DAVID G. CAMPBELL, District Judge.
Plaintiffs move to remand this case to the Arizona Superior Court for Maricopa County (Doc. 20), and all defendants other than First American Title Insurance Company ("First American") oppose (Doc. 26). The motion has been fully briefed (Docs. 20, 26, 30), and the parties did not request oral argument.
Plaintiffs allege that their house was offered for sale at a trustee sale on January 11, 2011, and that Defendant U.S. Bank, N.A. as Trustee for CSMC Mortgage-Backed Pass-Through Certificates, Series 2006-2 ("US Bank") bid for the property. Doc. 1-1 at 22. A Trustee Deed was issued and recorded. Id. at 22-23. On March 10, 2011, Plaintiffs filed a complaint in maricopa County Superior Court alleging eleven causes of action. Doc. 1-1 at 28-48. The case was removed to this Court on April 6, 2011 (Doc. 1 at 4), and on May 6, 2011 Plaintiff's moved for remand and attorney fees (Doc. 20). For the reasons that follow, the Court will deny the motion to remand and the request for fees.
As a prefatory matter, it bears mention that all eleven causes of action in Plaintiffs' complaint were brought under Arizona law (Doc. 1-1 at 28-48), and Defendants'
Plaintiffs' starting premise is that "[t]he Ninth Circuit strictly construes the removal statute against removal jurisdiction" (Doc. 20 at 2 (emphasis deleted)), but Plaintiffs have not argued lack of subject matter jurisdiction or a defect in removal. Their sole argument is abstention, a different doctrine. The Ninth Circuit's construction of the removal statute is irrelevant to abstention arguments. See Kamm v. ITEX Corp., 568 F.3d 752, 756 (9th Cir.2009) ("The Supreme Court has explicitly held that remands based on abstention. . . are not covered by § 1447(c)." (citation omitted)).
The starting presumption in cases of abstention is that "federal courts have a strict duty to exercise the jurisdiction that is conferred upon them by Congress." Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996); accord Southern Cal. Edison Co. v. Lynch, 307 F.3d 794, 805-06 (9th Cir.2002) ("District courts have an obligation and a duty to decide cases properly before them, and abstention from the exercise of federal jurisdiction is the exception, not the rule." (internal quotation marks and citations omitted; alterations deleted)). A district court nonetheless has discretion to abstain under certain "exceptional circumstances." Quackenbush, 517 U.S. at 731, 116 S.Ct. 1712. Abstention pursuant to Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), which Plaintiffs raise, is available under a narrow set of unique circumstances. Quackenbush, 517 U.S. at 723-726, 116 S.Ct. 1712 (narrowing Burford to its facts). The circumstances unique to Burford were: (1) the presence of a state regulatory system; (2) "the difficulty of regulatory issues presented"; (3) "the need for uniform regulation in the area"; (4) "the important state interests [the] uniform system of [regulatory] review was designed to serve"; (5) "the detrimental impact of ongoing federal court review," more specifically the concern that the "federal forum threatened to frustrate the purpose of the complex administrative system that [the State] established"; and (6) where remand or dismissal (as opposed to a stay) is requested from the federal court, whether the relief sought by the complaint is "equitable or otherwise discretionary." Id. at 725, 736, 116 S.Ct. 1712. In evaluating the regulatory aspects discussed above, courts look primarily at the actions of the
Plaintiffs' case does not meet the unique circumstances in Burford. Arizona has enacted statutes that govern trustee sales, but has not created a complex regulatory scheme. Arizona's trustee sale statutes are a far cry from Burford's regulatory scheme which included a state agency (the Railroad Commission) that had "exclusive regulatory authority" over permits for oil drilling in the state, and vested jurisdiction over cases arising from the Commission's decisions in a "single set of state courts, `[t]o prevent the confusion of multiple review' . . . and to permit an experienced cadre of state judges to obtain `specialized knowledge' in the field." Id. at 723-24, 116 S.Ct. 1712 (citations omitted). Arizona has not crested such a system and has not designated specialized judges to deal with trustee sale issues. The fact that Arizona has chosen not to implement a complex regulatory scheme suggests that it does not consider trustee sales to present particularly difficult regulatory issues. Furthermore, although enactment of statutes may reflect some desire for uniformity, Arizona appears content to have that uniformity implemented though the statutes as they are applied by a variety of judges.
Plaintiffs argue that many of the issues raised in their complaint are issues of first impression under Arizona law, and that removal by defendants in this case and others is depriving Arizona courts of the opportunity to pass on these important matters of state public policy and create a coherent jurisprudence. Doc. 20 at 6-10. Even assuming for the sake of argument that these assertions are true, and recognizing that federal intrusion into state policy is a valid ground for abstention, the Court is not persuaded that Ninth Circuit precedent would support Burford abstention in a diversity action seeking to interpret Arizona trustee-sale statutes under the facts here.
In light of the allegations in this complaint, the present state of Arizona's trustee-sale law, and the Burford arguments made by Plaintiffs, this Court will not abstain from exercising its diversity jurisdiction in this case. Plaintiffs' motion to remand on this ground is therefore denied.
The motion argues that "[t]he Rooker-Feldman doctrine, as applied to a
The "string of recent unpublished decisions" cited in Forde involved state judicial actions—including judicial foreclosure. Parker v. Potter, 368 Fed.Appx. 945 (11th Cir.2010); Dempsey v. JP Morgan Chase Bank, 272 Fed.Appx. 499 (7th Cir. 2008); Jacobowitz v. M & T Mortg. Corp., 372 Fed.Appx. 225 (3d Cir.2010); Battah v. ResMAE Mortg. Corp., 746 F.Supp.2d 869 (E.D.Mich.2010); Poindexter v. Wells Fargo Bank, 2010 WL 3023895 (W.D.N.C. 2010). By contrast, there is no allegation of judicial foreclosure or another state-court judgment in this case. As Forde aptly summarized, Rooker-Feldman applies where "(1) there was a state court action; (2) one party lost; (3) judgment was entered in the state court action against the losing party; (4) the losing party commenced a new action complaining of injuries caused by the state court judgment; and (5) the new action invited the district court to review and reject the state court judgment." 2010 WL 5758614 at *4 (citing Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005)). Plaintiffs' motion fails to establish even one of these elements, let alone all five. Plaintiffs' motion to remand on this ground is denied.
Plaintiffs filed a motion for summary disposition of remand against First American in light of its failure to oppose the motion to remand. Doc. 31. First American concedes that it "did not file a separate response or join in its Co-Defendants' response," and agrees to litigate in whatever forum is decided by the Court's ruling on the motion to remand. Doc. 32 at 1. Plaintiffs' reply appears to suggest that even if the Court decides to retain jurisdiction over the claims against the other Defendants, it should remand the claims against First American under LRCiv. 7.2(i). See Doc. 32.
Even if First American were deemed to have consented to abstention under LRCiv. 7.2(i)—a conclusion the rule permits but does not require—the Court fails to see how that consent would be dispositive of the Court's decision to abstain. Plaintiffs' motion failed to persuade the Court that abstention is proper under Burford
Defendants Wells Fargo Bank, N.A., d/b/a America's Servicing Company, U.S. Bank, N.A., as Trustee for CSMC Mortgage-Backed Pass-Through Certificates, Series 2006-2, and Mortgage Electronic Registration Systems, Inc. (collectively, "Defendants") move to dismiss the complaint under Rules 8(a), 9(b), and 12(b)(6). Doc. 10.
Plaintiffs' complaint asserts eleven causes of action. Doc. 1-1 at 28-48. The Court will address each claim sought to be dismissed below, along with any additional factual allegations relevant to the parties' arguments regarding dismissal. In doing so, the Court will discuss only the arguments it found relevant and grounded in a colorable interpretation of the law.
On any issue of first impression in this diversity action, the Court "must use [its] best judgment to predict" how the Arizona Supreme Court would decide the issue. Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 944 (9th Cir.2004) (quoting Helfand v. Gerson, 105 F.3d 530, 537 (9th Cir.1997)). "In so doing, [the Court] may be aided by looking to well-reasoned decisions from other jurisdictions." Id. (Takahashi v. Loomis Armored Car Serv., 625 F.2d 314, 316 (9th Cir.1980)). As a starting principle, the Arizona Supreme Court has stated unequivocally that trustee sale statutes should be construed in favor of borrowers and that strict compliance with such statutes is required. Patton v. First Fed. Sav. & Loan Ass'n of Phoenix, 118 Ariz. 473, 578 P.2d 152, 156 (1978).
When analyzing arguments of failure to state a claim to relief under Rule 12(b)(6), the factual allegations "`are taken as true and construed in the light most favorable to the nonmoving party.'" Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir.2009) (citation omitted). To avoid a Rule 12(b)(6) dismissal, the complaint must plead "enough facts to state a claim to 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). This plausibility standard requires sufficient factual allegations to allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not `show[n]'—`that the pleader is entitled to relief.'" Id. at 1950 (citing Fed.R.Civ.P. 8(a)(2)).
With the above context and principles in the background, the Court turns to the arguments asserted in this case. The motion will be granted in part and denied in part.
The complaint alleges that Plaintiffs are entitled to an "unwinding" of the trustee sale, including voiding of the following documents: the Substitution of Trustee ("Substitution"), the Notice of Trustee Sale ("NOS"), the Assignment of Deed of Trust ("Assignment"), and the Trustee Deed.
Defendants argue that this claim seeks declaratory relief, which is a remedy rather than a cause of action. Doc. 10 at 4. The complaint expressly asserts, however, that Plaintiffs are entitled to this relief on grounds of equity (e.g., Doc. 1-1 ¶ 87), failure of the documents to comply with statutory requirements (e.g., id. at ¶¶ 91, 104), and "breach of contract, misrepresentation, concealment, and fraud" (id. at ¶ 103; accord id. at ¶¶ 104, 105). Whether the legal rights asserted are cognizable and, if so, whether they entitle Plaintiffs to the relief, are distinct issues. The claim alleges legal and equitable wrongs, not simply remedies, and this argument therefore will be rejected.
Defendants argue that A.R.S. § 33-811(C) waives Plaintiffs' "right to challenge the sale on the grounds asserted." Doc. 10 at 5. Defendants argue that by having received the NOS and having failed to seek injunction of the trustee sale, Plaintiffs have "waived all objections and defenses to the sale." Id. Plaintiffs respond that Defendants misread the law and that a foreclosure sale can be unwound notwithstanding § 33-811(C) on grounds of fraud, misrepresentation, concealment, or breach of contract. Doc. 18 at 7. Plaintiffs do not appear to maintain that mere failure to follow statutory prescriptions can be a valid ground for voiding the transaction in light of § 33-811(C). See Doc. 18 at 2-7. Defendants' reply attempts to distinguish the cases cited by Plaintiffs, but offers no Arizona state-court case for the affirmative proposition that equity and breach of contract can never unwind a trustee sale. See Doc. 28 at 4-6.
Section 33-811(C) of the Arizona Revised Statutes reads in part as follows:
This provision has been addressed in a number of decisions of this Court, most of which have concluded that it establishes a complete defense to virtually any attack on the sale, including claims of fraud. E.g., Spielman v. Katz, 2010 WL 4038838, *3 (D.Ariz. Oct. 24, 2010) (court concluded that plaintiff's claims, including claims of fraud, were barred by § 33-811(C)); Cettolin v. GMAC, 2010 WL 3834628, *3 (D.Ariz. Sept. 24, 2010) (reading § 33-811(C) broadly). Unpublished decisions of the Arizona Court of Appeals, which do not constitute binding precedent and cannot be cited as authority under Arizona's rules of civil procedure, give the provision a similarly broad reading. One decision of this Court, Martenson v. RG Financing, 2010 WL 334648 (D.Ariz. Jan. 22, 2010), holds that § 33-811(C) does not bar a post-sale action against a trustee for breaching terms of the deed of trust. Another decision, Herring v. Countrywide Home Loans, Inc., 2007 WL 2051394, *5-*6 (D.Ariz. July 13, 2007), declines to rely on § 33-811(C) to dismiss claims that a trustee sale was held in breach of a repayment plan agreement, a contract separate from the deed of trust.
The parties' briefing of this issue, which necessarily is short because of the large number of issues addressed in the motion to dismiss, primarily discusses the previous
Defendants argue that the trustee's deed is "conclusive evidence of compliance with the requirements of the Trustee's Sale." Doc. 10 at 5. Defendants also argue that Plaintiffs' allegations that U.S. Bank was not a purchaser for value without notice, and therefore not eligible for introducing the trustee's deed as conclusive evidence, are implausible. Id. Plaintiffs respond by asserting that U.S. Bank was not owed any money (Doc. 18 at 7), but fail to explain how this would establish the plausibility that U.S. Bank failed to pay value when it purchased the property.
Plaintiffs also respond that failing to provide the grantee's name and address as required in the deed renders it deficient. Doc. 18 at 7-8. But this is an issue of fact that the Court will decline to address at the motion to dismiss stage. In light of this assertion, however, the Court will address Plaintiffs' implicit contention that a trustee deed deficient in one respect cannot be conclusive evidence about the fact that required statutory processes were followed for the trustee sale. Defendants reply that under A.R.S. § 33-401(C), "[t]he validity of any deed shall not be affected by any failure to comply with the requirements set forth in this subsection." Doc. 28 at 6.
As a starting point, A.R.S. § 33-811(B) states in part the following:
This provision draws a distinction between general purchasers and purchasers for value and without notice. In the case of general purchasers, the deed raises a mere presumption of compliance. In the case of purchasers for value without notice, the deed constitutes conclusive evidence. The Court cannot decide what weight to give the trustee deed at this stage of the
The Court will now address Defendants' substantive arguments that Plaintiffs' attacks on various recorded documents fail to state a claim.
The complaint asserts several grounds for why the Substitution is invalid. Defendants challenge each.
Plaintiffs assert that MERS has no authority to conduct business in Arizona and that therefore "any document signed and/or recorded by MERS in Arizona is void[.]" Doc. 1-1 ¶ 89. Plaintiffs have not alleged that MERS signed the Substitution in Arizona. See also Doc. 1-1 at 91 (Plaintiffs' exhibit bearing notarization stamp indicating Texas). Nor have Plaintiffs alleged MERS recorded the Substitution in Arizona. See also id. at 90 (Plaintiffs' exhibit bearing recording-requester name as First American Title Insurance Company). Finally, Plaintiffs have not shown that signing or recording a substitution of trustee in Arizona requires registration as a foreign corporation or entity. A.R.S. § 10-1501(B) ("The following activities, among others, do not constitute transacting business within the meaning of subsection A: . . . Creating or acquiring indebtedness, mortgages and other security interests in real or personal property. . . . Securing or collecting debts or enforcing mortgages and security interests in property securing the same."). The Court will dismiss this portion of Plaintiffs' claim.
The complaint alleges the Substitution is void because the person signing it lacked authority to sign. Doc. 1-1 ¶ 90. It is alleged that the Substitution signer, Chet Sconyers, purports to be a Certifying Officer of MERS, and that Sconyers is in fact with First American. Id. On the basis of these facts, the complaint further alleges that Sconyers was not authorized to substitute a trustee on behalf of MERS.
To the extent Defendants suggest that Plaintiffs' allegation regarding Sconyers' authorization is a legal conclusion, such suggestion is not justified by the complaint. Plaintiffs do not allege that absence of a written authorization makes the signature void as a matter of Arizona law; they assert that absence of the authorization paperwork together with Sconyers being employed with First American leads plausibility to their factual allegation that Sconyers lacked authorization from MERS. The dispositive issue is whether Plaintiffs' allegation is sufficient to meet
Defendants' citation to A.R.S. § 33-804 is unavailing because that statute does not on its face permit trustee assignments by someone other than the beneficiary—it appears to provide no refuge if Plaintiffs prevail in showing that Sconyers was not authorized. The Court concludes that this issue is best addressed on summary judgment after the parties have had an opportunity to present evidence on the question of authorization. The Court will note, however, that § 33-804(D) suggests written authorization is necessary. A.R.S. § 33-804(F) contains a similar written-authorization provision.
The complaint alleges that the Substitution is void because it states the beneficiary is ASC rather than MERS, that ASC has never been the beneficiary, and that MERS was in fact the beneficiary at the time the Substitution was signed. Doc. 1-1 ¶ 90. Defendants concede that MERS was in fact the correct beneficiary. Doc. 10 at 7:7 (stating that "there is no dispute that MERS was the beneficiary under the Deed of Trust"). Defendants argue that MERS was the party who executed the Substitution and that ASC was the loan servicer who would also have been authorized to execute a substitution pursuant to A.R.S. § 33-804(D). Doc. 10 at 7.
Plaintiffs' response does not argue that identifying the wrong beneficiary in a substitution-of-trustee instrument executed by the correct beneficiary voids the substitution. Doc. 18. Plaintiffs also fail to address the effect of the instrument's purported compliance with the text of the form notice established by A.R.S. § 33-804(D). The Court will dismiss this portion of Plaintiffs' claim.
The complaint alleges the NOS is void on two grounds: (1) it is signed by someone in Texas but notarized in California; and (2) the NOS fails to correctly identify the beneficiary. Doc. 1-1 ¶ 91.
Defendants first argue that Plaintiffs' allegation the signer was physically in Texas at the time of signature is not plausible. Doc. 10 at 7. They argue that a Texas address for First American on the NOS does not necessarily mean the signatory, a First American representative, was physically in Texas. Id. Although this is correct as a matter of logic, the signatory purported to act on behalf of a company with a P.O. Box listed in Fort Worth, TX. Doc. 1-1 at 95. The signatory did not list a separate physical location for himself. Id. The Court cannot find from these facts that Plaintiffs' allegation that the signer was in Texas is implausible.
Defendants argue in the alternative that even if the signatory was in Texas, such error would not invalidate the sale under A.R.S. § 33-808(E). That statute reads, in part: "Any error or omission in the information required by subsection C or D of this section, other than an error in the legal description of the trust property or an error in the date, time or place of sale, shall not invalidate a trustee's sale." § 33-808(E). Defendants do not cite any Arizona case law for the proposition that "any error" includes a knowing falsity such as the one Plaintiffs allege—that the notary falsely certified the signatory appeared before her in California.
Defendants also argue that the trustee deed raises the presumption of compliance under § 33-811(B). Doc. 10 at 7. Defendants' § 33-811(B) argument is premature for reasons explained above.
Defendants argue that improper identification of the beneficiary does not invalidate the sale, citing § 33-808(E). Doc. 10 at 7. Defendants point out that the entity listed as the beneficiary was actually the loan servicer. Id. Therefore, the only issue is whether a NOS that misstates the name and address of the beneficiary is invalid. A.R.S. § 33-808(E) provides that "[a]ny error or omission" of the name and address of the beneficiary "shall not invalidate a trustee sale." Plaintiff does not respond to this argument. The Court will dismiss this portion of the claim.
The complaint asserts several bases for why the Assignment is invalid. Defendants challenge each.
Plaintiffs assert that MERS has no authority to conduct business in Arizona and that therefore "any document signed and/or recorded by MERS in Arizona is void[.]" Doc. 1-1 ¶ 89. Plaintiffs have not alleged, however, that MERS signed the Assignment in Arizona. See also Doc. 1-1 at 101 (Plaintiffs' exhibit bearing notarization stamp indicating Texas). Nor have Plaintiffs alleged MERS recorded the Assignment in Arizona. See also id. (Plaintiffs' exhibit bearing recording requester name as being First American Title Insurance Company). Finally, Plaintiffs have not shown that signing or recording an assignment of beneficiary in Arizona requires registration as a foreign entity. A.R.S. § 10-1501(B) ("The following activities, among others, do not constitute transacting business within the meaning of subsection A: . . . Creating or acquiring indebtedness, mortgages and other security interests in real or personal property. . . . Securing or collecting debts or enforcing mortgages and security interests in property securing the same."). The Court will dismiss this portion of Plaintiffs' claim.
The complaint alleges that the Assignment purports to assign both the deed of trust and the note, and that MERS had no legal authority to assign the note because it never had possession of the note and it was not MERS's to assign. Doc. 1-1 ¶ 92. Both parties appear to agree that a security and the underlying debt are inseparable: Defendants by citing to A.R.S. § 33-817 ("The transfer of any contract or contracts secured by a trust deed shall operate as a transfer of the security for such contract or contracts."), and Plaintiffs by citing to Hill v. Favour, 52 Ariz. 561, 84 P.2d 575, 578-79 (1938) ("A mortgage, as distinct from the debt it secures, is not a thing of value nor a fit subject of transfer; hence an assignment of the mortgage alone, without the debt, is nugatory, and confers no rights whatever upon the assignee."). But Plaintiffs' allegation that MERS was not authorized to assign the debt is a legal conclusion not entitled to an assumption of truth. Plaintiffs attached to their complaint an exhibit that alleges the Deed of Trust states in part the following:
Plaintiffs' further allegation that the Assignment separates the security from the debt is a legal one, not entitled to a presumption of truth. Plaintiffs' exhibit alleges, for example, that in the Assignment MERS "grants, assigns, and transfers" to U.S. Bank "all beneficial interest under that certain Deed of Trust dated: 10/14/2005 executed by MARCUS SILVING Trustor(s) [.]" Doc. 1-1 at 101. Plaintiffs fail to explain how transferring "all beneficial interest" separates the security from the debt other than to point out that MERS never takes possession of "notes" because it is not a lender (Doc. 18 at 9).
Plaintiffs' error is conflating the concepts of "note" and "debt," which are distinct under Arizona law. Hill holds only that the security and the debt are inseparable in Arizona. 84 P.2d at 578-79 ("[A]n assignment of the mortgage alone, without the debt, is nugatory, and confers no rights whatever upon the assignee." (emphasis added)). The paper note is not the debt: it is only evidence of the debt, as is the recorded deed of trust. See Hill, 84 P.2d at 578 ("Where there is no written evidence of the debt or obligation, the mortgage is evidence both of the debt and security for its payment."); Rodney v. Arizona Bank, 172 Ariz. 221, 836 P.2d 434, 436 (Ariz.App.1992) (noting that a promissory note is evidence of a debt for purchase of real property). Therefore, MERS's possession or non-possession of the paper note is not the relevant inquiry. The dispositive question is whether MERS had the right to transfer the lender's beneficial interest in the debt to U.S. Bank. In light of Plaintiffs' exhibits stating that MERS is the nominee for the original "Lender and Lender's successors and assigns," Plaintiffs fail to explain why MERS lacked the capacity to transfer the lender's beneficial interest in the debt. The Court will dismiss this portion of Plaintiffs' claim.
The complaint alleges the Assignment is invalid because the person signing it lacked authority to sign. Doc. 1-1 ¶¶ 92-94. It is alleged that the signer, Deeann Gregory, purports to be a certifying officer of MERS, that "MERS has no employees which perform these functions," and that Gregory also claimed to be with First American. Id. On the basis of these facts, the complaint further alleges that Gregory was not authorized to assign the interest on behalf of MERS. Id. at ¶ 93:20-22.
Defendants appear to challenge the sufficiency and plausibility of these allegations by arguing that (1) a signatory is not legally required to attach a letter of authorization, and (2) the trustee deed raises the presumption that all is in order. Doc. 10 at 8. The Court declines to dismiss this portion of Plaintiffs' claim for the reasons explained above regarding the Substitution signed by Sconyers.
The complaint alleges that the trustee deed is void because the Substitution, NOS, and Assignment are void. Doc. 1-1 ¶ 101. Because the trustee deed is void, Plaintiffs assert, the trustee sale must be rescinded. Id. Defendants do not appear to make a specific argument other than suggesting that because the Substitution, NOS, and Assignment are valid the trustee deed is also valid, as is the sale. Doc. 10 at 9:10-16.
The Court has ruled it will not dismiss Plaintiffs' claims that the Substitution and Assignment lacked authorization. The Court has also declined to dismiss the claim that the NOS was falsely acknowledged. Therefore, to the extent Defendants
The complaint makes many allegations with regard to this claim, some of which appear to overlap with Claim 1. Compare Doc. 1-1 ¶¶ 109-131 with Doc. 1-1 ¶¶ 84-108. Plaintiffs essentially assert they are entitled to a ruling that their interest in the property is superior to that of Defendants, and that title be quieted in their names. Doc. 1-1 ¶ 131.
Defendants argue that Plaintiffs cannot establish they are entitled to have title quieted in their names because Plaintiff Silving admits he executed a deed of trust placing title in a trustee, and Plaintiff Bader executed another deed of trust placing title in another trustee. Doc. 10 at 9. Defendants also argue that Plaintiffs admit to defaulting on the loan secured by the deed of trust at issue in this litigation. Id. at 9-10. In sum, Defendants' position appears to be that a quiet-title action is not cognizable for plaintiffs who issued a deed of trust to trustees and have not yet paid their debt under the deed of trust.
Iqbal stated a two-pronged approach for plausibility: (1) a court first determines whether an allegation is a statement of fact or a statement of law, and (2) the court then applies its "judicial experience and common sense" to the specific context alleged and determines whether the facts alleged plausibly give rise to an entitlement to relief. Iqbal, 129 S.Ct. at 1949-1950.
Plaintiffs' complaint fails to allege who paid their debt, when, or why, and fails to allege any facts that would lead the Court to conclude that such payor intended the payment be made on behalf of Plaintiffs. See A.R.S. § 47-3602(A) ("[A]n instrument is paid to the extent payment is made by or on behalf of a party obliged to pay the instrument[.]"). When combined with Plaintiffs' admission that they executed deeds of trust and later defaulted on their debt payments, the allegation that the debt has been paid by or for them is simply not plausible without some supporting facts. The Court will dismiss this portion of Plaintiffs' claim.
Under Arizona law, an action to quiet title is statutory, but also includes equitable considerations. Lavidas v. Smith, 195 Ariz. 250, 987 P.2d 212, 218 (Ariz.App.1999). A party bringing a quiet title action must allege that it has an interest in real property and that the interest is adverse to another person who claims an interest in the same property. A.R.S. § 12-1101(A). Moreover, a title holder may have a superior claim to title as to one party and an inferior claim as to another. See, e.g., Bowen v. Chemi-Cote Perlite Corp., 102 Ariz. 423, 432 P.2d 435, 443 (1967). Finally, title rights can be disaggregated, and the distinct rights of possession or of alienation can also separately
Plaintiffs each admit placing title in trust with a trustee, but those trustees are not the parties against whom Plaintiffs seek to quiet title. As to Defendants' position that a quiet title action is foreclosed to plaintiffs who have not yet discharged their debt, this argument would be persuasive if Plaintiffs sought to quiet title against the beneficiary of the deed of trust. Here, Plaintiffs' quiet title action is brought against ASC, U.S. Bank, and MERS. Under Plaintiffs' theory, ASC and U.S. Bank are not beneficiaries of the deed of trust. Under Defendants' theory, ASC and MERS are no longer beneficiaries (it is unclear whether Defendants maintain U.S. Bank is a beneficiary under the deed of trust or an outright owner of title in fee simple). Therefore, it is possible that Plaintiffs have the right to quiet title as to some Defendants. Because the motion does not seek to dismiss the claim as to specific Defendants, it will be denied without prejudice.
In this cause of action, the complaint alleges that all Defendants breached the duty of good faith and fair dealing present in the note and deed of trust. Doc. 1-1 at 34. The breaches are alleged to have occurred when Defendants failed to process loan modification requests as promised; failed to supervise employees during modification and foreclosure processes; failed to provide accurate information regarding loan servicing; demanded information from Plaintiffs which Defendants already had; provided contradictory information regarding modification options; incorrectly determined that Plaintiffs were not eligible for loan modification programs; proceeded with foreclosure while modification was pending; foreclosed in violation of contract terms; concealed that foreclosure will no longer be postponed; hid the identities of the note holder, lender, and beneficiary despite requests for disclosure from Plaintiffs; and foreclosed using defective documents. Id. at 35-36.
Defendants argue that Plaintiffs have not stated a claim on which relief can be granted because they "identify no actions any Moving Defendant took to deprive Plaintiffs of the benefits of" the note and deed of trust. Doc. 10 at 11. Defendants also argue that "Plaintiffs identify no contractual obligation requiring any Defendant to modify the Loan," and therefore plead no facts alleging Defendants breached duties owed Plaintiffs during the loan modification process. Id. Plaintiffs respond that an express breach is not required, that manipulating bargaining power in bad faith can be sufficient for a breach of the covenant, and also that Defendants did not follow the law when foreclosing using invalid documents. Doc. 18 at 13-14. Defendants reply in part that the "duty of good faith and fair dealing does not extend to negotiations," and that Plaintiffs fail to show bad faith. Doc. 28 at 7.
Under Arizona law, the covenant of good faith and fair dealing is implied in every contract, and the "duty arises by virtue of a contractual relationship." Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565, 569 (1986) (citations omitted). "The essence of that duty is that neither party will act to impair the
Defendants move to dismiss this claim against all Defendants without addressing their separate contractual relationships with Plaintiffs. It is clear that some contractual relationships exist, and Arizona law clearly implies a duty of good faith and fair dealing in such relationship. Rawlings, 726 P.2d at 569. The Court therefore cannot dismiss this claim against all Defendants.
As to the alleged breach of the covenant with respect to modification negotiations, Defendants appear to argue that the covenant of good faith and fair dealing does not apply to negotiations concerning modification of an existing contract. See Doc. 10 at 11-12. Plaintiffs respond that a breach of the covenant can occur when a party to a contract manipulates its bargaining power, and that "[a] contracting party may not exercise a retained contractual power in bad faith." Doc. 18 at 13. Plaintiffs mention specifically foreclosure pursuant to invalid documents, and make a generalized assertion that the complaint is replete with examples of Defendants manipulating their bargaining power. Id.
With regard to Plaintiffs' argument that foreclosing using defective instruments is a violation of the covenant of good faith implied in the deed of trust and note, the Court cannot at this stage conclude that the claim is invalid under Arizona law. See Rawlings, 726 P.2d at 569. But Plaintiffs do not identify other contracts that contained an implied covenant, and Defendants are correct in asserting that the covenant of good faith implied in a contract typically does not extend to negotiations. Restatement (Second) of Contracts ("Restatement") § 205 cmt. c ("This Section . . . does not deal with good faith in the formation of a contract."); see Vera v. Wells Fargo Bank, N.A., 2011 WL 334286, *3 n. 26 (D.Ariz. Jan. 31, 2011) (citing Restatement § 205 cmt. c).
Because Plaintiffs do not allege a contract other than the deed of trust and note from which the implied covenant of good faith and fair dealing arises, the Court will dismiss all alleged breaches of the covenant other than the covenant implied in the deed of trust and the note. The Court will also dismiss alleged breaches of the covenant implied in the deed of trust and the note other than the allegation that foreclosing using defective instruments violated the covenant.
The claim for breach of contract alleges that Defendants pursued a trustee sale in violation of the contracts, negligently undertook to modify the loan, and breached the covenant of good faith and fair dealing. Doc. 1-1 at 37. Defendants argue that the claim as pled fails to give fair notice of the basis of the claim. Doc. 10 at 12. Plaintiffs respond that they have previously alleged the basis of the claim, and cite to the following paragraphs in their complaint: 9, 10, 19, 21, 29, 37, 39-45, 47-48, 143-145. Doc. 18 at 13-14. Defendants' reply reasserts that they do not have fair notice. Doc. 28 at 7-8.
The complaint alleges that ASC and U.S. Bank put in place modification and forbearance programs for distressed borrowers, encouraged Plaintiffs to apply, and negligently managed the programs by failing to staff with sufficient and competent people, failing to provide adequate contact methods, failing to provide adequate methods for submittal of information, making repeated requests for the same information, making inaccurate calculations and determinations, failing to follow through on "written, verbal and implied promises," and waiting until less than 24 hours before the trustee sale to make Plaintiffs aware that the sale will proceed rather than be postponed as it was several times before. Doc. 1-1 at 38-39. Plaintiffs also allege that they relied on Defendants to administer the modification and forbearance programs. Id. at ¶ 158. Plaintiffs allege that Defendants' negligence resulted in foreclosure, loss of equity, a two-year delay in principal reduction payments, and damages to Plaintiffs' credit rating. Id. at ¶ 159.
Defendants argue the claim should be dismissed because "mortgage lenders do not generally have legal duties to borrowers from which negligence claims may arise," and Plaintiffs were not entitled to a loan modification as a matter of law. Doc. 10 at 13. Defendants rely on McAlister v. Citibank, 171 Ariz. 207, 829 P.2d 1253, 1258 (Ariz.App.1992), and Renteria v. United States, 452 F.Supp.2d 910, 921-22 (D.Ariz.2006). Doc. 10 at 13. Plaintiffs respond that Defendants' legal arguments are not supported by law (Doc. 18 at 14), and Defendants counter (Doc. 28 at 8-9).
McAlister holds only that "the relationship between a Bank and an ordinary depositor, absent any special agreement, is that of debtor and creditor." 829 P.2d at 1258 (citing Valley Nat'l Bank of Phoenix v. Electrical Dist. No. 4, 90 Ariz. 306, 367 P.2d 655, 662 (1961)) (emphasis added). McAlister also acknowledged that the Arizona Supreme Court recognized a fiduciary duty between a bank and its customer where "(1) the bank acted as the customer's financial advisor for many (twenty-three) years, and (2) the customer relied upon the bank's financial advice." 829 P.2d at 1258 (citing Stewart v. Phoenix
Renteria, a case from this district, states plainly that "Lloyd [v. State Farm Mut. Auto. Ins. Co., 176 Ariz. 247, 860 P.2d 1300, 1303 (Ariz.App.1992)] and Jeter [v. Mayo Clinic Ariz., 211 Ariz. 386, 121 P.3d 1256, 1272 (Ariz.App.2005)] make clear that the Good Samaritan Doctrine applies to economic harm. Neither of these cases nor any other Arizona authority excepts lending from that authority. The Good Samaritan Doctrine, therefore, is applicable to the Renterias' claims." 452 F.Supp.2d at 914. The Court fails to see how this holding supports Defendants' argument that mortgage lenders are exempt from the Good Samaritan Doctrine.
Defendants may reassert arguments concerning this claim at the summary judgment stage. At this point, however, the Court must deny Defendants' motion to dismiss on the arguments made.
The complaint alleges Defendants misrepresented or concealed the fact that they allowed unauthorized signatures on documents recorded for the purpose of foreclosure; they did not have adequate and competent staff to process modification requests; they would demand the same information repeatedly; they would fail to follow through on written and verbal promises and contractual obligations; they would lure Plaintiffs into remaining in default until the trustee sale occurred; they would pursue foreclosure despite a pending modification application; and they were participating in a system that hides the identity of the note holder and lender, sells the note to unknown entities, and other aspects. Doc. 1-1 at 40-41. The complaint clarifies the alleged wrong was preventing Plaintiffs from learning these facts—not engaging in the underlying behavior. See Doc. 1-1 ¶¶ 166, 167.
Defendants argue that the claim fails to plead all of the elements of the fraudulent concealment cause of action, and that the claim is not pled with the particularity required by Rule 9(b). Doc. 10 at 13-14. Defendants also argue that Plaintiffs fail to show how the concealment induced them to act to their detriment. Id. at 14:9-12. Plaintiffs respond that Defendants cite no law requiring fraudulent concealment be pled with particularity, and that fraudulent concealment can lie when a party is induced to refrain from acting. For the latter proposition, Plaintiffs cite to In re Bender, 2010 WL 6467681 at *9 (9th Cir. BAP Nov. 15, 2010), and urge that Defendants' failure to disclose induced Plaintiffs to "refrain[] from taking legal action to stop the foreclosure." Doc. 18 at 14-15. Defendants reiterate that fraudulent concealment claims must be pled with particularity and that no allegations have been pled that any defendant misled Plaintiffs about the sale date. Doc. 28 at 9.
Although captioned "Fraudulent Concealment," this claim alleges that Defendants both "misrepresented and concealed." Doc. 1-1 at 39:19-20, 40:7. Under Rule 9(b) of the Federal Rules of Civil Procedure, a claim of false representation must be pled with particularity. Schreiber
In addition to the misrepresentation allegations discussed above, the allegations of "concealment" assert that "Defendants prevented Plaintiffs from learning any of these truths" (Doc. 1-1 ¶ 166). Plaintiffs fail to allege with particularity, however, how Defendants went about "preventing" Plaintiffs. Affirmative false statements intended to conceal require particularity as discussed above. These requirements are not met by the claim as pled. Accordingly, the claim will be dismissed.
The complaint alleges that Defendants misled Plaintiffs about their desire to help with a loan modification and avoid foreclosure. Doc. 1-1 ¶ 169. It is also alleged that Plaintiffs "were misled into believing" that Defendants would not be negligent regarding loan modification, would not foreclose, and would follow the law with regard to the trustee sale, among others. Id. at ¶ 170. The complaint recites representations allegedly made to Plaintiffs, id. at ¶¶ 171-72, and alleges that the representations were material and false, id. at ¶¶ 173-74.
Defendants argue in part that the allegations are not pled with the requisite particularity and do not give them fair notice. Doc. 10 at 15. Plaintiffs appear to respond that they have alleged what they know, and suggest that Defendants "have all the information regarding the loan: who owns it, where the documents are, who the investors are, whether the Note was destroyed, lost, or sold to multiple entities, why a loan modification application was ignored, and the list goes on." Doc. 18 at 15. Plaintiffs suggest that the Ninth Circuit has relaxed pleading requirements in cases where "plaintiffs cannot be expected to have personal knowledge of the facts." Doc. 18 at 15. Plaintiffs request leave to amend if the Court finds the claim inadequately pled. Id. at 16:3-4. Defendants' reply maintains that the lower pleading threshold does not apply because Plaintiffs should have the details about who made representations, when, etc. Doc. 28 at 9-10.
Rule 9(b) requires allegations of fraudulent representations be pled with particularity. Schreiber, 806 F.2d at 1401 ("We have interpreted Rule 9(b) to mean that the pleader must state the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation."). Plaintiffs' claim fails this test: other than the general content of alleged misrepresentations,
This claim will be dismissed.
This cause of action is captioned "Consumer Fraud," but neither the caption nor paragraphs 183-189 mention the source of the right being asserted. Doc. 1-1 at 44-45. The allegations appear to mirror in large part those made in Claim 7, although Plaintiffs allege here that the false representations were made in connection with merchandise such as real estate. Id.
Defendants treat this claim as being pled under the Arizona Consumer Fraud Act ("ACFA"), and argue in part that the allegations lack particularity under Rule 9(b). Doc. 10 at 15. Plaintiffs' response is ambiguous about whether their claim is pled under the ACFA. Doc. 18 at 16 ("While some courts have stated that consumer fraud claims must satisfy the particularity requirement of Rule 9(b), none appear to require satisfaction of the nine elements of a common law fraud cause of action."). The response cites to Stratton v. American Medical Security, Inc., 2008 WL 2039313 at *8 (D.Ariz.2008), case that involved an ACFA claim.
Rule 9 requires allegations of fraud be pled with particularity, even if they are brought under the ACFA. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir.2003) ("It is established law, in this circuit and elsewhere, that Rule 9(b)'s particularity requirement applies to state-law causes of action. While a federal court will examine state law to determine whether the elements of fraud have been pled sufficiently to state a cause of action, the Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity is a federally imposed rule." (internal quotation marks and citation omitted; alterations removed)).
The claim will be dismissed.
This claim alleges that Defendants were per se negligent when they allowed, acquiesced in, or sent documents to the Maricopa County Recorder that contained false and unauthorized signatures in violation of A.R.S. § 39-161. Doc. 1-1 ¶ 191. It also alleges that Defendants violated A.R.S. §§ 41-312 and 41-313 by "allowing documents to be notarized by notaries who did not witness the signature[] or confirm authority." Doc. 1-1 ¶ 192.
Defendants argue that the allegations are conclusory, unsupported, and inadequate. Doc. 10 at 15-16. Defendants also argue the allegations are foreclosed by the trustee deed (id.), an argument already rejected by this Court as to other claims above.
Defendants fail to state with sufficient specificity the basis upon which the claim fails. An assertion that a claim is conclusory,
This claim alleges that voluntary destruction of the note discharged the note pursuant to A.R.S. § 47-3604(A)(1); that Plaintiffs' obligations to the lender were discharged by insurance, Fannie Mae, or others pursuant to A.R.S. §§ 47-3601 and 47-3602; and that the lender is required therefore to release the deed of trust. Doc. 1-1 at 46-47. In sum, the complaint alleges not that another party is subrogated to Defendants' rights by having paid Plaintiffs' debt, but rather that Plaintiffs' debt was extinguished.
Defendants argue that these claims fail the plausibility standard (Doc. 10 at 16), Plaintiffs disagree that plausibility is the standard on a motion to dismiss (Doc. 18 at 17), and Defendants' reply cites Twombly (Doc. 28 at 11).
The Court has discussed above the pleading requirements of Twombly and Iqbal, which are in fact the correct standards at the motion to dismiss stage. Plaintiffs have failed to allege sufficient facts plausibly to show the note was destroyed with the intent to discharge Plaintiffs' obligations or that the creditor was paid by someone with intent to discharge Plaintiffs' obligations. The claim will be dismissed.
This claim seeks a temporary restraining order ("TRO"), a preliminary injunction, and a permanent injunction. Doc. 1-1 at 47-48. Defendants move to dismiss on grounds that injunctive relief is not a cause of action, that moving for a TRO was procedurally improper, and that Plaintiffs fail to meet the test entitling them to injunctive relief. Doc. 10 at 17. The Court has already addressed the first argument with respect to Claim 1 and will adopt that reasoning here. The Court ruled on Plaintiffs' motion for TRO at the TRO hearing. As to the third ground, Defendants fail to include any analysis other than to quote the injunction standard from case law and assert that Plaintiffs cannot meet it. Id. The motion will be denied without prejudice.
Defendants move to quash the lis pendens filed at Doc. 8 (Doc. 10), and Plaintiffs oppose (Doc. 18). The parties do not request oral argument, and the motion has been fully briefed (Docs. 10, 18, 28). Because the motion to quash is based solely on dismissal with prejudice of the complaint (Doc. 10 at 17:20-21), and because some of the claims have not been dismissed, the motion to quash will be denied.