Divided Court reverses, as abuse of discretion, dismissal of foreclosure action under Rule 41 for failure to prosecute in the name of the real party in interest, holding Rule 25 governs transfers of interest pending litigation and that real-party- in-interest rule applies only at the time the action commences.

 Ditech Financial LLC v. Brisson, 2025 VT 54 [9/18/2025]

CARROLL, J.   In this foreclosure action, plaintiff Ditech Financial LLC appeals the trial court’s order dismissing the case with prejudice and vacating the foreclosure judgment for plaintiff’s failure to prosecute.  We agree with plaintiff that the court abused its discretion in dismissing the case for want of prosecution and thus reverse the court’s order, reinstate the judgment of foreclosure, and remand for further proceedings consistent with this opinion.

 

In July 2024, the court concluded the parties agreed that US Bank Trust National Association was not the real party in interest, but that “a glaring question” remained “as to who the real party in interest is.”  The court set a hearing for the parties to present evidence on the real party in interest stating that “the action w[ould] be dismissed for failure to prosecute” if plaintiff “fail[ed] to prove who the real party in interest is at the hearing.”

 

A hearing was held in August 2024, following which the court dismissed the case.  The court concluded “Ditech no longer exists” and had gone through bankruptcy, that plaintiff failed to prove that it, or Shellpoint, emerged from bankruptcy with continued control in the foreclosure judgment and that plaintiff  failed to prove who the real party in interest is.”  Accordingly, the court dismissed the case with prejudice and vacated the foreclosure judgment.

 

On appeal, plaintiff argues that the court lacked authority to dismiss the case with prejudice or vacate the foreclosure judgment under the applicable civil rules. 

 

Rule 17

 

We begin our discussion with the applicable rules governing the real party in interest.  Civil Rule 17(a) requires that an action “be prosecuted in the name of the real party in interest.”  Rule 17(a) applies at the time the action commences.  Hilbrands v. Far E. Trading Co., 509 F.2d 1321, 1323 (9th Cir. 1975); see also Smedberg v. Detlef’s Custodial Serv., Inc., 2007 VT 99, ¶ 30,(noting  V.R.C.P. 17(a) “must be construed to the same effect” as “identical” federal rule); Reporter’s Notes, V.R.C.P. 17 (“This rule is based on Federal Rule 17, as modified in Maine Rule 17.”). 

 

 In her 2023 motion to dismiss plaintiff’s motions, defendant did not challenge plaintiff’s standing at the time the action commenced, nor did the court consider whether plaintiff was the proper plaintiff to have commenced the suit.  Thus, Rule 17 was inapplicable.

 

Rule 25

 

 Rather, to the extent a transfer occurred during the pendency of the proceedings, Civil Rule 25(c) governs.  Rule 25(c) provides “[i]n case of any transfer of interest, the action may be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.”

 

Rule 25 “expressly permits parties to continue in an action, even if they do not remain the real party in interest, as long as the cause of action itself survives the transfer to the new party.”  ELCA Enters., Inc. v. Sisco Equip. Rental & Sales, Inc., 53 F.3d 186, 191 (8th Cir. 1995) 7 C. Wright & A. Miller, Federal Practice & Procedure § 1958 (3d ed. 2025) (explaining Federal Rule 25(c) “does not require that anything be done after an interest has been transferred”).  Accordingly, to the extent there was a transfer of interest, the action could continue in plaintiff’s name, unless upon motion the court required otherwise.

Rule 41

 

The court did not rely on Rule 25 in dismissing the action, however.  Rather, it dismissed the case and vacated the foreclosure judgment for failure to prosecute because plaintiff failed to comply with the court’s August 2024 order to prove, after a hearing, who the real party in interest was.  Although it did not cite the rule, the court was plainly referring to Civil Rule 41(b)(2).

 

Rule 41(b)(2) provides: “For failure of the plaintiff to prosecute or to comply with [the Vermont Rules of Civil Procedure] or any order of court, a defendant may move for dismissal of an action or of any claim against the defendant.”

This “general power” of the court to dismiss a case for want of prosecution “is limited by several important considerations” including that “the law favors disposition of cases on their merits,” that “sanctions against litigants should be proportionate to their offenses” and “appropriate to the circumstances,” and that “courts must be wary of imposing sanctions on a party without notice and an opportunity to be heard.”  Ying Ji, 2013 VT 81, ¶¶ 6-7 (quotation omitted); cf. John v. Med. Ctr. Hosp. of Vt., Inc., 136 Vt. 517, 519 (1978) (requiring “findings . . . that 10 there has been bad faith or deliberate and willful disregard for the court’s orders, and . . . the party seeking the sanction has been prejudiced thereby” for “the ultimate sanction of dismissal” under Civil Rule 37(b)(2)). 

Under the similar federal rule, courts recognize that dismissal for lack of prosecution “is a harsh remedy to be utilized only in extreme situations.”  Minnette v. Time Warner, 997 F.2d 1023, 1027 (2d Cir. 1993)

  

We agree with plaintiff that there was no failure on its part to prosecute the case, and thus, conclude the court exceeded its discretion by dismissing the case with prejudice

Here, the trial court made no findings that plaintiff failed to pursue the case, caused undue delay, or demonstrated continued noncompliance with the court’s orders.  Nor does the record demonstrate inaction by plaintiff such as failure to attend a hearing or respond to repeated requests from the court, or that plaintiff unreasonably delayed its response to the court’s order to prove the identity of the real party in interest. Plaintiff attended the hearing and complied with the court’s order to provide proof of the real party in interest, although the court was unpersuaded.  The court therefore exceeded its discretion by dismissing the case with prejudice for plaintiff’s failure to comply with the court’s order.

 

Reversed.  The judgment of foreclosure is reinstated, and the matter is remanded for further proceedings consistent with this opinion.

 

COHEN, J., dissenting.   I cannot agree with the majority that the trial court abused its discretion in dismissing this foreclosure proceeding.  Plaintiff’s incompetent recordkeeping, its shifting representations to the trial court, its sale of a mortgage and note that it now claims no longer legally exist, and its failure to provide adequate proof that it was the party entitled to enforce the foreclosure judgment, together support the sanction of dismissal here.  Accordingly, I dissent.  

 

What the trial court described as dismissal for failure to prosecute can be viewed as dismissal for failure to comply with the court’s July 2024 order directing plaintiff to provide proof that plaintiff was the entity that owned the right to enforce the judgment.  See V.R.C.P. 41(b)(2).

 

The facts of this case justify the court’s decision. Plaintiff was on notice that it faced dismissal if it did not demonstrate that it owned the right to enforce the foreclosure judgment, yet it did not seriously address the trial court’s concerns.  Plaintiff’s failure to adequately respond to the court’s order, coupled with its slipshod recordkeeping and its sale of a mortgage and note that it now claims no longer exists—which undoubtedly caused real confusion and anxiety for the pro 15 se defendant here—lead me to conclude that the court acted within its discretion in dismissing the action.

 

The sanction of dismissal with prejudice was not disproportionate to the actions and inaction that caused it.  Dismissal under these circumstances would serve both as a penalty and an important deterrent to future similar conduct by foreclosure plaintiffs.  See  John v. Med. Ctr. Hosp. of Vt., Inc., 136 Vt. 517, 520 (1978) (noting that sanction of dismissal is sometimes warranted, and can serve “not only as a penalty, but as a deterrent as well”)

 

For that reason, I would affirm the trial court’s decision.

How cited