JAMES A. TEILBORG, District Judge.
Plaintiff brought this lawsuit seeking to prevent Defendants from conducting a Trustee's Sale of her residence. Pending before this Court is Defendants' motion to dismiss in which Defendants argue the complaint fails to state a claim. Doc. 13. Previously, this Court granted a preliminary injunction to enjoin the Trustee sale of Plaintiff's residence. Doc. 25. Therefore, none of the waiver provisions of A.R.S. § 33-811(C) are applicable.
Plaintiff refinanced her house in March 2007, with the lender on the note being American Broker's Conduit. Doc. 13 at 3; Doc. 36 at 2. The note was secured by a Deed of Trust under which the Trustee was Chicago Title Insurance Company and the beneficiary was Mortgage Electronic Registrations Systems, Inc. ("MERS").
Nationstar contends that it is still the servicer through today, and that being a servicer is its only involvement with this transaction. However, the record, including Nationstar's own filings, shows that Nationstar's legal obligations go beyond that of merely being a servicer. For example, MERS assigned the beneficial interest in the Deed of Trust that secures Plaintiff's residence to Nationstar. Doc. 13 at 13; 51. Notably, MERS made this assignment as nominee for American Broker's Conduit on August 31, 2012. Then, on November 6, 2013, MERS (as nominee for American Broker's Conduit) assigned the "Deed of Trust," including MERS' "beneficial interest under the Deed of Trust" to U.S. Bank (in the fiduciary capacity listed above). Doc. 38 at 21. After MERS assigned its beneficial interest in the Deed of Trust that secures Plaintiff's residence to two different entities, on February 26, 2014, Nationstar as "Attorney in Fact" for U.S. Bank appointed Clear Recon Corporation as Trustee of the Deed of Trust that secures Plaintiff's residence. Doc. 13 at 13, 48. Defendants further allege that Clear Recon Corporation noticed a Trustee sale on April 26, 2014. Doc. 8 at 8. As indicated above, this Court enjoined that sale.
Defendants move to dismiss Plaintiff's entire complaint under Federal Rule of Civil Procedure 12(b)(6). The Court may dismiss a complaint for failure to state a claim under 12(b)(6) for two reasons: 1) lack of a cognizable legal theory and 2) insufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).
To survive a 12(b)(6) motion for failure to state a claim, a complaint must meet the requirements of Federal Rule of Civil Procedure 8(a)(2). Rule 8(a)(2) requires a "short and plain statement of the claim showing that the pleader is entitled to relief," so that the defendant has "fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)(quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).
Although a complaint attacked for failure to state a claim does not need detailed factual allegations, the pleader's obligation to provide the grounds for relief requires "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal citations omitted). The factual allegations of the complaint must be sufficient to raise a right to relief above a speculative level. Id. Rule 8(a)(2) "requires a `showing,' rather than a blanket assertion, of entitlement to relief. Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirement of providing not only `fair notice' of the nature of the claim, but also `grounds' on which the claim rests." Id. at n.3 (citing 5 C. Wright & A. Miller, Federal Practice and Procedure §1202, pp. 94, 95 (3d ed. 2004)).
Defendants make a general argument that they are not the proper Defendants for Plaintiff's causes of action. Specifically, Defendants argue that they are not the loan originator; thus, they are not responsible for any issues relating to the terms of the note. Doc. 13 at 3. Defendants argument on this point spans pages 7-8 of their motion to dismiss and does not cite any law.
The issue of whether a contract is enforceable, and by whom, is a complex legal question. In this case, Nationstar as attorney in fact for U.S. Bank (and perhaps as the actual beneficiary in its own right under the Deed of Trust), is enforcing the Deed of Trust. The Deed of Trust incorporates the note for purposes of outlining the repayment terms. Doc. 6 at 27-40.
It appears undisputed that Nationstar is acting as an agent for U.S. Bank, to whom U.S. Bank has delegated all authority under a Power of Attorney. It is possible, based on the documents in the record, Nationstar is also the beneficiary under the Deed of Trust. In either case, it appears undisputed Nationstar is the decision maker who is collecting under the note and enforcing the security interest of the Deed of Trust. Thus, the issue is whether, when an agent has been delegated all authority, is the agent responsible for its own actions taken on behalf of the principle.
The Arizona courts have held, "It goes without saying that the agent is also liable to third persons under general negligence principles." Borbon v. City of Tucson, 556 P.2d 1153, 1156 (Ariz. Ct. App. 1976). Thus, the fact that Nationstar may be only an agent does not absolve it from all liability. As indicated above, Defendants have not cited a single statute or case in support of their argument that an agent is not liable for its actions taken on behalf of the principle. In the context of a motion to dismiss, the Court concludes that Defendants have failed to establish that they are not subject to liability as a matter of law.
In the introduction of the motion to dismiss, Defendants suggest that even the principle, U.S. Bank, could not be liable to Plaintiff for issues stemming from origination of the loan because U.S. Bank is a holder is due course. Doc. 13, at 3 n.4 (citing Mecham v. United Bank of Ariz., 489 P.2d 247, 252 (1971) (discussing holders in due course under the U.C.C. (codified at A.R.S. § 44-2201, et seq.))). However, the Arizona Supreme Court directly rejected this argument in the context of conducting Trustees' Sales under Deeds of Trust securing notes in the residential real estate context. Hogan v. Wash. Mut. Bank, N.A., 277 P.3d 781, 783 ¶ 9 (Ariz. 2012) ("The UCC does not govern liens on real property."). Accordingly, this argument fails to absolve U.S. Bank, and its agents Nationstar and Aurora, from liability.
Plaintiff has moved to amend her complaint in the event the Court concludes that it fails to state a claim. Doc. 36 at 12. The Court has concluded that on this record, the Court will not dismiss the complaint for the reason advanced by the Defendants. However, Plaintiff should nonetheless move to amend should Plaintiff determine that she must sue Nationstar as attorney in fact for U.S. Bank in addition to its individual capacity to survive a motion for summary judgment.
Defendants next move to dismiss arguing that Plaintiff failed "to join a required party under Rule 19." Doc. 13 at 9. Defendants argue that Plaintiff's failure to name Clear Recon Corporation, the Trustee, and American Broker's Conduit, the original lender, means this case must be dismissed because Plaintiff failed to name an indispensable party under Rule 19. Id. at 10.
With regard to the Trustee, Defendants' argument is inconsistent with Arizona law. Specifically, A.R.S. § 33-807(E) provides:
(Emphasis added.). Indeed, Nationstar was a Defendant in a case where this Court addressed this exact provision as a basis (argued by Defendants) for immediate dismissal of a Trustee. See Graham-Miller v. Nationstar Mortg. L.L.C., 2012 WL 2368494, *4 (D. Ariz. 2012). Accordingly, under Arizona law, the Trustee is not a necessary party to an action against the beneficiary.
With regard to American Broker's Conduit, the original lender, Defendants again reassert that they are only servicers; therefore, they cannot be held responsible for any defense to the contract or to formation. However, as discussed above, U.S. Bank is not necessarily absolved from liability because it is enforcing the note and Deed of Trust. Further, Nationstar either its individual capacity or as agent for U.S. Bank acting with complete delegation of authority under a power of attorney is actually foreclosing the house.
In fact, Nationstar's own arguments support this conclusion. Specifically, in its motion, Nationstar states: ". . . MERS assigned the Deed of Trust to Nationstar on August 31, 2012. [footnote omitted]. Nationstar's rights are very clear. Furthermore arguments based on the supposed insufficiency of title transfers by MERS do nothing to diminish Nationstar's right to pursue foreclosure." Doc. 13 at 13. Thus, Nationstar takes the position that it is the party with the
On this record, the Court cannot conclude that Plaintiff cannot obtain full relief against Nationstar alone, and accordingly, the Court will not dismiss this case under Rule 19. However, to the extent that Plaintiff may have claims against American Broker's Conduit, U.S. Bank, and/or Nationstar as Power of Attorney for U.S. Bank, Plaintiff may move to amend her complaint to add these Defendants.
Defendant also attacks some Counts and allegations in Plaintiff's complaint arguing that those Counts fail to state a claim. The Court will address the Counts of the Complaint in turn.
The first Count of Plaintiff's complaint alleges that Defendants were negligent in creating and enforcing an unconscionable note. Doc. 1 at 7. More specifically, Plaintiff alleges that the negative amortization features of her note made it unconscionable. Id.
Defendants argue that a lender's non-disclosure of negative amortization provisions in a loan, without more, fails to state a claim. Doc. 13 at 11 n.41. Defendants further argue that neither Nationstar nor Aurora made any representations regarding the terms of the loan. Id. at 11.
In Steinberger v. McVey ex rel. County of Maricopa, 318 P.3d 419 (Ariz. Ct. App. January 30, 2014) (review denied Sept. 23, 2014), the Arizona Court of Appeals held that that a borrower can state a claim for procedural or process unconscionability when there is "unfair surprise, fine print clauses, mistakes or ignorance of important facts or other things that mean the bargaining did not proceed as it should." Id. at 436-37, ¶ 82 (internal citations omitted). Here, Plaintiff is bringing this claim against the party (Nationstar) seeking to enforce this allegedly unconscionable note. Plaintiff, for purposes of Count 1, is not alleging that the terms were not disclosed to her, but that the terms were unconscionable. Accordingly, the Court finds that this states a claim under Steinberger.
For the reasons stated above with regard to Nationstar's capacity with regard to enforcement of the note, the Court will deny the motion to dismiss this claim. However, again, to the extent Plaintiff may be able to assert this claim against other entities, Plaintiff may move to amend her complaint.
The second Count of Plaintiff's complaint alleges fraud. Defendants claim Plaintiff's complaint fails to allege what representations were made, who made them, and when. Doc. 13 at 12.
Next, Defendants argue that "they" did not make the misrepresentations. While this fact may later be proven to be true, in her complaint Plaintiff alleges that it was Defendants and their agents. For purposes of a 12(b)(6) motion, this Court must assume this allegation is true. See Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). Accordingly, the Court will not dismiss this claim.
Again, however, to the extent Plaintiff may be able to assert this Count against other entities, Plaintiff may move to amend her complaint.
The third Count of Plaintiff's complaint claims a violation of the FTC Act. Doc. 1 at 9. Defendants move to dismiss this Count alleging that the Act does not create a private right of action. Doc. 13 at 9. In her response, Plaintiff does not dispute this legal argument. Instead, Plaintiff argues that she is alleging a violation of the Arizona Consumer Fraud Act. Doc. 36 at 9. However, Plaintiff's Arizona Consumer Fraud Act Claim is alleged in Count 5 of her Complaint, so the Court will address it as Count 5.
Thus, Plaintiff has argued no basis for Count 3 to state a cause of action. Accordingly, Count 3 will be dismissed.
The fourth Count of Plaintiff's complaint claims a violation of the FDCPA. Defendants do not specifically move to dismiss the FDCPA claim (beyond the general arguments already addressed above). Because those theories do not provide a basis for dismissal, the Court will not dismiss this Count.
The fifth Count of Plaintiff's complaint claims a violation of the ACFA. Defendants do not specifically move to dismiss the ACFA claim (beyond the general arguments already addressed above). Because those theories do not provide a basis for dismissal, the Court will not dismiss this Count.
The sixth Count of Plaintiff's complaint is for "unlawful attempted foreclosure." Defendants move to dismiss the Count having characterized it as a "wrongful foreclosure" claim. This Court has previously issued orders on wrongful foreclosure, which neither party discusses. See, e.g., Schrock v. Federal Nat. Mort. Ass'n, 2011 WL 3348227, *6 (D. Ariz. 2011).
Instead, Plaintiff alleges, "Defendants do not have any legal right to foreclose Plaintiff's property." Doc. 1 at 12, ¶ 61. In Steinberger, the Court held that a borrower in default may bring a claim if the borrower possesses a good faith basis to dispute the authority of an entity to conduct a trustee's sale. 318 P.3d at 429-30, ¶ 41. Here, Plaintiff disputes the Defendants' authority to direct the Trustee to conduct the sale. Therefore, the Court finds Plaintiff has stated a claim for the cause of action to avoid a Trustee sale recognized in
Because Steinberger does not mention a tender requirement as an element of stating this claim, the Court finds Defendants' argument that Plaintiff's claim does not state a claim because she has not alleged that she has tendered full payment is not a basis to dismiss this claim. Because that is Defendants' only argument (other than the general arguments discussed above) why this claim should be dismissed, the motion to dismiss this Count will be denied.
The seventh Count of Plaintiff's complaint is for misrepresentation. Doc. 1 at 13.
The eighth Count of Plaintiff's complaint is for equitable estoppel. Defendants have not separately moved to dismiss this claim other than for the reasons discussed above. As discussed above, in the context of this motion to dismiss, the Court will deny the motion. The Court has presumed, for purposes of this Order only, that equitable estoppel is a cause of action under Arizona law.
For the reasons stated above, the Court will deny the majority of the motion to dismiss. Going forward, the Court will require the following from Defendants. Should Defendants decide to file another dispositive motion in this case, they are ordered that they must first research Arizona law, and only cite cases applying the law of other jurisdictions if they confirm in the motion that there are no cases applying Arizona law (including federal cases applying Arizona law). Further, Defendants must cite and discuss on-point controlling legal authority, like A.R.S. § 33-807(E), Hogan and Steinberger. Indeed, the Defendants' failure to cite or discuss Steinberger is particularly troubling given that the Court required them to brief it for purposes of the preliminary injunction hearing (Doc. 7 at 4-5), and the Court's ruling granting a preliminary injunction relied on it. Doc. 25. Thus, the Court knows that Defendants are aware of it.
