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

 

Rule 41 gives claimant absolute right to dismiss if no answer or summary judgment is filed.

Sheryl Weitz v. Theodore Weitz , 2019 VT 35 [filed 5/24/2019]

CARROLL, J. In this divorce proceeding, husband appeals an order denying his motion to reopen the case after wife’s notice of voluntary dismissal, filed pursuant to Vermont Rule of Civil Procedure 41(a)(1)(i). On appeal, husband argues that: (1) Rule 41(a)(1)(i) “is in direct conflict” with the Vermont Rules for Family Proceedings and is therefore inapplicable to the Family Division; (2) Rule 41(a)(1)(i) was not intended to apply in cases where significant resources have been expended; and (3) that it is inequitable to apply Rule 41(a)(1)(i) in this case due to alleged bad faith and bad acts by wife. We affirm.

The interpretation of a procedural rule is a question of law which we review de novo. State v. Amidon, 2008 VT 122, ¶ 16, 185 Vt. 1, 967 A.2d 1126. The plain, ordinary meaning of a rule controls when it is unambiguous. See State v. Villar, 2017 VT 109, ¶ 7, 206 Vt. 236, 180 A.3d 588 (“In construing a procedural rule, we look first to the rule's plain language, just as with statutory construction.”); McClellan v. Haddock, 2017 VT 13, ¶ 13, 204 Vt. 252, 166 A.3d 579 (“Our task . . . is to ascertain and implement the Legislative intent . . . . In determining that intent, our principal source, at least initially, must be the language of the statute itself.” (quotation omitted)).

Rule 41(a)(1)(i) states that an action “may be dismissed by the plaintiff without order of court by filing a notice of dismissal at any time before service by the adverse party of an answer or of a motion for summary judgment.” V.R.C.P. 41(a)(1)(i). This language is unambiguous: if an adverse party has not served either an answer or a motion for summary judgment on the plaintiff, then the plaintiff may choose to dismiss the case3 by filing a notice of dismissal. Use of the permissive term “may” shows that a V.R.C.P. 41(a)(1)(i) dismissal is at the plaintiff’s option. And no court order is necessary to effectuate such a dismissal because the case is to be dismissed “by the plaintiff without order of [the] court.” Id.; Fed. Nat’l Mortg. Ass’n v. Johnston, 2018 VT 51, ¶ 5, __Vt.__, 189 A.3d 567 (“The language . . . ‘without order of court’ connotes that as long as a plaintiff makes the filing and the requisite facts are present . . . then the case is dismissed.”)

Generally, Vermont Rule 41(a)(1)(i) does not permit consideration of how far a case has advanced where no answer or motion for summary judgment has been served by an adverse party.  The reason for a voluntary dismissal, whether to forum shop, avoid sanctions, or simply seek a more convenient (or advantageous) forum, is irrelevant.

The Rules of Civil Procedure apply to “actions for divorce” except as “otherwise provided” in the Vermont Rules for Family Proceedings. V.R.F.P. 4.0(a)(1)-(2)

Here, husband never filed an answer nor moved for summary judgment. Therefore, wife retained the option to voluntarily dismiss the case by filing a notice of dismissal. We therefore affirm the trial court’s decision to deny husband’s motion to reopen. This result is plainly required by the text of the rule.

Civil Procedure. Court affirms voluntary dismissal by plaintiff, despite “two-dismissal “ rule, because the effect of the dismissal is not ripe until a third action is filed.

Federal National Mortgage Association v. Johnston, 2018 VT 51 [filed May 4, 2018] 

EATON, J. Defendants Marjorie Johnston and Kamberleigh Johnston appeal the voluntary dismissal without prejudice filed by plaintiff bank Federal National Mortgage Association in this eviction action. On appeal, defendants argue that because a prior eviction action filed by bank had been dismissed, this case should have been dismissed with prejudice. Defendants also contend that the court erred in denying their motion to reconsider without a hearing and not dismissing the case on mootness grounds. We conclude that the effect of the voluntary dismissal is not ripe until a third action is filed and affirm.

Under Vermont Rule of Civil Procedure 41(a), a plaintiff can dismiss a case “without order of court” by filing a notice of dismissal if it is before the adverse party files an answer. A voluntary dismissal is usually without prejudice, “except that a notice of dismissal operates as an adjudication upon the merits when filed by a plaintiff who has once dismissed in any court.” V.R.C.P. 41(a)(1). This is known as the two-dismissal rule.

Because the dismissal is effective upon filing and without court order, there is a question whether the court retains authority after the dismissal to decide whether the two-dismissal rule applies.  We have held in a different context, that “[i]n general, a court should not dictate preclusion consequences at the time of deciding a first action.”

We conclude that defendants’ argument concerning the two-dismissal rule was not properly before the trial court and will become ripe only when and if a third action is filed. If a third action is filed, at that point, the court can determine the facts of the prior two actions and decide if the two-dismissal rule applies.

Dismissal for failure to prosecute is an adjudication on the merits. Court will not override settled procedural rules to prevent a windfall.

Deutsche Bank v. Pinette, 2016 VT 71 (filed June 24, 2016)

DOOLEY, J. Lender appeals from a decision that dismissed lender's claims for mortgage foreclosure and a deficiency judgment on the ground that they were barred by claim preclusion, as lender had previously instituted an identical action against borrower in 2013, which had been dismissed for failure to prosecute. On appeal, lender argues that because the 2013 action did not actually adjudge the enforceability of the note and mortgage, the dismissal did not have preclusive effect. We affirm.

Under Rule 41(b)(1)(ii), a court may, by its own motion, dismiss any action where "all parties against whom a judgment for affirmative relief is sought have failed to plead or otherwise defend as provided by these rules and the lender has failed to request or apply for a default judgment within six months of the filing of the action." Rule 41(b)(3) states that "[u]nless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision (b) and any dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction, for improper venue, or for failure to join a party under Rule 19, operates as an adjudication on the merits." The plain language of Rule 41(b) is therefore exceedingly clear—by its express terms, unless a trial court specifically says otherwise in its order, a dismissal predicated on a lender's failure to seek a default judgment operates as an adjudication on the merits.

That dismissal was with prejudice is explicitly part of Rule 41, and lender was on notice of it.

Lender argues that barring subsequent foreclosure actions in cases like those at bar would result in a "significant and unjustified windfall” for mortgagors. The consequence of a procedural default is usually a windfall to the other side. While borrower in this instance is enriched, and has kept a benefit he would otherwise be bound to relinquish, we cannot override settled procedural rules, essential to the swift and efficient administration of justice, in order to force a contrary result. See In re Verizon Wireless Barton Permit, 2010 VT 62, ¶ 21, 188 Vt. 262, 6 A.3d 713 ("[P]rocedural rules are devices to ensure fairness, uniformity and regularity of treatment to all litigants appearing before the courts, and to be meaningful, they must be enforced" (citation omitted)); Bloomer v. Gibson, 2006 VT 104, ¶ 14, 180 Vt. 397, 912 A.2d 424 ("The court does not abuse its discretion where it enforces the rules of civil procedure equitably, even against a pro se litigant." (emphasis added)).

Lender had numerous opportunities to avoid the "windfall" created by the dismissal with prejudice, either by moving for default judgment, appealing the dismissal or moving to reopen the dismissal. It would have been in a stronger position if the third complaint, the one in this case, reflected the earlier dismissal and the requested consequences of that dismissal; instead its filing of the virtually identical complaint in each action transmits a message that it expected no consequences from its default. The trial court acted well within the law, and we must uphold its decision.

Affirmed.

SCOVT NOTE: The rule announced in Pinette, that in mortgage foreclosure actions an involuntary dismissal for failure to prosecute operates as an adjudication on the merits, barring a mortgagee’s subsequent foreclosure claims based on the same default, is retroactive to pending cases. See Deutsche Bank National Trust Co, v. Watts, 2017 VT 57.

Compare Ditech Financial LLC v. Brisson, 2025 VT 54 (reversing, as abuse of discretion, dismissal of foreclosure action for failure to prosecute in the name of the real party in interest)