Edward Zadrozny, et al v. Bank of New York Mellon, et al

Filing

FILED OPINION (RICHARD D. CUDAHY, STEPHEN S. TROTT and JOHNNIE B. RAWLINSON) AFFIRMED. Judge: JBR Authoring. FILED AND ENTERED JUDGMENT. [8685093]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

EDWARD ZADROZNY, husband;
KYMBERLY ZADROZNY,
Plaintiffs-Appellants,
v.
BANK OF NEW YORK MELLON, as
Trustee for the Certificate Holders
CWALT, Inc. Alternative Loan
Trust 2005-59- Mortgage PassThrough Certificates, Series 200559, FKA Bank of New York; BAC
HOME LOANS SERVICING LP, a
California Corporation; SOMA
FINANCIAL INCORPORATED; FIRST
AMERICAN TITLE INSURANCE
COMPANY, a Texas Corporation;
RECONTRUST COMPANY NA; NV
MORTGAGE,

No. 11-16597
D.C. No.
2:10-cv-01200ROS

OPINION

Defendants-Appellees.

Appeal from the United States District Court
for the District of Arizona
Roslyn O. Silver, Chief District Judge, Presiding
Argued and Submitted
December 3, 2012—San Francisco, California

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ZADROZNY V. BANK OF NEW YORK MELLON
Filed June 28, 2013
Before: Stephen S. Trott, Johnnie B. Rawlinson, and
Richard D. Cudahy,* Circuit Judges.
Opinion by Judge Rawlinson

SUMMARY**

Diversity/Foreclosure
The panel affirmed the district court’s dismissal of a
complaint in which plaintiffs alleged that defendants
improperly initiated non-judicial foreclosure proceedings
after plaintiffs failed to comply with the mortgage obligations
financing their residence.
The panel held that Arizona courts have rejected
plaintiffs’ claim that non-judicial foreclosures require
production of the promissory note prior to a sale, and their
claim that successor trustees are unauthorized to initiate
foreclosure proceedings.
Arizona precedent similarly
foreclosed plaintiffs’ contention that non-judicial foreclosure
sales must comport with the Uniform Commercial Code. The
panel further held that plaintiffs failed to provide any
legal authority for their constitutional challenge to A.R.S.

*

The Honorable Richard D. Cudahy, Senior Circuit Judge for the U.S.
Court of Appeals for the Seventh Circuit, sitting by designation.
**

This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.

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§ 33-811(b), and waived any challenge to the district court’s
dismissal of their fraud and misrepresentation claims as
untimely.

COUNSEL
Donald O. Loeb, Donald O. Loeb, P.L.C., Scottsdale,
Arizona, for Plaintiffs-Appellants.
Emily S. Cates (argued) and Milton A. Wagner, Lewis and
Roca, Phoenix, Arizona, for Defendants-Appellees.

OPINION
RAWLINSON, Circuit Judge:
Appellants Edward and Kymberly Zadrozny (the
Zadroznys) challenge the dismissal of their first amended
complaint against Defendants/Appellees. The Zadroznys
contend that the district court erred in dismissing their claims
that Appellees improperly initiated non-judicial foreclosure
proceedings after the Zadroznys failed to comply with the
mortgage obligations financing their residence.
The
Zadroznys also challenge the district court’s denial of leave
to further amend their Complaint. We affirm.
I. BACKGROUND
On August 17, 2005, the Zadroznys borrowed $543,600
from Defendant/Appellee Soma Financial, Inc. (Soma)
pursuant to a promissory note secured by a deed of trust. The
promissory note provided that “Lender may transfer this

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Note. . . .” The deed of trust stated that “[t]he Note or a
partial interest in the Note (together with the Security
Instrument) can be sold one or more times without prior
notice to Borrower. A sale might result in a change in the
entity (known as the Loan Servicer) that collects Periodic
Payments due under the Note and this Security Instrument
and performs other mortgage loan servicing obligations under
the Note . . .”
The deed of trust provided that
Defendant/Appellee First American Title Insurance Company
(First American) served as the trustee, and that Mortgage
Electronic Registration Systems, Inc. (MERS) served as the
nominee for the lender, Soma, and Soma’s successors and
assigns, as “the beneficiary under this Security Instrument.”
Additionally, the deed of trust provided: “Borrower
understands and agrees that MERS holds only legal title to
the interests granted by Borrower in this Security Instrument
but, if necessary to comply with law or custom, MERS (as
nominee for Lender and Lender’s successors and assigns) has
the right: to exercise any or all of those interests, including,
but not limited to, the right to foreclose and sell the Property
. . .”
The deed of trust allowed for appointment of a successor
trustee, specifying that “[l]ender may, for any reason or
cause, from time to time remove Trustee and appoint a
successor trustee to any Trustee appointed hereunder.
Without conveyance of the Property, the successor trustee
shall succeed to all the title, power and duties conferred upon
Trustee herein and by Applicable Law.”
On January 27, 2010, MERS transferred, assigned, and
granted “all beneficial interest” in the Zadroznys’ deed of
trust to Defendant/Appellee Bank of New York Mellon (Bank
of New York) pursuant to a Corporation Assignment of Deed

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of Trust. Bank of New York subsequently appointed
Defendant/Appellee Reconstrust Company NA (Recontrust)
as successor trustee.
On January 29, 2010, the Zadroznys were notified that
they were in breach of their mortgage payment obligation of
$571,157.97, and that “the Beneficiary, in said Deed of Trust
has elected to sell or cause to be sold the Trust property
described in said Deed of Trust at a Trustee’s Sale . . .” The
Statement of Breach or Non Performance and Election To
Sell Under Deed of Trust Arizona listed Recontrust as the
successor trustee. Pursuant to a Notice of Trustee’s Sale,
Recontrust initiated non-judicial foreclosure proceedings
against the Zadroznys.
On March 22, 2010, the Zadroznys filed a lawsuit in
Arizona state court challenging the documents supporting the
non-judicial foreclosure and the transfer of the property
interests to the successor trustee. Appellees removed the
lawsuit to federal court based on diversity jurisdiction. On
July 8, 2010, without leave to amend, the Zadroznys filed a
first amended complaint with a new claim that Soma lacked
the requisite license. The district court struck the first
amended complaint because it was unclear which claims the
Zadroznys were pursuing. On January 26, 2011, the
Zadroznys filed a first amended complaint alleging, inter
alia, that (1) MERS lacked the authority to serve as a
nominee; (2) Soma, Bank of New York, and
Defendant/Appellee BAC Home Loans Servicing LP (BAC)
engaged in fraudulent representation regarding their authority
to foreclose; and (3) A.R.S. § 33-811(B) is unconstitutional
because of the various assignments and because of
participation by MERS without notice to borrowers.

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Defendants/Appellees filed a motion to dismiss, which the
district court granted. The district court rejected the
Zadroznys’ claims that the lenders were required to produce
the note prior to foreclosure and that the note was
unenforceable because its was not properly securitized. The
district court dismissed the Zadroznys’ negligent
misrepresentation and fraudulent concealment claims as
barred by the statute of limitations, holding that the
Zadroznys never contested this issue. The district court also
dismissed the Zadroznys’ complaint without leave to amend
because the amended complaint lacked any viable claims.
The Zadroznys filed a timely notice of appeal.
II. STANDARDS OF REVIEW
“We review de novo the district court’s decision to grant
Defendants’ motion to dismiss under Rule 12(b)(6).” Henry
A. v. Willden, 678 F.3d 991, 998 (9th Cir. 2012) (citation
omitted). “We accept as true all well pleaded facts in the
complaint and construe them in the light most favorable to
the nonmoving party.” Id. (citation omitted).
“We also review whether the district court abused its
discretion by dismissing the complaint without granting leave
to amend.” Id. (citation omitted).
III.

DISCUSSION
A. Assignment and Transfer of the Note and Deed of
Trust To Bank of New York

Relying on In re Veal, 450 B.R. 897 (9th Cir. B.A.P.
2011), the Zadroznys contend that the district court erred in

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dismissing their claim that Bank of New York lacked
standing to foreclose. The Zadroznys maintain that the
Complaint sufficiently alleged that the note and deed of trust
were never properly assigned to Bank of New York.
Unfortunately, the allegations in the Complaint cannot elide
the express provisions in the deed of trust for selling the note
and for appointing a successor trustee without prior notice to
the borrowers. Paragraph 20 of the deed of trust specifies:
Sale of Note; Change of Loan Servicer;
Notice of Grievance. The Note or a partial
interest in the Note (together with this
Security Instrument) can be sold one or more
times without prior notice to Borrower. A
sale might result in a change in the entity
(known as the “Loan Servicer”) that collects
Periodic Payments due under the Note and
this Security Instrument and performs other
mortgage loan servicing obligations under the
Note, this Security Instrument, and Applicable
Law.
Paragraph 24 similarly provides that “Lender may, for any
reason or cause, from time to time remove Trustee and
appoint a successor trustee to any Trustee appointed
hereunder. Without conveyance of the property, the
successor trustee shall succeed to all the title, power and
duties conferred upon Trustee herein and by Applicable
Law.” The deed of trust terms explicitly foreclose the
Zadroznys’ claims premised on the sale or transfer of the note
to a successor trustee.
In re Veal does not compel a contrary result. In that case,
the Ninth Circuit Bankruptcy Appellate Panel (BAP)

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considered whether an entity had standing to seek relief from
an automatic stay as “a person entitled to enforce the note as
defined by the Uniform Commercial Code.” In re Veal, 450
B.R. at 902 (internal quotation marks omitted). The BAP
opined that “[w]hen a note is split from a deed of trust the
note becomes, as a practical matter, unsecured. Additionally,
if the deed of trust was assigned without the note, then the
assignee, having no interest in the underlying debt or
obligation, has a worthless piece of paper.” Id. at 916
(citations and internal quotation marks omitted). The BAP
observed that “Illinois law govern[ed] the issues related to the
Mortgage’s enforcement, and Illinois follow[ed] this rule.”
Id. (footnote reference omitted). “Illinois courts treat a
mortgage as incident or accessory to the debt, and, an
assignment of a mortgage without the note as a nullity. In
order for the Illinois courts to enforce a mortgage assignment,
the assignor must assign the underlying debt secured by the
mortgage debt. It is axiomatic that any attempt to assign the
mortgage without transfer of the debt will not pass the
mortgagee’s interest to the assignee.” Id. (citations and
alterations omitted). The parties also assumed that the
Uniform Commercial Code (UCC) applied to the note. See
id. at 908–09. Applying Illinois law and the UCC, the BAP
held that, because the bank failed to demonstrate that it had
actual possession of the Note, it “could not establish that it
was a holder of the Note, or a person entitled to enforce the
Note. . . .” Id. at 917 (footnote reference and internal
quotation marks omitted).
In re Veal is distinguishable from the present appeal
because Arizona law, not Illinois law, governs, and because
Arizona law does not require possession of the note to
effectuate a non-judicial foreclosure.
In Hogan v.
Washington Mutual Bank, N.A., 277 P.3d 781, 782 (Ariz.

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2012) (en banc), as amended, the Arizona Supreme Court
recently considered “whether a trustee may foreclose on a
deed of trust without the beneficiary first having to show
ownership of the note that the deed secures. . . .” The
Arizona Supreme Court observed that “[w]hen parties
execute a deed of trust and the debtor thereafter defaults,
A.R.S. § 33–807 empowers the trustee to sell the real
property securing the underlying note through a non-judicial
sale. . . .” Id. at 782–83. The Arizona Supreme Court opined
that there was no statutory requirement “that before a trustee
may exercise that power of sale, the beneficiary must show
possession of, or otherwise document its right to enforce, the
underlying note. . . .” Id. at 783. The Arizona Supreme
Court concluded that “Arizona’s non-judicial foreclosure
statutes do not require the beneficiary to prove its authority or
show the note before the trustee may commence a nonjudicial
foreclosure.” Id. at 782 (internal quotation marks omitted).
We are bound by this interpretation of Arizona law by the
state’s highest court. See Kekauoha-Alisa v. Ameriquest
Mortgage Co. (In re Kekauoha-Alisa), 674 F.3d 1083, 1087
(9th Cir. 2012) (“When interpreting state law, we are bound
by the decision of the highest state court. . . .”) (citation
omitted).
We agree with those courts that have distinguished In re
Veal as limited to bankruptcy cases involving relief from an
automatic stay governed by the UCC rather than by Arizona
law. As the district court recognized in Oraha v. Metrocities
Mortgage, LLC, No. CV 11–1113–PHX–JAT, 2012 WL
70834, at *5 n.2 (D. Ariz. Jan. 10, 2012):
The Veal Court, in determining whether
entities had standing to obtain relief from a
bankruptcy stay to conduct a foreclosure,

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assumed that the [UCC] applied to the Note
on the Veal property. In this case, the
Trustee’s Sale is not governed by the UCC
through the Note, but is a sale pursuant to the
Deed of Trust. Trustee sales under a Deed of
Trust are conducted on a contract theory
under the power of sale authority of the
trustee. The procedures for non-judicial
foreclosures in Arizona are not codified in the
UCC, therefore, but in A.R.S. §§ 33–807
(2007). These Deed of Trust statutes set forth
the only procedure for a valid trustee’s sale.

(citations and internal quotation marks omitted); see also
Garrison v. PHH Mortg. Corp., No. CV–11–918–
PHX–GMS, 2011 WL 6328712, at *4 (D. Ariz. Dec. 19,
2011) (same); Bridgeman v. CitiMortgage Inc., No. CV11–
1106–PHX DGC, 2011 WL 3880829, at *2 (D. Ariz. Sept. 2,
2011) (same).
We have similarly held that, under Arizona law, MERS
may serve as a beneficiary in non-judicial foreclosures. In
Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034
(9th Cir. 2011), we observed that “[t]he legality of MERS’s
role as a beneficiary may be at issue where MERS initiates
foreclosure in its own name, or where the plaintiffs allege a
violation of state recording and foreclosure statutes based on
the designation. . . .” Id. at 1044 (citations omitted).
However, in the present case, “MERS did not initiate
foreclosure: the trustees initiated foreclosure in the name of
the lenders. Even if MERS were a sham beneficiary, the
lenders would still be entitled to repayment of the loans and
would be the proper parties to initiate foreclosure after the
plaintiffs defaulted on their loans. . . .” Id. “Further, the

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notes and deeds are not irreparably split: the split only
renders the mortgage unenforceable if MERS or the trustee,
as nominal holders of the deeds, are not agents of the
lenders. . . .” Id. (citation omitted). Thus, the Zadroznys, like
the plaintiffs in Cervantes, “have not raised a plausible claim
for wrongful foreclosure,” and dismissal of their claims
premised on MERS’ involvement was completely warranted.
Id.
Relying on a consent order between the U.S. Treasury
Department and Bank of America, the Zadroznys also broach
the similar argument that neither Bank of New York nor any
other related entity provided the Zadroznys with a report from
an independent consultant confirming that Bank of New York
had standing to foreclose and enforce the note.
A review of the Zadroznys’ first amended complaint and
their opposition to the motion to dismiss reflects that the
Zadroznys’ claims were not premised on the consent order.
Because “[t]he plaintiffs neither pled this theory nor
presented it to the district court in opposing dismissal,” we
may “decline to reach it for the first time on appeal.”
Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777, 793
n.10 (9th Cir. 2012), as amended (citation omitted).
In any event, the referenced consent order does not
mandate utilization of an independent consultant for all nonjudicial foreclosures. The consent order was the product of
an examination by the Comptroller of the Currency into Bank
of America’s real estate mortgage foreclosure practices and
“identified certain deficiencies and unsafe or unsound
practices in residential mortgage servicing and in the Bank’s
initiation and handling of foreclosure proceedings. . . .” The
consent order required Bank of America to retain an

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independent consultant “to conduct an independent review of
certain residential foreclosure actions regarding individual
borrowers with respect to the Bank’s mortgage servicing
portfolio. . . .” The purpose of the review was to ascertain
whether “the foreclosing party or agent of the party had
properly documented ownership of the promissory note and
mortgage (or deed of trust) under relevant state law, or was
otherwise a proper party to the action as a result of agency or
similar status . . .” Notably, the consent order specified that
“[n]othing in the Stipulation and Consent or this Order,
express or implied, shall give to any person or entity, other
than the parties hereto, and their successors hereunder, any
benefit or any legal or equitable right, remedy or claim under
the Stipulation and Consent or this Order.” As a result, the
Zadroznys’ claims premised on the consent order fail as a
matter of law, as they cannot establish any legal remedy
under the consent order. See In re Rigel Pharm., Inc. Sec.
Litig., 697 F.3d 869, 875 (9th Cir. 2012) (“Rule 12(b)(6)
authorizes courts to dismiss a complaint for failure to state a
claim upon which relief can be granted. . . .”) (citation and
internal quotation marks omitted).
Because the provisions of the deed of trust foreclose the
pleading of a plausible “show me the note” claim by the
Zadroznys, the district court appropriately dismissed this
claim. See Ibrahim v. Dept. of Homeland Sec., 669 F.3d 983,
992 (9th Cir. 2012) (“A complaint must state a claim for
relief that is plausible on its face. . . .”) (citation and internal
quotation marks omitted).

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B. Bank of New York’s Authority To Record The
Notice of Substitution of Trustee
The Zadroznys next assert that the district court erred in
dismissing their claim that because Bank of New York was
never a beneficiary under the loan, it lacked authority to
appoint Reconstrust as successor trustee. However, the deed
of trust explicitly notified the Zadroznys that MERS acted
“solely as a nominee for Lender and Lender’s successors and
assigns.” MERS was designated as the nominee beneficiary
under the deed of trust on behalf of the Lender. MERS
subsequently assigned and transferred “all beneficial
interests” in the deed of trust to Bank of New York. As
previously noted, this transfer was consistent with paragraph
20 of the deed of trust, which explicitly provided that the note
and its beneficial interests could be sold or transferred
without notice to the borrowers. The Notice of Trustee’s Sale
identified Recontrust as the current trustee under the deed of
trust and Bank of New York as the “Current Beneficiary”
under the deed of trust. Considering these facts, the
Zadroznys failed to allege a plausible claim that Bank of New
York was prohibited from appointing a successor trustee with
the right to initiate a non-judicial foreclosure. Contrary to the
Zadroznys’ assertion, Arizona law recognizes a successor
trustee’s authority to initiate and conduct a foreclosure sale
after the borrowers’ default, without any requirement that the
beneficiary demonstrate possession of the note underlying the
deed of trust. See Hogan, 277 P.3d at 782–84.
In sum, the district court properly dismissed the
Zadroznys’ claims premised on the unauthorized appointment
of a successor trustee and/or the lack of proof of ownership

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of the note. These claims lacked legal and factual
plausibility. See id.1
C. Bank of New York’s Security Interest in the Note
Relying on a report from the Permanent Editorial Board
for the UCC (PEB Report), the Zadroznys contend that,
following securitization, Bank of New York lacked a security
interest in the note as required by the UCC, because the
trustee did not take possession of the note pursuant to the
security agreement.
The Zadroznys’ first amended complaint and opposition
to Appellees’ motion to dismiss do not reflect that the
Zadroznys tendered this argument to the district court. Thus,
we are not compelled to address their argument premised on
the PEB Report. See Sateriale, 697 F.3d at 793 n.10.
Even so, the PEB Report does not create a viable cause of
action. Notably, the PEB Report states that “[t]his is a draft
report that does not represent the final views of the PEB, the
American Law Institute, or the Uniform Law Commission
. . .” The PEB Report also clarifies:
Of course, the UCC does not resolve all issues
in this field.
Most particularly, the
1

The Zadroznys further posit that Bank of New York lacked standing
to institute a non-judicial foreclosure because it failed to provide a lost
note affidavit in lieu of the original note. Not only was this argument not
raised before the district court, there are no allegations that the note was
lost. As discussed, Arizona law has rejected “show me the note”
arguments and Recontrust, as the successor trustee, and Bank of New
York, as the beneficiary, were authorized to pursue non-judicial
foreclosure. See Hogan, 277 P.3d at 782–83.

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enforcement of real estate mortgages by
foreclosure is primarily the province of a
state’s real property law (although
determinations made pursuant to the UCC are
typically relevant under that law).
Id. Given the PEB Report’s recognition that state law is
typically controlling on foreclosure issues, the Zadroznys are
unable to allege a cause of action premised on the PEB
Report, particularly given its preliminary nature.
Dismissal of the Zadroznys’ claim premised on the PEB
Report and the UCC was also warranted as a matter of law.
The Arizona Supreme Court has definitively rejected the
Zadroznys’ argument that a trustee must comply with UCC
provisions to pursue foreclosure proceedings. In Hogan, the
Arizona Supreme Court explained that “[t]he UCC does not
govern liens on real property. The trust deed statutes do not
require compliance with the UCC before a trustee commences
a nonjudicial foreclosure.” Hogan, 277 P.3d at 783 (citations
omitted).
In re Vasquez, 266 P.3d 1053, 1054 (Ariz. 2011) (en
banc) addressed whether recording of a deed of trust is a
prerequisite for a trustee’s sale, and whether a trustee’s sale
is contingent upon the beneficiary’s right to enforce the
secured obligation. The Arizona Supreme Court held that
“while the failure to record an assignment of a deed of trust
might leave an assignee unprotected against claims by some
purchasers or creditors, it does not affect a deed’s validity as
to the obligor. . . .” Id. at 1055. The Arizona Supreme Court
also opined that “because the notice of sale must identify the
current beneficiary of the deed of trust, the obligor will

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receive additional notice before the scheduled sale of the
identity of that beneficiary.” Id. at 1056 (citation omitted).
Because Arizona law countenances the trustee sale as
conducted, the Zadroznys failed to allege any plausible
claims premised on the PEB Report or the UCC. See id.
D. The Constitutionality of A.R.S. § 33-811(b)
According to the Zadroznys, A.R.S. § 33-811(B) violates
the Arizona Constitution’s separation of powers and
distribution of powers sections.2 The Zadroznys assert that
A.R.S. § 33-811(B) violated the separation of powers
requirement because it encroaches on the Arizona Supreme
Court’s rule-making authority, and that the Arizona
legislature violated the distribution of powers doctrine by
authorizing Recontrust to conduct non-judicial foreclosures.3
2

A.R.S. § 33-811(B) provides in relevant part: The trustee’s deed shall
raise the presumption of compliance with the requirements of the deed of
trust and this chapter relating to the exercise of the power of sale and the
sale of the trust property, including recording, mailing, publishing and
posting of notice of sale and the conduct of the sale. A trustee’s deed shall
constitute conclusive evidence of the meeting of those requirements in
favor of purchasers or encumbrancers for value and without actual notice.
Knowledge of the trustee shall not be imputed to the beneficiary.
3

It does not appear that the district court directly addressed the
Zadroznys’ constitutional challenge to A.R.S. § 33-811(B). However,
“[a]s illustrated by the well established rule that we may affirm the district
court’s judgment on any basis supported by the record, it is sometimes
appropriate for an appellate court to pass on issues of law that the trial
court did not consider. . . .” Bibeau v. Pacific Northwest Research
Foundation Inc., 188 F.3d 1105, 1111 n.5 (9th Cir. 1999) (citation
omitted); see also Yavapai-Apache Nation v. Fabritz-Whitney, 260 P.3d
299, 303 (Ariz. Ct. App. 2011) (“Because the interpretation of an Arizona
statute involves legal rather than factual questions, we are not bound by

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Under Arizona law, “[t]he burden of establishing that a
statute is unconstitutional is on the person challenging the
statute. . . .” Lisa K. v. Arizona Dept. of Economic Sec.,
281 P.3d 1041, 1045 (Ariz. Ct. App. 2012) (citation omitted).
Arizona courts “will not declare an act of the legislature
unconstitutional unless [they] are satisfied beyond a
reasonable doubt that the act is in conflict with the federal or
state constitutions. . . .” Yavapai-Apache Nation, 260 P.3d at
303 (citation omitted). Notably, the Zadroznys did not
provide any legal authority for their constitutional challenge
to A.R.S. § 33-811(B). Such bare assertions of the statute’s
unconstitutionality are insufficient for a proper constitutional
challenge and dismissal of their constitutional claims was
warranted. See In re Marriage of Downing, 265 P.3d 1097,
1100 (Ariz. Ct. App. 2011) (clarifying that “unsupported
assumptions . . . cannot serve as a basis . . . to conclude the
statute is unconstitutional”) (citation omitted).
E. The Zadroznys’ Misrepresentation and Fraud
Claims
The Zadroznys challenge the dismissal of their
misrepresentation and fraud claims premised on Bank of New
York’s failure to disclose that the Zadroznys’ mortgage was
transferrable in the form of a mortgage-backed security.
However, these claims were dismissed as “barred by the
statute of limitations and [because] Plaintiffs [did] not
respond to this argument.” The Zadroznys have “waived
[their] argument [regarding the statute of limitations] both
because [they] developed it for the first time in [their] reply
brief, and because [they] did not present it to the district
the trial court’s conclusions of law, and conduct a de novo review of the
applicable statutes and regulations.”) (citation omitted).

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ZADROZNY V. BANK OF NEW YORK MELLON

court[.]” Jachetta v. United States, 653 F.3d 898, 912 (9th
Cir. 2011) (citations omitted).
In any event, Arizona follows the discovery rule, and the
statute of limitations begins to run when the plaintiff
possesses knowledge sufficient to recognize the existence of
the wrong that caused his injury. See Ritchie v. Krasner,
211 P.3d 1272, 1288 (Ariz. Ct. App. 2009); see also A.R.S.
§ 12-543(3) (setting forth a 3-year statute of limitations for
fraud). Because it is clear from the face of the complaint that
the Zadroznys’ fraud and misrepresentation claims are barred
by A.R.S. § 12-543(3), the district court correctly dismissed
the claims.
F. Denial of Leave To Amend
The Zadroznys assert that the district court erred in
denying leave to amend the complaint to include allegations
that Bank of New York was required to comply with the PEB
Report.
Because the Zadroznys’ claims, including those raised for
the first time on appeal premised on the PEB Report, are
factually and legally implausible, denial of leave to amend
lay within the district court’s discretion. See Mirmehdi v.
United States, 689 F.3d 975, 985 (9th Cir. 2012) (“[A] party
is not entitled to an opportunity to amend his complaint if any
potential amendment would be futile. . . .”), as amended
(citation omitted). This is particularly true as the Zadroznys
had a prior opportunity to amend their complaint. See
Cafasso, United States ex rel. v. Gen. Dynamics C4 Sys., Inc.,
637 F.3d 1047, 1058 (9th Cir. 2011) (“The district court’s
discretion to deny leave to amend is particularly broad where

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plaintiff has previously amended the complaint.”) (citation
and alteration omitted).
IV.

CONCLUSION

Arizona courts have rejected the Zadroznys’ claim that
non-judicial foreclosures require production of the
promissory note prior to a sale, and their claim that successor
trustees are unauthorized to initiate foreclosure proceedings.
Arizona precedent similarly forecloses the Zadroznys’
contention that non-judicial foreclosure sales must comport
with the UCC. The Zadroznys, for the first time on appeal,
erroneously rely upon a preliminary UCC report and a
consent order between Bank of America and the Treasury
Department to no avail. The Zadroznys’ constitutional
challenge to A.R.S. § 33-811(b) is meritless, and they waived
any challenge to the district court’s dismissal of their fraud
and misrepresentation claims as untimely. As the Zadroznys
failed to allege any plausible claim under Arizona law, the
district court acted within its discretion when it dismissed
their first amended complaint without leave to amend.
AFFIRMED.