« Ind. Decisions - Supreme Court vacates transfer in case heard last Thursday | Main | Ind. Decisions - Court of Appeals issues 4 today (and 15 NFP) »

Thursday, September 15, 2011

Ind. Decisions - One today from Supreme Court

In Mary Beth Lucas and Perry Lucas v. U.S. Bank, N.A., as Trustee for the C-Bass Mortgage Loan Asset-Backed Certificates, Series 2006-MH-1, a 14-page, 3-2 opinion, Justice David writes:

In this case, a mortgage holder filed a foreclosure action against the loan borrowers. In response, the borrowers asserted numerous legal defenses and claims against the mortgage holder and loan servicer. The borrowers asked for a jury trial on these defenses and claims, but the trial court denied the request. We affirm and hold that the borrowers‘ claims and defenses shall be tried in equity because the core legal questions presented by the borrowers‘ defenses and claims are significantly intertwined with the subject matter of the foreclosure action. * * *

This Court is confronted with the following issue: once a foreclosure action invokes the equity jurisdiction of a trial court, when are the borrowers‘ legal defenses and claims subsumed into equity? * * *

We agree with the Court of Appeals that these claims are legal causes of action and that the Lucases request legal damages for many of them. But after looking at the cause as a whole, we conclude that the core questions underlying the Lucases‘ legal claims significantly overlap with the foreclosure action that invoked the equitable jurisdiction of the trial court.

The factual contentions that underlie the Lucases‘ legal claims can be summarized as follows: (1) U.S. Bank or Litton misled the Lucases on the terms of the loan documents and the handling of the Lucases‘ monthly payments; (2) U.S. Bank or Litton failed to properly account for and apply the Lucases‘ monthly payments to pay property taxes and insurance; (3) as a result of incorrectly calculating the Lucases‘ debt and misapplying the monthly payments, U.S. Bank or Litton declared the Lucases in default when in fact the Lucases were current and not liable for foreclosure; and (4) because the Lucases were current in their payments, U.S. Bank or Litton have wronged the Lucases by demanding payments the Lucases did not owe and by filing the present lawsuit when the Lucases were not in default. Ultimately, the Lucases claim that but for the unlawful actions by U.S. Bank and Litton, the Lucases would not have suffered any money damages, their account would be considered current, and the foreclosure complaint would not have been filed.

The issues from the foreclosure action boil down to (1) the terms of the parties‘ agreement and the payments due under those terms; (2) the amount of the Lucases‘ payments; (3) the application of those payments; and (4) whether the Lucases failed to pay as agreed so that U.S. Bank could rightfully take steps to collect the debt the Lucases owed. When comparing the core issues presented by the Lucases‘ legal defenses and claims to the core issues presented by the foreclosure action, it is evident that they are closely intertwined with one another.

The Lucases insist that for purposes of deciding whether a right to trial by jury exists, it should not matter that U.S. Bank sued first. We agree—the trial by jury inquiry is not resolved by a simple determination of who sued first. But when a foreclosure claim is filed, whether in the original complaint or as a counterclaim, it invokes the equity jurisdiction of a court. At that point, courts must examine various aspects of any asserted legal claims or defenses to determine whether to invoke the equitable cleanup doctrine. In this case, despite the inclusion of some legal claims and requests for legal remedies, we find the core legal issues overlap with the foreclosure issues to a significant degree.

We wholeheartedly recognize that the Indiana Constitution protects the right to a trial by jury for legal claims when the essential features of a civil suit are not equitable, and we do not narrow that right. But the essential features of this suit are equitable. Although there may exist isolated or peripheral issues of a legal nature, the heart of all of the legal claims in this case rest on whether the Lucases are, in fact, in default and, if so, what the amount of their debt is. Accordingly, the equitable cleanup doctrine is properly invoked, and the legal claims are subsumed into equity to obtain more final and effectual relief for the parties.

Conclusion. Equity has taken jurisdiction over the essential features of this lawsuit, including the Lucases‘ affirmative defenses, counterclaims, and third-party claims. Accordingly, we affirm the trial court‘s denial of the Lucases‘ request for a jury trial.

Shepard, C.J., and Sullivan, J., concur.
Dickson, J., dissents with separate opinion in which Rucker, J., concurs. [The one-page dissent concludes] Today's majority opinion appears to dilute the teachings of Songer and its cautious respect for the right to jury trial for purely legal claims that are distinct and severable. Instead of focusing simply on whether multiple causes of action are "distinct and severable," the standard prescribed in Songer, the majority superimposes a further test—whether the legal claims "significantly overlap" with the subject matter of the original equitable claim. In my view, this new test may often foreclose a defendant's right to a jury trial on distinct and severable legal claims. I prefer that the analysis prescribed by Songer be followed without modification with the result that the defendants should not be deprived of their right to jury trial as to their purely legal claims that are sufficiently distinct and severable from the equitable foreclosure action

Posted by Marcia Oddi on September 15, 2011 12:19 PM
Posted to Ind. Sup.Ct. Decisions