John McLaughlin, et al v. Chase Home Finance LLC, et al

Filing

OPINION filed : we AFFIRM, decision not for publication. Damon J. Keith, Circuit Judge; Boyce F. Martin , Jr., Circuit Judge and R. Guy Cole , Jr., Authoring Circuit Judge.

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 13a0264n.06
No. 12-1578

FILED

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

DEBORAH S. HUNT, Clerk

JOHN MCLAUGHLIN; DEBORAH MCLAUGHLIN,
Plaintiffs-Appellants,
v.
CHASE HOME FINANCE LLC; MORTGAGE
ELECTRONIC REGISTRATION SYSTEMS, INC.,
Defendants-Appellees.

BEFORE:

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Mar 14, 2013

ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE EASTERN
DISTRICT OF MICHIGAN
OPINION

KEITH, MARTIN, and COLE, Circuit Judges;

COLE, Circuit Judge. Plaintiffs-Appellants John McLaughlin and Deborah McLaughlin
brought suit against Chase Home Finance LLC (“Chase”) and Mortgage Electronic Registration
Systems, Inc. (“MERS”) in district court, alleging various claims in conjunction with Chase’s
foreclosure on a mortgage granted by the McLaughlins to MERS. The district court granted
Defendants-Appellees’ motion to dismiss each of the McLaughlins’ claims. For the reasons that
follow, we AFFIRM the district court’s grant of the motion to dismiss.
I.
On or about August 3, 2005, Sallie Mae Home Loans, Inc. (“Sallie Mae”) loaned $170,000
to the McLaughlins to purchase property located at 11461 Carr Road, Davison, Michigan 48423 (the
“Property”). John McLaughlin signed a Promissory Note (“Note”) in connection with the loan.

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Sallie Mae assigned the Note without recourse to Morgan Stanley Mortgage Capital, Inc. (“Morgan
Stanley”) on August 3, 2005. Above the stamp assigning the Note from Sallie Mae to Morgan
Stanley is another stamp, signed by Morgan Stanley Vice President George Keyloun, that states “Pay
to the order of” and thereafter contains a blank.
The McLaughlins granted MERS, as nominee of Sallie Mae, a mortgage on the Property (the
“Mortgage”) as security for the loan. Chase was the servicer of the Mortgage since at least 2006.
MERS assigned all of its right, title, and interest in the Property to Chase by assignment dated
February 22, 2010, and recorded February 23, 2010, with the Genesee County Register of Deeds.
The McLaughlins defaulted on their obligations under the Mortgage, and Chase commenced
foreclosure proceedings. A sheriff’s sale of the Property was scheduled for January 26, 2011. Five
days prior to the sale, on January 21, 2011, the McLaughlins brought suit against Chase and MERS
in the Circuit Court for the County of Genesee, State of Michigan, seeking to enjoin the sale. Chase
and MERS removed the suit on March 14, 2011 to the United States District Court for the Eastern
District of Michigan, on the basis of diversity. The McLaughlins amended their complaint on June
1, 2011, to allege the following counts against Chase and MERS: Count I—Injunctive Relief and
Declaratory Order; Count II—Fraud and Misrepresentation; Count III—Wrongful Foreclosure; and
Count IV—Fair Debt Collections Practices Act (“FDCPA”) violations.
On June 27, 2011, Chase and MERS moved to dismiss the amended complaint pursuant to
Federal Rules of Civil Procedure 9(b) and 12(b)(6). The district court granted the motion to dismiss
as to all counts on March 13, 2012. From this opinion, the McLaughlins appealed.

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II.
We review de novo a district court’s dismissal of a plaintiff’s complaint under Federal Rule
of Civil Procedure 12(b)(6). Kottmyer v. Maas, 436 F.3d 684, 688 (6th Cir. 2006). We must
construe the complaint in a light most favorable to the plaintiffs and accept all factual allegations as
true. Id. The factual allegations must be sufficient “to raise a right to relief above the speculative
level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The complaint must “plead[] factual
content that allows the court to draw the reasonable inference that the defendant[s are] liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). If the McLaughlins fail to
“nudge[] their claims across the line from conceivable to plausible, their complaint must be
dismissed.” Twombly, 550 U.S. at 570.
We also review de novo “a district court’s dismissal of a complaint for failure to plead with
particularity under Rule 9(b).” Chesbrough v. VPA, P.C., 655 F.3d 461, 467 (6th Cir. 2011). Rule
9(b) “‘is to be interpreted in conjunction with Federal Rule of Civil Procedure 8,’ requiring a ‘short
and plain statement of the claim.’” Id. (quoting United States ex rel. Bledsoe v. Cmty. Health Sys.,
Inc., 501 F.3d 493, 503 (6th Cir. 2007)). The plaintiff must allege the following to plead fraud with
particularity: (1) “the time, place, and content of the alleged misrepresentation on which he or she
relied”; (2) “the fraudulent scheme”; (3) “the fraudulent intent of the defendants”; and (4) “the injury
resulting from the fraud.” Bledsoe, 501 F.3d at 504 (internal quotation marks and citation omitted).
The McLaughlins appeal the district court’s dismissal of the following counts in the amended
complaint:

Count I—Injunctive Relief and Declaratory Order; Count II—Fraud and

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Misrepresentation; and Count IV—FDCPA violations. The McLaughlins do not appeal the district
court’s dismissal of Count III—Wrongful Foreclosure.
A. Count I—Injunctive Relief and Declaratory Order
The McLaughlins first argue that the district court erred in dismissing Count I, for injunctive
relief and a declaratory order. They make the following contentions as to Count I: (1) Deborah
McLaughlin is not in default because she did not sign the Note, and Chase and MERS are therefore
precluded from foreclosing; (2) the Mortgage was unenforceable because MERS failed to give Sallie
Mae consideration for being granted the Mortgage; (3) the failure of Chase and MERS to pay transfer
taxes under Michigan law precludes foreclosure; and (4) Chase is precluded from foreclosing
because it assigned the Note to an unknown entity. Each of these arguments is without merit.
1. Default
First, the McLaughlins contend that Chase and MERS are precluded from foreclosing on the
Property under Mich. Comp. Laws (“MCL”) Section 600.3204 because Deborah McLaughlin did
not sign the Note and is therefore not in default. This argument falls flat. Although Deborah
McLaughlin did not sign the Note, she did sign the Mortgage, along with John McLaughlin. Under
Michigan’s foreclosure statute, it is not required that all signatories to a mortgage sign the
promissory note that evidences the loan; rather, all that is required is that “[a] default in a condition
of the mortgage [occur], by which the power to sell [becomes] inoperative.” MCL § 600.3204(1)(a).
Here, Chase, as the servicer of the Mortgage and assignee of MERS, had the right to foreclose upon
the Mortgage because the McLaughlins defaulted under the Mortgage by failing to make the required
monthly payments.
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2. Consideration for Mortgage
Second, the McLaughlins argue that the Mortgage is unenforceable because MERS failed to
give Sallie Mae consideration for being granted the Mortgage. The McLaughlins base their
argument primarily upon a Michigan Supreme Court case, Teed v. Marvin, 2 N.W. 20 (Mich. 1879).
In Teed, the court held that a set of promissory notes “represented no debt, and were purely
voluntary.” Id. at 21. For this reason, the court found that the promissory notes were not supported
by consideration. Id. Teed is distinguishable from the instant case because here, the Note was
supported by consideration—Sallie Mae loaned John McLaughlin $170,000 in exchange for a
promise of repayment.
The Michigan Supreme Court has held that MERS was “the owner . . . of an interest in the
indebtedness secured by [a] mortgage” for which MERS, like in the instant case, was not the lender
but was the mortgagee. Residential Funding Co., L.L.C. v. Saurman, 805 N.W.2d 183, 183 (Mich.
2011) (internal quotation marks and citation omitted); see also Residential Funding v. Saurman, 807
N.W.2d 412, 414 (Mich. Ct. App. 2011), rev’d by Residential Funding Co., L.L.C. v. Saurman, 805
N.W.2d 183 (Mich. 2011) (noting that the mortgage instrument did not designate the lender as the
mortgagee but rather designated MERS). MERS was “the owner,” and the Mortgage was properly
supported by consideration, because MERS’s “contractual obligations as mortgagee were dependent
upon whether the mortgagor met the obligation to pay the indebtedness which the mortgage
secured.” Saurman, 805 N.W.2d at 183 (internal quotation marks and citation omitted).
Further, the Michigan Supreme Court has long held that a party other than the lender can be
the mortgagee of record. See id. (“‘It has never been necessary that the mortgage should be given
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directly to the beneficiaries. The security is always made in trust to secure obligations, and the trust
and the beneficial interest need not be in the same hands. . . . The choice of a mortgagee is a matter
of convenience.’” (quoting Adams v. Niemann, 8 N.W. 719, 719-20 (Mich. 1881))). Under
Michigan law, for consideration to exist, the consideration “may inure to one other than the
promisor.” City of Highland Park v. Grant-Mackenzie Co., 115 N.W.2d 270, 278 (Mich. 1962).
Therefore, the fact that it was Sallie Mae and not MERS that gave consideration for the Mortgage
does not render the Mortgage unenforceable.
3. Transfer Taxes
Third, the McLaughlins contend that the failure of Chase and MERS to pay property transfer
taxes in connection with the filing of the Mortgage violated Michigan law and precluded a
foreclosure. This argument fails because assignments of mortgages are exempt from transfer taxes
under MCL §§ 207.505(d) and 207.526(d).
4. Assignment of Note
Finally, the McLaughlins argue that Chase is precluded from foreclosing upon the Mortgage
because it assigned the Note to an unknown entity. The McLaughlins base this argument on the fact
that there is a stamp on the last page of the Note, signed by Morgan Stanley Vice President George
Keyloun, that states “Pay to the order of” and thereafter contains a blank. The McLaughlins contend
that Chase assigned the Note to an unknown entity, which precludes Chase from foreclosing upon
the Mortgage.
Even if this stamp followed by a blank space were a valid assignment of the Note, it is not
a valid assignment of the Mortgage because it appears not on the Mortgage but rather on the Note.
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So even if Chase did assign the Note, it did not assign the Mortgage, and this stamp does not
preclude Chase from foreclosing upon the Mortgage.
Thus, for the foregoing reasons, the district court did not err in dismissing Count I.
B. Count II—Fraud and Misrepresentation
Next, the McLaughlins argue that the district court erred in dismissing Count II, which
alleged fraud and misrepresentation. The district court held that the McLaughlins failed to “allege
any sort of detail or particularity regarding who made false representations, when such
representations were made, or why such representations were intentional.” The district court is
correct: the amended complaint is void of particularity as to the McLaughlins’ claim for fraud and
misrepresentation. On appeal, the McLaughlins fail to argue that the amended complaint alleged any
detail or particularity regarding the alleged false representations. As such, this claim fails for lack
of particularity under Federal Rule of Civil Procedure 9(b), and the district court therefore did not
err in dismissing Count II.
C. Count IV—FDCPA Violations
Finally, the McLaughlins assert that the district court erred in dismissing Count IV, which
alleged FDCPA violations. The McLaughlins argue that MERS is a debt collector under the FDCPA
and that MERS violated the statute by attempting to foreclose upon the Property by use of false
representations and deceptive means. The McLaughlins do not argue on appeal that Chase violated
the FDCPA. The McLauglins’ argument regarding MERS falls flat for two reasons: (1) MERS is
not a debt collector under the FDCPA; and (2) MERS neither attempted to foreclose nor did it have
the power to foreclose upon the Mortgage.
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The FDCPA excludes from the definition of “debt collector” any “person collecting or
attempting to collect any debt owed or due or asserted to be owed or due another to the extent such
activity . . . concerns a debt which was not in default at the time it was obtained by such person.”
15 U.S.C. § 1692a(6)(F) (2010). MERS “obtained” the debt when the McLaughlins granted MERS
the Mortgage as security for Sallie Mae’s loan to them. At that time, the debt was not in default, so
under the statute, MERS cannot be a debt collector.
Further, MERS never attempted to foreclose upon the debt and indeed lacked the power to
foreclose. Under Michigan law, “[o]nly the record holder of the mortgage has the power to
foreclose.” Saurman, 805 N.W.2d at 184 (internal quotation marks and citations omitted). MERS
assigned all of its right, title and interest in the property to Chase on February 22, 2010. The
McLaughlins then defaulted. Only after the McLaughlins defaulted did Chase commence foreclosure
proceedings—something that MERS lacked the power to do at that time because it was no longer
the record holder of the Mortgage.
For these reasons, the district court did not err in dismissing Count IV.
III.
For the foregoing reasons, we AFFIRM.

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