ANNE-MARIE GALIASTRO & another [Note 1] vs. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., & another. [Note 2]

DUFFLY, J. We address in this case whether the plaintiffs and others who had appeals pending in the Appeals Court when we decided Eaton v. Federal Nat'l Mtge. Ass'n, 462 Mass. 569, 569 (2012) (Eaton), may pursue claims seeking to invalidate foreclosure proceedings based on our decision in that case. [Note 3] We held in Eaton that a foreclosure by power of sale pursuant to G. L. c. 183, § 21, and G. L. c. 244, §§ 11-17C, is invalid unless a foreclosing party holds the mortgage and also either holds the underlying mortgage note or acts on behalf of the note holder. Id. at 571. We concluded also that the interpretation of "mortgagee" in statutes governing foreclosures under statutory power of sale provisions would have only prospective effect, although we applied our newly announced interpretation to the claims asserted by the plaintiffs in that case. Id. We now extend application of the holding in Eaton to cases such as this one, in which the issue was preserved and an appeal was pending in the Appeals Court on June 22, 2012, the date of the rescript in Eaton.

Background. [Note 4] The plaintiffs, Anne-Marie and Joseph Galiastro (Galiastros), obtained a home mortgage loan on July 26, 2006, from Fremont Investment & Loan (Fremont). [Note 5] To secure the obligation, the Galiastros contemporaneously granted a mortgage on the home to defendant Mortgage Electronic Registration Systems, Inc. (MERS), which was described in the mortgage

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as "a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns." The Galiastros ultimately defaulted on their mortgage payments; on March 1, 2010, Harmon Law Offices, P.C. (Harmon), as legal counsel for MERS, notified them of MERS's intention to foreclose by statutory power of sale pursuant to G. L. c. 244, § 14.

On March 29, 2010, the Galiastros filed a complaint in the Superior Court against MERS and Harmon, claiming, inter alia, that MERS did not have standing to initiate foreclosure proceedings because it was not the holder of the Galiastros' promissory note, nor was it an authorized agent of any note holder. [Note 6] The Galiastros also filed a motion for injunctive relief seeking to enjoin MERS from proceeding with the foreclosure. In July, 2010, a Superior Court judge denied the Galiastros' motion for a preliminary injunction, and MERS subsequently filed a motion to dismiss the complaint pursuant to rule 12 (b) (6) of the Massachusetts Rules of Civil Procedure, 365 Mass. 754 (1974). [Note 7]

When the Galiastros sought to enjoin the foreclosure proceedings, our decision in Eaton had not issued. In that case, we determined that the term "mortgagee" as used in G. L. c. 183, § 21, and G. L. c. 244, §§ 11-17C, although not free from ambiguity, "refer[s] to the person or entity then holding the mortgage and also either holding the mortgage note or acting on behalf of the note holder." Eaton, supra at 571. We therefore concluded that unless a foreclosing party holds the mortgage and is either the note holder or an authorized agent of the note holder, a foreclosure by power of sale pursuant to G. L. c. 183, § 21, and G. L. c. 244, §§ 11-17C, is invalid. See Eaton,

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supra at 586. In this case, MERS has argued repeatedly against this interpretation of G. L. c. 183, § 21, and G. L. c. 244, §§ 11-17C.

For purposes of the motion to dismiss, MERS accepted [Note 8] the Galiastros' allegation that MERS neither held the note nor acted as an authorized agent of the note holder. [Note 9] The animating premise of its motion was that the "allegations that MERS lacks standing because it does not hold the note or the right to enforce the note is without support under Massachusetts law." In January, 2011, a Superior Court judge granted the defendants' motions to dismiss "for the reasons set forth in the [d]efendants' memorandum."

The Galiastros appealed from the judgment of dismissal; their appeal was entered in the Appeals Court on February 24, 2011, and the parties thereafter filed briefs. On September 6, 2011, we transferred to this court on our own motion an appeal filed in the Appeals Court on August 24, 2011, seeking relief from a preliminary injunction in Eaton vs. Federal Nat'l Mtge. Ass'n, No. SUCV2011-01382, Suffolk Sup. Ct. (June 17, 2011). See Eaton, supra at 570-571. The Appeals Court then stayed all proceedings in the instant case pending our decision in Eaton. The rescript in Eaton issued on June 22, 2012, and on July 11, 2012, the Appeals Court vacated its stay in this case. We thereafter allowed the Galiastros' petition for direct appellate review.

While these proceedings were pending, other activity was taking place that affected the status of the parties relevant to the issues in this case. On September 7, 2011, after the Galiastros' appeal was docketed in the Appeals Court but before it was stayed, MERS, as nominee for Fremont, assigned the Galiastros' mortgage to "Deutsche Bank National Trust Company, as Trustee for Fremont Home Loan Trust 2006-3" (Deutsche Bank).

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On November 18, 2011, the Galiastros received a notice that Deutsche Bank had scheduled an auction sale, and they then filed a motion in the Superior Court for a temporary restraining order seeking to prevent the commencement of foreclosure proceedings pending a decision on their appeal. On February 9, 2012, a Superior Court judge denied the motion on the ground that "Deutsche Bank is not a party to th[e] case and Deutsche Bank has both the mortgage and the note." Deutsche Bank then proceeded with the nonjudicial foreclosure sale, purchased the property, and brought a summary process action in the Housing Court seeking to evict the Galiastros from their home. The Galiastros moved to stay the eviction proceedings pending resolution of this appeal, and a Housing Court judge ordered a stay of the proceedings on the condition that the Galiastros pay use and occupancy costs while the stay was in effect.

The Galiastros since have vacated the property, and they acknowledge that their request for injunctive relief is now moot. [Note 10] The Galiastros' complaint, however, also asserts claims for damages, and thus not all of their claims are moot. We consider, first, the ramifications of our decision in Eaton for the Galiastros and other parties who, at the time of the issuance of the rescript in Eaton, had cases pending on appeal based on preserved claims that the foreclosing party did not hold the note at the time of foreclosure. Second, we consider whether the motion judge erred in dismissing all the other claims raised by the Galiastros.

Standard of review. We review the allowance of a motion to dismiss de novo. See Lopez v. Commonwealth, 463 Mass. 696, 700 (2012). We accept as true the facts alleged in the plaintiffs' complaint as well as any favorable inferences that reasonably can be drawn from them. Id. Factual allegations are sufficient to survive a motion to dismiss under rule 12 (b) (6) if they "plausibly suggest [and are] (not merely consistent with)" an entitlement to relief. Iannacchino v. Ford Motor Co., 451 Mass. 623,

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636 (2008), quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007). Although a complaint need not contain "detailed factual allegations," it must offer more than mere "labels and conclusions." Iannacchino v. Ford Motor Co., supra, quoting Bell Atl. Corp. v. Twombly, supra at 555. The factual allegations must "raise a right to relief above the speculative level . . . [based] on the assumption that all the allegations in the complaint are true (even if doubtful in fact). . . ." Iannacchino v. Ford Motor Co., supra, quoting Bell Atl. Corp. v. Twombly, supra. [Note 11]

Discussion. Retroactive application of Eaton. Whether the Galiastros' complaint states a claim entitling them to relief based on allegations that MERS lacked standing to effect a foreclosure by the power of sale depends first on whether the rule we announced in Eaton applies to the Galiastros' claims on appeal.

As stated, we determined in Eaton that the term "mortgagee" in G. L. c. 183, § 21, and G. L. c. 244, §§ 11-17C, must be interpreted to mean "a mortgagee who also holds the underlying mortgage note." Eaton, supra at 584. We therefore concluded that, unless a foreclosing party holds both the mortgage and the underlying mortgage note, a foreclosure by power of sale is invalid, unless the foreclosing party acts as an authorized agent of the note holder. [Note 12] Id. at 586. In reaching that decision,

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we looked to long-standing common law and noted that, in Massachusetts, real estate mortgages operate under a "title theory," meaning that a mortgage is a transfer of legal title to the mortgagee that serves as security for the mortgagor's debt, as set forth in the underlying note. Id. at 575.

Under Massachusetts common law, in contrast to that in a number of other jurisdictions, the transfer of an underlying note does not carry with it the mortgage. Id. at 576, citing Barnes v. Boardman, 149 Mass. 106, 114 (1889). A mortgage thus can be separated from the note, and when it is, the mortgage holder acts as "equitable trustee for the note holder." Eaton, supra at 576- 578. Therefore "at common law, a mortgagee possessing only the mortgage [and not the note] was without authority to foreclose on his own behalf." Id. at 578.

In Eaton, supra at 579-581, we applied the rules of statutory construction against this common-law background to reach the determination that, to be valid, a foreclosure effected through the statutory power of sale, as governed by and set forth in G. L. c. 183, § 21, and G. L. c. 244, §§ 11-17C, requires the mortgagee to hold the note or to act on behalf of the note holder. At the same time, we recognized that "none of our cases ha[d] considered directly the question whether a mortgagee must also hold the note or act on behalf of the note holder in order to effect a valid foreclosure by sale." Eaton, supra at 587-588. We also acknowledged that "there may be significant difficulties in ascertaining the validity of a particular title if the interpretation of 'mortgagee' . . . is not limited to prospective operation, because of the fact that our recording system has never required mortgage notes to be recorded." Id. at 588.

We therefore exercised our discretion to give our interpretation of the term "mortgagee" prospective effect, stating that our interpretation would "apply only to mortgage foreclosure sales for which the mandatory notice of sale has been given after the date of th[e] opinion [June 22, 2012]." Eaton, supra at 588-589, citing Commonwealth v. Dagley, 442 Mass. 713, 721 n.10 (2004), cert. denied, 544 U.S. 930 (2005) (where decision announces new interpretation of State statute, there is no "requirement that the new rule or new interpretation be applied retroactively"). Although decisional law interpreting a statute

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generally applies retroactively, where it conveys an understanding of what the statute has meant since its enactment, we recognized in Eaton, supra at 588, that, in the context of property law, prospective application may be more appropriate because of the considerable reliance interests at stake, particularly where "prior law is of questionable prognostic value." Id., quoting Blood v. Edgar's, Inc., 36 Mass. App. Ct. 402, 407 (1994).

We nonetheless applied the newly announced interpretation of "mortgagee" to the litigants in Eaton, supra at 589. Although we observed that "somewhat similarly situated" parties would not receive the benefit of that interpretation, we did not decide whether parties in a procedural posture identical to that of the litigants in Eaton could receive such a benefit. Id., citing Bouchard v. DeGagne, 368 Mass. 45, 48-49 (1975). Consequently, that question has resulted in conflicting treatment by different panels of the Appeals Court. [Note 13] The Galiastros contend that the interpretation of "mortgagee" announced in Eaton should apply to them because they raised the same issue in an appeal that was stayed pending our decision in that case.

We agree, and we now decide that the interpretation of "mortgagee" announced in Eaton is applicable to cases that were pending on appeal in the Appeals Court when the rescript in Eaton issued, [Note 14] and in which the litigants asserted and preserved a claim that a foreclosure by power of sale is invalid where the foreclosing mortgagee does not hold the note. [Note 15] Where multiple cases await appellate review on precisely the same question, it

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is inequitable for the case chosen as a vehicle to announce the court's holding to be singled out as the "chance beneficiary" of an otherwise prospective rule. See United States v. Johnson, 457 U.S. 537, 555 n.16 (1982) (noting "inequity that results" when multiple defendants raise same question on direct appeal and court chooses only one to be "chance beneficiary" of new rule); Commonwealth v. Pring-Wilson, 448 Mass. 718, 736 (2007) (affirming judge's decision that "fairness require[d]" application of prospective, nonconstitutional rule of criminal procedure in case that had preserved same issue and was on appeal when new rule was announced and where new rule was applied to parties in case announcing it). See also Bender, The Retroactive Effect of an Overruling Constitutional Decision: Mapp v. Ohio, 110 U. Pa. L. Rev. 650, 675-676 (1962) ("capricious" to apply new rule in case announcing rule while withholding application to relatively identical litigants who had raised same issue on direct review in same time frame). Cf. Commonwealth v. Clemente, 452 Mass. 295, 305 (2008), cert. denied, 555 U.S. 1181 (2009) (declining to apply rule applied in Commonwealth v. Pring-Wilson, supra, to case that was on appeal at same time because issue was not pressed at trial).

Our decision to expand our holding in Eaton to apply to cases that preserved the issue presented in that case and that were pending on appeal as of June 22, 2012, is consistent with the principles on which we relied in applying the interpretation of "mortgagee" to the Eaton parties. See Eaton, supra at 589, citing Powers v. Wilkinson, 399 Mass. 650, 663-665 (1987) (Abrams, J., concurring in part and dissenting in part). See also Tucker v. Badoian, 376 Mass. 907, 918-919 (1978) (Kaplan, J., concurring in the result); Bouchard v. DeGagne, supra at 48-49. Although in Bouchard v. DeGagne, supra, and Tucker v. Badoian, supra, we did not apply an otherwise prospective rule to the parties, we recognized in those cases that the court had authority to do so. In Powers v. Wilkinson, supra at 663-664

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(Abrams, J. , concurring in part and dissenting in part), one of the justices joined in the majority decision announcing a new prospective rule, but dissented from the majority's decision not to apply that rule to the litigants in the case. As the dissent observed, there were two reasons supporting application of the new rule to the litigants in the case. First, the court would have avoided the result that the announcement of the rule would "amount[] to no more than dictum." Id. at 663- 664, and cases cited. Second, "and more importantly," the court would preserve the "incentive to bring challenges to existing precedent because the appellant [would not be] deprived of the benefit for the work and expense involved in challenging the old rule." Id. at 664, and cases cited.

Preservation of the incentive to challenge existing precedent provides as much reason to extend changes in the law to litigants in the case announcing the change, as it does to litigants who raise the same issue in cases pending on appeal. Like the litigants in Eaton, the Galiastros had filed and perfected their appeal in the Appeals Court, and had argued that a mortgagee must hold the note in order to validly foreclose. Such litigants should not be "deprived of the benefit of the work and expense involved in challenging the old rule." [Note 16] Powers v. Wilkinson, 399 Mass. at 663-664.

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Applying the interpretation of "mortgagee" in Eaton to this case, and others that were pending appellate review on the same issue, respects the concern identified in Eaton, supra at 586, that holding as we did could "wreak havoc with the operation and integrity of the title recording and registration systems by calling into question the validity of any title that has a foreclosure sale in the title chain." Although we now exercise our discretion to allow a limited set of litigants to seek relief on the basis of the interpretation of the term "mortgagee" announced in Eaton, that interpretation of "mortgagee" otherwise remains applicable "only to mortgage foreclosure sales for which the mandatory notice of sale has been given after [June 22, 2012]." Id. at 589. Recognizing an exception only for the parties in Eaton, and for cases pending on appeal that raise the same issue, accommodates and preserves the reliance interests that warranted giving prospective effect to the interpretation of "mortgagee" to the Eaton plaintiffs, while limiting the "unevenness [that] is an inevitable consequence of any change in doctrine." [Note 17] See Johnson Controls, Inc. v. Bowes, 381 Mass. 278, 283 n.4 (1980).

Having decided that the interpretation of "mortgagee" announced in Eaton applies to this case, we consider whether any of the claims asserted in the Galiastros' complaint remain viable.

Standing to foreclose. The Galiastros allege in their complaint that Fremont was the original holder of the note when the Galiastros executed the mortgage on July 26, 2006; that "shortly after" this date, Fremont divested itself of any ownership rights in the note; that the note thereafter was held by an "undisclosed securitized trust"; that the identity of the note holder was otherwise unknown; [Note 18] and that MERS was not an "authorized

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agent of any purported undisclosed principal." [Note 19] Assuming these factual allegations to be true, as we must in reviewing a motion to dismiss, Iannacchino v. Ford Motor Co., 451 Mass. 623, 635-636 (2008), the allegations plausibly suggest an entitlement to relief that is premised on establishing that MERS was neither the note holder nor acting as an agent of the note holder when it commenced foreclosure proceedings. At oral argument, the Galiastros stated a tort theory of liability for damages on the basis of their claim that MERS asserted standing to foreclose and commenced foreclosure proceedings without holding the note or acting as an agent of the note holder. Thus, the complaint should not have been dismissed for failure to state a claim on these grounds, even though the Galiastros' claim for injunctive relief is now moot. See note 10, supra. Therefore, without regard to the likelihood of success in developing this or an alternate theory of damages in light of the applicability of our holding in Eaton, we vacate the dismissal of the claim for damages and remand for further proceedings.

Violation of G. L. c. 93A. In addition to alleging that MERS lacked standing validly to foreclose on the mortgage by power of sale, the complaint alleges that MERS violated G. L. c. 93A, § 2, when it engaged in conduct aimed at evading the terms of an order providing injunctive relief entered by the Superior Court and affirmed by this court (Fremont order). See Commonwealth v. Fremont Inv. & Loan, 452 Mass. 733, 735 (2008).

The Fremont order issued in response to a consumer protection enforcement action brought by the Attorney General against Fremont, contending that Fremont had engaged in unfair and deceptive practices between 2004 and 2007 by originating and

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servicing certain subprime mortgage loans. See Commonwealth v. Fremont Inv. & Loan, supra at 734-735. The injunction, as modified, requires Fremont to "give advance notice to the Attorney General of its intent to foreclose on any of its home mortgage loans," and further that "any assignment, sale, or transfer of ownership rights or servicing obligations by Fremont be conditioned on the assignee's or purchaser's acceptance of the obligations imposed by the preliminary injunction." Id. at 739-740. If a Fremont-originated loan is determined by the Attorney General to be "presumptively unfair" based on four criteria specified in the order, and the loan is secured by the borrower's principal dwelling, then Fremont (or its assignee) is required to work with the Attorney General in attempting to "resolve" the issues regarding foreclosure, "presumably through a restructure or workout of the loan," before seeking court approval for foreclosure. See id. at 740. If the loan is not presumptively unfair, then a workout need not be attempted, and court approval is not required, before foreclosure proceedings may commence. See id.

The foundation of the Galiastros' claim is that MERS violated the Fremont order by failing to notify the Attorney General prior to initiating a foreclosure of its Fremont-originated loan. The Galiastros' complaint alleges that they entered into a loan with Fremont in 2006, that Fremont transferred the loan to an undisclosed party on an undisclosed date, and that neither Fremont nor the undisclosed assignee provided notice to the Attorney General of the foreclosure proceedings that MERS initiated in March, 2010. The Galiastros further allege that MERS, directly or through knowledge of its counsel, knew that the Galiastros' loan was Fremont-originated and that an assignee of a Fremont loan was required to notify the Attorney General prior to commencing a foreclosure. Based on these allegations, the Galiastros claim that MERS acted deceptively by initiating foreclosure proceedings in its name as mortgagee, knowing that disclosure of the identity of the holder of the note would reveal a violation of the Fremont order. The Galiastros allege that MERS intentionally acted so as to obscure facts which would have revealed that their mortgage fell under the purview of the Fremont order, and that MERS undertook these

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acts in order to foreclose on a subprime loan without review by the Attorney General.

Even assuming that MERS had acted deceptively to avoid notification to the Attorney General of the foreclosure, the Galiastros' claim under G. L. c. 93A would fail. Although the complaint makes the assertion that "[t]he Galiastros mortgage meets the[] four characteristics [of the Fremont order]," the copy of the Galiastros' mortgage and note attached to the complaint shows that the mortgage did not meet the four criteria that characterize loans as presumptively unfair in the Fremont order. See note 11, supra. See also Golchin v. Liberty Mut. Ins. Co., 460 Mass. 222, 224 (2011) (in reviewing motion to dismiss, court considers documents attached to motion to dismiss where plaintiff relied upon them in framing complaint). Cf. Olpin v. Ideal Nat'l Ins. Co., 419 F.2d 1250, 1255 (10th Cir. 1969), cert. denied, 397 U.S. 1074 (1970) (in reviewing motion to dismiss under Fed. R. Civ. P. 12[b][6], court must accept plaintiff's factual allegations as true unless they are contradicted by terms of document attached to complaint). Because the Galiastros' mortgage was not an adjustable rate mortgage with an introductory period of three years or less, it did not meet the first of the four criteria set forth in the Fremont order. See Commonwealth v. Fremont Inv. & Loan, supra at 739. Thus, on its face the mortgage is not "presumptively unfair" under the terms of the Fremont order. Accordingly, even if the Attorney General had been informed of MERS's initiation of foreclosure proceedings against the Galiastros, the Fremont order provides no basis on which the Attorney General could have objected to the foreclosure; nor would the Fremont order have entitled the Galiastros to relief such as a workout arrangement, or the requirement of court approval before foreclosure could proceed.

The Galiastros therefore failed to state a claim that could support an entitlement to relief pursuant to G. L. c. 93A, either for conduct that unfairly sought to avoid the requirements of the Fremont order, or for direct violation of that order. [Note 20] See Iannacchino v. Ford Motor Co., 451 Mass. 623, 635-636 (2008). We affirm the judgment of dismissal on this claim.

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Civil conspiracy and fraud claims. The Galiastros appear to argue that Harmon entered into a civil conspiracy with MERS by using a fraudulent method to foreclose on the Galiastros' Fremont-originated loan without complying with the Fremont order. This method consisted of Harmon first assigning the mortgage to MERS and then having MERS foreclose on the mortgage, since MERS was structured in such a way that it was possible to seek foreclosure without disclosure of the Fremont-originated note.

In support of this claim, the complaint asserts that "[t]he actions of both parties [MERS and Harmon] appear to imply they acted in concert to bring [the foreclosure] action," and with a "willful disregard of the prohibition against foreclosing on Fremont originated loans." These assertions constitute mere recitals of elements necessary to establish a civil conspiracy claim. Cf. Kurker v. Hill, 44 Mass. App. Ct. 184, 188 (1998). Such assertions are supported only by the allegation that Harmon provided legal representation to MERS, and do not alone suggest a plausible claim for relief. Although a complaint need not provide "detailed factual allegations," it must offer more than mere "labels and conclusions." Iannacchino v. Ford Motor Co., 451 Mass. at 636. "[B]are assertion[s]" will not suffice. Id. at 632-633. The claim fails to state a claim for relief under Mass. R. Civ. P. 12 (b) (6), and dismissal was warranted. [Note 21]

The Galiastros make no argument concerning the dismissal of the fraud claim. Therefore, that claim is waived. See Mass. R. A. P. 16 (a) (4), as amended, 367 Mass. 921 (1975) ("The appellate court need not pass upon questions or issues not argued in the brief").

Appellate attorney's fees. Contending that the Galiastros' claims were frivolous, Harmon seeks appellate attorney's fees and costs. See Mass. R. A. P. 25, as appearing 376 Mass. 949

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(1979) ("If the appellate court shall determine that an appeal is frivolous, it may award just damages and single or double costs to the appellee, and such interest on the amount of the judgment as may be allowed by law"). The only two claims that the Galiastros pressed against Harmon were the civil conspiracy and fraud claims, which we have concluded were dismissed properly. Given the complexity of the law surrounding the Fremont order and the applicability of our ruling in Eaton, however, it was not frivolous for the Galiastros to pursue their appeal, and Harmon is not entitled to an award of attorney's fees.

Conclusion. We vacate the judgments of dismissal on count one of the complaint, alleging a lack of authority to foreclose. We affirm the judgment of dismissal on counts two, three, and four alleging respectively a violation of G. L. c. 93A, civil conspiracy, and fraud. Finally, we vacate as moot the judgment of dismissal on count five, seeking an injunction. The matter is remanded to the Superior Court for further proceedings consistent with this opinion.

So ordered.