WASHINGTON MUTUAL BANK vs. BERNSON LIMITED PARTNERSHIP, BARBARA JAROSZ and ERIC JAROSZ

Plaintiff, Washington Mutual Bank ("WAMU"), filed its Unverified Complaint on March 13, 2009, alleging that it held a first mortgage on property owned by Defendants, Barbara Jarosz and Eric ("Eric") Jarosz (the "Jaroszs"), located at 6 Granite Court, Saugus, MA (the "Jarosz Property"). The Jaroszs filed their Answer on April 15, 2009, including a Crossclaim against Defendant, Bernson Limited Partnership (the "Bernson Partnership"). [Note 1] A case management conference was held on May 12, 2009. The Bernson Partnership filed its Answer on May 21, 2009. On August 7, 2009, Plaintiff filed its Motion to Substitute JP Morgan Chase Bank ("Chase") as Plaintiff, which was allowed with no opposition on August 27, 2009. On September 2, 2009, the Bernson Partnership filed another Answer, a Counterclaim against Eric, and a Demand for Jury Trial. [Note 2] The Bernson Partnership filed a Motion to Substitute Alan Bernson ("Alan") as a defendant for the Bernson Partnership on September 15, 2009, which was allowed on September 25, 2009. [Note 3] Alan filed a motion to Partially Substitute Steven Bernson ("Steven") as a co-Defendant on March 2, 2010, which was allowed on March 9, 2010. On April 20, 2010, Steven filed a Motion that the Present Action be Prosecuted by the Real Party in Interest. On July 19, 2010, Alan filed his Motion to Reopen Plaintiff's Motion to Substitute. Steven filed his Suggestion of Bankruptcy and Notice of Stay on March 25, 2011.

Plaintiff filed its Verified Motion to Enforce Settlement on October 31, 2011. On November 30, 2011, Steven filed his Verified Opposition and Alan filed his Sworn Statement. On December 30, 2011, Plaintiff filed its Reply. A hearing was held on all motions on February 13, 2012, and the matter was taken under advisement. At the hearing Alan filed his Motion to Dismiss per Rule 12(h)(3).

I find that the following material facts are not in dispute:

1. The Jaroszs purchased the Jarosz Property on December 11, 2000.

2. On May 6, 2003, the Jaroszs granted First New England Mortgage Corporation a mortgage (the "First New England Mortgage") on the Jarosz Property in the principal amount of $200,000.

3. On January 8, 2004, the Jaroszs granted Eastern Bank a mortgage (the "Eastern Bank Mortgage") on the Jarosz Property in the principal amount of $25,000.

4. On January 20, 2005, the Jaroszs granted Factors Funding Company ("FFC") and Alan a mortgage (the "FFC Mortgage") on the Jarosz Property to secure all obligations of Barbara Jarosz (approximately $415,000.00) to FFC and Alan. [Note 4] On the same day Eric executed a Limited Recourse Guaranty to FFC and Alan (the obligations of both Barbara and Eric together, the "Claims"). The FFC Mortgage and the Claims were assigned to the Bernson Partnership on April 7, 2008.

5. On October 3, 2007, the Jaroszs granted WAMU a mortgage in the principal amount of $268,000 (the "WAMU Mortgage"). The proceeds of the WAMU Mortgage were used to discharge the First New England Mortgage and the Eastern Bank Mortgage.

6. On September 25, 2008, WAMU was put into federal receivership and the Federal Deposit Insurance Corporation ("FDIC") was named receiver. On the same day the FDIC and Chase executed a Purchase and Assumption Agreement (the "Assumption Agreement") pursuant to which Chase acquired certain assets of WAMU, including the WAMU Mortgage and the underlying promissory note. An affidavit of the FDIC stated as follows:

Pursuant to the terms and conditions of a Purchase and Assumption Agreement between the FDIC as receiver of Washington Mutual and JPMorgan Chase Bank, National Association ("JPMorgan Chase"), dated September 25, 2008 (the "Purchase and Assumption Agreement"), JPMorgan Chase acquired certain of the assets, including all loans and all loan commitments, of Washington Mutual.

As a result, on September 25, 2008, JPMorgan Chase became the owner of the loans and loan commitments of Washington Mutual by operation of law.

The Assumption Agreement was recorded on October 3, 2008, at King County, State of Washington Recorder of Deeds.

7. On September 8, 2009, the Bernson Partnership assigned the Claims and the FFC Mortgage to Alan.

8. On March 1, 2010, Alan assigned 50% of his interest in the FFC Mortgage and the Claims to Steven. On March 9, 2010, this court allowed Steven as a Defendant in this case. Eric Schwartz ("Atty. Schwartz") withdrew as counsel for Alan on March 10, 2010, and on the same day filed his appearance for Steven.

9. On November 23, 2010, at 12:46 PM, the attorney for Chase ("Atty. Loeb") emailed Alan, with a cc to Atty. Schwartz, as follows:

This email is to confirm the agreement that we reached earlier today.

In exchange for a payment of $92,000 you (on your behalf and on behalf of your son) have agreed that you and your son will execute a subordination of your mortgage so that the mortgage granted by the Jaroszes and now held by JP Morgan Chase will be in first position.

In addition, you (on your behalf and on behalf of your son) have agreed that you and your son will execute releases running to the benefit of JP Morgan Chase, TitleServ, and their agents, servants, employees, and insurers.

I will forward to you settlement papers.

I will call the Court to report the case settled and to ask that a "30 day order" enter.

Please confirm that the terms set forth in this email are accurate.

10. On November 23, 2010, at 3:46 PM, Alan emailed Atty. Loeb as follows:

Yes, the terms above are correct.

Please send documents to:

Alan Bernson
c/o Eric Shwartz
105 Salem St
Malden, MA 02148

11. By letter dated December 1, 2010, with a cc to Atty. Schwartz, Atty. Loeb advised this court that the case "has been resolved," asked that the upcoming status conference be cancelled, and asked the court to issue a 30 day order.

12. By Order dated December 3, 2010, this court issued a Thirty Day Order, stating that "The parties reported the case as settled and requested that this court enter a thirty day nisi order."

13. By email dated December 10, 2010, at 4:02 PM, Atty. Loeb sent a draft of settlement agreement to Alan and Atty. Schwartz.

14. On December 19, 2010, at 11:54 AM, Alan emailed Atty. Loeb as follows:

I am traveling and will be in Boston on Wednesday Dec 22nd.

Would like to meet at your office and sign the settlement agreement.

...

By return email dated 2:13 PM on December 22, 2010, Atty. Loeb responded:

Until I hear from Eric Schwartz that he doesn't have any requested changes to the Settlement Agreement it would be premature to sign them. In addition, I need your son to sign so your coming to my office while helpful wont be necessary.

...

Once I have the requested information and Atty Schwartz's blessing we should be in a position to sign the documents.

15. Steven filed bankruptcy under Chapter 7 of the Bankruptcy Code on December 22, 2010.

16. On December 29, 2010, in an email response authorizing his signature on a Joint Motion to be filed with the Land Court, Atty. Schwartz stated:

...

Kindly note that I have been reluctant to become actively involved with settlement negotiations because my client [Steven] has had some serious health issues and I have not been able to reach him in person to discuss the specifics. (Emphasis added).

17. By Joint Motion filed with this court on December 30, 2010, executed by Alan, Steven, and Chase, the parties reported:

The Plaintiff herein, together with Defendants Alan Bernson and Steven Bernson, hereby jointly request that the Court extend the time for the execution of settlement documents and filing of a stipulation of dismissal, as required by the Thirty Day Order issued by the Court on December 3, 2010. The deadline for filing is currently January 3, 2011. The parties respectfully request that this deadline be extended until February 8, 2011. The parties require additional time for settlement documents to be fully finalized and executed.

...

This court granted the Joint Motion.

18. By Joint Motion filed with this court on February 4, 2011, executed by all parties, the parties, using identical language as in the prior Joint Motion, sought an extension until March 23, 2011. This court granted an extension only until March 3, 2011, and indicated no further extensions would be allowed.

19. By Assented to Emergency Motion filed with this court on March 10, 2011, and executed by all parties, the parties requested an extension to April 11, 2010, as follows:

...

20. Steven filed a Suggestion of Bankruptcy with this court on March 25, 2011. Steven was discharged from bankruptcy by Order of the Bankruptcy Court dated March 29, 2011. The Motion to reopen the case was allowed on July 15, 2011, and a Motion to Allow Compromise was allowed on August 25, 2011, which terminated the bankrupt estate in the FFC Mortgage.

21. On June 7, 2011 at 12:33 AM, Alan emailed Atty. Loeb as follows:

What if I gave you a subordination; you pay me $92,000; I place $46,000 in escrow - with an agreement that says I get the escrow back in one year, subject to designated conditions?

Chase did not agree to these changes.

*******************************

Alan and Steven argue that this case must be dismissed because there is no valid plaintiff to bring this case. Alan and Steven also argue that there was never a valid settlement agreement and therefore nothing to be enforced. Chase argues that there was a valid plaintiff and that there was a valid settlement agreement. I shall address each issue in turn.

Validity of this action.

Alan argues that on September 25, 2008, WAMU, by going into federal receivership, ceased to exist and therefore could not have brought this action on March 13, 2009 as the mortgagee in interest. Chase argues that on September 25, 2008, the date that WAMU was put into federal receivership, the FDIC took over its assets as receiver and assigned them to Chase through the Assumption Agreement. As a result, Chase succeeded to the interest WAMU previously held in the WAMU Mortgage by operation of law. On August 7, 2009, WAMU filed its Motion to Substitute JP Morgan Chase Bank as Plaintiff, and this motion was allowed with no opposition on August 27, 2009. On April 20, 2010, Steven filed a Motion That the Present Action be Prosecuted by the Real Party in Interest Under Mass. R. Civ. P. 17. Eight months prior to this motion, Chase had already been substituted as Plaintiff. Mass. R. Civ. P 17 states, in part,

No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest; and such ratification, joinder, or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest.

As WAMU had properly substituted Chase, the real party in interest, ratification of the commencement of the action was properly effectuated. As a result, I find that this action is properly before this court. [Note 5] [Note 6]

Settlement Agreement.

Next, I must determine whether there was an agreement between the parties as to a settlement of this case. Situation Management Systems, Inc. v. Malouf, Inc., 430 Mass. 875 , 878 (2000) states, "It is axiomatic that to create an enforceable contract, there must be agreement between the parties on the material terms of that contract, and the parties must have a present intention to be bound by that agreement."

By email correspondence on November 23, 2010, Chase and Alan confirmed in writing the basic terms of a settlement agreement. See Basis Technology Corp. v. Amazon.com, Inc., 71 Mass. App. Ct. 29 (2008) (statements in emails about future written agreements, containing terms of settlement, can create a binding agreement). They had agreed on price ($92,000), subordination of the FFC Mortgage to the WAMU Mortgage, the exchange of releases, and the timing (reference to the Thirty Day Order). [Note 7] Steven argues that he was a necessary party to the settlement agreement, and that he has never agreed to the terms of the settlement agreement. [Note 8]

Review of the summary judgment record discloses that Steven was not a part of the settlement negotiations. Though Steven's attorney (Atty. Schwartz) was copied on every email involving the settlement negotiations, and was a party to every request filed with this court for an extension of the Thirty Day Order, Atty. Schwartz clearly stated, in his December 29, 2010 email to Chase and Alan, that he had not been in touch with his client to discuss any terms of the settlement. In an attorney client relationship, it is the client, not the attorney who must agree to the terms of a settlement. Mass. R. Prof. Conduct 1.2. Steven, with no knowledge of the settlement agreement, much less of its details, could not have agreed to be bound merely by his lack of objection. Moreover, Atty. Schwartz was not a part of the settlement negotiations on November 23, 2010, and did not assent to any of the terms of the settlement agreement (which he could not properly do without Steven's consent). Furthermore, there is no indication that Atty. Schwartz had been authorized to enter into a settlement agreement on behalf of Steven, especially considering that Steven was unaware of all the material terms being negotiated by Chase and Alan.

It would be unfair to Steven, who neither personally nor through his attorney, played any part in the settlement negotiations, to bind him to the agreement reached on November 23, 2010, by Chase and Alan.

As a result of the foregoing, I find that there was not a settlement agreement between the parties. I DENY Plaintiff's Motion to Enforce Settlement Agreement. The parties shall attend a status conference on Friday, April 6, 2012 at 10:00 a.m. to determine how to proceed with this case. Judgment shall enter upon a final resolution of this case.