Michael J. Davis, United States District Court
The above matter comes before the Court upon Defendants' Objections to the Report and Recommendation of United States Magistrate Judge Janie S. Mayeron dated August 18, 2015 in which she recommends that Defendants' motion to dismiss be granted in part and denied in part.
Pursuant to statute, the Court has conducted a de novo review upon the record. 28 U.S.C. § 636(b)(1); Local Rule 72.2(b). Based upon that review, the Court
1. Defendants' Motion to Dismiss [Docket No. 11] is
2. On or before thirty days from the date of this Order, Plaintiffs shall file and serve a Second Amended Complaint consistent with the Report and Recommendation.
3. Defendants shall respond within the time permitted under the Federal Rules of Civil Procedure.
JANIE S. MAYERON, United States Magistrate Judge
The above matter came before the undersigned on defendants' Motion to Dismiss [Docket No. 11]. Jonathan D. Miller, Esq. appeared on plaintiffs' behalf. Susan Dickel Minsberg, Esq. appeared on defendants' behalf. This matter has been referred to the undersigned Magistrate Judge for a Report and Recommendation by the District Court pursuant to 28 U.S.C. § 636(b)(1)(A), (B), and Local Rule 72.1(c). [Docket No. 17].
This matter has a lengthy history involving a prior lawsuit.
Subsequent to the closing, plaintiffs paid Solie $2,800 per month in rent, but Solie failed to pay SunTrust and SunTrust commenced foreclosure proceedings in or
Plaintiffs sued Solie and SunTrust in state court, asserting claims under Minnesota Chapter 325N
A bench trial was held in the state court action and the court issued its Findings of Fact, Conclusions of Law and Order on July 21, 2014. Amended Complaint, ¶ 44; Def. Mem., Ex. A. The state court found that Solie violated Minn. Stat. § 325N.12, because he did not provide to plaintiffs a single document reflecting the entire agreement between the parties to sell the Property to Solie, to lease the Property to plaintiffs and to repurchase the Property from Solie. Conclusions of Law, ¶¶ 6, 7; see Jones v. Rees-Max, LLC, 514 F.Supp.2d 1139, 1149 (D.Minn.2007) ("Contrary to Defendants' assertions of substantial compliance, the Court finds that Defendants did not comply with sections 325N.11 and 325N.12 in many respects. Section 325N.12 requires a written contract that contains the entire agreement of the parties before the execution of any instrument of conveyance. The Court has reviewed the record and finds no contract contains the entire agreement of the parties. There are a series of documents-a purchase agreement, lease, contract for deed, pre-negotiation disclosure-but not one document that fully explains the entire agreement.") (emphasis in original). The state court also found that Solie violated Minn. Stat. § 325N.17(a)(1) in that he failed to establish that he had obtained any documentation from plaintiffs showing that they could make the lease payments and repurchase the Property. Conclusions of Law, ¶¶ 8-10; see Jones, 514 F.Supp.2d at 1149 ("A foreclosure purchaser is prohibited from attempting to enter into a foreclosure reconveyance unless they can demonstrate they have verified that the foreclosed homeowner has a reasonable ability to pay for the subsequent conveyance of an interest back to them. Minn.
Plaintiffs moved for reconsideration of the state court's decision, based on their representations that an amended order would not, in itself, affect SunTrust's or Fannie Mae's interests in the Property, and that plaintiffs would commence a new action against them to quiet title "and/or determine the status of Defendants' mortgage against the Property." Amended Complaint, ¶ 46.
The state court issued its amended order on September 3, 2014. Id., ¶ 47; Def. Mem., Ex. B (Amended FFCL). Based on Solie's violation of Minn. Stat. § 325N.12 and pursuant to Minn. Stat. § 325N.13, the state court cancelled the purchase agreement, the warranty deed, the lease and the repurchase agreement. Amended Complaint, ¶ 48; Amended FFCL, ¶ 2.
The amendments by the state court relevant to the instant action were as follows. Conclusion of Law ¶ 17
Amended FFCL, ¶ 1(a).
Conclusion of Law ¶ 19
Id., ¶ 1(b).
The court further stated:
Id., ¶¶ 3, 4. (emphasis in original).
The state court restored plaintiffs' ownership interest in the Property and awarded
On December 31, 2014, plaintiffs commenced the instant action in state district court against SunTrust and Fannie Mae. Notice of Removal, ¶ 1 [Docket No. 1]. Defendants removed the suit to Federal District Court pursuant to 28 U.S.C. § 1332 (diversity jurisdiction). Id., ¶¶ 5-9. On February 2, 2015, plaintiffs served and filed an Amended Complaint. In lieu of answering, defendants moved to dismiss the Amended Complaint pursuant to Fed. R. Civ.P. 12(b)(6).
The Amended Complaint alleged on information and belief that "SunTrust and/or Fannie Mae knew, or should have known, about the purchase transaction, lease and resale of the Property between Solie and the Finnegans;" and "had actual, constructive or implied notice of facts regarding Mr. Solie's purchase and reconveyance of the Property from and to Plaintiffs in violation of Minn. Stat. Ch. 325N (which is included in the Minnesota Homeowner's Equity Protections Act 'MHOEPA')." Amended Complaint, ¶¶ 23, 28. Specifically, plaintiffs alleged: "Defendants' actual, constructive or implied notice of facts regarding Mr. Solie's purchase and reconveyance of the Property from and to Plaintiffs in violation of Minn. Stat. § 325N, include[d] but are not limited to the following:" (a) in connection with the providing financing to Solie and obtaining a mortgage against the Property, defendants knew that plaintiffs had possession and occupancy of the Property and would remain in possession beyond the closing of their sale of the Property to Solie; (b) knew that plaintiffs had a right to remain in possession after the sale to Solie; (c) knew that plaintiffs' interest in the Property was in foreclosure and plaintiffs were in the redemption period when they sold the Property to Solie;
Count I of the Amended Complaint is entitled "Defendants' Violation of Minn. Stat. Ch. 325N." In this Count, plaintiffs claimed that Solie violated Minnesota Chapter 325N in connection with his purchase and reconveyance of the Property as determined by the state court. Id., ¶ 56. Plaintiffs then alleged that defendants had "actual, constructive or implied notice" that Solie violated Minnesota Chapter 325N and knew of plaintiffs' "outstanding rights" in the Property, and as a result, were not bona fide purchasers of the Property by virtue of their financing of Solie's purchase of the Property from plaintiffs. Id., ¶¶ 57-59. Plaintiffs also asserted that defendants' claimed rights to the Property should be "deemed cancelled" pursuant to Minnesota Chapter 325N "and MHOEPA,"
Count II alleged quiet title. Id., ¶¶ 63-66. Plaintiffs sought a determination that defendants were not entitled to a mortgage or security interest in the Property because of their "actual, implied and/or constructive knowledge" of Solie's prohibited transactions and plaintiffs "inconsistent outstanding rights" to the Property. Id., ¶ 63. Alternatively, plaintiffs asserted that they were entitled to a declaration or findings that defendants' lien interest in the Property was foreclosed by SunTrust, but that the foreclosure was stayed pending resolution of plaintiffs' suit against Solie and that plaintiffs should be permitted to redeem their interest in the Property
Count III asserted declaratory judgment and sought a determination of the status and disposition of the defendants' mortgage against the Property based on whether defendants had actual, implied or constructive notice of the Minnesota Chapter 325N transaction between Solie and plaintiffs, plaintiffs' "inconsistent outstanding rights" to the Property, the validity of the foreclosure of SunTrust's mortgage against the Property, and plaintiffs' right to redeem and the terms of their redemption under any foreclosure proceeding commenced by defendants. Id., ¶ 71.
Defendants moved to dismiss the Amended Complaint pursuant to Rule 12(b)(6). Defendants argued that Count I must be dismissed because Minnesota Chapter 325N does not provide a standalone cause of action against lenders. Defs.' Mem., pp. 6-8. Defendants submitted that the statute regulates the conduct of foreclosure purchasers and consultants and specifically provides that "a foreclosure purchaser does not include ... a federal or state chartered bank, savings bank, thrift or credit union." Id., p. 7 (citing Minn. Stat. § 325N.10, subd. 4(ii)). The Amended Complaint alleged only that Solie violated Minnesota Chapter 325N, but then invoked the statute to seek cancellation of defendants' interests in the Property. Id. Defendants contended that the Court cannot read that remedy into the statute. Id. (citing Transamerica Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11, 19, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979) ("[I]t is an elemental canon of statutory construction that where a statute expressly provides a particular remedy or remedies, a court must be chary of reading others into it.").
Further, Minn. Stat. § 325N.18, subd. 3 refers to enforcement of Minn. Stat. §§ 325N.10 through 325N.18, and states that "[n]o action under this section shall affect the rights in the foreclosed property held by a good faith purchaser for value." According to defendants, it did not matter whether defendants were good faith purchasers because the statute simply does not apply to them. Id., pp. 7-8.
Alternatively, even if the Court concluded that Minnesota Chapter 325N created a cause of action against them based on an allegation that they were not good faith purchasers, the allegations in the Amended Complaint relating to defendants' alleged knowledge of the transactions between plaintiffs and Solie were premised solely on "information and belief" and were without factual support. Id., pp. 8-9. For example, even if defendants knew that plaintiffs would retain possession of the Property beyond the closing of the sale to Solie, (Amended Complaint, ¶ 29(a)), that fact was not a reasonable basis to conclude that the defendants conspired with Solie to violate Minnesota Chapter 325N. Id., p. 9. In support, defendants cited the unpublished decision, Stella v. Wells Fargo Bank, N.A., 2012 WL 3553123, at *7 (Minn.Ct.App. Aug. 20, 2012). In that case, the Minnesota Court of Appeals noted that alleged anomalies in closing documents would not have put a mortgage lender on notice to inquire further, and
As to Count II, quiet title, defendants asserted that this was an equitable remedy that should be barred for two reasons. First, plaintiffs had an adequate remedy at law, which they exercised through their action against Solie and in which the court cancelled the purchase agreement, warranty deed, lease and repurchase agreement, and awarded them $44,499.48 against Solie. Id., p. 11. Second, because plaintiffs had unclean hands — they had defaulted on their mortgage to Interbank and had been living in the Property without making any payments since 2010 — the quiet title claim failed. Id., p. 12.
Regarding Count III, seeking a declaratory judgment, defendants argued that declaratory judgment is a remedy, not a cause of action. Id., p. 13. Given the substantive claims in Counts I and II failed, the Amended Complaint failed to state a claim for declaratory judgment. Id.
Defendants anticipated that plaintiffs might argue that under the recently decided Minnesota Supreme Court decision, Graves v. Wayman, 859 N.W.2d 791 (Minn.2015),
Defendants contended that plaintiffs delivered the warranty deed to Solie on October 15, 2007, four days after expiration of the cancellation period on October 11, 2007, and did not attempt to cancel the foreclosure reconveyance transaction with Solie during the cancellation period. As a result, the warranty deed was properly delivered by the plaintiffs to Solie and Solie properly granted a mortgage to SunTrust. Consequently, Graves does not dictate that SunTrust's mortgage was void. Id., p. 15.
Defendants also asserted that the instant case was distinguishable from Graves in that the state court in Finnegan I "expressly held" that "Plaintiffs' interest in the Property is
Finally, defendants contended that although the Minnesota Supreme Court remanded
Plaintiffs responded that they timely cancelled the transaction with Solie and as a result, Solie had no interest in the Property when he conveyed a security interest to SunTrust. Pls.' Opp. Mem., p. 19. Plaintiffs' argument was based on Minn. Stat. § 325N.13, which as stated previously, provides:
Minn. Stat. § 325N.13(a).
According to plaintiffs, defendants were wrong when they argued that plaintiffs delivered their warranty deed to Solie after the cancellation period had expired. Pls.' Mem., p 19. To the contrary, given the state court's finding that Solie had never delivered a contract to plaintiffs that complied with Minnesota Chapter 325N (and therefore, the first provision of Minn. Stat. § 325N.13 — cancellation within five days after execution of the purchase agreement — was not triggered), and as plaintiffs had "assert[ed][a] notice of cancellation" in their state court complaint before the expiration of the redemption period following SunTrust's foreclosure, they "could and did cancel the transaction within the cancellation period provided by Minn. Stat. § 325N.13." Id., p. 19.
Plaintiffs argued that Graves dictated that a deed that has been rendered void by a timely cancellation under Minn. Stat. § 325N.13 does not transfer title and the mortgagee does not take any interest based on the void deed, even if the mortgagee is a bona fide purchaser. Id., p. 18. Thus, under Graves, Solie had no interest in the Property to convey to SunTrust, and defendants' alleged mortgage interest against the Property was void. Id., p. 19.
Plaintiffs also rejected defendants' assertion that their claims regarding SunTrust's
As to their quiet title claim, plaintiffs argued that they had no adequate remedy at law to determine the status of the Property. Id., p. 25. Moreover, the state court's award of fees to the plaintiffs against Solie did not determine their interest in the Property. Id. Plaintiffs also maintained that the unclean hands doctrine did not bar their quiet title action because their default was not at issue in the instant case. Id., p. 28.
Lastly, as to their declaratory judgment claim, plaintiffs argued that even if the claim was construed as a remedy and not a cause of action, defendants' motion to dismiss should be denied because plaintiffs stated substantive claims in Counts I and II. Id., pp. 28-29.
In reply, defendants again argued that plaintiffs could not state an independent claim against a mortgage lender under Minnesota Chapter 325N; rather, plaintiffs' only recourse was a lawsuit to quiet title. Reply in Support of Motion to Dismiss of Defendants SunTrust Mortgage, Inc. and Federal National Mortgage Association, pp. 13 [Docket No. 20].
Additionally, defendants submitted that even if plaintiffs could assert a claim under Minnesota Chapter 325N, the allegations in the Amended Complaint regarding defendants' actual or constructive knowledge of the alleged improprieties by Solie in connection with sale of the Property failed to state a plausible claim for relief. Id., p. 3. For example, the fact that plaintiffs were in possession of the Property when Solie obtained financing from SunTrust or that they were facing foreclosure was not unusual. Id., p. 4. Similarly, plaintiffs' intent to remain in the Property beyond the closing was not uncommon and would not have alerted SunTrust that a prohibited Minnesota Chapter 325N transaction had taken place. Id. Likewise, plaintiffs' claim that a title insurance policy would have revealed a prohibited transaction was "absolutely unjustified" and would never have disclosed the existence and nature of a private contract between plaintiffs and Solie. Id., pp. 4-5. Also, plaintiffs' allegation that information on Solie's loan application would have disclosed his prohibited transaction, was unsupported by any facts alleged in the Amended Complaint. Id., p. 5. These facts, even taken as true, did not support a conclusion that SunTrust had actual or constructive knowledge that Solie had violated Minnesota Chapter 325N.
Addressing plaintiffs' quiet title argument, defendants again relied on the words "subject to" contained in the state court's amended order and insisted that plaintiffs' situation vis-à-vis SunTrust's
Defendants distinguished Graves on the ground that in Graves, the plaintiff attempted to timely cancel the underlying transaction in accordance with Minn. Stat. § 325N.13. Id., p. 8. Defendants rejected plaintiffs' argument that their complaint in the prior lawsuit constituted a "cancellation" under the statute, since it obviously was not commenced within the timeframes set forth in Minn. Stat. § 325N.13. Id., p. 9. Further, even assuming the commencement of the state action or decision of cancellation could be construed as a notice of cancellation, neither of those dates fell within the cancellation period described by Minn. Stat. § 325N.13. Id. Based on this distinction between the facts in Graves and the facts regarding plaintiffs' alleged "cancellation," defendants contended that there was no basis under Graves to argue that SunTrust's mortgage was void. Id., pp. 9-10.
In considering a motion to dismiss under Rule 12(b)(6), the pleadings are construed in the light most favorable to the non-moving party, and the facts alleged in the complaint must be taken as true. Morton v. Becker, 793 F.2d 185, 187 (8th Cir.1986). In addition, a court must afford the plaintiff all reasonable inferences from those allegations. Blankenship v. USA Truck, Inc., 601 F.3d 852, 853 (8th Cir.2010). At the same time, to withstand a motion to dismiss under Rule 12(b)(6), litigants must properly plead their claims under Rule 8 of the Federal Rules of Civil Procedure and meet the principles articulated by the United States Supreme Court in Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
Under Rule 8(a)(2), a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." The pleading standard articulated by Rule 8 "does not require detailed factual allegations, but it [does demand] more than a unadorned, the-defendant-unlawfully-harmed-me-accusation." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (internal quotation marks and citations omitted). A "pleading that offers `labels and conclusions' or `a formulaic recitation of the elements of a cause of action will not do.'" Id. (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Thus, to "survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). "Determining whether a complaint states a plausible claim for relief will, ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id., at 679, 129 S.Ct. 1937.
For the reasons described below, the Court concludes that defendants' Motion to Dismiss should be granted in part and denied in part. Plaintiffs should be allowed to amend their Amended Complaint to assert a quiet title claim consistent with this Report and Recommendation.
Minnesota Chapter 325N is a consumer protection statute governing foreclosure reconveyances between a foreclosed homeowner and foreclosure purchasers. Erickson, 2012 WL 1593204, at *2 (D.Minn. Apr. 19, 2012) (describing Minnesota Chapter 325N); Jones, 514 F.Supp.2d at 1147. As the Minnesota Supreme Court explained:
Graves, 859 N.W.2d at 797. The statute dictates who is a foreclosure purchaser, (Minn. Stat. § 325N.10, Subd. 4),
The statute provides the following remedies:
Minn. Stat. § 325N.18, Subd. 1, 3.
Count I alleged that defendants violated Minnesota Chapter 325N, but neither SunTrust nor Fannie Mae are the foreclosure purchasers of plaintiffs' Property. See Minn. Stat. § 325N.10, Subd. 4, quoted at n. 17, supra. At the motion hearing, plaintiffs' counsel conceded that the statute may not provide a "direct cause of action under a specific statutory section under § 325N" and that "perhaps" there was not a standalone cause of action under Minnesota Chapter 325N.
Graves, 859 N.W.2d at 801. Counsel also pointed to language from the court's syllabus in Graves, in which the court stated:
Id. at 793.
This Court does not find the language cited by plaintiffs' counsel relevant to the question of whether plaintiffs could assert an independent claim against defendants under Minnesota Chapter 325N. For starters, the Court observes that Graves did not address whether there is a standalone cause of action under Minnesota Chapter 325N by a foreclosed homeowner against a lender. More to the point, the language from Graves cited by plaintiffs' counsel is relevant to plaintiffs' quiet title claim, but it does not establish a standalone cause of action against lenders under Minnesota Chapter 325N. Under these circumstances, the Court will not read such a cause of action into the statute. See Graphic Communications Local 1B Health & Welfare Fund A v. CVS Caremark, 850 N.W.2d 682, 691 (Minn.2014) (stating that the court will not read a cause of action into a statute that the Legislature did not provide) (citing Krueger v. Zeman Const. Co., 781 N.W.2d 858, 864 (Minn. 2010) ("[the court] cannot read into the statute any additional rights."); Premier
As a result, the Court finds that plaintiffs' claims in Count I, which are premised solely on violations of Minnesota Chapter 325N, should be dismissed.
As a preliminary matter, the Court will not dismiss plaintiffs' quiet title claim on the basis of the doctrine of unclean hands, or because plaintiffs received a remedy at law, as argued by defendants. Defs.' Mem., pp. 10-12.
In Minnesota, "[a]ny person in possession of real property personally ... may bring an action against another who claims an estate or interest therein, or a lien thereon, adverse to the person bringing the action, for the purpose of determining such adverse claim and the rights of the parties, respectively." Minn. Stat. § 559.01. A quiet title action is a proceeding in equity and as such, a plaintiff who seeks to quiet title must come to court with clean hands. Haubrich v. U.S. Bank Nat'l Ass'n, Civ. No. 12-565 (DSD/TNL), 2012 WL 3612023, at *3 (D.Minn. Aug. 21, 2012), aff'd, 720 F.3d 979 (8th Cir.2013). The doctrine of unclean hands "is premised on withholding judicial assistance from a party guilty of unconscionable conduct." Fred O. Watson Co. v. United States Life Ins. Co. in City of New York, 258 N.W.2d 776, 778 (Minn.1977).
Courts in this jurisdiction have held many times that plaintiffs seeking to have their mortgages declared invalid after defaulting on their loan, must come to court with unclean hands and will be barred from asserting quiet title on that basis. See e.g. Reff v. Bank of N.Y. Mellon, Civ. No. 13-3415 (JNE/JSM), 2014 WL 4145407, at *9 (D.Minn. Aug. 20, 2014) (mortgagors who defaulted on their mortgage barred by doctrine of unclean hands from asserting unclean hands against foreclosing mortgagee); Ying Xiong v. Everbank, FSB, Civ. No. 13-2647 (DWF/JSM), 2014 WL 3513160, at *10 (D.Minn. July 15, 2014) (same); Guse v. Federal Nat'l Mortg. Ass'n, Civ. No. 13-800 (PJS/JSM), 2014 WL 538631, at *11 (D.Minn. Feb. 11, 2014) (same); Yang Mee Thao-Xiong v. American Mortg. Co., Civ. No. 13-354 (MJD/TNL) 2013 WL 3788799, at *4 (D.Minn. July 18, 2013) (same), aff'd 575 Fed.Appx. 691 (8th Cir.2014); Stilp v. HSBC Bank USA, NA, Civ. No. 12-3098 (ADM/JJK), 2013 WL 1175025, at *4 (D.Minn. Mar. 20, 2013) ("Plaintiffs defaulted on their mortgage loan over four years ago. They seek to declare their mortgage invalid after defaulting; as such, they come to the present case with unclean hands.") (citation omitted).
In each of these cases, however, the mortgagees (i.e. the homeowner borrowers) were seeking to quiet title against their mortgagors or, in the case of Guse, against Fannie Mae, which had acquired the property from the foreclosing mortgagor through a quitclaim deed — that is, against the party directly affected by their inequitable conduct. Here, there is no dispute that plaintiffs defaulted on the loan held by Interbank, but the mortgage that secured their loan is not at issue in the instant law suit. It was Solie, not the plaintiffs, who defaulted on the mortgage held by SunTrust and it was SunTrust, not Interbank, who foreclosed on the Property as a result of Solie's default. Interbank is not a party in this lawsuit and obviously has not claimed that plaintiffs acted inequitably toward it. Under these circumstances,
The Court also rejects defendants' argument that plaintiffs' quiet title claim should be dismissed because they have an adequate remedy at law. Defs.' Mem., pp.10-11. According to defendants, plaintiffs exercised their remedy at law when they sued Solie in state court, obtained an order cancelling the purchase agreement, warranty deed, lease, and repurchase agreement, and obtained a judgment of $44,499.48 against Solie. Defs. Mem., p. 11.
"A party may not have equitable relief where there is an adequate remedy at law available." ServiceMaster of St. Cloud v. GAB Bus. Servs., Inc., 544 N.W.2d 302, 305 (Minn.1996). Equitable relief is available only upon a showing that no adequate legal remedy exists. Allstate Sales & Leasing Co., Inc. v. Geis, 412 N.W.2d 30, 34 (Minn.Ct.App.1987).
The state court's award of fees and costs as damages to plaintiffs did not settle the question of defendants' interests in the Property. The award merely compensated plaintiffs in whole or in part for the fees and costs they expended in pursuing Solie. Similarly, cancelling the purchase agreement, warranty deed, lease and repurchase agreement did not settle the question of defendants' interests in the Property via the mortgage. Indeed, the state court explicitly stated that it was not purporting to "cancel, affect, or otherwise purport or attempt to affect the mortgage of SunTrust... and/or Fannie Mae," and that "[t]he status and disposition of the mortgage of SunTrust and/or Fannie Mae is not addressed in this Order." Amended FFCL, ¶¶ 3, 4. Considering the circumstances presented by this case — plaintiffs are in possession of a property in which defendants claim an interest and from which, in fact, Fannie Mae has attempted to evict plaintiffs — the only remedy plaintiffs have is the equitable remedy of quiet title. For those reasons, the Court determines that plaintiffs have no adequate remedy at law and are entitled to seek the equitable remedy of quiet title.
The Court now turns the Graves decision and its impact on plaintiffs' quiet title count.
In Graves, the homeowner, Graves, defaulted on his mortgage with Wells Fargo. 859 N.W.2d at 793. Wells Fargo foreclosed on the home and bought it at the sheriff's sale on March 13, 2007. Id. During Graves' six-month redemption period, he was approached by Wayman, and on August 15, 2007, Graves signed a quitclaim deed transferring his home to REA Group, a company owned by Wayman; Wayman signed a purchase agreement on behalf of C & M, another company owned by Wayman in which C & M agreed to pay Graves $182,000; and Graves signed a residential lease and rent-back agreement, which allowed Graves to buy back the house within six months. Id. That same night, Graves changed his mind and signed and dated a cancellation form and sent it to Wayman the next day. Id. at 793-94. Wayman refused to honor the cancellation, and on September 5, 2007, Wayman recorded the quitclaim deed that Graves had given him at the August 15 meeting. Id. at 794. On September 11, 2007, two days before the expiration of the redemption period from the sheriff's sale in March, 2007, Wayman took steps to redeem the property. Id. C & M borrowed $145,000 from First Minnesota Bank and purportedly granted a mortgage to First Minnesota on Graves' home to secure the loan. Id. Wayman faxed the quitclaim deed and the purchase agreement to First Minnesota on September 13, 2007, and the loan closed four days later. Id. Of the loan proceeds, roughly
At some point in 2008, Wayman and C & M defaulted on the loan from First Minnesota. Id. First Minnesota sued to foreclose its mortgage and the court entered an order of foreclosure. Id. First Minnesota bought the property at a sheriff's foreclosure sale in August, 2009, and the time period for Wayman to redeem the property expired in February, 2010. Graves sued Wayman, his companies and First Minnesota in June, 2009. Id.
The Minnesota Supreme Court characterized Grave's complaint as a "kitchen sink" complaint that boiled down to two principle theories. Id. First, Graves contended that he did not lawfully sell his home to Wayman in August, 2007, and therefore, First Minnesota's mortgage was invalid. Id. This claim was based on Graves' contention that his August, 2007 transaction with Wayman was an "equitable mortgage" that should be declared void and that the transaction should be cancelled pursuant to Minn. Stat. § 325N.13. Id. at 795. Second, Graves claimed that even if he did lawfully sell the property to Wayman in 2007, he retained a "vendor's lien" on the property that was superior to First Minnesota's mortgage. Id. Graves' "vendor's lien" was based on his contention that he was owed money from the sale to Wayman and had not been paid. Id.
After a bench trial and a post-judgment motion, the trial court (1) determined with respect to the August 15, 2007, transaction that the contracts were void as Graves had exercised his right of cancellation; (2) determined the August 15, 2007, quitclaim deed did not convey any interest to REA and REA therefore, "had nothing to convey to C & M" when it granted a mortgage on the property to First Minnesota; (3) awarded damages to Graves but did not award him a vendor's lien; (4) held that First Minnesota was a bona fide mortgagee; and (5) because First Minnesota had purchased the property at the August, 2009 sheriff's sale and the redemption period had expired, First Minnesota owned the house "free and clear of any encumbrances of other parties." Id. at 796.
Graves appealed and the Minnesota Court of Appeals reversed, finding that Graves, not First Minnesota, held the property free and clear. Id. The appellate court concluded that First Minnesota was not a bona fide purchaser because it should have inquired further into the Graves and Wayman transactions where the documents in its possession provided actual, if not, implied notice of Grave's competing interest in the property and violation of MHOEPA. Id. at 796-97; see also Graves v. Wayman, 816 N.W.2d 655, 665-69 (Minn.Ct.App., 2012).
The Minnesota Supreme Court began its analysis by observing that there was no dispute that the transaction between Graves and Wayman (and his companies) was a "foreclosure reconveyance," or that Wayman violated MHOEPA "in multiple ways." Id. at 797. Nevertheless,
Id. at 797-98.
The court further observed that it assumed for the purposes of its analysis, without deciding, that First Minnesota was a bona fide purchaser, but this status did not change its conclusion that it took no interest in the property. Id. at 798 n. 3. In reaching this result, the court stated that under MHOEPA,
Id. at 798 (citing Minn. Stat. § 325N.13f(a) (emphasis added).
The court found that although Graves physically delivered the quitclaim deed to Wayman, he did not deliver the deed in any legal sense, because he retained the power to revoke or reclaim the deed during the cancellation period under Minn. Stat. § 325N.13(a)-(b). Id. at 799-800 (citing Babbitt v. Bennett, 68 Minn. 260, 263, 71 N.W. 22, 22 (1897) ("delivery of a deed is complete only when the grantor has put it beyond his power to revoke or reclaim it."); White & St. Townsite Co. v. J. Neils Lumber Co., 100 Minn. 16, 22, 110 N.W. 371, 374 (1907) (an undelivered deed cannot transfer legal title, even to a bona fide purchaser, because lack of delivery renders the deed void)).
Further:
Id. at 801 (emphasis added).
In reaching its conclusion, the court considered First Minnesota's contention that Minn. Stat. § 325N.17(f)(3) granted additional rights beyond the rights provided by common law and Minnesota's Recording Act, because it referenced a foreclosure purchaser's "purported" transfers. Id. at 802. As the court explained:
Id.
The court rejected this argument because Minn. Stat. § 325N.17(f)(3) protects bona fide purchasers only with respect to transfers by foreclosure purchasers that take place during the cancellation period, but not to those transfers that occurred after the cancellation period had expired, as was the case with the transfer to First Minnesota. Id. Important to this Court's analysis of defendants' motion, the Minnesota Supreme Court noted that the trial court had concluded that the cancellation period never began to run because the parties never executed a contract that complied with MHOEPA — the same argument plaintiffs have made in the instant case. Id. at 803, n. 6; Pls.' Opp. Mem., p. 19. The court stated:
859 N.W.2d at 803, n. 6 (citations omitted).
The court also considered the effect of the bona fide purchaser provision set forth in Minn. Stat. § 325N.18, Subd. 3, which provides: "[n]o action under this section shall affect the rights in the foreclosed property held by a good faith purchaser for value under section 507.34, 508.48, 508A.48, or other applicable law." Id. at 804. The court stated that this provision did not create any additional rights in favor of a third party whose claim of title rests on a void deed. Id. The court concluded that "in short, because the deed underlying first Minnesota's mortgage was void, First Minnesota took no legal interest in the property based on its claimed status as a bona fide purchaser." Id. at 805.
Finally, the court determined that just because First Minnesota did not have a valid mortgage did not mean that the lower court should have awarded the property to Graves free and clear. Id. First Minnesota bought the property at the sheriff's sale and it argued that it would be unjust to award the property to Graves free and clear "in light of the fact that it was [First Minnesota's] funds that redeemed the Property from the prior foreclosure." Id. The court agreed, reversed the Court of Appeals' award of the property to Graves, and remanded the case back to the district court "for further proceedings to determine whether First Minnesota has an interest in the property based on equitable principles." Id. (citing Knight v. Schwandt, 67 Minn. 71, 74, 69 N.W. 626, 627 (1896) (stating that a party who had redeemed property from a sheriff's sale based on a void deed "was not a legal redemptioner," but that it "does not follow that his redemption is nugatory as to the purchaser at the mortgage sale, which accepted and retained his property.").
In sum, Graves stands for the following principles. First, a bona fide purchaser cannot obtain an interest in property if the underlying deed is void — MHOEPA did not change this long-standing rule. Second, Minn. Stat. § 325N.17(f)(3), which provides that "no grant of any interest or encumbrance is defeated or affected as against a bona fide purchaser... for value and without notice of a violation of [MHOEPA]," applies only to transfers to the bona fide purchaser during the cancellation period; it does not apply to those transfers that occur after the cancellation period has expired. Third, in order for the cancellation periods set forth in Minn. Stat. § 325N.13(a) to commence (and run), the contract of conveyance must comply with MHOEPA. And fourth, even if a bona fide purchaser cannot obtain an interest in property if the underlying deed is void, the alleged bona fide purchaser may have an equitable interest in the property.
Applying the principles set forth in Graves to the motion to dismiss plaintiffs' quiet title claim, the Court finds that defendants have no rights as bona fide purchasers, but may have an equitable interest in the Property, which a quiet title action can determine.
First, plaintiffs alleged and the state court found that Solie never complied with the provisions of Minn. Stat. §§ 325N.12 and Minn. Stat. § 325N.17(a)(1). Conclusions of Law, ¶¶ 6-10. Thus, the 5-day time period to cancel the purchase agreement, as set forth in Minn. Stat. § 325N.13(a), was never triggered. Likewise, the second provision of Minn. Stat. § 325N.13(a) — allowing for cancellation "until 8:00 a.m. on the last day of the period during which the foreclosed homeowner has a right of redemption...." —
In sum, pursuant to Graves and long-standing common law, Solie had no interest to convey to defendants and defendants took no interest in the Property through the void warranty deed. Therefore, defendants cannot invoke the protections of Minn. Stat. § 325N.17(f)(3) as bona fide purchasers.
Second, like First Minnesota in Graves, SunTrust paid money to purchase the Property at the foreclosure sale and presumably Fannie Mae conveyed something to SunTrust for the assignment of the Property. Consequently, defendants are entitled to argue the equities of their interests in the Property in a quiet title action.
The obvious purpose of the allegations pled on information and belief in the Amended Complaint regarding defendants' actual, constructive or implied notice of Solie's violations of Minnesota Chapter 325N
Graves makes it clear that SunTrust did not take an interest in the Property because the underlying warranty deed is void, and the judgment of the state court cancelling the deed and returning ownership of the Property to plaintiffs is consistent with that result. Amended FFCL,
Plaintiffs are also directed to eliminate ¶¶ 64-66 from their quiet title claim (and revise their Prayer for Relief, accordingly). These paragraphs are both unclear and legally unsupported. For example, plaintiffs sought a determination that the SunTrust foreclosure was "stayed" or that SunTrust's foreclosure was improper in some undefined way and that another foreclosure by advertisement should be ordered to take place. Amended Complaint, ¶¶ 64, 65, Prayer for Relief, ¶¶ 1, 2. Foreclosure by advertisement is strictly a creature of statute. See Beecroft v. Deutsche Bank Nat'l Trust Co., 798 N.W.2d 78, 82 (Minn.Ct.App.2011). It is doubtful that such relief is even possible because it appears to be seeking some form of equitable foreclosure by advertisement. On repleading, plaintiffs are directed to limit their requested relief to a determination of the parties' respective interests in the Property, and to an award of the Property to plaintiffs free and clear of defendants' mortgage and any equitable interest in the Property.
In sum, the Court recommends that plaintiffs be allowed to replead Count II to assert quiet title against defendants based on the principles articulated in Graves.
Count III alleged claims under the Minnesota Uniform Declaratory Judgment Act, Minn. Stat. § 555.01, et. seq. Amended Complaint, ¶¶ 69-72. Declaratory judgment is a remedy, not a cause of action. See, e.g. Onvoy, Inc. v. ALLETE, Inc., 736 N.W.2d 611, 617-618 (Minn.2007). For that reason, the Court recommends dismissal of this Count. Additionally, the relief plaintiffs seek though Count III, "a resol[ution] and determin[ation] of the interest held by Defendants SunTrust and/or Fannie Mae" is the essentially the same relief plaintiffs seek in Count II, quiet title. As a result, the declaratory judgment claim is redundant and should be dismissed. See Mille Lacs Band of Chippewa Indians v. Minnesota, 152 F.R.D. 580, 582 (D.Minn.1993) ("A redundant declaratory judgment claim is not a proper declaratory judgment claim and should be dismissed."); Lancaster v. Northern States Power Co., Civ. No. 11-619 (DWF/FLN), 2011 WL 5444115, at *6 (D.Minn. Nov. 9, 2011) (dismissing a claim for declaratory judgment as redundant because it would not provide additional relief beyond that sought through other claims).
The Amended Complaint lumped SunTrust and Fannie Mae together as "defendants" and failed to distinguish between them. For example, plaintiffs refer to "defendants" providing financing to Solie for a mortgage on the Property, (Amended Complaint, ¶ 29); "defendants" were not bona fide purchasers "by virtue of their financing of Mr. Solie's purchase of the Property from Plaintiffs," (Id., ¶ 59) (emphasis added); and "defendants' lien interest"
As this Court has previously stated, "[t]his type of 'kitchen-sink' or 'shotgun' pleading does not pass Rule 8 muster because it does not provide the defendants "with fair notice of the nature and basis or grounds for a claim." Richards v. Dayton, Civ. No. 13-3029 (JRT/JSM), 2015 WL 1522199, at *12 (D.Minn. Jan. 30, 2015), Report and Recommendation adopted by 2015 WL 1522237 (D.Minn. Mar. 30, 2015)). Any amended pleading by plaintiffs must distinguish between SunTrust and Fannie Mae.
For the reasons set forth above, it is recommended that defendants' Motion to Dismiss [Docket No. 11] be
Def. Mem., Ex. A, Conclusions of Law, ¶ 17.
Defs.' Mem., Ex. A, Conclusions of Law, ¶ 19.
Bearing on the state court's findings that "[n]o single document contained the entire agreement between Plaintiffs and Defendant, which is a violation of Minn. Stat. § 325N.12," (Findings of Fact, ¶ 7), Minn. Stat. § 325N.12 provides in relevant part:
Id.
