Summary:
Arthur and Lisa Perry filed suit against CitiMortgage, alleging violations of the Fair Credit Reporting Act arising from an allegedly fraudulent deed of trust securing a $49,000 mortgage. The Perrys maintained they knew nothing about the mortgage until it prevented them from selling their property in 2019.
After their original attorney withdrew, replacement counsel was retained shortly before a hearing on CitiMortgage's motions for dismissal and sanctions. The Perrys authorized their new attorney to voluntarily dismiss the lawsuit without prejudice, preserving their right to refile within one year under Rule 41(a)(1).
Unfortunately, on December 4, 2023, their attorney filed a dismissal with prejudice.
Believing the dismissal had been without prejudice, counsel refiled the lawsuit in November 2024. When CitiMortgage raised the prior dismissal as a defense, counsel sought relief under Rule 60(b), but more than one year had elapsed.
The Court of Appeals affirmed the denial of relief, holding that:
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Rule 60(b)(1): Relief for mistake or excusable neglect was barred by the one-year deadline.
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Rule 60(b)(6): The circumstances, including the last-minute substitution of counsel, did not require a finding of extraordinary circumstances justifying relief.
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Rule 60(b)(4): The record lacked definitive evidence establishing that the dismissal was void because counsel lacked authorization.
The Court emphasized the trial court's broad discretion and the prejudice CitiMortgage would face if the litigation reopened.
Commentary:
As previously discussed in M.D.N.C.: Perry v. CitiMortgage, Inc.—Federal Court Presses Pause in Alleged “Phantom Mortgage” Dispute, the federal court stayed the refiled lawsuit pending resolution of this state-court appeal. The Court of Appeals has now affirmed the denial of relief from the original dismissal with prejudice, potentially determining the fate of the federal litigation as well.
There is considerable irony in a lawsuit alleging that a mortgage was created without the homeowners' authorization being dismissed because their attorney allegedly acted beyond the scope of their authorization.
The Court of Appeals did not conclusively determine whether counsel had authority to dismiss the claims with prejudice. Instead, it held that the trial court had not abused its discretion in refusing relief.
For consumer attorneys, including bankruptcy attorneys pursuing adversary proceedings involving mortgage servicing, discharge violations, and other creditor misconduct, Perry is a reminder that the distinction between dismissal with prejudice and without prejudice can be devastating.
It also demonstrates that Rule 60(b)(6) is not necessarily a backdoor around the one-year deadline for correcting attorney mistakes under Rule 60(b)(1).
The more troubling consequence is that the Perrys may never have their underlying allegations of mortgage fraud adjudicated. CitiMortgage may avoid having to establish the validity of its purported lien, not because the mortgage was proven legitimate, but because an attorney filed the wrong dismissal.
Procedural finality is important, but Perry illustrates how the consequences of even a seemingly minor attorney error can fall most heavily on the clients whose rights the litigation was intended to protect.
To read a copy of the transcript, please see:
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