In Deutsche Bank Nat’l Trust Co. v. Adriana Avila-Gonzalez, 2015 WL 2089094 (Fla. 3d DCA May 6, 2015), the Florida Third District Court of Appeal reversed a trial court order that dismissed a foreclosure action with prejudice and cancelled the note and mortgage. Central to the Court’s ruling was the determination that the Bank was negligent in asserting the note was lost, by pleadings and by affidavit, when the note was actually in the servicing agent’s possession for the duration of the foreclosure action. Contrary to the trial court’s ruling, the Court found the Bank’s negligence did not amount to a fraud upon the court, and thus, the trial court’s sanctions were excessive.

In Avila-Gonzalez, the Bank filed its foreclosure action on May 26, 2009. The Bank pled a count for reestablishment of the allegedly lost note, filed two separate affidavits asserting the note was lost, and answered discovery attesting that the note was lost. However, in December 2011, the Bank finally realized the note was not actually lost and had been in the custody of its servicing agent from the inception of the lawsuit. Instead of immediately amending its complaint and dropping the lost note count, the Bank instead served discovery responses revealing the discovery of the note.

Frustrated by the Bank’s reversal of position, the trial court issued an order to show cause why the action should not be dismissed for fraud upon the court, focusing on the Bank’s failure to amend the complaint and withdraw its affidavits attesting the note was lost. The Bank then moved to amend and drop the lost note count.

At the hearing on the trial court’s order to show cause, the Bank, through testimony from its servicer, established that the note had been in the servicer’s vault before the complaint was filed. Notwithstanding, the trial court entered an order dismissing the case with prejudice and cancelling the note and mortgage. The Bank’s motions to vacate the order and for rehearing were both denied, and this appeal followed.

On appeal, the Court noted that the trial court’s frustration with the Bank was understandable. The Bank’s lack of diligence and inconsistent allegations wasted the time of the court and opposing counsel. However, the trial court’s punishment did not fit the crime because the Bank’s negligence did not rise to a fraud upon the court. The Court reasoned that the Bank’s negligence prejudiced the Bank itself more than any other party, even stating that the Bank’s negligence allowed the Borrower to continue to occupy the property rent-free for approximately six years. At most, the Court suggested attorneys’ fees could be appropriately awarded to the Borrower. Additionally, the Court could find no authority justifying the cancellation of the note and mortgage, calling it “excessive.”

As for the trial court’s dismissal with prejudice, the Court cited to factors laid out by the Florida Supreme Court in Kozel v. Ostendorf, 629 So. 2d 817, 818 (Fla. 1993). These factors must be addressed by a trial court when determining if dismissal with prejudice is an appropriate sanction due to an attorney’s behavior. While the Borrower argued that the Kozel factors did not apply because the trial court focused on the Bank’s conduct as opposed to that of counsel, the appellate  court disagreed and clarified that each of the offending actions was perpetrated by the attorney, not the client.

Thus, the Court reversed the trial court’s order cancelling the note and mortgage with instructions that the trial court reinstate both, and also reversed the dismissal with prejudice for consideration, including, but not limited to an award of attorney’s fees to the Borrower.