Grundy et al v. JPMorgan Chase Bank, N.A. et al

Filing 38

ORDER granting Quality Loan Service Corporation's 34 Motion to Dismiss; denying Quality Loan Service Corporation's 34 Motion for Attorneys' Fees; the Court will set a Rule 16 Scheduling Conference by separate order. Signed by Judge David G Campbell on 5/4/11.(REW)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Elvin G. Grundy, Jr. and Willie Ruth
Grundy,

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Plaintiffs,
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vs.
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JPMorgan Chase Bank, N.A., et al.,
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Defendants.
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I.

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No. CV10-1542 PHX DGC

ORDER

Plaintiffs’ Status Memorandum.

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On March 18, 2011, pro se Plaintiffs filed a bankruptcy-related status report pursuant

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to this Court’s order dated January 24, 2011 (Doc. 31). Doc. 35. Plaintiffs’ report states that,

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according to the bankruptcy trustee assigned to Plaintiffs’ petition, “the bankruptcy matter

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was officially closed in December 2010 with a finding from the trustee of ‘no assets to

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administer.’” Doc. 35 at 1. Plaintiffs do not dispute the trustee’s assertions. The trustee

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further advised that he will not intervene in this case, and that Plaintiffs may either proceed

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with the lawsuit in this Court or seek adjudication of the claims in bankruptcy court. Id. at

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1-2. Despite their earlier misgivings about proceeding in bankruptcy court, Plaintiffs now

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wish to do so. Id. at 3. Plaintiffs acknowledge that all but one of the defendants in this case

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are not Plaintiffs’ creditors. Id. In light of the foregoing and Plaintiffs’ failure to file a

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formal motion for a bankruptcy reference, the Court will take no action on Plaintiffs’

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memorandum.1 The Court sees no legal bars to this action proceeding in this Court.

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II.

Motion to Dismiss.

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On March 2, 2011, Defendant Quality Loan Service Corporation (“QLS”) filed a

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motion to dismiss the claims against them under Rule 12(b)(6). Doc. 34. Plaintiffs were

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served via U.S. Mail (Doc. 34 at 6), and they filed a response on March 24, 2011 (Doc. 36).

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The parties have not requested oral argument, and the motion has been fully briefed

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(Docs. 34, 36, 37). The Court will grant the motion.

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A.

Legal Standard.

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When analyzing a complaint for failure to state a claim to relief under Rule 12(b)(6),

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the well-pled factual allegations “‘are taken as true and construed in the light most favorable

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to the nonmoving party.’” Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009) (citation

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omitted).

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assumption of truth,” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009), and therefore “‘are

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insufficient to defeat a motion to dismiss for failure to state a claim,’” In re Cutera Sec.

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Litig., 610 F.3d 1103, 1108 (9th Cir. 2010) (citation omitted). To avoid a Rule 12(b)(6)

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dismissal, the complaint must plead “enough facts to state a claim to relief that is plausible

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on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This plausibility

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standard “is not akin to a ‘probability requirement,’ but it asks for more than a sheer

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possibility that a defendant has acted unlawfully.” Iqbal, 129 S. Ct. at 1949 (quoting

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Twombly, 550 U.S. at 556). “[W]here the well-pleaded facts do not permit the court to infer

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more than the mere possibility of misconduct, the complaint has alleged – but it has not

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‘show[n]’ – ‘that the pleader is entitled to relief.’” Id. at 1950 (quoting Fed. R. Civ. P.

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8(a)(2)).

Legal conclusions couched as factual allegations “are not entitled to the

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Plaintiffs’ memorandum asserts that bankruptcy courts have core jurisdiction over
“proceedings affecting the . . . adjustment of the debtor-creditor . . . relationship.” Doc. 35
at 2 (quoting 28 U.S.C. § 157(b)(2)(O)). In light of a “no asset” finding by the bankruptcy
trustee and closure of the bankruptcy matter, however, Plaintiffs fail to show how pursuing
this action in bankruptcy court would affect the bankruptcy debtor-creditor relationship.
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B.

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Plaintiffs’ complaint asserts seven claims against QLS corresponding to the following

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numbered counts: 1, 2, 3, 8, 9, 10, and 11. Doc. 27. As a threshold matter, QLS argues that

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it is entitled to dismissal with prejudice because under A.R.S. § 33-807(E) the trustee of a

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deed of trust may be joined only in “legal actions pertaining to a breach of the trustee’s

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obligations pursuant to A.R.S. §§ 33-801 et seq.” Doc. 34 at 3. But at least one claim in

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Plaintiffs’ complaint alleges violation of such obligations (see Doc. 27 at 36-37). Because

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§ 33-807(E) is the sole basis for QLS’s request for attorney fees (Doc. 34 at 1:16-17), the

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request is denied. The Court will address QLS’s specific arguments as to each claim below.

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Discussion.

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Count 1 – A.R.S. §§ 13-2301 et seq.

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Plaintiffs allege residential mortgage fraud in violation of A.R.S. § 13-2320(A), and

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also appear to allege racketeering as defined in §§ 13-2301(D)(4) or 13-2312. Doc. 27 at 22,

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24. QLS argues the loan that serves as the basis for this count was made in 2007 and that

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QLS had nothing to do with the loan. Doc. 34 at 4. Moreover, QLS asserts that the claim

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fails to plead particularized allegations with respect to QLS. Id. Plaintiffs do not address this

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argument other than to assert that QLS “was, or is now, acting as an agent of co-Defendants

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in advancing the mortgage servicing and foreclosure racket.” Doc. 36 at 3:16-17.

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The Court agrees that Plaintiffs have not pled factual allegations against QLS in

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Count 1 with sufficient particularity as required under Twombly and Iqbal. The complaint

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is unclear whether Plaintiffs aim to allege that QLS is liable for mortgage fraud, racketeering,

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or both. The complaint also fails to allege sufficient facts from which a court may find the

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claim plausible on its face. The claim will therefore be dismissed against QLS without

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prejudice.

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2.

Count 2 – Fraud.

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QLS argues this claim should be dismissed on the same grounds as Count 1. Plaintiffs

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do not directly address this argument. The Court will dismiss this claim against QLS without

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prejudice for the same reasons as discussed for Count 1 above.

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3.

Count 3 – Breach of Covenant of Good Faith and Fair Dealing.

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QLS argues that it performed no act that violated the covenant implied by either the

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Note or Deed of Trust. Plaintiffs respond that QLS recorded a defective notice of trustee

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sale, did nothing to correct the error upon being notified by Plaintiffs, and failed to provide

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an affidavit of publication upon request. Doc. 36 at 3. QLS replies that the notice of trustee

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sale conforms with A.R.S. § 33-808 notwithstanding the address being listed as “808E Desert

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Drive N, Phoenix, AZ 85042” instead of “808 E Desert Drive N, Phoenix, AZ 85042.”

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Doc. 37 at 2. QLS also asserts that it did not breach its duties, but does not specifically

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address whether fulfillment of its duty required QLS to correct the erroneous notice or to

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provide an affidavit of publication. Id.

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In Arizona, the existence of a duty of care is a matter of law for the Court. Lips v.

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Scottsdale Healthcare Corp., 229 P.3d 1008, 1010 (Ariz. 2010). “Duties of care may arise

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from special relationships based on contract, family relations, or conduct undertaken by the

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defendant, and from public policy considerations.” Id. (quoting Gipson v. Kasey, 150 P.3d

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228, 230 (Ariz. 2007)) (internal quotation marks omitted). In this case, it is undisputed that

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QLS had a duty as trustee of the deed of trust. The question remains, however, whether QLS

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breached this duty by publishing a typographically-erroneous notice, failing to correct the

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error, and failing to provide Plaintiffs with an affidavit of publication.

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In Arizona, a party to a contract may breach the covenant of good faith and fair

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dealing by “act[ing] to impair the right of the other to receive the benefits which flow from

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their agreement or contractual relationship.” Rawlings v. Apodaca, 726 P.2d 565, 569 (Ariz.

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1986). A trustee of a deed of trust in Arizona is required to publish a notice of trustee sale.

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A.R.S. § 33-808(A)(4). Moreover, the notice of sale must be recorded, § 33-808(A)(1), and

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must include the street address of the property, § 33-808(C)(2). These requirements inure

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to the benefit of the homeowners. See Patton v. First Federal Sav. and Loan Ass’n of

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Phoenix, 578 P.2d 152, 156 (Ariz. 1978) (“The Deed of Trust statutes thus strip borrowers

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of many of the protections available under a mortgage. Therefore, lenders must strictly

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comply with the Deed of Trust statutes, and the statutes and Deeds of Trust must be strictly
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construed in favor of the borrower.”).

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In Arizona, deed-of-trust trustees are “common agents” of the trustor and beneficiary,

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not “trustees” in the traditional sense. In re Bisbee, 754 P.2d 1135, 1138 (Ariz. 1988) (citing

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Kerivan v. Title Ins. & Trust Co., 147 Cal. App. 3d 225, 229 (1983)). They can be liable

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under agency theories of liability, unless otherwise provided by law. See id.; accord

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Kerivan, 147 Cal. App. 3d at 229 (observing that a deed-of-trust trustee is “the agent of all

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the parties to the escrow . . . and bears a fiduciary relationship to each of them,” that “[h]is

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obligation to each is measured by an application of the ordinary principles of agency,” and

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that “[a]s an agent, the trustee may be liable for negligence”). Arizona law exempts deed-of-

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trust trustees from liability for recording notices with erroneous addresses unless they have

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done so wilfully and intentionally. A.R.S. § 33-808(E).

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The Court would dismiss this claim under A.R.S. § 33-808(E), but QLS fails to make

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that argument. The Court finds, nonetheless, that Count 3 must be dismissed for another

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reason. QLS’s motion argues that the third claim does not allege it performed an act that was

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a breach. Doc. 34 at 4. QLS is correct in this assertion because Plaintiffs’ third cause of

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action incorporates paragraphs 1 through 171, and the facts cited by Plaintiffs’ response to

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the motion appear only beginning with paragraph 233. Doc. 27. Count 3 is not based on the

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facts argued in Plaintiffs’ brief, and therefore will be dismissed.

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4.

Count 8 – Fair Housing Act.

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QLS argues the claim fails to allege it engaged in discrimination or violation of

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42 U.S.C. § 3605. Doc. 34 at 4. Plaintiffs respond that their allegations of violating the Fair

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Housing Act “are applicable here given QLS’ inexplicable and egregious abdication of their

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trustee duties,” and that “[o]nly after reasonable discovery will Plaintiffs be able to determine

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the true animus behind QLS’ gross neglect and bias in favor of co-Defendants.” Doc. 36 at

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5:1-8. Plaintiffs’ claim incorporates paragraphs 1 through 214, inclusive, and the facts

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alleged by Plaintiffs in the response appear only beginning with paragraph 233. Doc. 27.

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The Court will therefore dismiss this claim against QLS without prejudice due to deficient

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pleading.
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Count 9 – Unjust Enrichment.

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A claim of unjust enrichment under Arizona law has five elements: “(1) an

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enrichment, (2) an impoverishment, (3) a connection between the enrichment and

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impoverishment, (4) the absence of justification for the enrichment and impoverishment, and

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(5) the absence of a remedy provided by law.” Freeman v. Sorchych, 245 P.3d 927, 936

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(Ariz. App. 2011) (citing City of Sierra Vista v. Cochise Enters., Inc., 697 P.2d 1125, 131-32

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(Ariz. App. 1984)).

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QLS argues solely that the claim fails to allege QLS was enriched. Doc. 34 at 4

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(“There is no claim that [QLS] will benefit from ‘conduct of other named DEFENDANTS’”).

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Plaintiffs’ response does not appear to address this argument. Doc. 7. Plaintiffs’ claim as

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pled, however, expressly states: “ALL DEFENDANTS, even trustee QUALITY LOAN

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SERVICE CORP., stands to benefit from the egregious and illegal predatory conduct of other

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named DEFENDANTS.” Doc. 27 at 34 (alterations in original).

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This allegation, however, is utterly devoid of a factual basis. The complaint pleads

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no facts that give rise to a plausible claim that QLS’s involvement in these events will result

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in its enrichment at the hands of Plaintiffs as required for unjust enrichment. Count 9

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therefore will be dismissed without prejudice.

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Count 10 – Intentional Infliction of Emotional Distress.

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Under Arizona law, the tort of intentional infliction of emotional distress has three

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elements: (1) conduct that is extreme and outrageous; (2) an intent to cause emotional

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distress or reckless disregard for the near certainty that emotional distress will result; and

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(3) the actual occurrence of severe emotional distress as a result of the conduct. Ford v.

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Revlon, Inc., 734 P.2d 580, 585 (Ariz. 1987). The first element is met when a defendant’s

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conduct is “so outrageous in character and so extreme in degree, as to go beyond all possible

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bounds of decency, and to be regarded as atrocious and utterly intolerable in a civilized

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community.” Mintz v. Bell Atl. Sys. Leasing Int’l, Inc., 905 P.2d 559, 563 (Ariz. App. 1995)

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(citations omitted). Sometimes conduct may be deemed extreme and outrageous due to the

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manner in which it is carried out. See id. at 564 n.1.
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QLS argues the claim fails to plead conduct that was extreme and outrageous.

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Doc. 34 at 4. Plaintiffs respond that QLS caused emotional distress by “their unwillingness

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to supply the documentation requested.” Doc. 36 at 2. Although Plaintiffs’ complaint

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alleges Mrs. Grundy was hospitalized in poor health when QLS’s co-Defendants pressured

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Plaintiffs into signing loan documents (Doc. 27 at 8-9, 9:25-28, 36:6-7), it does not allege

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that QLS took part in this conduct or that QLS was even part of the transaction at the time.

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The claim, incorporating paragraphs 1 through 231, inclusive (Doc. 27), pleads no conduct

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on the part of QLS that is plausibly extreme and outrageous under Arizona law. The claim

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will be dismissed without prejudice.

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7.

Count 11 – A.R.S. § 33-808(E).

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QLS asserts that the notice of trustee sale complied with statutory requirements, that

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any error in the property address contained in the notice does not invalidate the trustee sale,

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and that publication was made as required by statute. Doc. 34 at 5. QLS also attaches a copy

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of the affidavit Plaintiffs had previously sought. Id. at 12. Accordingly, QLS argues, the

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claim should be dismissed. Id. at 5. Plaintiffs’ response appears to argue that past conduct

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of QLS in recording a defective notice, failing to correct the notice, and failing to provide

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Plaintiffs with the affidavit of publication makes QLS liable in tort for damages.2 Doc. 36;

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see also Doc. 27 at 37:13-17. QLS appears to acknowledge in its reply that the property

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address in the notice of sale was listed as “808E Desert Drive N, Phoenix, AZ 85042” instead

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of “808 E Desert Drive N, Phoenix, AZ 85042.” Doc. 37 at 2. QLS maintains, however, that

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under A.R.S. § 33-808 this does not invalidate the trustee sale. Id.

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Claim 11 appears to seek damages, not invalidation of the trustee sale. Doc. 27 at

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37:13-17 (“Conduct by [Defendants] entitles [Plaintiffs] to recover punitive damages from

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[Defendants] in an amount according to proof.”). Plaintiffs argue in their response that they

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Plaintiffs also argue that QLS is an agent of co-defendants “in advancing the mortgage
servicing and foreclosure racket that has injured poor and minority persons as Plaintiffs.”
Doc. 36 at 3. Claim 11 is not a cause of action for racketeering or mortgage fraud, however.
See Doc. 27 at 36:21 The Court will therefore reject this argument.
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seek relief in tort, but Count 11 clearly is based on a violation of A.R.S. § 33-808(E).

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Doc. 27 at 37-38. That statute provides that “[t]he trustee or any person furnishing

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information to the trustee shall not be subject to liability for any error or omission in the

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information required by subsection C of this section except for the wilful and intentional

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failure to provide such information.” § 33-808(E). Plaintiffs have not plausibly alleged, and

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cannot plausibly allege, that QLS’s clear scrivener’s error of omitting a space between “808”

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and “E” in the address was a willful and intentional violation of the statute. Claim 11 will

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be dismissed.

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IT IS ORDERED:

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1.

QLS’s motion to dismiss (Doc. 34) is granted.

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2.

QLS’s motion for attorney fees (Doc. 34) is denied.

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3.

The Court will set a Rule 16 scheduling conference by separate order.

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DATED this 4th day of May, 2011.

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