Grennell et al v. EMC Mortgage Corporation et al

Filing 13

ORDER GRANTING EMC Mortgage LLC's motion to dismiss (doc. 5 ). IT IS FURTHER ORDERED GRANTING defendant Quality Loans motion to dismiss (doc. 6 ). Defendants' motion to strike is DENIED (doc. 12 ). Signed by Judge Frederick J Martone on 4/30/2012.(KMG)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Plaintiffs,
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vs.
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EMC Mortgage Corporation; Quality Loan)
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Service Corporation,
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Defendants.
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Les Grennell; Robin Grennell,

No. CV-12-0633-PHX-FJM
ORDER

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The court has before it defendant EMC Mortgage LLC’s motion to dismiss (doc. 5),
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defendant Quality Loan Service Corporation’s motion to dismiss (doc. 6), plaintiffs’
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responses (docs. 7, 9), defendants’ replies (docs. 10, 11), and defendants’ motion to strike
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(doc. 12).
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On December 7, 2006, plaintiffs executed a Deed of Trust securing a Promissory Note
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in the principal amount of $272,523 for the purchase of real property located in Phoenix,
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Arizona. Plaintiffs became delinquent on their loan payments and on June 24, 2009,
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defendant Quality Loan recorded a notice of trustee’s sale.
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On February 19, 2010, plaintiffs filed a complaint in this court alleging state law
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claims including breach of contract, negligent misrepresentation, and fraudulent
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concealment, against various defendants, including EMC Mortgage and Quality Loan—the
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same defendants in this case. See CV-09-2148-PHX-ROS (“2009 Complaint”). On June 9,

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2010, pursuant to a stipulation by the parties, Judge Silver dismissed all claims against

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Quality Loan without prejudice. On November 5, 2010, Judge Silver dismissed with

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prejudice all claims asserted in the 2009 Complaint against all remaining defendants,

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including EMC Mortgage. Defendants now contend that the claims asserted in the 2009

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Complaint arose out of the same operative facts, including the same Note and Deed of Trust

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at issue in this case, and that therefore the claims asserted in this case are barred by res

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judicata. We agree.

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Res judicata bars relitigation of issues that were asserted or could have been asserted

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in a previous action between the parties. The defense of res judicata requires (1) an identity

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of claims, (2) final judgment on the merits in the previous litigation, and (3) identity of the

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parties or their privies. Hall v. Lalli, 194 Ariz. 54, 57, 977 P.2d 776, 779 (1999).

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In the 2009 Case, the plaintiffs litigated the validity of EMC’s standing as beneficiary

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to commence a non-judicial foreclosure. Final judgment was entered in favor of EMC on the

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merits of the claim. Plaintiffs again challenge EMC’s authority under the Deed of Trust and

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Note, asserting in essence a “show me the note” argument. Because this claim has already

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been finally adjudicated, the reassertion of the claim against EMC and Quality Loan, who

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is in privity with EMC, is barred by res judicata.

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Even if we considered the merits of plaintiffs’ claims, we would nevertheless dismiss

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them with prejudice. In the present case, plaintiffs acknowledge that they defaulted on their

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loan. They seek avoidance of a trustee’s sale by challenging whether Quality Loan, the

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current trustee, was properly appointed by the beneficiary. They also claim that EMC lacked

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appropriate authority to conduct the trustee’s sale because it was not the holder of the

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underlying Note secured by the Deed of Trust and therefore it lacked authority to conduct

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a trustee’s sale. Although they deny that they sue under a “show me the note” theory, they

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argue that EMC must demonstrate that it holds rights under the Note before initiating

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foreclosure proceedings. This argument has been consistently rejected by Arizona courts.

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See, e.g., Hogan v. Washington Mut. Bank, 227 Ariz. 561, 564, 261 P.3d 445, 448 (Ct. App.
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2011) (rejecting the “show me the note” theory and holding that Arizona’s non-judicial

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foreclosure statute does not require presentation of the original note before commencing

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foreclosure proceedings). In addition, the record shows that Quality Loan was properly

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appointed as trustee pursuant to a Substitution of Trustee recorded on June 25, 2009.

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Compl., ex. B. Plaintiffs have again failed to assert a viable claim for relief.

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For all of these reasons, IT IS ORDERED GRANTING EMC Mortgage LLC’s

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motion to dismiss (doc. 5). IT IS FURTHER ORDERED GRANTING defendant Quality

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Loan’s motion to dismiss (doc. 6).

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Defendants’ motion to strike is DENIED (doc. 12).
DATED this 30th day of April, 2012.

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