LEGAL NEWSLINE

AUGUSTA, Maine (Legal Newsline) - The Maine Supreme Court on Tuesday declined to hold that a lower court "exceeded its discretion" in not finding loan servicer GMAC Mortgage in contempt when it sanctioned Fannie Mae for submitting a bad faith affidavit.

In 2009, Fannie Mae, or the Federal National Mortgage Association, foreclosed on Nicolle M. Bradbury's home in Denmark, Maine. Fannie Mae named GMAC, the loan servicer, as a party-in-interest.

Fannie Mae then moved for a summary judgment relying in part on an affidavit by Jeffrey Stephan, a limited signing officer for GMAC.

A trial court granted a partial summary judgment, determining that Fannie Mae established Bradbury's liability as a matter of law, but concluded that genuine issues of material fact remained as to the amount owed on the note for the damages portion of the claim.

A few months later, the court granted Bradbury's request to depose Stephan. During his deposition, he testified that he does not read the affidavits he signs, reviews only the computations of amounts owed, does not review the exhibits to the affidavits, and does not execute the affidavits before a notary.

Based on this testimony, the parties filed several motions, among them: Fannie Mae's motion for a protective order to prevent the public disclosure of Stephan's deposition; Bradbury's request for an award of expenses incurred in opposing the protective motion; and Bradbury's motion seeking a finding that Stephan's affidavit was presented in bad faith, a finding that both Fannie Mae and its counsel were in contempt for submitting the bad faith affidavit, and an award of attorney fees and costs.

The court denied Fannie Mae's motion for a protective order after determining that Fannie Mae failed to establish the requisite "good cause."

The court also found that Stephan's affidavit was submitted in bad faith, and ordered Fannie Mae to pay Bradbury for the expenses associated with taking Stephan's deposition and with prosecuting the motion.

Determining that its award of fees and costs was "a sufficient sanction" for Fannie Mae's bad faith conduct, the court declined to explore the issue of contempt in the case.

Bradbury appealed to the state's high court.

Justice Ellen A. Gorman authored the Court's eight-page majority opinion.

In its ruling, the Court readily admitted that the case is a "disturbing example of a reprehensible practice."

"That such fraudulent evidentiary filings are being submitted to courts is both violative of the rules of court and ethically indefensible. The conduct through which this affidavit was created and submitted displays a serious and alarming lack of respect for the nation's judiciaries," Gorman wrote.

However, the Court said it would not "disturb" the trial court's sanctions for the bad faith affidavit.

"Even if we assume that the language of Rule 56(g) allows any party -- and not just Fannie Mae as the party who submitted the affidavit to the court -- to be held in contempt, we decline to hold that the court exceeded its discretion in declining to specifically find GMAC in contempt when it fashioned the sanction," Gorman wrote.

"The court ordered Fannie Mae to pay attorney fees and costs totaling more than $23,000. Although the court would have acted well within its discretion in granting a much more burdensome sanction at a much greater cost to Fannie Mae and/or GMAC, we conclude that the sanction it did impose was also within its discretion."

The Court said no published opinion, to date, shows that a court in Maine or any other state has imposed a contempt finding for submitting a bad faith affidavit.

Justice Jon Levy, the lone dissenter, argued GMAC was previously sanctioned by a Florida court for engaging in the very same practices.

Levy said the trial court should have conducted a hearing before it determined that a finding of contempt was not warranted.

"The precise question presented is whether the court may exercise this discretion regarding contempt without conducting a hearing. The answer should account for the seriousness of the bad faith committed before the court and the extent to which it has or will undermine the administration of justice," he wrote.

"In this case, the dishonesty associated with the preparation and notarization of Stephan's affidavit was severe. Not only did the affidavit fail to present admissible evidence, as the rule requires, but it deceived a judge into believing that it did."

Furthermore, he noted, GMAC is one of the largest mortgage loan servicers in the U.S.

"Accordingly, if contempt was found in this case, the court would need to consider whether the resulting sanctions should be sufficient to deter similar misconduct in future cases," he wrote.

"Because Stephan admitted that he signed thousands of such affidavits and related documents each month and GMAC was previously sanctioned for similar conduct, there was good cause to believe that such misconduct was not limited to this case and that the management of GMAC and Fannie Mae, and their attorneys, knew or should have known of the wrongful manner in which the affidavit presented in this case was produced."

GMAC is already under fire by the state of Massachusetts for carrying out illegal foreclosures.

Last week, Massachusetts Attorney General Martha Coakley filed a lawsuit against GMAC and four other banks. On Tuesday, she also urged Congress to investigate the bank.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.