Reed et al v. Chase Home Finance, LLC

Filing 22

ORDER denying 13 Motion to Dismiss and alternative motion to amend. Signed by Chief Judge William H. Steele on 10/18/2011. (tgw)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
MAX LEROY REED, JR., et al.,
Plaintiffs,
v.
CHASE HOME FINANCE, LLC,
Defendant.

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) CIVIL ACTION 11-0412-WS-C
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ORDER

This matter is before the Court on the defendant’s motion to dismiss and
alternative motion to amend. (Doc. 13). The parties have filed briefs in support of their
respective positions, (Docs. 18, 21), and the motions are ripe for resolution. After
carefully considering the foregoing, the Court concludes that both motions are due to be
denied.

BACKGROUND
According to the complaint, the plaintiffs executed a real estate mortgage with
Pensacola Guarantee Mortgage. (Doc. 2, ¶ 5). The mortgage was executed by the
plaintiffs and by Mortgage Electronic Registration Systems, Inc. (“MERS”). (Id., Exhibit
A at 1). Later, servicing of the loan was transferred to the defendant. (Doc. 2, ¶ 5).
Later still, “ownership interest in the Plaintiff’s [sic] mortgage and note was assigned to
Chase,” (id., ¶ 6; accord id., ¶ 11), rendering the defendant a “creditor” for purposes of
15 U.S.C. § 1641(g). (Doc. 2, ¶ 12). The single count of the complaint alleges that the
defendant, following this assignment, did not provide the notice required of a “new
creditor” by Section 1641(g). (Id. at 3). The sole ground of the defendant’s motion is
that the complaint fails to meet the pleading requirements set forth in Bell Atlantic Corp.
v. Twombly, 550 U.S. 544 (2005) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), such that
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the complaint violates Rule 8(a)(2) and should therefore be dismissed under Rule
12(b)(6). (Doc. 13 at 1-2, 11).

DISCUSSION
“A pleading that states a claim for relief must contain … a short and plain
statement of the claim showing that the pleader is entitled to relief ….” Fed. R. Civ. P.
8(a)(2). Rule 8 establishes a regime of “notice pleading.” Swierkiewicz v. Sorema N.A.,
534 U.S. 506, 512, 513-14 (2002). It does not, however, eliminate all pleading
requirements.
First, the complaint must address the elements that must be shown in order to
support recovery under one or more causes of action. “At a minimum, notice pleading
requires that a complaint contain inferential allegations from which we can identify each
of the material elements necessary to sustain a recovery under some viable legal theory.”
Wilchombe v. TeeVee Toons, Inc., 555 F.3d 949, 960 (11th Cir. 2009) (emphasis and
internal quotes omitted).
Pleading elements is necessary, but it is not enough to satisfy Rule 8(a)(2). The
rule “requires more than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do” to satisfy that rule. Twombly, 550 U.S. at 555.
There must in addition be a pleading of facts. Though they need not be detailed,
“[f]actual allegations must be enough to raise a right to relief above the speculative level
....” Id. That is, the complaint must allege “enough facts to state a claim for relief that is
plausible on its face.” Id. at 570. “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Iqbal, 129 S. Ct. at 1949. “Where a
complaint pleads facts that are merely consistent with a defendant’s liability, it stops
short of the line between possibility and plausibility of entitlement to relief.” Id. (internal
quotes omitted). But so long as the plausibility standard is met, the complaint “may
proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and
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that a recovery is very remote and unlikely.” Twombly, 550 U.S. at 556 (internal quotes
omitted).
Section 1641(g) provides as follows:
In addition to other disclosures required by this subchapter, not later
than 30 days after the date on which a mortgage loan is sold or otherwise
transferred or assigned to a third party, the creditor that is the new owner
or assignee of the debt shall notify the borrower in writing of such transfer,
including –
(A) the identity, address [and] telephone number of the new creditor;
(B) the date of transfer;
(C) how to reach an agent or party having authority to act on behalf of the
new creditor;
(D) the location of the place where transfer of ownership of the debt is
recorded; and
(E) any other relevant information regarding the new creditor.
The parties agree that Section 1641(g) imposes notification duties only on a new
creditor. The complaint alleges that the defendant is a creditor for purposes of that
statute, but the parties agree that the mere assertion the defendant is a creditor does not of
itself satisfy the plausibility standard of Twombly and Iqbal; instead, there must be
additional factual material alleged that renders plausible the assertion of creditor status.
The parties agree that, in order to become a new creditor under Section 1641(g),
the defendant must have been assigned not merely the mortgage but the underlying debt
(here, the note). The complaint explicitly alleges that ownership of the note was assigned
to the defendant. The defendant contends that, to satisfy Twombly and Iqbal, this
assertion must itself be supported by factual material rendering the assertion plausible.
The plaintiffs offer no disagreement. Instead, they point to the complaint’s
description and attachment of the mortgage assignment from MERS to the defendant as
furnishing the needed factual support for the proposition that the defendant was assigned
ownership of the note. (Doc. 18 at 12).1 The defendant responds that this exhibit cannot

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The plaintiffs also point out that the defendant scheduled a foreclosure sale of their
property, which they take as evidence that the defendant did, or at least thought it did, have
(Continued)
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suffice because it addresses only an assignment of the mortgage, not the underlying debt.
(Doc. 13 at 7). The plaintiffs reply that, as a matter of Alabama law, assignment of the
mortgage automatically carries with it the assignment of the note, absent agreement
otherwise. (Doc. 18 at 13). Thus, they conclude, assignment of the mortgage to the
defendant renders it plausible that the note also was assigned the defendant.
The defendant does not deny that a legal principle (here, that the note generally
follows the mortgage) acting on alleged facts (here, that the mortgage was assigned to the
defendant) can render plausible a factual assertion extrapolated therefrom (here, that the
note was also assigned to the defendant). Nor does the defendant deny that Alabama in
fact recognizes the legal principle relied on by the plaintiffs. Instead, the defendant
questions at length and on various grounds whether and how this admitted legal principle
should be applied specifically in the servicer context under Section 1641. (Doc. 21 at 316). Judging by the defendant’s argument, the question has not been resolved directly or
by any controlling authority. Application of the principle herein thus remains plausible;
consequently, so does the factual allegation, flowing from it, that the defendant was
assigned the note. The defendant’s argument may (or may not) ultimately furnish
grounds for dismissal on a future motion to dismiss asserting the legal bankruptcy of the
plaintiffs’ claim, but it cannot destroy the plausibility of the complaint’s factual
allegation that the defendant held ownership interest in the note and was thus a creditor
subject to Section 1641(g).
With no accompanying argument or supporting authority, the defendant posits that
the plaintiffs, in order to effectively plead a claim under Section 1641(g), must in their
complaint plausibly allege that the defendant falls outside the “safe harbor” of Section

ownership of the note, given Alabama law to the effect that foreclosure can be undertaken only
by one entitled to the money so secured. (Doc. 18 at 3-4, 9-10). Because the complaint makes
no mention of a foreclosure sale, the plaintiffs cannot rely on any such history to support the
plausibility of their allegation that the defendant obtained ownership of the note.

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1641(f)(2), which is applicable to servicers taking assignment of a debt “solely for the
administrative convenience of the servicer in servicing the obligation.” (Doc. 13 at 8-9).
The plaintiff, with an equivalent dearth of authority and explanation, counters that
Section 1641(f)(2) creates an affirmative defense, not an element of the offense which
they are bound to address in the complaint. (Doc. 18 at 13-14). In its reply, the
defendant neither responds to the plaintiff’s suggestion nor repairs to its original
argument. Instead, it switches tracks, no longer arguing a pleading defect but instead
insisting that it in fact falls within the safe harbor. (Doc. 21 at 18-20). The defendant’s
original position is presented too superficially, and its later position too tardily, to be
considered.2
As an alternative to dismissal, the defendant moves the Court to require the
plaintiffs to amend their complaint “by clarifying whether their key allegation regarding
ownership of the Note has a factual basis or merely reflects Plaintiffs’ legal theory.”
(Doc. 13 at 3). The basis of the plaintiffs’ allegation has been set forth above and
includes the factual allegation that the defendant received ownership of the mortgage and
the legal principle that the note follows the mortgage. The supporting factual allegation
is already in the complaint. The defendant has not endeavored to establish that Twombly
and Iqbal require the complaint to articulate the legal principles that operate on alleged
facts to support the plausibility of other alleged facts, and the Court will neither assume
the existence of such a requirement nor develop support for it on the defendant’s behalf.

2

“In order to avoid a scenario in which endless sur-reply briefs are filed, or the Court is
forced to perform a litigant’s research for it on a key legal issue because that party has not had an
opportunity to be heard, or a movant is incentivized to save his best arguments for his reply brief
so as to secure a tactical advantage based on the nonmovant’s lack of opportunity to rebut them,
this Court does not consider arguments raised for the first time in a reply brief.” Hardy v. Jim
Walter Homes, Inc., 2008 WL 906455 at *8 (S.D. Ala. 2008).

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CONCLUSION
The Court has and expresses no opinion concerning the ultimate viability of the
plaintiffs’ claim. For the reasons set forth above, the defendant’s motion to dismiss and
alternative motion to amend are denied.
DONE and ORDERED this 18th day of October, 2011.

s/ WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE

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