Defendants have no right or interest in or to the Promissory
Note.
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15.
Defendants are not and have never been the holder of the
Note, and have never had a right to enforce the Note.
16.
As is explained further in significant detail, [D]efendants are
not and have not been the owner of the Note, and have no
right to enforce the Note. Consequently, it is impossible for
plaintiff to be in default to [D]efendants.
...
34.
Upon information and belief, the original Note was not
transferred to Merrill Lynch Mortgage Investors Trust,
Series 2006-HE5 as required in order to allow Merrill Lynch
Mortgage Investors Trust, Series 2006-HE5 to enforce the
instrument in accordance with Section 400.3-301 RSMo.
V. Pet. ¶¶ 8–34. 9 In both a preliminary section captioned “Martin Leigh’s Breach of Duty” and in
the body of the negligent misrepresentation claim against Martin Leigh, the Verified Petition
alleged Martin Leigh breached a fiduciary duty to investigate who held the Note. V. Pet. ¶¶ 56–
59, 78–79.
The Verified Petition did not acknowledge the Court’s prior ruling that a successor trustee’s
duties under the Deed of Trust are limited to “giving notice of any foreclosure sale, selling the
property at a public auction to the highest bidder, conveying the property by trustees’ deed, and
applying the sale proceeds,” and “[do] not include an affirmative duty to investigate the property’s
title.” Nor did it plead that Plaintiff was seeking an extension, modification, or reversal of existing
law, or the establishment of new law.
Nationstar removed this case to federal court on September 14, 2017, alleging diversity
jurisdiction. It argued Martin Leigh’s citizenship should be ignored for purposes of evaluating
diversity because it had been fraudulently joined. Notice of Removal ¶¶ 6, 14–17, ECF No. 1.
9
These allegations are identical to those made in the initial, unverified Petition. Pet., ECF No. 9-3.
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Plaintiff subsequently moved for remand, arguing her claims were colorable for purposes
of fraudulent joinder analysis because no Missouri state court had ever granted a motion to dismiss
a negligent misrepresentation claim or MMPA claim against a successor trustee, and many such
motions had been filed in state court. Mot. for Remand, ECF No. 8.
The Court denied the motion to remand and dismissed the claims against Martin Leigh.10
The Court held Plaintiff’s negligent misrepresentation claim failed “based entirely on law
discussed or facts found in previous Caranchini cases.” Order, ECF No. 24 at 4. After reciting
from prior orders, the Court reiterated that, “[t]he Deed of Trust does not impose upon Martin
Leigh—the successor trustee—any duty regarding signing, filing, or recording documents about
the Property, or to investigate transfers of the Note.” Id. The Court also held Plaintiff’s MMPA
claim failed because a successor trustee’s “alleged failure to perform duties attendant to
foreclosure is not actionable under the MMPA.” Id. at 6. Thus, neither claim was colorable. Id.
On October 5, 2017, Martin Leigh served, but did not file, the pending motion for sanctions
against Plaintiff and Plaintiff’s Counsel Leyh. Mot. at 2. On November 7, 2018, counsel for Martin
Leigh met and conferred with Leyh, but were unable to resolve the issues raised in the motion. Id.
On November 16, 2018, Martin Leigh filed the pending motion. 11
The Court had the power to deny remand and dismiss the claims because under the doctrine of fraudulent joinder,
a court may “assume jurisdiction over a facially nondiverse case temporarily and, if there is no reasonable basis for
the imposition of liability under state law, dismiss the nondiverse party from the case and retain subject matter
jurisdiction over the remaining claims.” Caranchini v. Nationstar Mortg. LLC, Case No. 4:17-cv-775-DKG, 2018
WL 10613873, at *2 (W.D. Mo. Aug. 16, 2018) (quoting Murphy v. Aurora Loan Servs., LLC, 699 F.3d 1027, 1031
(8th Cir. 2012)).
10
Rule 55.03 requires a party seeking sanctions to serve the motion on the respondent at least thirty days before filing
the motion. Mo. Ct. R. 55.03(d)(1)(A). This “safe-harbor” provision allows a respondent to a prospective motion for
sanctions time to withdraw or correct the ostensibly offensive pleading. Rule 55.03 also states “[a] motion for
sanctions under this Rule 55.03 shall be made separately from other motions or requests and shall describe the specific
conduct alleged to violate Rule 55.03.” Id. By serving the motion, which describes Plaintiff’s and Leyh’s conduct,
on Plaintiff and Leyh more than thirty days before filing the motion in this Court, Martin Leigh complied with these
requirements.
The Court also finds Martin Leigh complied with the procedural requirements of Rule 11. Rule 11 requires
a party seeking sanctions to serve the motion on the respondent at least 21 days before filing. Fed. R. Civ. P. 11(c)(2).
11
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The motion requests the Court impose sanctions against Plaintiff and Leyh jointly and
severally in the amount of $100,000. It also requests they be ordered to pay at least $65,128 in
attorneys’ fees and costs incurred in defending this case from August 17, 2017 to April 16, 2019
and additional fees accrued between April 17, 2019, and the present. Reply at 10, ECF No. 93;
Aff., ECF 77-1.
While the motion for sanctions was being briefed, the Court granted Nationstar’s motion
for summary judgment. Caranchini v. Nationstar Mortg. LLC, Case No. 4:17-cv-775-DKG, 2019
WL 418119 (W.D. Mo. Feb. 1, 2019). Plaintiff appealed the grant of summary judgment in favor
of Nationstar, and the Eighth Circuit affirmed. Caranchini v. Nationstar Mortg. LLC, 785 F.
App’x 353 (8th Cir. 2019). Plaintiff did not appeal the dismissal of her claims against Martin
Leigh.
As a result of Plaintiff’s lawsuit, Martin Leigh postponed foreclosure on the Property for
nearly two years. Tr. at 10. Foreclosure finally occurred in May 2019. Tr. at 10, ECF No. 118.
Evidence Presented at the Sanctions Hearing
On October 13, 2020, the Court held a hearing on Martin Leigh’s motion for sanctions.
Plaintiff did not attend the hearing. Leyh appeared with counsel and testified.
Based upon his testimony at the sanctions hearing, the Court deems Leyh an untrustworthy
witness. The Court bases its credibility determination on a combination of factors, including his
evasiveness answering certain questions and his demeanor. At times during his cross-examination,
Martin Leigh met the safe-harbor requirement because it filed the instant motion more than 21 days after serving it on
Plaintiff and Leyh.
Rule 11 also requires “[a] motion for sanctions . . . be made separately from any other motion and . . . describe
the specific conduct that allegedly violates Rule 11(b).” Though Martin Leigh’s initial motion did not reference Rule
11, it did describe the specific conduct upon which Martin Leigh sought sanctions under a nearly identical provision.
Plaintiff and Leyh therefore had notice of the allegations and arguments upon which Martin Leigh sought sanctions
and had the opportunity to correct or withdraw the pleadings. See Coonts v. Potts, 316 F.3d 745, 753 (8th Cir. 2003)
(“Due process is satisfied if the sanctioned party has a real and full opportunity to explain its questionable conduct
before sanctions are imposed.”).
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it appeared Leyh had adopted a strategy of only conceding facts adverse to his position if they
could be proven. At times during his direct examination, his goal appeared to be to confuse,
obfuscate, and shift the Court’s focus to irrelevant issues, as evidenced by the number of times the
Court had to stop him from discussing tangential issues.
The Court also bases its credibility determination on Leyh’s testimony regarding his state
of mind in drafting the complaint. At Leyh’s request, Martin Leigh produced the Note to Leyh for
inspection in its office on August 14, 2017. Tr. at 5–6, 40. Leyh brought a flashlight and a
magnifying glass with him to the inspection so that he could examine the signatures on the Note.
Tr. at 5–6, 40–41. Leyh did not indicate that he noticed any inconsistencies or issues upon
inspection of the Note, nor did he testify to that effect. Leyh filed the Petition the next day, and
filed the Verified Petition the day after that. Both the original petition and the Verified Petition
alleged that Martin Leigh did not possess the Note. Tr. at 6; Pet., ECF No. 9-3; V. Pet., ECF No.
9-6. Leyh testified that he made this allegation because he was unable to tell whether Martin Leigh
possessed the actual Note or a forgery since he was “not a document examiner,” Tr. at 40–41,
despite that he routinely retained document examiners in his practice litigating foreclosure cases.
Tr. at 41. Leyh ultimately conceded at the hearing that the Note he examined on August 14, 2017
“must be the original.” Tr. at 41. Considering that on the day of the sanctions hearing, Leyh
possessed no more information about the Note’s authenticity than he did when he viewed the Note
in Martin Leigh’s office, the Court finds Leyh’s testimony regarding his state of mind in drafting
the complaint to be disingenuous.
Because certain portions of Leyh’s testimony support inferences adverse to his position,
the Court finds these portions of Leyh’s testimony to be credible. For example, Leyh testified that
Plaintiff came to see him in early 2016. When Plaintiff came to him, Leyh made it his business to
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read the Court’s prior orders, and he was “very aware” of the prior litigation. Tr. at 36–37. Leyh
also acknowledged receiving a payment history from Martin Leigh on or about June 22, 2016,
which showed that Plaintiff had not made a payment on the Note since 2009 and that she still owed
over $300,000 on it. Tr. at 5, 8, 96. The Court nonetheless deems Leyh an untrustworthy witness
on the whole.
Discussion
Martin Leigh moves for sanctions on six grounds: (1) Leyh used fraudulent joinder (that
is, knowingly filing frivolous claims to prevent removal to federal court) as an abusive litigation
tactic; (2) Plaintiff and Leyh lacked a good-faith basis for alleging the Note was not in default and
Plaintiff owed no debt under the Note; (3) Plaintiff and Leyh lacked a good-faith basis for alleging
Martin Leigh owed a duty to investigate who owned the Note; (4) Plaintiff and Leyh lacked a
good-faith basis to allege the Note was not transferred and could not be enforced; (5) Plaintiff and
Leyh lacked a good-faith basis to allege Martin Leigh had no right or interest in the Note; and
(6) Plaintiff’s and Leyh’s repeated challenges to the Note and Deed of Trust amount to harassment
of Martin Leigh and have needlessly increased the cost of litigation.
The Court addresses each of these claims below, first by analyzing those paragraphs in the
Verified Petition which Martin Leigh argues were alleged without adequate support, second by
considering whether Plaintiff and Leyh had a good-faith basis to allege Martin Leigh had a duty
to investigate, third by analyzing whether Plaintiff’s claims against Martin Leigh were frivolous,
and fourth by analyzing whether Plaintiff brought the claims against Martin Leigh for an improper
purpose. Finally, the Court orders a variety of monetary sanctions.
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I.
Plaintiff and Leyh made seven allegations in the Verified Petition that did not have
evidentiary support when made and were not likely to have evidentiary support after
further investigation.
Rule 55.03(c)(3) and Rule 11(b)(3) allow sanctions if factual contentions in a petition do
not have evidentiary support when made and are not likely to have evidentiary support after further
investigation. Martin Leigh contends the Court should sanction Plaintiff and Leyh because the
Verified Petition makes multiple false factual statements.
A.
The allegations in paragraphs eight through ten merit sanctions.
Martin Leigh contends Plaintiff and Leyh should be sanctioned for the allegations in
paragraphs eight, nine, and ten. These paragraphs allege:
8.
Plaintiff does not owe any money pursuant to the terms of the Note.
9.
Plaintiff is not in default on the Note.
10.
Plaintiff has not dishonored her Note.
V. Pet. ¶¶ 8–10.
These allegations are completely contrary to the Court’s prior ruling as well as Plaintiff’s
payment history. In granting summary judgment for defendants on September 26, 2013, in
consolidated Lawsuits I and II (“the September 26, 2013, summary judgment order”), the Court
found:
Plaintiff has defaulted and failed to fulfill her obligations under the Note and Deed
of Trust by failing to pay the required amounts of monthly principal and interest
under the Note when due from November 1, 2009 to the present. Plaintiff currently
owes $293,165.15 in unpaid principal, plus unpaid interest, escrow, fees and costs
which have continued to accrue since the default.
Caranchini v. Bank of Am., N.A., 2013 WL 6987190, at *3.
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Leyh argues 12 he was not collaterally estopped from pleading that Plaintiff was not in
default.
This argument is without merit. Traditionally, the doctrine of collateral estoppel, or issue
preclusion, precludes the same parties from relitigating issues which have been previously
adjudicated between them. See Oates v. Safeco Ins. Co. of Am., 583 S.W.2d 713, 719 (Mo. 1979).
The Missouri Supreme Court has extended this doctrine to allow “strangers to the prior suit to
assert collateral estoppel against parties to the prior suit to bar relitigation of issues previously
adjudicated.” Id. In determining whether collateral estoppel applies under such circumstances, a
court applying Missouri law 13 considers four factors:
(1) whether the issue decided in the prior adjudication was identical to the issue
presented in the present action; (2) whether the prior adjudication resulted in a
judgment on the merits; (3) whether the party against whom estoppel is asserted
was a party or was in privity with a party to the prior adjudication; and (4) whether
the party against whom collateral estoppel is asserted had a full and fair opportunity
to litigate the issue in the prior suit.
James v. Paul, 49 S.W.3d 678, 682 (Mo. 2001). Each case is analyzed on its own facts, and the
doctrine is not applied where doing so would be inequitable. Id.
As will be made clear in detail below, it is not inequitable to preclude Plaintiff and Leyh
from making these allegations. Thus, the Court looks to whether the four elements have been met.
Leyh argues that the 2011 order denying remand and the 2012 dismissal did not preclude Plaintiff and Leyh from
pleading that Plaintiff was not in default. Opp. at 11–14. However, Martin Leigh argues that the September 26, 2013,
summary judgment order precluded Plaintiff and Leyh from pleading that Plaintiff was not in default. Supp. at 16
(“By ignoring fundamental concepts of candor to the tribunal, Plaintiff and her counsel sought to avoid collateral
estoppel and the legal consequences of . . . Caranchini v. Bank of Am., N.A., 4:10-cv-00672-DGK, 2013 WL 6987190
(W.D. Mo. Sept. 26, 2013).”). Leyh does not indicate whether he believes the September 26, 2013, summary judgment
order precluded him from pleading that Plaintiff was not in default. Opp. at 11–14.
12
In this diversity action, Missouri law governs whether collateral estoppel applies. Hillary v. Trans World Airlines,
Inc., 123 F.3d 1041, 1043 (8th Cir. 1997) (holding collateral estoppel in a diversity action is a question of substantive
law controlled by state common law).
13
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Plaintiff and Leyh meet the first element because the Court’s September 26, 2013,
summary judgment order found Plaintiff had defaulted on the Note by failing to pay the required
amounts of principal and interest from November 1, 2009, to September 26, 2013. Caranchini v.
Bank of Am., N.A., 2013 WL 6987190, at *3. Whether Plaintiff defaulted on the Note by failing
to pay the required amounts of principal and interest from November 1, 2009, to September 26,
2013, is the same issue presented in this case. Plaintiff meets the second and third elements
because the Court already adjudicated the issue on its merits in a suit where she was a party.
Finally, Plaintiff had a full and fair opportunity to litigate the issues in the prior suit, meeting the
fourth element. Thus, collateral estoppel precludes Plaintiff and Leyh from pleading that Plaintiff
was not in default on the Note from November 1, 2009, to September 26, 2013.
Even if Plaintiff and Leyh were somehow not estopped from making these allegations,
since a federal court cannot grant a motion for summary judgment without a factual basis, the
September 26, 2013, summary judgment order put Leyh on notice that they lacked evidentiary
support and were not likely to have evidentiary support after further investigation. See Fed. R.
Civ. P. 56(c) (requiring a party moving for summary judgment to support the claim with admissible
evidence).
Further, regarding the allegation in paragraph nine, nothing happened after September 26,
2013, to give Leyh basis to allege Plaintiff was not in default at the time he filed the Verified
Petition. During the hearing, Leyh acknowledged that on June 22, 2016, he received a payment
history showing Plaintiff had not made a payment since 2009 and owed over $300,000 on the Note.
Nothing in the record indicates Leyh had reason to believe something occurred after June 2016,
such as Plaintiff making a payment or reaching an agreement with the Note holder, which might
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have removed the default. Indeed, if Plaintiff had been removed from default, presumably Leyh
would have known about it since he was representing Plaintiff at the time.
Leyh argues the allegation in paragraph nine was not false because whether a borrower is
in default is a mixed question of law and fact. He contends that under Missouri law, a person who
fails to make payments on their loan is not technically in default on their loan unless there is proof
that a person with a right to enforce the note possesses the original note. 14 Tr. at 33–34. He argues
that because it had not been proven who held the original Note at the time he filed suit, he was free
to allege that Plaintiff was not in default. Tr. at 34.
Related to this theory, Leyh argued during the hearing that in paragraph nine he meant
“default” in a technical sense as used in Missouri’s Uniform Commercial Code. He contends that
“until there’s proof of a person with a right to enforce the note . . . there can be no default under
the UCC. As counterintuitive as that may seem, that’s the law.” Tr. at 34. To support this, he
cites Mo Rev. Stat. §§ 400.3-310, 400.3-602. In his post-hearing brief, 15 Leyh changes his position
and argues that Missouri law has not addressed this question. He asserts,
Missouri law has not addressed, in the context of preparation of the
appointment of a foreclosure trustee, the effect of the interplay
between proof of debt holder status under Article 3—proof that the
entity claiming the right to enforce the note actually has the right to
enforce the note and proof of default/dishonor. Read together, the
relevant sections of Article 3 provide ample grounds to argue that
the foreclosure trustee has a responsibility to fully establish the debt
holder’s authority to appoint it before moving forward to enforce a
default.
During the sanctions hearing, Leyh cited Holm v. Wells Fargo Home Mortg., Inc., 514 S.W.3d 590 (Mo. 2017) as
support for this theory. Tr. at 32–33, 69. But Holm provides no such support. In Holm, the Missouri Supreme Court
upheld a trial court’s holding in a wrongful foreclosure action that the homeowners were not in default because they
were “making payments pursuant to a payment plan” and because the homeowners and Wells Fargo had entered into
an “enforceable reinstatement agreement” prior to the foreclosure sale. Holm, 514 S.W.3d at 599.
14
Although the Court ordinarily will not consider an argument raised for the first time in a post-hearing brief, it will
discuss it here to ensure it has addressed all Leyh’s arguments.
15
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Post-Hr’g Br. at 14–15, ECF No. 122 (citing Mo Rev. Stat. §§ 400.3-310(b)(2), 400.3-412, “400.3502(1),” and U.C.C. § 3-310 cmt. 3).
These arguments are without merit because both the legal and factual predicates for them
are false. Leyh’s attempt to define default as requiring proof that a person with a right to enforce
the note possesses the original note is not supported by Missouri Law or by a non-frivolous
argument for the extension of Missouri law. Under Missouri law, the terms of the contract define
default. See Bank of Mo. v. S. Creek Properties, LLC, 455 S.W.3d 47, 54 (Mo. Ct. App. 2014)
(“Both the deed of trust and the SBA loan provide Defendants would be in default if they failed to
make a payment when due.”); see also, Dobson v. Mortg. Elec. Registration Sys./GMAC Mortg.
Corp., 259 S.W.3d 19, 22 (Mo. Ct. App. 2008). Plaintiff’s Note defines default as failure to “pay
the full amount of each monthly payment on the date it is due.” Adjustable Rate Note, Ex. C to
Suggestions in Supp. of Mot. for Summ. J., ECF No. 32-3 at 6. Thus, Plaintiff was in default on
the Note regardless of who possessed it or could enforce it against her. The authorities cited by
Leyh, whether read together or separately, provide no support for Leyh’s theory. 16
Moreover, even if Leyh’s theory had some basis in Missouri Law, it would not apply to the
facts of this case. After Plaintiff executed the Note, Aegis transferred the Note and Deed of Trust
16
Mo. Rev. Stat. § 400.3-310(b) and U.C.C. § 3-310(b) cmt. 3 provide that if a note is dishonored and held by someone
other than the seller (that is, the original holder of the note), the seller cannot enforce the right to payment under the
sales contract because the right to payment “is represented by the instrument which is enforceable by somebody else
[i.e., the current note holder].” U.C.C. § 3-310(b) cmt. 3. Where, as here, “the seller sold the note . . . to a holder and
[the seller] has not reacquired it after dishonor, the only right that survives is the right to enforce the instrument.” Id.
In other words, only the note holder, which in this case is Wilmington Trust with Nationstar as its attorney-in-fact can
enforce the instrument. Aegis, as the seller and original holder of the Note, has no right of enforcement.
Section 400.3-412 which governs the obligations of the issuer of a note, cashier’s check, or draft, that is, a bank,
does not apply here.
Section “400.3-502(1)” does not exist. Leyh appears to be referring to § 400.3-502(a)(1), which applies when a
note is payable on demand, and thus is not applicable here.
Finally, Section 400.3-602 concerns when payment is made on an instrument, which includes a note. It states,
“an instrument is paid to the extent payment is made (i) by or on behalf of a party obliged to pay the instrument, and
(ii) to a person entitled to enforce the instrument.” Mo. Rev. Stat. § 400.3-602.
21
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to Aegis Mortgage Corporation, which endorsed the Note in blank without recourse. Thus,
whoever possessed the Note could enforce it. See U.S. Bank, N.A. v. Smith, 470 S.W.3d 17, 23
(Mo. Ct. App. 2015) (holding a note endorsed in blank is “enforceable by the bearer or holder of
the note.”). Though Leyh argues he had reason to believe that Martin Leigh did not possess the
original Note as the agent for the Note holder, as discussed above, this argument has no basis in
fact: Leyh knew when he filed the Verified Petition that Martin Leigh possessed the original
because two days before filing the Verified Petition he viewed it in Martin Leigh’s office with a
flashlight and a magnifying glass. It stands to reason that if Leyh truly believed there was an issue
with the Note’s authenticity, he would have retained an expert witness to examine it, as he testified
he had done in prior cases. He did not because he knew the Note was genuine and retaining an
expert would be pointless. Similarly, Leyh’s suggestion that, despite having no evidence the Note
was a forgery, he was free to allege Plaintiff was not in default because he was “not a document
examiner,” is a meritless post-hoc rationalization. The Court concludes there is no legal or factual
basis for Leyh’s “unknown Note holder” theory as a defense for alleging Plaintiff was not in
default.
Even if Leyh had some good-faith belief that Plaintiff was not in default as alleged in
paragraph nine, the Court would still sanction him for the allegations in paragraphs eight and ten
because they were baseless when made. Leyh concedes as much by his silence regarding these
assertions. He has not identified specific evidentiary support for either claim nor explained how
either claim was likely to have evidentiary support after further investigation. Nor could he: At
the time he filed the Verified Petition, Leyh knew Plaintiff had not made a payment on the Note
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since 2009 and owed over $300,000 on it, thus she owed money on the Note and had dishonored
it. 17
The Court concludes the allegations in paragraphs eight, nine, and ten did not have
evidentiary support when made and were not likely to have evidentiary support after further
investigation. Accordingly, Plaintiff and Leyh are sanctioned under Rule 55.03(c)(3) and Rule
11(b)(3) for the allegations made in these paragraphs.
B.
The allegations in paragraph thirty-four merit sanctions.
Martin Leigh also argues the allegations in paragraph thirty-four merit sanctions. This
paragraph states:
34.
Upon information and belief, the original Note was not transferred to
Merrill Lynch Mortgage Investors Trust, Series 2006-HE5 as required in
order to allow Merrill Lynch Mortgage Investors Trust, Series 2006-HE5 to
enforce the instrument in accordance with Section 400.3-301 RSMo. 18
V. Pet. ¶ 34. These allegations are contrary to the Court’s explicit ruling in the September 26,
2013, summary judgment order that “Plaintiff’s loan was one of hundreds of loans included in the
MLMI 2006-HE5 pool of assets,” as well as the Court’s implicit finding that the Note could be
enforced against Plaintiff. Caranchini v. Bank of America, N.A., 2013 WL 6987190, at *3.
A note is dishonored when the borrower fails to make a payment on the note on the day it is due. Mo. Rev. Stat.
§ 400.3-502(a)(3).
17
18
Mo. Rev. Stat. § 400.3-301 states:
“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder
in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of
the instrument who is entitled to enforce the instrument pursuant to Section 400.3-309 or 400.3418(d). A person may be a person entitled to enforce the instrument even though the person is not
the owner of the instrument or is in wrongful possession of the instrument.
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Leyh’s defense appears to be that collateral estoppel did not operate to prevent his client
from making these allegations. 19 He also suggests that because the Note had changed hands many
times, there was a chance it had been improperly transferred. But, as discussed above, Plaintiff is
estopped from relitigating the findings in the September 26, 2013, summary judgment order. Thus,
Plaintiff was estopped from pleading in this case that “the original Note was not transferred . . . as
required in order to allow Merrill Lynch Mortgage Investors Trust, Series 2006-HE5 to enforce
the instrument in accordance with Section 400.3-301 RSMo.”
Even if Plaintiff was not estopped from making this allegation, the September 26, 2013,
summary judgment order put Leyh on notice that the allegations in paragraph thirty-four lacked
evidentiary support and were not likely to have evidentiary support after further investigation.
There is no evidence in the record suggesting Leyh had any particular reason to think the Note had
not been transferred to Merrill Lynch Mortgage Investors Trust, Series 2006-HE5 as required to
enforce the Note in accordance with Missouri law. Leyh’s observation that in his experience such
notes are often improperly transferred or the original documents lost, does not trump the Court’s
findings in its September 26, 2013, summary judgment order.
The Court holds Plaintiff and Leyh lacked a good-faith basis to allege the Note was not
transferred and could not be enforced. Accordingly, Plaintiff and Leyh are sanctioned under Rule
55.03(c)(3) and Rule 11(b)(3) for the allegations in paragraph thirty-four.
C.
The allegations in paragraphs fourteen through sixteen merit sanctions.
Martin Leigh also contends Plaintiff and Leyh should be sanctioned under Rule 55.03(c)(3)
and Rule 11(b)(3) for the allegations in paragraphs fourteen, fifteen, and sixteen, which state:
Leyh does not specifically argue that collateral estoppel does not apply to this ruling, but it appears that is his
position. Again, to ensure it has addressed all of Leyh’s arguments, the Court analyzes whether collateral estoppel
applies to this ruling.
19
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14.
Defendants have no right or interest in or to the Promissory Note.
15.
Defendants are not and have never been the holder of the Note, and have
never had a right to enforce the Note.
16.
As is explained further in significant detail, defendants are not and have not
been the owner of the Note, and have no right to enforce the Note.
Consequently, it is impossible for plaintiff to be in default to defendants.
V. Pet. ¶¶ 14–16.
The September 26, 2013, summary judgment order included a finding that the Note had
been endorsed in blank. Caranchini v. Bank of America, N.A., 2013 WL 6987190, at *3. During
the hearing Leyh admitted that, on August 14, 2017, he inspected the Note in Martin Leigh’s office.
Thus, Leyh knew before he filed suit that Martin Leigh possessed the original Note as the agent of
the loan servicer, Nationstar. Because the Note had been endorsed in blank and Nationstar
possessed it, Leyh knew or should have known that as a matter of law Nationstar had the right to
enforce the Note against his client. See U.S. Bank, N.A. v. Smith, 470 S.W.3d 17, 23 (Mo. Ct. App.
2015) (holding a note endorsed in blank is “enforceable by the bearer or holder of the [n]ote.”).
As discussed above, Leyh’s defense—that the Note had changed hands many times before,
and despite viewing the Note in Martin Leigh’s office he could not be sure it was the original
because he was “not a document examiner,”—is meritless. The record plainly shows that
Nationstar had an interest in the Note, it was the holder of the Note, and it had a right to enforce
the Note.
Plaintiff and Leyh lacked a good-faith basis to allege in paragraphs fourteen, fifteen, and
sixteen that Martin Leigh had no right or interest in the Note. These allegations did not have
evidentiary support when made and were not likely to have evidentiary support after further
investigation. Plaintiff and Leyh are sanctioned under Rule 55.03(c)(3) and Rule 11(b)(3) for the
allegations made in these paragraphs.
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II.
Leyh lacked a good-faith basis to contend Martin Leigh owed a duty to investigate
who held the Note.
Martin Leigh also contends Plaintiff and Leyh should be sanctioned because they lacked a
good-faith basis for alleging Martin Leigh owed a duty to investigate who held the Note. Leyh
incorporated this alleged duty into the claim against Martin Leigh for negligent misrepresentation.
See V. Pet. at ¶¶ 49–64 (“Martin Leigh’s Breach of Duty”); V. Pet. at 77–78.
Rule 55.03 and Rule 11 authorize sanctions where legal contentions are not “warranted by
existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing
law or the establishment of new law.” Mo. Sup. Ct. R. 55.03(c)(2); see also Fed. R. Civ. P.
11(b)(2) (using virtually identical language). Sanctions are appropriate where “a reasonable and
competent attorney” would not believe the argument had legal merit. Coonts v. Potts, 316 F.3d
745, 753 (8th Cir. 2003) (explaining the standard for imposing sanctions under Rule 11), or where
a party “fail[s] to set forth colorable factual and legal arguments to support their claims.” Wolfchild
v. Redwood County, 824 F.3d 761, 771 (8th Cir. 2016).
Because the Court may not impose sanctions against a represented party for making a
frivolous legal contention, the Court only considers whether sanctions on this ground are
appropriate against Leyh. Mo. Sup. Ct. R. 55.03(d)(2)(A); Fed. R. Civ. P. 11(c)(5).
No reasonable and competent attorney would believe that Martin Leigh owed a duty to
Plaintiff to investigate who held the Note. The 2012 dismissal held that the successor trustee on
the Deed of Trust owes no duty to investigate who holds the Note, and collateral estoppel therefore
barred Plaintiff from relitigating this issue. In addition, when Leyh filed the Verified Complaint,
Missouri law firmly established that—unless required by the deed of trust—a trustee on a deed of
trust owes no duty to investigate who holds the note. Finally, no emerging trend in the law
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recognizing such a duty existed when Leyh filed the complaint, nor does any such trend currently
exist. Leyh is therefore sanctioned under Rule 55.03(c)(2) and Rule 11(b)(2).
A.
Collateral estoppel barred Plaintiff from relitigating whether a successor
trustee had a duty to investigate who held the Note.
This Court held in the 2012 dismissal that the Deed of Trust’s successor trustee does not
have a duty to investigate who holds the Note. Caranchini v. Bank of Am., N.A., 2012 WL
1833396, at *3. Collateral estoppel applies to this ruling and precluded Plaintiff from bringing
any claim premised on Martin Leigh owing a duty to investigate who held the Note. Again, the
Court finds here that it is equitable to apply the doctrine to this issue.
The first element of collateral estoppel, whether the issue in both cases is identical, is
satisfied because the Court held in its dismissal order that the successor trustee has no duty to
investigate who holds the Note. Id. That is the same issue presented here. Leyh’s argument that
the issue in this case is different because in the prior case Plaintiff was raising the issue in the
context of a breach of fiduciary claim, Opp’n to Mot. for Sanctions at 14, ECF No. 84, is
unavailing. While the claim in the prior case was different (a claim for breach of fiduciary duty
instead of a claim for negligent misrepresentation), the legal issue presented in both cases is the
same: whether a successor trustee has a duty to investigate who holds the Note.
The second element of collateral estoppel, whether the prior adjudication resulted in a
judgment on the merits, is also satisfied. “Generally, a dismissal without prejudice is not a final
appealable judgment.” Sexton v. Jenkins & Assocs., Inc., 152 S.W.3d 270, 273 (Mo. 2004). But
a claim dismissed without prejudice for failure to state a claim where the plaintiff does not plead
the claim further is deemed an adjudication of the claim on the merits by Missouri courts. Mahoney
v. Doerhoff Surgical Servs., Inc., 807 S.W. 2d 503, 506 (Mo. 1991). In the 2012 dismissal, the
Court dismissed Plaintiff’s claims against Kozeny & McCubbin for failure to state a claim, and
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Plaintiff did not make any further claims against Kozeny & McCubbin. Thus, for collateral
estoppel purposes, the prior dismissal operates as a judgment on the merits.
Finally, the third and fourth elements are present. Leyh does not dispute that Plaintiff was
a party to the 2012 dismissal 20 or that she had a full opportunity in that case to litigate a trustee’s
duty to investigate. Opp’n at 12–15 (arguing the first and second elements are not satisfied, but
not contesting the third and fourth elements).
Thus, Plaintiff was estopped from alleging Martin Leigh owed a duty to her to investigate
who held the Note.
B.
It was firmly established at the time Leyh filed the Verified Petition that a
trustee on a deed of trust does not have a duty to investigate who holds the
note.
Leyh’s argument that he should not be sanctioned because no Missouri appellate court has
rejected this theory, Opp’n at 6–9, is unpersuasive for two reasons. First, Leyh is incorrect: A
Missouri appellate court has rejected this theory. In Spires v Edgar, the Missouri Supreme Court
considered whether a trustee on a deed of trust owes an independent duty, not stated in a deed of
trust, to affirmatively investigate whether anything prevents foreclosure before initiating the
foreclosure process. 513 S.W.2d 372, 378 (Mo. 1974). In Spires, the note holder informed the
trustee that the borrower was delinquent and instructed the trustee to foreclose. The trustee then
foreclosed. The borrower subsequently sued the trustee, alleging the trustee was liable for
wrongful foreclosure because he was not delinquent on the note. The borrower claimed that, when
the noteholder directs the trustee to foreclose, a trustee owes a duty to the borrower to conduct an
Leyh’s contention that collateral estoppel does not apply because Martin Leigh was not a defendant in Lawsuit I is
meritless. There is no requirement the defendants be the same in both cases. James v. Paul, 49 S.W.3d 678, 682 (Mo.
2001) (stating the second element of collateral estoppel is “whether the party against whom estoppel is asserted was
a party . . . to the prior adjudication”) (emphasis added). In this case, Plaintiff was party to the prior adjudication, and
so Martin Leigh may assert collateral estoppel against her.
20
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investigation and find out whether the borrower is actually in default. Id. The Missouri Supreme
Court rejected this theory, holding “[t]he duties and power of a trustee are fixed by the terms of
the contract, namely, the deed of trust.” Id. at 378 (citation omitted). After determining that the
deed of trust contained no provision “for any investigation by the trustee,” the Spires Court
concluded that “in the absence of unusual circumstances known to the trustee, 21 [the trustee] may,
upon receiving a request for foreclosure from the creditor, proceed upon that advice without
making any affirmative investigation and without giving any special notice to the debtor.” Id. at
378–79 (emphasis added).
Leyh cites Spires for the proposition that “Missouri law recognizes certain duties of a
successor trustee” which “are not mentioned expressly in Borrower’s Deed of Trust but Missouri
law nevertheless demands them of a successor trustee.” Opp’n at 17–18. While literally true, this
is misleading: The unwritten duties Spires refers to are merely the general fiduciary duties of a
trustee in a deed of trust to “act with complete integrity, fairness and impartiality.” Spires, 513
S.W.2d at 378. These duties do not include a duty to undertake an investigation before foreclosing.
The Spires court explicitly held as much when it wrote that allegations that a “trustee knew or
should have known certain things by the exercise of reasonable diligence and inquiry are certainly
not equivalent to allegations of actual knowledge . . . that the trustee actually knew of anything
which should legally prevent the foreclosure when he was directed to act.” Id. at 378 (emphasis
added).
Second, even if the Missouri Supreme Court had not rejected this theory, just because an
appellate court has not rejected a proposed theory of liability does not mean it has legal merit. This
is particularly true where, as here, the facts and caselaw foreclose the theory. If the standard were
Such “unusual circumstances known to the trustee” are limited to “actual knowledge” of the existence of something
that would “legally prevent the foreclosure when [the trustee] was directed to act.” Spires, 513 S.W.2d at 378.
21
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as lenient as Leyh suggests, a litigant could file a patently frivolous claim repeatedly until it was
heard by an appellate court and the appellate court rejected the claim on the merits, a process which
could take years. Indeed, a savvy attorney who filed a frivolous claim but then dismissed it before
the trial court ruled on the merits, or who did not appeal an adverse ruling, could evade appellate
review indefinitely, effectively eliminating Rule 55.03(c)(2) and Rule 11(b)(2). The standard is,
given the facts and circumstances, whether a reasonable and competent attorney would believe a
theory has legal merit. On the facts and circumstances presented here, a reasonable and competent
attorney would not.
C.
Nor was there an emerging trend in the law recognizing such a duty.
Leyh’s argument that, at the time he filed suit, there was at least an emerging trend in the
law to recognize such a duty is likewise unavailing. The authority Leyh cites in support of this
proposition does not support it.
Leyh quotes from the Missouri Practice Series Missouri
Foreclosure Manual (“the Manual”). It states:
In an era when home loans are regarded as a commodity, they are traded as such,
often with faulty documentation. Assignments of deeds of trust are often missing
from the record, so that, to a title examiner, it might appear that a successor trustee
was appointed by a party who was not the holder of the indebtedness.
...
Trustees and their office staff can often avoid these problems by examining the title
report at an early date and comparing its information with that received from the
client. The most common problem to arise in the early stages is that the
appointment of the successor trustee is executed by someone who does not appear
to be the holder of the loan. If that is true, the appointment is invalid, and all acts
done by the purported successor are also invalid, resulting in a void sale.
Steven Max Todd, 38 Missouri Practice Series, Missouri Foreclosure Manual § 3:15 (2020). This
passage is an observation about potential best practices to avoid common problems in foreclosure.
It does not say anything about trends in the law, much less acknowledge a new duty owed by
trustees to borrowers to investigate the complete chain of title on a note. On the contrary, at the
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time Leyh filed the Verified Petition, the Manual explicitly stated a trustee has no such duty to
investigate.
Where the deed of trust, in defining the trustee’s duties, limits them to “giving
notice of a foreclosure sale, selling the property at a public auction to the highest
bidder, conveying the property by trustees’ deed, and applying the proceeds of the
sale,” the trustee has no duty to investigate the various transfers of the promissory
note and deed of trust.
Steven Max Todd, 38 Missouri Practice Series, Missouri Foreclosure Manual § 2:3 (2016)
(emphasis added). The Manual at the time even cited this Court’s prior order denying remand in
Lawsuit II as authority for the proposition that a trustee does not have a duty to investigate. Id. at
§ 2:3 n.11. The Manual’s guidance on this point has not changed to this day. See Steven Max
Todd, 38 Missouri Practice Series, Missouri Foreclosure Manual § 2:3 (2020).
The other authority cited by Leyh is no more persuasive. While testifying during the
sanctions hearing, Leyh suggested for the first time that Nationstar’s retention agreement with
Martin Leigh gave rise to an affirmative duty on Martin Leigh’s part to investigate the chain of
title on the Note before seeking foreclosure. 22 Tr. at 59–60, 64–66; Post-hearing Br. at 13, ECF
No. 122. Leyh argued the retention agreement demonstrated an evolving standard within the
mortgage servicing industry recognizing a trustee’s obligation to perform an independent chain of
title verification. In support, he quoted from a retention agreement between Nationstar and Martin
Leigh in another case. Tr. at 60–61. The portion of the agreement to which Leyh referred,
“[Section] 4.2 Legal Standing,” states as follows:
Firm shall not initiate a foreclosure, bankruptcy or other initial legal
action unless it has independently confirmed a valid chain of title
for both the mortgage and the note by review of all pertinent
Although the Court ordinarily will not consider an argument raised for the first time at a hearing, it will discuss it
here to ensure it has addressed all of Leyh’s arguments.
22
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documents and verification of appropriate standing of the party in
which Firm is initiating the legal proceeding. In order to accomplish
this Nationstar expects Firm to review all documents for adequate
note endorsements and proper chain of title. If any break in chain
of title exists Firm is to notify Nationstar immediately.
Ex. A to Firm Retention Agreement § 4.2, Hearing Ex. R17 (emphasis added). Section 4.2 goes
on to set out the timeframe in which Martin Leigh must notify Nationstar if it discovers certain
problems. It ends by stating, “Once a fee is approved, title clearing activities shall proceed until
resolved regardless of the status of any given action.” This language is found within a portion of
the document that explains what specific services Nationstar expects Martin Leigh will provide
and sets caps on the payments for such services.
Assuming that identical language could be found in the retention agreement governing
Defendants’ relationship in this case, the Court sees nothing in it which gives rise to an affirmative
duty owed by Martin Leigh to Plaintiff to investigate who held the Note. The fact that Nationstar
requires a successor trustee it hires to check the chain of title before initiating any legal action—
and thus incurring fees—suggests Nationstar does not want to waste money on legal actions where
it lacks standing, nothing more. It is not evidence of an evolving standard in the mortgage industry.
This is particularly true since there is no evidence in the record of what the industry standard was
prior to 2017, or if other loan servicers and trustees use similar language in their retention
agreements. It does not establish that Missouri law has evolved to hold that a successor trustee
owes a new duty to a borrower, independent of the language in the deed of trust, to perform a
complete investigation on a note’s chain of title before foreclosing.
As no reasonable and competent attorney would believe Martin Leigh owed a duty to
investigate who owned the Note before initiating foreclosure, or that Missouri law supported such
an extension of law, the Court sanctions Leyh under Rule 55.03(c)(2) and Rule 11(b)(2).
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III.
Leyh is sanctioned for knowingly bringing frivolous claims against Martin Leigh.
Related to the above, the Court holds sanctions should be imposed against Leyh under Rule
55.03(c)(2) and Rule 11(b)(2) because neither the negligent misrepresentation or the MMPA
counts brought against Martin Leigh were warranted by existing law or a nonfrivolous extension
of law on the facts of this case. Rule 55.03(c)(2) and Rule 11(b)(2) authorize sanctions where
claims are not “warranted by existing law or by a nonfrivolous argument for the extension,
modification, or reversal of existing law or the establishment of new law.” Mo. Sup. Ct. R.
55.03(c)(2); see also Fed. R. Civ. P. 11(b)(2) (using virtually identical language). Sanctions are
appropriate where “a reasonable and competent attorney” would not believe the argument had
legal merit, Coonts, 316 F.3d at 753, or where a party “fail[s] to set forth colorable factual and
legal arguments to support their claims.” Wolfchild, 824 F.3d at 771. The Notes of the Advisory
Committee on the Federal Rules of Civil Procedure provide some guidance in determining whether
an argument is “nonfrivolous” under Fed. R. Civ. P. 11(b)(2):
[e]stablishes an objective standard, intended to eliminate any empty-head pureheart justification for patently frivolous arguments. However, the extent to which
a litigant has researched the issues and found some support for its theories even in
minority opinions, in law review articles, or through consultation with other
attorneys should certainly be taken into account in determining whether paragraph
(2) has been violated. Although arguments for a change of law are not required to
be specifically so identified, a contention that is so identified should be viewed with
greater tolerance under the rule.
Fed. R. Civ. P. 11(b) advisory committee’s note to 1993 amendment. The advisory committee’s
notes are instructive as to whether an argument is “nonfrivolous” under both Rule 11 and Mo. Sup.
Ct. R. 55.03. Dillard, 775 S.W.2d at 186 (“Rule 55.03 is substantially the same as Federal Rule
11, and it is appropriate to look to that provision for construction.”).
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Because Rule 55.03(d)(2)(A) and Rule 11(c)(5) prohibit the Court from imposing
sanctions against a represented party for bringing a frivolous claim, the Court only considers
whether sanctions are appropriate against Leyh.
A.
The negligent misrepresentation claim against Martin Leigh was not
warranted by existing law or a nonfrivolous extension of law.
Count I brings a negligent misrepresentation claim against Martin Leigh. Under Missouri
law, there are five elements to a negligent misrepresentation claim. M & H Enters. v. Tri–State
Delta Chems., Inc., 35 S.W.3d 899, 904 (Mo. Ct. App. 2001). The two requirements relevant here
are: (1) whether “the speaker supplied information in the course of [its] business because of some
pecuniary interest;” and (2) whether this information was false “due to the speaker’s failure to
exercise reasonable care or competence in obtaining or communicating this information . . . .” Id.
(citation omitted).
The Verified Petition alleges that Martin Leigh, the speaker, provided information to
Plaintiff in the Appointment of Successor Trustee that Wilmington Trust was the Note holder and
was acting under the authority of the Deed of Trust to appoint Martin Leigh as successor trustee.
V. Pet. ¶ 78. The Verified Petition contends this statement is false because “the original Note was
not transferred to Merrill Lynch Mortgage Investors Trust, Series 2006-HE5 as required in order
to allow Merrill Lynch Mortgage Investors Trust, Series 2006-HE5 to enforce the instrument in
accordance with Section 400.3-301 RSMo.” V. Pet. ¶ 34. Leyh also argues information in the
Appointment of Successor Trustee is false because Nationstar subsequently “insisted it was the
debt holder, even if wrongfully in possession of the Note, and that it was legally entitled to enforce
the associated Deed of Trust by appointment.
However, Martin Leigh was appointed by
Wilmington, not Nationstar.” Opp’n at 11. Whether Wilmington or Nationstar was the Note
holder is important, Leyh contends, because it raises the question whether Martin Leigh’s
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appointment as successor trustee was valid, and thus whether all acts done by it as the successor
trustee are also invalid.
Id. at 11–12.
Leyh argues the allegedly false statements in the
Appointment of Successor Trustee gave rise to a colorable claim of negligent misrepresentation,
which he dubs the “appointment theory” of liability. Tr. at 56. Even if this theory were not
colorable, he argues, “there are colorable reasons why binding law could come to exist in
[Plaintiff’s] favor,” and “a credible argument can be made that Missouri law will develop in that
direction.” Opp’n at 9–10.
Given the record in this case, no reasonable and competent attorney would believe the
Appointment of Successor Trustee contained any falsehoods about the validity of Martin Leigh’s
appointment on which to base a negligent misrepresentation claim. As discussed above, the Court
previously ruled that the Note was transferred to MLMI Trust Series 2006-HE5, Leyh was aware
of this ruling, and Plaintiff was estopped from relitigating it. Further, the Appointment of
Successor Trustee plainly states: (1) Wilmington Trust is the Note holder; (2) Wilmington Trust
was appointing Martin Leigh as successor trustee under the Deed of Trust; and (3) Nationstar
executed the document as Wilmington Trust’s attorney-in-fact.
Appointment of Successor
Trustee, V. Pet. Ex. 4 at 52–53, ECF No. 9-6.
Nationstar’s purported comments about it being the debt holder do not support such a claim
either. Nationstar made the statements while arguing in the alternative in its brief in support of its
motion for summary judgment on Plaintiff’s negligent misrepresentation claim. 23 Nationstar was
not asserting it was, in fact, the owner of the Note, nor was it suggesting Wilmington Trust lacked
authority to appoint Martin Leigh as successor trustee. Nationstar was observing that even if the
Note had not been properly transferred to MLMI Trust Series 2006-HE5, it still had the legal right
The negligent misrepresentations claim brought against Martin Leigh is a mirror image of the negligent
misrepresentation claim brought against Nationstar. Compare V. Pet. ¶¶ 71–83, with V. Pet. ¶¶ 84–96.
23
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to enforce the Note because it possessed the Note and the Note was endorsed in blank. Suggestions
in Supp. of Mot. for Summ. J. at 11, ECF No. 32. Thus, “[b]y virtue of its mere possession of the
Note, Nationstar had the authority to appoint Martin Leigh as the Successor Trustee under the
Deed of Trust.” Id.
Leyh’s fallback position, that binding law could come to exist supporting his position, is
unavailing. Leyh cites three sources of support of this assertion: (1) the excerpt from the Manual
authored by Stephen Todd (“Mr. Todd”); (2) Nationstar’s retention agreement with Martin Leigh;
and (3) discussions he purportedly had with two experts in Missouri foreclosure law, Mr. Todd
and Dale Whitman. See Tr. at 62–64.
None of these three, either individually or collectively, are persuasive. As discussed above,
the Manual and retention agreement do not support this position. As for Leyh’s conversations
with these experts, Leyh testified that that he spoke with these experts at some point; he did not
testify that he actually discussed his theory that Martin Leigh’s appointment was invalid in this
case, or that they embraced it. Thus, Leyh has provided no information about what, if anything,
of relevance to the pending motion the three discussed. The Court is confident, however, that if
these experts had embraced his view that Martin Leigh’s appointment in this case was invalid,
Leyh would have communicated this to the Court.
The Court also notes Leyh has not provided any admissible evidence or expert affidavits
suggesting Martin Leigh’s appointment was invalid. Granted, during the sanctions hearing, Leyh
provided an affidavit from Mr. Todd that was submitted in a wrongful foreclosure action, Zahnter
v. Central Nat’l Bank, Case No. 10CY-CV13777 (Clay Cnty. Cir. Ct. Nov. 28, 2012). But this
affidavit demonstrates Martin Leigh’s appointment here was lawful. Mr. Todd noted, “In order
for an appointment of successor trustee to be effective it must be made by the owner of the note,
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or in the name of owner of the note by its authorized agent.” Todd Aff. ¶ 9, Hr’g Ex. R16 (emphasis
added). That is exactly what happened here: Nationstar executed the Appointment of Successor
Trustee as Wilmington Trust’s attorney-in-fact, that is, its agent.
Consequently, neither the Manual, retention agreement, nor purported conversations with
experts are credible evidence that Leyh researched the legal issues in good faith and found support
for this lawsuit before filing suit. On the contrary, Leyh’s various responses to the motion for
sanctions feel like extended post-hoc rationalizations.
Leyh also points to orders from nine Missouri state court cases wherein Leyh brought a
claim against a successor trustee for either breach of fiduciary duty or negligent misrepresentation
premised on his appointment theory, a defendant moved for summary judgment or to dismiss, and
the court did not grant the motion. These orders are not apropos of anything. One was decided on
procedural grounds, one was a summary judgment motion brought by a defendant who was not
the successor trustee (Leyh had already dismissed the successor trustee), and none of the others
explained the court’s reasoning. 24 In fact, three are merely docket entries. 25 Consequently, these
cases do not offer meaningful support for Leyh’s claim that Missouri courts have found these
claims colorable.
24
Plaintiff’s Counsel cited to McClain v. Landmark Equity Grp., Case No. 1716-CV03534 (Jackson Cnty. Cir. Ct.
Sept. 22, 2017); Odueko v. Millsap & Singer, P.C., Case No. 1616-CV25194 (Jackson Cnty. Cir. Ct. July 24, 2017);
Stagner v. Wells Fargo Bank, N.A., Case No. 16RY-CV00249 (Ray Cnty. Cir. Ct. Oct. 27, 2016); Hillebert v. Kozeny
& McCubbin, Case No. 1516-CV08004 (Jackson Cnty. Cir. Ct. Sept. 21, 2015); Daily v. Millsap & Singer, P.C., Case
No. 14AE-CV01101 (Platte Cnty. Cir. Ct. Oct. 15, 2014); Hartigan v. Handy, Case No. 14CY-CV02361 (Phelps Cnty.
Cir. Ct. Sept. 5, 2014); Pulliam v. CSM Tr. Foreclosure Corp., Case No. 1416-CV05207 (Jackson Cnty. Cir. Ct. Aug.
13, 2014); Hadley v. Millsap & Singer, P.C., Case No. 1316-CV16429 (Jackson Cnty. Cir. Ct. Feb. 24, 2014); Cuda
v. Bank of N.Y., Case No. 11 CY-CV04386 (Clay Cnty. Cir. Ct. Jan 14, 2014). Hadley was decided on procedural
grounds. In Zahnter v. Central Nat’l Bank, Case No. 10CY-CV13777 (Clay Cnty. Cir. Ct. Nov. 28, 2012), Leyh
voluntarily dismissed the successor trustee, and the non-successor trustee defendant brought a summary judgment
motion.
25
Daily, Case No. 14AE-CV01101; Hartigan, Case No. 14CY-CV02361; Cuda, Case No. 11 CY-CV04386.
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Leyh knew, or should have known, when he filed the Verified Petition that the information
alleged in it was false. He also knew, or should have known, that the negligent misrepresentation
claim was not warranted by existing law or a nonfrivolous argument for extending, modifying, or
reversing existing law.
B.
The MMPA claim brought against Martin Leigh was similarly not warranted
by existing law or a nonfrivolous extension of law.
Plaintiff’s MMPA claim against Martin Leigh stems from its allegedly (1) concealing from
Plaintiff that Nationstar allegedly lacked the right to foreclose, (2) failing to make a reasonable
inquiry that would have revealed that Nationstar lacked the right to foreclose, and (3) charging
unfair fees because they exceeded those allowed by investor and servicer guidelines. V. Pet. ¶¶ 99,
106–108, 111–12, 114–16. The MMPA makes unlawful the use of “unfair practice or the
concealment . . . of any material fact in connection with the sale or advertisement of any
merchandise in trade or commerce.” Mo. Rev. Stat. § 407.025.1.
At the time Leyh filed the Verified Petition, the Eighth Circuit, applying Missouri law, had
ruled that the MMPA did not apply to the trustee-borrower relationship. The Eighth Circuit held
that where, as here, a trustee on a deed of trust forecloses due to a borrower’s default, the trustee
is acting in a “narrow, contingent role” which is not connected with the “sale” of the loan. Wivell
v. Wells Fargo Bank, N.A., 773 F.3d 887, 895 (8th Cir. 2014). Thus, a borrower cannot bring an
MMPA against a successor trustee for foreclosing pursuant to the terms of the deed of trust. Id. at
895–96 (finding “no reasonable basis in fact and law” for a borrower’s MMPA claim against
trustee to a deed of trust for allegedly making false and misleading statements in connection with
the foreclosure); see also Dedrick v. Fed. Nat’l Mortg. Assoc., Case No. 12-CV-1425-SOW, 2013
WL 12146528, at *3 (W.D. Mo. May 7, 2013) (noting it was “firmly established” that an MMPA
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claim could not be brought against a successor trustee for allegedly concealing an absence of a
legal right to foreclose on a loan).
Leyh’s attempt to persuade the Court to dismiss Wivell as “instructive . . . at most,” Opp’n
at 9, is unavailing. Wivell is binding authority on this issue. Even if the Wivell decision were not
binding on the Court, the Court would follow its holding as persuasive authority. Wivell is a wellreasoned, unanimous decision by a panel of experienced jurists who were applying Missouri law
and predicting how the Missouri Supreme Court would rule if it were deciding the case. 773 F.3d
at 897 (acknowledging the court’s role in the case “is to interpret state law, not fashion it,” and
“[w]here the Missouri Supreme Court has not spoken, we must predict how the court would rule”).
Leyh’s suggestion that the negligent misrepresentation claim and the MMPA claim cannot
be frivolous because the Missouri Supreme Court has not yet rejected them is also unavailing.
Opp’n at 6–7 (“It will take a Missouri Supreme Court decision to provide a binding answer on
these claims in this Court. . . Because the Missouri Supreme Court has not yet spoken, binding
law does not exist.” (citations omitted)). The Court rejected a similar argument—that Leyh should
not be sanctioned because no Missouri appellate court has rejected his theory that a trustee has an
affirmative duty to investigate who holds the note before foreclosing—in Section II.B. above.
Similar reasoning applies here.
First, as a threshold matter, the Court has reason to believe that the Missouri Supreme Court
would reject these theories. Second, just because the Missouri Supreme Court has not rejected a
given theory of liability does not mean it has legal merit. This is particularly true where, as here,
the facts of the case and existing caselaw foreclose the theory. A reasonable and competent
attorney would not believe that either a negligent misrepresentation or an MMPA claim could be
brought against Martin Leigh here.
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Finally, the Court rejects Leyh’s intimation that either the negligent misrepresentation or
MMPA claims were warranted as a nonfrivolous argument for the extension of existing law or the
establishment of new law. Leyh suggests these claims were not frivolous because the Missouri
Supreme Court could someday hold that a trustee on a deed of trust can be sued for negligent
misrepresentation or rule that the MMPA applies to a trustee on a deed of trust. Opp’n at 7, 9–10.
Of course, it is possible that the Missouri Supreme Court will someday revisit existing caselaw
and recognize a previously unrecognized cause of action. But a mere hope for a future change in
the law does not meet the standard for a nonfrivolous argument for the reversal of existing law or
the establishment of new law. “Some support” is required. Fed. R. Civ. P. 11(b) advisory
committee’s note to 1993 amendment. The Court also notes that Leyh did not state in the Verified
Petition that it was seeking to extend, modify, or reverse existing law, or establish new law. While
there was no requirement that he do so, that he failed to do so despite his plain attempt to impose
a new legal duty on successor trustees hurts his contention that this lawsuit was a nonfrivolous
attempt to change the law.
Accordingly, the Court holds the negligent misrepresentation and MMPA claims were
frivolous. The Court sanctions Leyh under Rule 55.03(c)(2) and Rule 11(b)(2).
IV.
Leyh is sanctioned for bringing the claims against Martin Leigh for an improper
purpose.
The Court also sanctions Leyh for bringing the claims against Martin Leigh for an improper
purpose. See Mo. Sup. Ct. R. 55.03(c)(1); Fed. R. Civ. P. 11(b)(1). The record demonstrates Leyh
brought these frivolous claims against Martin Leigh to gain a perceived tactical advantage by
preventing removal to federal court. Filing a frivolous claim against an in-state successor trustee
to defeat diversity appears to be Leyh’s modus operandi when representing mortgagors against
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lenders. Leyh explained his decision to sue one such successor trustee, Millsap & Singer (a
Missouri citizen), for breach of fiduciary duty and violations of the MMPA, as follows:
I sue—I’ve been suing in the foreclosure arena for eight, ten years. I’m surprised
it’s only 20 times that Millsap has been on the other end; Kozeny & McCubbin,
Southlaw, Shapiro & Weisman, and Kreisman & Mock, and all the variations of
the Shapiro firm. I don’t want your Honor to think I’m picking on Millsap. I spread
it around. So there’s that. Millsap is an in-state defendant, is a Missouri defendant.
The typical case, Judge, I have a client who wants to stay in their “home” —or
excuse me – “house.” Okay? Kid’s going to graduate from school in a year or two,
and they don't want to be evicted before then. I sue the servicer, Bank of America,
Wells Fargo, maybe the Wall Street Trust as well in this case, and then in-state
defendant who’s the successor trustee. Why do I do that? Because it’s like a
welcome mat to the State Court of courthouse [sic]. I can stay in State Court. What
happens when I’m in State Court, Judge? I get to do what I’m doing right now,
actually look a judge in the eye, stand in the well of the courtroom, and have the
Court listen to an argue [sic]. I can’t do that in Federal Court. Federal Court is all
paper. It’s all—you know, the clerks decide things. So when my loan modification
comes in for my client, they get to keep the house. They get the cash. And I get
all kinds of results from large six-figure settlements, seven-figure settlements, lots
of loan modifications. I then exit the house and wipe my feet on the welcome mat
that either Kozeny or Millsap & Singer placed and I dismiss the trustee because my
client has what it wants, to stay in the house. So that’s the end game.
Hr’g Tr. from Stagner v. Wells Fargo Bank, N.A., Case No. 16RY-CV00249 at 25–26 (Ray Cnty.
Cir. Ct. March 23, 2018), Hr’g Ex. P7. Leyh does not even attempt to argue he has a colorable
claim against the successor trustee. He admits he sues the successor trustee to prevent removal,
and that once he extracts a settlement from the other defendants, he dismisses the claims against
the successor trustee.
Leyh’s history litigating fourteen similar cases in this Court corroborates that his statement
to the Stagner court was a candid admission, not a misstatement. In each of these cases, Leyh
brought a combination of claims in state court for breach of fiduciary duty, violation of the MMPA,
or negligent representation against the in-state successor trustee. The defendants then removed to
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this Court, alleging fraudulent joinder. The Court then found fraudulent joinder or dismissed the
complaint against the in-state successor trustee in seven of these cases. 26 In another six, 27 Leyh
Notice of Removal, McCormies v. PennyMac Loan Services, LLC, Case No. 5:18-cv-06003-GAF (W.D. Mo. Jan.
9, 2018), ECF No. 1 (removing to federal court alleging the plaintiff fraudulently joined the Missouri successor
trustee); Order, Case No. 5:18-cv-06003-GAF (W.D. Mo. May 31, 2018), ECF No. 30 (holding that claims against
the Missouri successor trustee for violation of the MMPA, breach of fiduciary duty, and negligent misrepresentation
were frivolous and therefore the plaintiff fraudulently joined the Missouri successor trustee); Notice of Removal,
Bowen v. The Bank of New York Mellon, Case No. 5:13-cv-06070-BCW (W.D. Mo. May 22, 2013), ECF No. 1
(removing to federal court alleging the plaintiff fraudulently joined the Missouri successor trustee); Order, Case No.
5:13-cv-06070-BCW (W.D. Mo. Aug. 30, 2013), ECF No. 45 (holding that claims against the Missouri successor
trustee for breach of fiduciary duty and negligent misrepresentation were frivolous and therefore the plaintiff
fraudulently joined the Missouri successor trustee); Notice of Removal, Phillips v. HSBC Bank USA, N.A., Case No.
4:13-CV-00428-BP (W.D. Mo. Apr. 29, 2013), ECF No. 1 (removing to federal court alleging the plaintiff fraudulently
joined the Missouri successor trustee), and Order, Case No. 4:13-CV-00428-BP (W.D. Mo. Oct. 21, 2013), ECF No.
41 (holding that claims against the Missouri successor trustee for violations of the MMPA and for breach of fiduciary
duty were frivolous and concluding the plaintiff fraudulently joined the Missouri successor trustee); Notice of
Removal, Dedrick v. Fed. Mortg. Ass’n, Case No. 4:12-CV-01425-DGK (W.D. Mo. Dec. 6, 2012), ECF No. 1
(removing to federal court alleging the plaintiff fraudulently joined the Missouri successor trustee); Order, Case No.
4:12-CV-01425-DGK (W.D. Mo. May 7, 2013), ECF No. 40 (holding that claims against the Missouri successor
trustee for breach of fiduciary duty and violation of the MMPA were not colorable and that the plaintiff fraudulently
joined the Missouri successor trustee); Notice of Removal, Gulotta v. Bank of America, N.A., Case No. 4:12-CV01335-BCW (W.D. Mo. Nov. 5, 2012), ECF No. 1 (removing to federal court alleging the plaintiff fraudulently joined
the Missouri successor trustee); Amended Order, Case No. 4:12-CV-01335-BCW (W.D. Mo. Aug. 30, 2013), ECF
No. 59 (holding that claims against the Missouri successor trustee for a declaratory judgment, breach of fiduciary
duty, and for violation of the MMPA were not colorable and therefore the plaintiff fraudulently joined the Missouri
successor trustee); Notice of Removal, Royer v. Fed. Nat’l Mortg. Ass’n, Case No. 5:12-CV-06105-BCW (W.D. Mo.
Sept. 26, 2012), ECF No. 1 (removing to federal court alleging the plaintiff fraudulently joined the Missouri successor
trustee); Order, Case No. 5:12-CV-06105-BCW (W.D. Mo. Sept. 26, 2013), ECF No. 76 (finding that the plaintiff had
fraudulently joined the Missouri successor trustee to defeat diversity jurisdiction as the claims against the Missouri
successor trustee— for breach of fiduciary duty and violation of the MMPA—failed to state a claim for relief); Notice
of Removal, Waddell v. Millsap & Singer P.C., Case No. 4:12-CV-04243-DW (W.D. Mo. August. 30, 2012), ECF
No. 1 (removing to federal court alleging that the plaintiff fraudulently joined the successor trustee); Order, Case No.
4:12-CV-04243-DW (W.D. Mo. Feb. 1, 2013), ECF No. 27 (granting the successor trustee’s motion to dismiss for
failure to state a claim).
26
Notice of Removal, Hopper v. PNC Bank, Case No. 3:13-CV-5095-REL (W.D. Mo. June 28, 2013), ECF No. 1
(removing to federal court alleging that the plaintiff fraudulently joined the successor trustee); Notice of Rule 41(a)(1)
Dismissal, Case No. 3:13-CV-5095-REL (W.D. Mo. Aug. 9, 2013), ECF No. 18 (voluntarily dismissing complaint
against successor trustee while successor trustee’s motion to dismiss for failure to state a claim remained pending);
Notice of Removal, Binkley v. PNC Bank, N.A., Case No. 5:13-CV-06045-DW (W.D. Mo. Mar. 26, 2013), ECF No.
1 (removing to Federal Court alleging fraudulent joinder); Notice of Voluntary Dismissal, Case No. 5:13-CV-06045DW (W.D. Mo. Apr. 4, 2013), ECF No. 5; Notice of Removal, McCance v. Bank of Am., Case No. 5:13-CV-06023HFS (W.D. Mo. Jan. 31, 2013), ECF No. 1 (removing to federal court alleging fraudulent joinder); Notice of Filing
Rule 41(a)(1) Dismissal, Case No. 5:13-CV-06023-HFS (W.D. Mo. Sept. 17, 2013), ECF No. 47 (dismissing
complaint against successor trustee while successor trustee’s motion to dismiss the complaint for failure to state a
claim and the plaintiff’s motion for remand were pending); Notice of Removal, DeBarthe v. JPMorgan Chase Bank,
N.A., Case No. 4:12-CV-01128-HFS (W.D. Mo. Sept. 4, 2012), ECF No. 1 (removing to federal court alleging
fraudulent joinder); Stipulation of Dismissal, Case No. 4:12-CV-01128-HFS (W.D. Mo. Aug. 20, 2013), ECF No. 30
(dismissing all claims while successor trustee while successor trustee’s motion to dismiss the complaint against it for
failure to state a claim remained pending); Notice of Removal, DeBarthe v. JPMorgan Chase Bank, N.A., Case No.
4:12-CV-00856-GAF (W.D. Mo. July 6, 2012), ECF No. 1 (removing to federal court alleging fraudulent joinder);
Notice of Voluntary Dismissal, Case No. 4:12-CV-00856-GAF (W.D. Mo. July 6, 2012), ECF No. 5; Notice of
27
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voluntarily dismissed the claims against the successor trustee after the defendants removed the
case. 28
Deliberately filing frivolous claims to prevent removal to federal court is sanctionable
conduct. Dunbar v. Wells Fargo Bank, N.A., 709 F.3d 1254, 1258–59 (8th Cir. 2013) (imposing
sanctions under Rule 11). The facts in Dunbar are similar to those here: Wells Fargo held the
notes on a group of Minnesota homeowners’ mortgages. Id. at 1256, 1256 n.3. After the
homeowners defaulted, Wells Fargo initiated foreclosure proceedings after the homeowners
defaulted pursuant to Minnesota’s non-judicial foreclosure statute. Id. The homeowners then sued
Wells Fargo in state court, arguing Minnesota law did not give Wells Fargo the authority to
foreclose.
Id.
To prevent removal, the homeowners’ attorney also included the law firm
conducting some of the foreclosures, which was a Minnesota citizen, based on a previously
rejected “show me the note” legal theory. Dunbar v. Wells Fargo Bank, N.A., 853 F. Supp. 2d
839, 844 (D. Minn. 2012). Defendants removed the case to federal court arguing fraudulent
joinder, and the homeowners argued the federal court did not have jurisdiction due to lack of
complete diversity.
Id. at 843–44.
The district court held that the homeowner’s attorney
fraudulently joined the law firm to defeat diversity jurisdiction and sanctioned the homeowners’
attorney, in part for bringing frivolous claims to defeat diversity. Id. at 844 (discussing fraudulent
joinder); Dunbar v. Wells Fargo Bank, N.A., Civil No. 11-3683 (DSD/FLN), 2012 WL 1394666
Removal, Ball v. The Bank of N.Y. as Trustee for CWALT, Inc., Case No. 4:12-CV-00144-NKL (W.D. Mo. Jan. 30,
2012), ECF No. 1 (removing to federal court alleging that the plaintiff fraudulently joined the successor trustee);
Notice of Voluntary Dismissal, Case No. 4:12-CV-00144-NKL (W.D. Mo. Apr. 12, 2012), ECF No. 39 (voluntarily
dismissing complaint against trustee while trustee’s motion to dismiss the complaint for failure to state a claim
remained pending).
28
Hayes v. U.S. Bank, Case No. 4:12-CV-01190-HFS, is the only exception. In Hayes, the defendants removed to this
district alleging fraudulent joinder. Notice of Removal, ECF No. 1, Case No. 4:12-CV-01190 (W.D. Mo. filed Sept.
21, 2012). However, the court remanded because the defendants did not all consent to removal. Remand Order, Case
No. 4:12-CV-01190 (W.D. Mo. Jan. 9, 2013) ECF No. 14.
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(D. Minn. April 23, 2012) (imposing sanctions). The Eighth Circuit affirmed the imposition of
sanctions, noting the homeowners’ attorney’s “attempts to avoid federal court by engaging in
fraudulent joinder in order to then challenge federal subject matter jurisdiction are unacceptable.”
Dunbar, 709 F.3d at 1258–59.
The district court sanctioned the same attorney in another case for similar behavior. The
Court of Appeals summarized the attorney’s actions in that case as follows.
Butler [the attorney] . . . gins up a dozen or so claims against a
dozen or so defendants grounded mostly on the show-me-the-note
theory; he improperly packages these claims into a single state-court
action; and he fraudulently joins a single nondiverse defendant
(typically a law firm that represented one of the lenders in
foreclosure proceedings) in an attempt to block removal to federal
court. The defendants generally remove the cases to federal court,
and Butler then moves to remand. If the judge denies Butler’s
motion, he might “remand” the case himself by voluntarily
dismissing it and refiling it in state court within a day or two, thereby
starting the process all over again. Butler might also “judge shop”
in the same manner; if he does not like his chances before a
particular federal judge, he might voluntarily dismiss his case,
promptly refile it in state court, and start the process all over again.
To hide his conduct, Butler will reorder the names of the plaintiffs
or substitute a new plaintiff for one of the old plaintiffs, so that the
refiled case will have a different caption.
...
In his briefs to this court Butler similarly omits any discussion
of the recent cases rejecting his “show me the note” theory and
jurisdictional arguments, and he makes no attempt to distinguish or
argue against them. He simply represents that Minnesota law
requires a foreclosing mortgagee to possess the note and that the
district court lacked jurisdiction to hear the case. This is troubling.
Butler himself has argued several cases in which we rejected his
“show me the note” theory under Minnesota law. . . . His deliberate
attempt to ignore these cases suggests that he has the intention of
deceiving or misleading the court into ruling in his favor.
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Welk v. GMAC Mortgage, LLC, 720 F.3d 736, 738–39 (8th Cir. 2013). The present case is
analogous to Welk, and the Court holds Leyh should be sanctioned for filing frivolous claims to
prevent removal.
To be clear, the Court is not holding that if an attorney in good faith brings a claim against
a party which prevents removal, and this claim is later determined to lack a colorable basis in law
or fact, the attorney should be sanctioned under Rule 55.03(c)(1) or Rule 11(b)(1). There must be
something more, such as evidence that the attorney knew, or should have known, when bringing
the claim that it was frivolous and yet brought it anyway merely to prevent removal. In this case,
there is substantial evidence of bad faith, namely that Leyh knowingly and intentionally filed
frivolous claims against Martin Leigh solely to prevent removal and delay foreclosure. The record
shows Leyh brought these claims despite being aware of binding rulings in three prior cases
involving the same Plaintiff which foreclosed these claims, pled facts in a verified complaint which
are patently untrue, pled claims which were bereft of legal merit (even if the Court had not already
issued rulings foreclosing such claims), and acted consistent with his admitted modus operandi in
litigating such cases.
V.
The Court imposes monetary sanctions on Plaintiff and Leyh.
The sanction a court may impose under Rule 55.03 or Rule 11 is “limited to that which is
sufficient to deter repetition of the conduct or comparable conduct by others similarly situated.”
Mo. Sup. Ct. R. 55.03(d)(2); Fed. R. Civ. P. 11(c)(4) (using virtually identical language). A
sanction may include a nonmonetary directive, an order to pay a penalty into the court, and an
order directing payment of part or all reasonable attorney’s fees directly resulting from the
violation. Id.; Martha Charepoo, 15 Missouri Practice Series, Civil Rules Practice § 55.03:4
(2020) (noting that attorney’s fees may be awarded if appropriate to deter violations of Rule 55.03).
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A court may not impose sanctions against a represented party for bringing a frivolous claim or
making a frivolous legal contention. Mo. Sup. Ct. R. 55.03(d)(2)(A); Fed. R. Civ. P. 11(c)(5).
When a represented party brings a frivolous claim or makes a frivolous legal contention, the
sanction falls solely on the attorney. Id.
A.
The Court sanctions Plaintiff $5,000.
Although much of this order has focused on Leyh as Plaintiff’s Counsel, Plaintiff also
violated Rule 55.03 and Rule 11 by making false factual allegations in the Verified Complaint,
and the Court sanctions her accordingly. In determining a sanction sufficient to deter similar
conduct by Plaintiff or others in the future, the Court notes that the sanction should include
payment of Martin Leigh’s legal fees in this case as well as a substantial monetary penalty. Hence,
the Court could impose a monetary penalty on Plaintiff in excess of $100,000. However, based
on the Court’s interactions with Plaintiff, the Court has reason to believe that Plaintiff’s physical
and mental health has severely deteriorated recently and that she has a limited ability to pay a
monetary sanction. See, e.g., Email Correspondence, ECF No. 107; Mot. for Stay, ECF No. 89.
Therefore imposing a large monetary sanction on Plaintiff would seem to be a cruel and pointless
exercise.
Although Rule 55.03 and Rule 11 also authorize a court to impose a nonmonetary directive,
such as restricting a litigant’s ability to file future lawsuits, the Court has already imposed this
restriction on Plaintiff. See Ord. Granting Summ. J. at 7-8, ECF No. 60. Hence, under the
circumstances, the Court holds an appropriate sanction is to order Plaintiff to pay Martin Leigh
$5,000—which the Court concludes based upon its interactions with Plaintiff is the most she can
afford—to partly reimburse it for its legal expenses.
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B.
The Court sanctions Leyh and Gregory Leyh, P.C. the amount of Martin’s
Leigh’s attorneys’ fees and costs and an additional $50,000.
With respect to Leyh, the Court finds he should be sanctioned for the following reasons:
His conduct was willful and not negligent; he has engaged in similar conduct in other litigation
and therefore his conduct was part of a pattern of activity, not an isolated event; the sanctionable
conduct infected the entire pleading and resulted in Martin Leigh being unfairly dragged into this
litigation; his behavior was either intended to injure Martin Leigh, or at least undertaken with
callous indifference to the impact it would have on the firm; his behavior greatly increased the
time and expense involved in this litigation and in the lawful foreclosure of the Property; Leyh is
an officer of the Court and as such he knew, or should have known, that his actions violated Rule
55.03 and Rule 11; there are no mitigating factors here; and Leyh has not apologized for his
behavior—in fact, his briefing continues to attack Martin Leigh. See Fed. R. Civ. P. 11(c) advisory
committee’s note to 1993 amendment (discussing factors to weigh in determining appropriate
sanction).
The Court sanctions Leyh, and his law firm Gregory Leyh, P.C., by ordering them to
reimburse Martin Leigh for its reasonable attorneys’ fees and costs incurred defending this
litigation, including litigating the motion for sanctions, and pay an additional $50,000 into the
Court as a monetary penalty. This sanction is imposed on Leyh and his law firm jointly and
severally. See Mo. Sup. Ct. R. 55.03(d)(1)(A) (“Absent exceptional circumstances a law firm shall
be held jointly responsible for violations committed by its partners, associates, or employees.”);
Fed. R. Civ. P. 11 (c)(1) (using virtually identical language).
While these sanctions are substantial, the Court finds they are necessary to deter such
conduct by Leyh and any other attorney who might emulate his behavior in the future. Further,
nothing in the record suggests these sanctions are beyond Leyh and his firm’s ability to pay.
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Indeed, he touts the amount of money he has earned using these litigation tactics as a justification
for them. Hr’g Tr. from Stagner, Case No. 16RY-CV00249 at 25–26, Hr’g Ex. P7 (“And I get all
kinds of results from large six-figure settlements, seven-figure settlements, lots of loan
modifications. I then exit the house and wipe my feet on the welcome mat that either Kozeny or
Millsap & Singer placed and I dismiss the trustee . . . .”).
The Court now calculates Martin Leigh’s reasonable attorneys’ fees. In determining a
reasonable amount of attorneys’ fees under Missouri law, a court considers: (1) the time expended;
(2) the nature, character, and amount of services rendered; (3) the nature and importance of the
litigation; (4) the degree of responsibility imposed on the attorney; (5) the amount of money
involved; (6) the degree of professional ability, skill, and experience called for and used; and
(7) the result obtained. Weitz Co. v. MH Washington, 631 F.3d 510, 528–29 (8th Cir. 2011).
Martin Leigh argues that attorney’s fees of $350 per hour and paralegal fees of $110 per
hour are reasonable, particularly since Leyh himself sought $515 per hour when requesting
sanctions against a successor trustee in another case. It has also provided an affidavit stating its
attorneys and paralegals worked 188 hours in this litigation prior to April 16, 2019. ECF No. 771. Martin Leigh moves for $65,128 in attorney’s fees incurred prior to April 16, 2019, and for
additional fees accrued after that date.
Leyh opposes the request on a variety of grounds. He argues the fees sought are too high
based on Wivell v. Wells Fargo Bank, N.A., and that $220 per hour was an appropriate rate for
mortgage defense litigation. Case No. 6:12-CV-03457-DGK, 2014 WL 835970 at *4 (W.D. Mo.
Mar. 4, 2014). He also contends that the work done in this case was not particularly complex nor
was it heavily litigated (as in the case where he sought $515 an hour); that it is unreasonable that
all five attorneys who worked on this case bill at the same $350 an hour rate; and that Martin Leigh
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overworked and mis-worked the file. Finally, he argues that Martin Leigh’s failure to send a safeharbor letter earlier resulted in excessive and unnecessary billing.
These arguments are unpersuasive. To begin, the work performed by Martin Leigh in this
case is not analogous to the work in Wivell. This case involved a longer litigation history and more
novel claims than in Wivell. Also, in this case, Martin Leigh’s attorneys had the unenviable task
of combing through Leyh’s obfuscating briefs and correcting his numerous misstatements of law.
For example, in support of his claim that there is an emerging trend in the law to hold that a trustee
on a deed of trust owes a duty to a borrower to investigate the complete chain of title on a note,
Leyh quoted a passage from the Missouri Practice Series Missouri Foreclosure Manual. To most
effectively rebut this dubious claim, Martin Leigh’s attorneys had to read through the rest of the
Manual and find the author’s actual view of the law, which is that “the trustee has no duty to
investigate the various transfers of the promissory note and deed of trust.” Steven Max Todd, 38
Missouri Practice Series, Missouri Foreclosure Manual § 2:3 (2016). Additionally, since this is
the fourth lawsuit contesting the Note and Deed of Trust, this case qualifies as “heavily litigated.”
The Court finds nothing objectionable about the fact that all five Martin Leigh attorneys
are charging the same $350 an hour rate since all five have at least fourteen years of experience.
William Meyer, who billed 169.2 of the 188 hours worked on this case prior to April 16, 2019, has
over 25 years of legal experience. Thomas Fritzlen, who argued this motion, has over 30 years of
legal experience. Nor does the Court see any evidence that the attorneys overworked the file.
Leyh complains that Martin Leigh’s work on its motion for summary judgment was redundant
because it was performed while a motion to dismiss was pending. However, it was reasonable for
Martin Leigh to work on both motions, particularly since both had a substantial likelihood of
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success. If the Court denied the motion to dismiss, Martin Leigh would be prepared to file its
summary judgment motion.
As for the safe-harbor letter, Martin Leigh served Leyh with it on October 5, 2017—just
two months into the lawsuit—when almost no work had been done on the case. Leyh’s intimation
that if it had been served earlier he would have withdrawn the lawsuit and Martin Leigh would not
have spent as much time working on the case is not credible. Thus, the Court finds the attorneys’
fee award sought by Martin Leigh is reasonable: $65,128 plus additional fees accrued after April
16, 2019. Leyh, and Gregory Leyh, P.C., are jointly and several liable to pay the entire amount. 29
Martin Leigh shall submit an accounting of its reasonable expenses incurred after April 16,
2019, supported by billing records or other admissible evidence, on or before September 30, 2021.
Leyh shall have fourteen days to file a response. This response shall not exceed five pages and
shall not relitigate the Court’s ruling, including arguing his culpability, mitigating factors, or
ability to pay. 30 If Leyh files a response, Martin Leigh shall have fourteen days to file a reply.
Martin Leigh’s reply shall not exceed five pages. The Court will then issue a final ruling on the
amount of attorneys’ fees.
IT IS SO ORDERED.
Date:
29
September 2, 2021
/s/ Greg Kays
GREG KAYS, JUDGE
UNITED STATES DISTRICT COURT
That is, minus the $5,000 Plaintiff is ordered to pay towards Martin Leigh’s attorneys’ fees.
Leyh has already had ample opportunity to address these issues in his initial briefing, at the sanctions hearing, and
in his post-hearing briefing.
30
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