JOHN J. McCONNELL, JR., District Judge.
Plaintiff Robert W. Clark, Jr. filed a lawsuit against Defendants Mortgage Electronic Registration Systems, Inc. ("MERS") and Bayview Loan Servicing, LLC ("Bayview"), alleging that Bayview had no standing to foreclose on his mortgage because the assignment of his mortgage from MERS to Bayview was void. Both Defendants move to dismiss pursuant to Fed.R.Civ.P. Rule 12(b)(6), arguing that Mr. Clark lacks standing to bring his suit in light of the developing case law from the Rhode Island Supreme Court and the United States Court of Appeals for the First Circuit. In the alternative, MERS and Bayview argue that even if Mr. Clark has standing, his claims fail nonetheless.
The issues in this case raise matters that are potentially applicable to hundreds of similar mortgage foreclosure cases on this Court's Mortgage Docket including the validity of assignments and who has standing to raise these issues, the legality of the MERS system, and the requirements of Rhode Island's statutory scheme for mortgages.
Mr. Clark executed a mortgage for real estate located at 254-256 Old Forge Road in Warwick, Rhode Island. (ECF No. 1 at ¶¶ 1, 7.) The first floor is a restaurant and the second floor has a two-bedroom apartment. (ECF No. 28-5 at 3.) The mortgage listed the Lender as "Equity One, Inc. dba Equity One Mortgage Company" ("Equity One") and the mortgagee as MERS acting "solely as the nominee for Lender and Lender's successors and assigns." (ECF No. 1 at ¶¶ 7, 8.) The mortgage was recorded on February 24, 2004. On April 19, 2012, MERS assigned the mortgage to Bayview who recorded the assignment. (ECF No. 1 at ¶ 9.) Mr. Clark alleges that this assignment is void because David Briggs, a Bayview employee, signed the assignment and did not have authority because he was not a Vice President or Assistant
It is not clear from the Complaint, but at some point, Mr. Clark stopped paying his mortgage. Bayview has initiated a foreclosure proceeding for lack of payment, but no foreclosure has taken place to date. (ECF No. 28-1 at 2 n. 2.)
In the face of the threatened foreclosure, Mr. Clark filed this Complaint setting forth three counts: declaratory injunction (Count I), quieting title (Count II), and punitive damages (Count III). (ECF No. 1.) The Complaint requests: a declaration as to title and ownership of the property; a declaration that Mr. Clark owns the property as a matter of law; a declaration that only Mr. Clark has marketable title; a declaration that the conveyance, the assignment, and the acknowledgment are void; an order quieting title to the property; unspecified damages and attorney's fees; and punitive damages. (Id.)
Mr. Clark bases his plea for relief on four arguments. First, he argues that the assignment from MERS to Bayview is not valid because a person duly authorized did not sign the assignment. Second, he asserts that the assignor did not hold both the mortgage and note as is required under Rhode Island state law. Third, he asserts that Defendants did not follow the statutory and contractual notice requirements. Fourth, Mr. Clark asserts that the mortgage is current or has been satisfied.
This case was originally assigned to the Special Master's docket. By text order issued on May 24, 2013, this Court accepted the Special Master's recommendation (ECF No. 16) that the case be removed from her docket because the property was considered commercial. Defendants then filed the instant motion to dismiss. (ECF No. 28.) Mr. Clark filed an objection (ECF No. 33) to which Defendants replied, attaching several documents. (ECF No. 38.) Mr. Clark filed a supplemental memorandum citing two recently issued Rhode Island Supreme Court opinions, Mruk v. Mort. Elec. Registration Sys., Inc., 82 A.3d 527 (R.I.2013) and Chhun v. Mort. Elec. Registration Sys., Inc., 84 A.3d 419 (R.I.2014). (ECF No. 39.) The Court held a hearing on the motion on February 4, 2014 and Defendants filed a post-hearing reply memorandum, addressing the new case law.
On February 14, 2014, this Court issued a text order stating that because Defendants presented matters outside the pleading in support of its Motion to Dismiss (see e.g., ECF No. 38-5), the Court intended to treat the motion as one for summary judgment pursuant to Fed.R.Civ.P. 12(d). All parties were given time to present any additional material that they deemed pertinent to the motion. Neither party submitted additional materials. Mr. Clark objected to the matter being converted to a summary judgment motion. (ECF No. 47.) Defendants then filed a motion asking the Court to reconsider and not to convert the motion to one for summary judgment, but to consider it as a motion to dismiss. (ECF No. 48.) In light of both parties' positions, the extensive briefing, argument, existing case law and supplements, the Court finds itself well equipped to decide the motion to dismiss without considering matters outside the Complaint. Moreover, because of the guidance set forth in the rapidly evolving case law, specifically the First Circuit Court of Appeal's decision in Wilson v. HSBC Mortg. Servs., Inc., 744 F.3d 1 (1st Cir.2014), the Court
To survive a motion to dismiss for failure to state a claim, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). At the same time, the Court must accept Plaintiffs' allegations as true and construe them in the light most favorable to them. Gargano v. Liberty Int'l Underwriters, 572 F.3d 45, 48 (1st Cir.2009).
"A Rule 12(b)(6) motion will be granted only if, when viewed in this manner, the pleading shows no set of facts which could entitle plaintiff to relief." Gooley v. Mobil Oil Corp., 851 F.2d 513, 514 (1st Cir.1988) (citing Conley v. Gibson, 355 U.S. 41, 45-48, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). These "minimal requirements are not tantamount to nonexistent requirements. The threshold may be low, but it is real — and it is the plaintiff's burden to take the step which brings his case safely into the next phase of the litigation." Gooley, 851 F.2d at 514. "[A] plaintiff ... is... required to set forth factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory." Id. at 515.
In light of the Rhode Island Supreme Court's Chhun decision, an important distinction must be drawn in this case between the standard of review that Rhode Island state courts use in deciding motions to dismiss and our federal standard. State courts grant motions to dismiss "when it is clear beyond a reasonable doubt that the plaintiff would not be entitled to relief from the defendant under any set of facts that could be proven in support of the plaintiff's claim." Palazzo v. Alves, 944 A.2d 144, 149-50 (R.I.2008). Conversely, in federal court, "a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). The Rhode Island Supreme Court recognized that the federal standard is more stringent and "cannot be blended with the traditional Rhode Island standard." Chhun, 84 A.3d at 422 n. 5.
Though this Court sitting in diversity must apply Rhode Island substantive law, it is obliged to apply federal procedural law and is bound to apply the Iqbal-Twombly federal standard. Allison v. Byard, 163 F.3d 2, 4 (1st Cir.1998). Therefore, in order to survive a motion to dismiss, a complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. The Court need not accept all allegations in the complaint as true — "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Plaintiff's complaint must state a plausible claim for relief in order to survive a motion to dismiss. Id.
Mr. Clark levels three claims against Bayview and MERS — Declaratory Judgment (Count I), Quieting Title (Count II), and Punitive Damages (Count III). (ECF No. 1.) The Court will analyze each of these claims in light of Defendants' motion to dismiss and the applicable case law.
In his claim for declaratory judgment, Mr. Clark alleges that he owns the property and any assignment of his mortgage to Bayview "failed to vest title" therein. (ECF No. 1 at ¶¶ 86-87.) He seeks a declaration, among other things, that he owns the property as a matter of law, has marketable title to the property, and an award of costs. (Id. at 7-8.) Before getting to the merits of his claim, the Court must consider whether Mr. Clark, who is not a signatory to the assignment of his mortgage from MERS to Bayview, has standing to challenge the validity of that assignment.
"Standing — a litigant's right to be in the courtroom — must be established in every case." Wilson, 744 F.3d at 8; Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282, 289 (1st Cir.2013). A plaintiff must show that he or she has a personal stake in the outcome of the litigation by "establish[ing] each part of a familiar triad: injury, causation, and redressability." Culhane, 708 F.3d at 289 (citing Katz v. Pershing, LLC, 672 F.3d 64, 71 (1st Cir.2012)). Furthermore, a plaintiff must also generally show "that his claim is premised on his own legal rights (as opposed to those of a third party), that his claim is not merely a generalized grievance, and that it falls within the zone of interests protected by the law invoked." Pagan v. Calderon, 448 F.3d 16, 27 (1st Cir.2006).
Mr. Clark argues that he has standing to challenge the mortgage assignment and foreclosure, citing the Court's decision in Cosajay v. Mortg. Elec. Registration Sys., Inc., 980 F.Supp.2d 238, C.A. No. 10-442-M, 2013 WL 5912569 (D.R.I. Nov. 5, 2013), because he alleged that the assignment from MERS to Bayview was void, making a resulting foreclosure or the threat thereof, void as well. Defendants disagree, arguing that Mr. Clark has alleged at best only voidable conditions that would not afford him standing.
Standing in mortgage foreclosure cases has emerged in the face of very active litigation in our circuit. The United States Court of Appeals for the First Circuit, the Rhode Island Supreme and Superior Courts, and this Court have addressed the issue of standing in cases challenging mortgage foreclosures or potential foreclosures within the last year. Specifically, all courts agree that a mortgagor, alleging that the mortgage contract or assignment is void, ineffective or invalid has standing to proceed. A mortgagor does not have standing, however, if he or she raises challenges to an assignment that make it merely voidable at the election of one party but otherwise effective to pass legal title. See Culhane, 708 F.3d at 291; Cosajay, 980 F.Supp.2d at 241, 2013 WL 5912569, at *3; Mruk, 82 A.3d at 536. The First Circuit cautioned in Culhane that this was not a broad grant of standing, but a narrow and circumscribed holding as to void, invalid, or ineffective assignments. Culhane, 708 F.3d at 291. Therefore, "[a] trial court confronted with the standing issue in this type of case must conduct an inquiry to determine whether a plaintiff's allegations are that a mortgage assignment was void, or merely voidable." Wilson, 744 F.3d at 9.
The First Circuit first made this void versus voidable distinction in Culhane and the Rhode Island Supreme Court adopted it in Mruk as applicable to Rhode Island law. This Court applied it in Cosajay to its consideration of the types of allegations that would give an individual standing in a mortgage foreclosure case. Hot off the presses, the First Circuit decided Wilson v. HSBC Mortgage Services, Inc., giving this Court enhanced guidance on the
Specifically, the First Circuit in Wilson provided clear reasoning for this void/voidable distinction — a plaintiff has standing to challenge an "assignment as void because success on the merits would prove the purported assignee is not, in fact, the mortgagee and therefore lacks any right to foreclose on the mortgage." Id. at 9. A homeowner
Id.
Before the Court begins to analyze the facts of Mr. Clark's case in light of the recent case law, it will first examine how Rhode Island courts have historically defined what is void and what is voidable.
Rhode Island has long recognized the distinction between a contract that is void and one that is voidable. A void contract is a nullity. In a mortgage context, an assignment is void where the assignor "never properly held the mortgage and, thus, had no interest to assign." Culhane, 708 F.3d at 291. An assignment can also be void where a plaintiff plausibly challenges the assignment based on an argument that the assignor "never possessed a legally transferable interest" in the mortgage. Woods v. Wells Fargo Bank, N.A., 733 F.3d 349, 354 (1st Cir. 2013).
While a void contract is a nullity, a voidable contract can be nullified or ratified depending on whether a party to that contract takes action or fails to act. For example, a contract for sale of goods is properly called voidable if the "creditors may affirm the sale, or waive their right to treat it as void." Colt v. Sears Commercial Co., 20 R.I. 64, 37 A. 311, 315 (1897). A contract executed on behalf of a corporation without proper authority is not void, but only voidable, and can be ratified by the corporation after its signing. Bishop v. Kent & Stanley Co., 20 R.I. 680, 41 A. 255, 257 (1898). A contract with an infant is voidable, but not void, where "[t]he infant may avoid his contract, but an adult contracting with him cannot." O'Rourke v. John Hancock Mut. Life Ins. Co., 23 R.I. 457, 50 A. 834, 835-36 (1902) (citations omitted). A contract entered under "[d]uress does not render a contract void, merely voidable, but the victim may ratify the agreement by failing to object." McGee v. Stone, 522 A.2d 211, 214 (R.I.1987).
Most noteworthy, the Rhode Island Supreme Court applied the void versus voidable distinction in the context of a mortgage and held that a mortgage is only voidable by the mortgagee even if the agent of the mortgagee acted without authority. See Bishop, 41 A. at 257; see also Inventasch v. Superior Fire Ins. Co., 48 R.I. 321, 138 A. 39, 42 (1927) ("the policy
The Rhode Island Supreme Court recently addressed the void/voidable distinction in its Mruk decision. In that decision, the court remained faithful to its previous standing decisions, finding that strangers to a contract do not have standing under that contract, but embraced the First Circuit's void versus voidable paradigm established in Culhane. The court confined its extension of standing to homeowners seeking to challenge "invalid, ineffective, or void" mortgage assignments in an effort to dispute a foreclosure. Mruk, 82 A.3d at 536 (quoting Culhane, 708 F.3d at 291). It specifically eliminated standing for challenges to shortcomings in assignments that would make those assignments merely voidable.
As previously noted, the First Circuit posited the void versus voidable distinction to find standing in mortgage assignments first in the Culhane case and later, in the Woods and Wilson cases. It held that a mortgagor only has standing "to challenge a mortgage assignment as invalid, ineffective, or void (if, say, the assignor had nothing to assign or had no authority to make an assignment in a particular assignee.)" Culhane, 708 F.3d at 291. "[C]laims that merely assert procedural infirmities in the assignment of a mortgage, such as a failure to abide by the terms of a governing trust agreement, are barred for lack of standing." Woods, 733 F.3d at 354. "[W]hen a corporate officer acts beyond the scope of his authority, `[h]is acts in excess of his authority, although voidable by the corporation, legally could be ratified and adopted by it.'" Wilson, 744 F.3d at 10 (quoting Commissioner of Banks v. Tremont Trust Co., 259 Mass. 162, 179-80, 156 N.E. 7 (1927)). In other words, in these circumstances it is the mortgagee's right to void the contract at their discretion, not the mortgagor's right.
The First Circuit in Wilson defined "void" contracts as those "`that are of no effect whatsoever; such as are a mere nullity, and incapable of confirmation or ratification.'" Wilson, 744 F.3d at 9 (quoting Allis v. Billings, 47 Mass. 415, 417 (1843)). A "voidable" contract is one that is "`injurious to the rights of one party, which he may avoid at his election.'" Wilson, 744 F.3d at 9 (quoting Ball v. Gilbert, 53 Mass. 397, 404 (1847)). The First Circuit recognized a "common thread running through Culhane and Woods," that is:
Wilson, 744 F.3d at 10. While the applications of this legal principle above were based on Massachusetts law in these three cases, there is nothing in the opinions that would make the rationale any different under Rhode Island law.
In the lens of Wilson and Rhode Island law, the Court must apply the void versus voidable analysis to the facts of Mr. Clark's case. Mr. Clark starkly alleged in his Complaint that "[t]he assignment is void," (ECF No. 1 at ¶¶ 22, 27) but the Court need not credit such conclusory allegations and look for plausible allegations in the Complaint. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.
The mortgage was assigned from MERS to Bayview, was signed by David Briggs, and dated April 12, 2012. (ECF No. 1 at ¶ 9.) Mr. Clark alleges that the Mr. Briggs had no authority to sign the assignment on behalf of Defendant MERS and that Mr. Briggs was neither a Vice-President nor an Assistant Secretary of MERS. (Id. at 9-10.) Mr. Clark further avers that no power of attorney from MERS to Mr. Briggs or Bayview was ever recorded. (Id. at 13.) He alleges that Mr. Briggs was a robo-signer and did not have the requisite intent to assign. (Id. at 14.)
Assuming, as we must for purposes of deciding the motion to dismiss, that these averments above are true, Mr. Clark's complaint does not contain any allegations supporting his conclusion that the assignment is void, which would have given him standing to challenge it.
Additionally, Mr. Clark avers that no power of attorney from MERS to Mr. Briggs or Bayview was ever recorded. He cites no authority for the obligation to record powers of attorney and this Court could not find any such requirement in Rhode Island law. The Court therefore rejects this as an inappropriate legal basis for Mr. Clark's claims.
Furthermore, Mr. Clark asserts that the Court should allow him to proceed with his claim that the assignment is void as fraudulent because a "robo-signer" signed the assignment. The First Circuit in Wilson dealt with the colloquial concept of robo-signing and found the plaintiff's allegations on that front to be "of no moment." Wilson, 744 F.3d at 13. The Court agrees. The assertion, in essence is that the signature was invalid because a machine signed the documents and that the individual whose name appeared did not review the document. Assuming that the Court understands the meaning of the term,
Finally, Mr. Clark asserts that the assignment is void because MERS did not hold both the note and the mortgage when it executed the assignment to Bayview. (ECF No. 33 at 13.) This argument appears to be a rehash of others that have been made against the MERS system that have been uniformly rejected by the Rhode Island Supreme Court and the First Circuit. See Bucci v. Lehman Bros. Bank, 68 A.3d 1069, 1087 (R.I.2013) ("none of the statutes that plaintiffs rely upon prohibit MERS from foreclosing on the Bucci mortgage, because in so doing, MERS would be acting as an agent on behalf of the note owner. Furthermore, under our reading of these statutes, any of the obligations placed upon a `mortgagee'
In this case, there are no facts alleged that would violate the rule set forth in Bucci, Mruk, or Culhane. The mortgage identified MERS as the mortgagee acting solely as the nominee for the Lender, Equity One, and Equity One's successors and assigns. (ECF No. 28-3 at 2.) The mortgage expressly provides:
(Id. at 4.) (emphasis added). The mortgage further provides:
(Id.)
The mortgage is clear that MERS is the mortgagee acting solely as the nominee for the Lender, Equity One, and Equity One's successors and assigns. See Bucci, 68 A.3d at 1085. MERS assigned the mortgage to Bayview. The note was endorsed by Equity One and is held by the custodian for Bayview. Bayview now holds the mortgage and the note. Mr. Clark's argument that the assignment is void because MERS was not the mortgagee and holder of the promissory note is rejected and does not provide a basis for finding standing in his case.
Mr. Clark alleges that he never received notice of default and intent to accelerate unless he cured the default provided in his mortgage. The Court need not undertake a complicated standing analysis on this issue, as Mr. Clark clearly is not an uninterested third party to the mortgage he signed or to a threatened foreclosure on his own property. As a party to the mortgage, he would have standing to challenge any breach of that document by the lender or its assigns.
Mr. Clark argues that Defendants did not comply with his mortgage's notice prior to acceleration requirement such that he states a claim and their motion to dismiss should be denied. (ECF No. 1 at ¶ 31.) This argument involves the relatively standard provision found in paragraph twenty-two of Mr. Clark's mortgage document; however, the Court finds that paragraph thirty-one of the Complaint only reproduces the notice obligation found in
Moreover, Mr. Clark allegations, even if plausible, run only to the lender, Equity One. He alleges that the lender never invoked the statutory power of sale; that it never mailed a notice of sale to him or published the notice of sale. (ECF No. 1 at ¶¶ 33-35.) Mr. Clark makes no such allegations as to MERS and/or Bayview. Though he does not articulate it in his brief, Mr. Clark may be arguing that notice under the mortgage paragraph twenty-two must come from the lender (Equity One) not from Bayview, even though Bayview is the assignee of MERS as nominee for the lender (Equity One), and because Equity One did not give proper notice, any foreclosure is illegal. The Rhode Island Supreme Court in both Bucci and Mruk squarely rejected this argument because the mortgage granted the power of sale to MERS and to Bayview as MERS's successor and assign. Bucci, 68 A.3d at 1087; Mruk, 82 A.3d at 537. Therefore, Mr. Clark's argument on this ground is overruled.
Mr. Clark alleges that Defendants' motion to dismiss should be denied because the note on his property before the Court is current or has been satisfied by another third party. (ECF No. 1 at ¶ 51.) Mr. Clark has failed to plead a single factual allegation that would allow this Court to determine if his assertion on this point is at all plausible. It is a bald assertion if ever there was one and this Court cannot credit it without more information regarding any alleged payments. SEC v. Tambone, 597 F.3d 436, 442 (1st Cir.2010) (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955). ("If the factual allegations in the complaint are too meager, vague, or conclusory to remove the possibility of relief from the realm of mere conjecture, the complaint is open to dismissal."); Aponte-Torres v. Univ. of Puerto Rico, 445 F.3d 50, 54 (1st Cir.2006). But, there is no information forthcoming demonstrating that Mr. Clark was not in default or explaining why he agreed to participate in the Special Master program, paying use and occupancy fees, while alleging that his mortgage was paid in full, and objecting to being removed from that mediation program, explicitly acknowledging that he wanted to make his mortgage perform again. Because Mr. Clark has failed to meet the "low, but ... real" threshold of plausibility on a motion to dismiss, see Gooley, 851 F.2d at 514, his claim that his mortgage has been paid is dismissed.
Mr. Clark has alleged very general fraud allegations in his Complaint, such as "[t]he mortgage is void due to fraud;"
Hayduk v. Lanna, 775 F.2d 441, 444 (1st Cir.1985) (quoting Wayne Inv., Inc. v. Gulf Oil Corp., 739 F.2d 11, 13-14 (1st Cir. 1984)). This Court finds that these general fraud allegations are unsupported and thus not in compliance with Rule 9(b)'s "particularity" requirement. Therefore, Mr. Clark's Complaint, to the extent that he alleges fraud, is rejected.
Mr. Clark alleges that Defendants do not have a clear chain of title showing their ownership in the note and mortgage on his property at 252-254 Old Forge Road, Warwick, Rhode Island. However, the Assignment states that Mr. Clark's mortgage was assigned to Defendant Bayview from MERS. (ECF No. 38-2.) As noted supra, the Rhode Island Supreme Court held in Bucci that MERS and its assigns can institute foreclosure even where the foreclosing entity does not hold an interest in the note. Bucci, 68 A.3d at 1084-85. Accordingly, the mortgage assignment to Bayview is sufficient to show that it has the right to foreclose on Mr. Clark's property. Mr. Clark's quiet title claim therefore must be dismissed.
In light of the Court's conclusions as to Counts I and II of Mr. Clark's Complaint, no discussion of his punitive damages claim is merited. Count III is likewise dismissed.
Mr. Clark does not have standing to challenge the mortgage assignment because the allegations in his Complaint at best simply allege voidable defects. Mr. Clark's remaining claims fail because they are made contrary to Rhode Island and First Circuit precedent. Defendants' Motion to Dismiss (ECF No. 28) is GRANTED. Mr. Clark's Complaint against all Defendants is DISMISSED.
IT IS SO ORDERED.
