Kester v. CitiMortgage Incorporated et al

Filing 37

ORDER that Defendants' Motion to Dismiss Plaintiff's Amended Class Action Complaint (Doc. 16 ) is granted. FURTHER ORDERED that the Clerk enter judgment dismissing this action with prejudice for failure to state a claim upon which relief can be granted. The Clerk shall terminate this case. See order for details. Signed by Judge Neil V. Wake on 3/31/16. (NKS)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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David A. Kester, on behalf of himself and
all others similarly situated,

No. CV-15-00365-PHX-NVW
ORDER

Plaintiff,

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v.

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CitiMortgage, Inc.; CR Title Services, Inc.;
and Does 1 to 25, inclusive,

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Defendants.
This is a putative class action of foreclosed homeowners for statutory damages
under A.R.S. § 33-420(A). The statute penalizes persons claiming an interest or lien in
real property for recording a document “knowing or having reason to know that the
document is forged, groundless, contains a material misstatement or false claim or is
otherwise invalid . . . .” For each such document, the statute imposes a $5,000 penalty.
Plaintiff alleges three documents relating to the trustee’s sale of his house were
recorded in violation of the statute because they were acknowledged before a notary
whose commission had been revoked ten days earlier. He also alleges this defect in
acknowledgment affected hundreds or perhaps thousands of other documents.

On

Plaintiff’s theory, statutory penalties could run into the millions of dollars.
Before the Court is Defendants’ Motion to Dismiss Plaintiff’s Amended Class
Action Complaint (Doc. 16) for failure to state a claim upon which relief can be granted.
The Motion will be granted.

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I.

LEGAL STANDARD

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A motion to dismiss under Rule 12(b)(6), Federal Rules of Civil Procedure, tests

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the legal sufficiency of the complaint. The motion may be based on “the lack of a

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cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable

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legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A

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complaint need include “only enough facts to state a claim for relief that is plausible on

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its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).

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All allegations of material fact are assumed to be true and construed in the light

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most favorable to the non-moving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th

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Cir. 2009). However, that does not apply to legal conclusions or conclusory factual

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allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Threadbare recitals of the

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elements of a cause of action, supported by mere conclusory statements, do not suffice.”

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Id. “A claim has facial plausibility when the plaintiff pleads factual content that allows

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the court to draw the reasonable inference that the defendant is liable for the misconduct

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alleged.” Id. “The plausibility standard is not akin to a ‘probability requirement,’ but it

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asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. The

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complaint must permit reasonable inference of more than the mere possibility of

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misconduct. Id. If the plaintiff’s pleadings fall short of this standard, dismissal is

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appropriate.

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II.

FACTUAL ALLEGATIONS ASSUMED TO BE TRUE
The following are Plaintiff’s allegations.

On August 17, 2010, the Arizona

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Secretary of State received a complaint accusing notary public Kristin Lindner of

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improperly notarizing documents for Defendants when the signer was not present. (Doc.

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1-1 at 11.) Plaintiff alleges on “information and belief” that Defendants became aware of

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the complaint and the Secretary of State’s subsequent investigation “no later than

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September 2010.” (Id.) Despite this knowledge, Defendants “took no steps to remove or

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take any other action with respect to Ms. Lindner what [sic] would prevent her from the

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performance of notarial services on their behalf.” (Id.) In a report dated December 6,

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2010, the Secretary of State determined, among other things, that Lindner had “failed to

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record requisite journal information,” “failed to properly perform the acknowledgment”

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on the complainant’s document, “failed to state her commission-expiration date in the

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notarial certificate,” and “executed a statement known to be false,” all in violation of

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Arizona notary law. (Id. at 23-24.) The Secretary of State therefore revoked Lindner’s

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commission, effective December 6, 2010. (Id. at 23.)

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Plaintiff alleges, again on “information and belief,” that for three months after

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learning of the revocation, Defendants permitted Lindner to continue notarizing

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documents on their behalf, including assignments of deeds of trust, substitutions of

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trustee, notices of default, and notices of trustee’s sale. (Id. at 12.) Defendants recorded

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these post-revocation documents in county recorders’ offices across Arizona, California,

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Nevada, Idaho, and Oregon and used them to institute trustee’s sales against hundreds of

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properties. (Id.) Defendants have so far “made no attempt to reconstitute, re-do, or re-

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notarize the invalid documentation properly, nor have they made any attempt to advise

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any purported current owners of the properties or the Deeds of Trust purportedly

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encumbering those properties that there is or may be an issue with the title they believe

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they have.” (Id. at 13.)

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On December 16, 2010, ten days after her commission had been revoked, Lindner

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notarized an assignment of deed of trust, a substitution of trustee, and a notice of trustee’s

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sale on Plaintiff’s property. (Id.) These three documents were recorded in the Maricopa

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County recorder’s office, the last initiating a trustee’s sale of the property to satisfy the

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defaulted note secured by the deed of trust. (Id.; see Doc. 16-1 at 3, 7, 10.)1

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Plaintiff filed this action in Maricopa County Superior Court on December 8,

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2014. (Doc. 1 at 2.) His Amended Class Action Complaint, submitted on January 27,

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Doc. 16-1 contains copies of these documents, as recorded. The complaint relies
on these documents and their authenticity is not disputed. Therefore they may be
considered in ruling on Defendants’ 12(b)(6) motion. Swartz v. KPMG LLP, 476 F.3d
756, 763 (9th Cir. 2007).
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2015, requests certification of a class comprising “[a]ll property owners or beneficial title

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holders whose properties were the subject of recordations by Defendants . . . in the Office

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of the County Recorder wherever situated during the applicable statutory limitations

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period that were notarized in the State of Arizona by employees of Defendants at a time

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when their Notary Licenses had been revoked or suspended.” (Doc. 1-1 at 14, 18.)

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The Complaint’s single cause of action is under A.R.S. § 33-420(A), which

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penalizes persons claiming an interest or lien in real property for knowingly recording a

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document that is “forged, groundless, contains a material misstatement or false claim or

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is otherwise invalid”:

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A.
A person purporting to claim an interest in, or a lien or encumbrance
against, real property, who causes a document asserting such claim to be
recorded in the office of the county recorder, knowing or having reason to
know that the document is forged, groundless, contains a material
misstatement or false claim or is otherwise invalid is liable to the owner or
beneficial title holder of the real property for the sum of not less than five
thousand dollars, or for treble the actual damages caused by the recording,
whichever is greater, and reasonable attorney fees and costs of the action.
(Emphasis added.) The broader statutory section, A.R.S. § 33-420, is entitled “False
documents; liability; special action; damages; violation; classification.” It contains four
other subsections. Subsection B authorizes a special action to clear title, in addition to an
action for damages:

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B.
The owner or beneficial title holder of the real property may bring an
action pursuant to this section in the superior court in the county in which
the real property is located for such relief as is required to immediately
clear title to the real property as provided for in the rules of procedure for
special actions. This special action may be brought based on the ground
that the lien is forged, groundless, contains a material misstatement or false
claim or is otherwise invalid. The owner or beneficial title holder may
bring a separate special action to clear title to the real property or join such
action with an action for damages as described in this section. In either
case, the owner or beneficial title holder may recover reasonable attorney
fees and costs of the action if he prevails.

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Subsection C further penalizes a person named in a document described in subsection A

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if the person fails to timely correct the document upon request:

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C.
A person who is named in a document which purports to create an
interest in, or a lien or encumbrance against, real property and who knows
that the document is forged, groundless, contains a material misstatement or
false claim or is otherwise invalid shall be liable to the owner or title holder
for the sum of not less than one thousand dollars, or for treble actual
damages, whichever is greater, and reasonable attorney fees and costs as
provided in this section, if he willfully refuses to release or correct such
document of record within twenty days from the date of a written request
from the owner of beneficial title holder of the real property.

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Subsection D creates a presumption that documents containing unauthorized property

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interests or liens are groundless and invalid:

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D.
A document purporting to create an interest in, or a lien or
encumbrance against, real property not authorized by statute, judgment or
other specific legal authority is presumed to be groundless and invalid.
Subsection E renders a person in violation of subsection A guilty of a class 1
misdemeanor:
E.
A person purporting to claim an interest in, or a lien or encumbrance
against, real property, who causes a document asserting such claim to be
recorded in the office of the county recorder, knowing or having reason to
know that the document is forged, groundless, contains a material
misstatement or false claim or is otherwise invalid is guilty of a class 1
misdemeanor.
Plaintiff alleges that revocation of the notary’s commission rendered the three
documents relating to the trustee’s sale of his property and hundreds or thousands of
other documents “forged, groundless, or otherwise invalid,” triggering the $5,000.00 per
document penalty of § 33-420(A) because Defendants knew the commission had been
revoked.

(Doc. 1-1 at 17.)

(Trustee’s sales typically involve recordation of three

acknowledged documents, as in Plaintiff’s case.) He further alleges that Defendants
violated the statute by “failing to correct and retract documents they recorded that they
knew or should have known had been recorded in violation of the statute,” though he
does not allege that he asked them to do so. (Id.)
Plaintiff does not claim that these documents or transactions were substantively
invalid. Nor does he claim that the signatures on these documents were inauthentic or
unauthorized or that the notary did not in fact witness the signatures. He claims only that
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the certificates of acknowledgment accompanying these documents were signed by a

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notary whose commission had been revoked. (See Doc. 16-1 at 3, 7, 10.)

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On February 27, 2015, Defendants removed the action to this court under the

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Class Action Fairness Act. (Doc. 1 at 7.) There are no questions of federal law. No

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class has yet been certified.

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III.

A.R.S. § 33-420 REQUIRES MATERIALITY FOR A PENALTY.

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It is undisputed that the defect in the certificates of acknowledgment of the

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trustee’s sale documents is immaterial to Plaintiff. Defendants say that is fatal to the

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claim; Plaintiff says otherwise. The Court first addresses this central issue.2

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A.

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Again, a penalty may arise under A.R.S. § 33-420(A) only if the recorded

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document is flawed in one of the following ways: it is “forged, groundless, contains a

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material misstatement or false claim or is otherwise invalid.”

Textual Analysis

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Neither party briefed the threshold question whether A.R.S. § 33-420 applies at
all to latent defects in certificates of acknowledgment asserted only after the trustee’s
sale. The statute combats a serious problem: recordation of false property claims. Its
title is aimed at “False documents.” It punishes violations with severe monetary liability
and misdemeanor criminal liability. A.R.S. § 33-420(A), (C), (E). This statute is a poor
fit for Plaintiff’s facts.
The trustee’s sale documents here are not “false,” as Plaintiff does not contest their
terms or legal effect. They are not “forged,” as Plaintiff does not claim any signatures are
inauthentic. And they do not seem “groundless” or otherwise “invalid,” as Plaintiff does
not dispute any underlying property claims. See A.R.S. § 33-420(D) (documents with
unauthorized property claims are presumed “groundless” and “invalid”); cf. Whitman v.
Am. Trucking Assocs., 531 U.S. 457, 466 (2001) (“Words that can have more than one
meaning are given content . . . by their surroundings . . . .”).
Another remedy for Plaintiff’s challenge already exists in the statutory scheme.
A.R.S. § 33-513 (“When an acknowledgment is properly made, but defectively certified,
any party interested may bring an action in the superior court to obtain a judgment
correcting the certificate.”). Thus, it is a fair question whether § 33-420 applies at all to
these latent defects in certificates of acknowledgment. But because other grounds are
dispositive, the Court does not decide this question.
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Plaintiff reads the statutory text as allowing a penalty for immaterial flaws in a

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recorded document—that is, flaws that do not affect him. He notes that the statute lists

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various flaws disjunctively and that the word “material” only appears next to the words

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“misstatement or false claim,” not the words “forged,” “groundless,” or “otherwise

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invalid.” Plaintiff infers that materiality is not a necessary element of § 33-420(A) claims

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that a document is “forged,” “groundless,” or “otherwise invalid.”

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Plaintiff’s reading defies ordinary principles of statutory interpretation and

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common sense. The words “forged,” “groundless,” and “invalid” each imply a sense of

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materiality. One does not “forge” a document to no effect. A document cannot be

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“groundless” or “invalid” without reference to a meaningful external standard of

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“ground” or “validity.” The reason the word “material” does not appear next to each of

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these words is that such drafting would be unnecessary and awkward. In contrast, the

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words “misstatement” and “false claim” do not imply a sense of materiality. Both words

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refer to innumerable communications within a document that the legislature would have

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no reason to punish, such as a “false claim” that the third page of a document is page two.

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For those words, “material” is a useful qualifier.

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Context underscores the need for materiality here. This is a punitive and criminal

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statute. Subsection A imposes a penalty of $5,000 or treble actual damages for each

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illegal document. Subsection C imposes an additional penalty of $1,000 or treble actual

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damages for willful failure to correct such documents upon request.

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gravely, subsection E classifies a violation of subsection A as a class 1 misdemeanor.

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These subsections “must be interpreted consistently” to the extent they use identical

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language. Wyatt v. Wehmueller, 167 Ariz. 281, 285, 806 P.2d 870, 874 (1991). Thus,

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Plaintiff’s interpretation would make the recording of a document with inconsequential

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flaws not only unlawful and expensive, but criminal.

Perhaps most

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More generally, the purpose of A.R.S. § 33-420 is to “protect property owners

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from actions clouding title to their property.” Wyatt, 167 Ariz. at 286, 806 P.2d at 875.

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But an immaterial flaw in a property document, by definition, would not cloud Plaintiff’s

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title. “Statutes must be given a sensible construction which accomplishes the legislative

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intent behind them and which avoids absurd results.” Collins v. State, 166 Ariz. 409,

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415, 803 P.2d 130, 136 (Ct. App. 1990). Plaintiff’s construction contorts the statute to

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yield a harsh, purposeless result. Materiality must be an element of penalty claims under

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A.R.S. § 33-420(A).

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B.

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The case authority does not read materiality out of the statute. Plaintiff relies

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principally on In re Mortgage Electronic Registration Systems, Inc., 754 F.3d 772 (9th

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Cir. 2014), an action for penalties under § 33-420(A) for documents relating to a trustee’s

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sale that were “notarized in blank and ‘robosigned’ with forged signatures.” Id. at 782.

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The court did not discuss whether materiality is necessary for liability for invalid

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recordations. Neither did the district court. Materiality was obvious.

Case Law

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Plaintiff also cites two Arizona cases that discussed § 33-420(A) without

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discussing materiality and infers from this silence that materiality is not required under

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the statute. Delmastro & Eells v. Taco Bell Corp., 228 Ariz. 134, 263 P.3d 683 (Ct. App.

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2011); SWC Baseline & Crismon Inv’rs, LLC v. Augusta Ranch Ltd. P’ship, 228 Ariz.

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271, 265 P.3d 1070 (Ct. App. 2011). But the more reasonable inference is simply that

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neither court needed to discuss materiality.

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The most relevant case is Sitton v. Deutsche Bank National Trust Co., 233 Ariz.

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215, 311 P.3d 237 (Ct. App. 2013). There, like here, the plaintiff brought an action under

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§ 33-420 based on recorded documents relating to the trustee’s sale of her home. Id. at

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216 ¶ 2, 311 P.3d at 238. She alleged, among other things, that assignments of a note and

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deed of trust contained misstatements and other defects. Id. at 217 ¶¶ 6-8, 311 P.3d at

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239.

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assignor’s identity and that these misrepresentations “could be material” to certain future

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assignees.

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immaterial to the plaintiff because, as explained below, they “could have had no effect on

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[her] choice of actions.” Id. Because the plaintiff “could not show that the assignments

The court agreed that the assignments misrepresented certain dates and the

Id. at 221 ¶ 32, 311 P.3d at 243.

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But these misrepresentations were

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contained a material misstatement or false claim, she could not prevail on her

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§ 33-420(A) claims.” Id. at 222 ¶ 34, 311 P.3d at 244 (emphasis in original).

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Plaintiff contends Sitton’s emphasis on materiality applies only to the “material

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misstatement or false claim” prong of § 33-420(A), not the “forged,” “groundless,” or

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“otherwise invalid” prongs.

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statutory prong. In fact, part of the opinion characterized the plaintiff as attacking the

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original lender’s “authority to make valid assignments.” Id. at 220 ¶ 27, 311 P.3d at 242

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(emphasis added). And the opinion includes broad statements that seem applicable to the

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entire statute. See, e.g., id. at 216 ¶ 2, 311 P.3d at 238 (“We affirm because . . . A.R.S.

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§ 33-420(A) does not support relief in favor of a person who could not have been harmed

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by a recorded misrepresentation.”). Sitton thus suggests that materiality is a required

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element of any § 33–420(A) claim. Nothing in Sitton suggests that materiality is not a

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requirement.

But the opinion itself is not expressly limited to any

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C.

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Again, it is undisputed that the acknowledgment defect in the documents relating

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to the trustee’s sale of Plaintiff’s property was not material to Plaintiff. Nevertheless, it

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merits explanation why.

The Acknowledgment Defect Was Not Material to Plaintiff

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A misrepresentation in a recorded document is “material” if “a reasonable person

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would attach importance to its existence or nonexistence in determining [his or her]

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choice of action in the transaction in question.” Sitton, 233 Ariz. at 221 ¶ 31, 311 P.3d at

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243 (quoting Caruthers v. Underhill, 230 Ariz. 513, 521 ¶ 28, 287 P.3d 807, 815 (Ct.

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App. 2012)).

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In Sitton the misrepresentations in the recorded assignments of the note and deed

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of trust were not material to the plaintiff because they could not have affected the

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plaintiff’s choice of action in the transaction in question. The plaintiff was liable on the

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note, and at the time of closing her “choices were to repay the money pursuant to the

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terms of the note, renegotiate the terms of the note, or default and cause foreclosure.” Id.

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at 222 ¶ 33, 311 P.3d at 244. The misrepresentations in the recorded assignments did not

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affect these choices because the plaintiff’s “liability on the note remained the same no

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matter who was assigned as beneficiary, or when.” Id. The misrepresentations about the

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timing and sequence of the assignments were immaterial to the plaintiff as the

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owner/trustor. Id. at 221-22 ¶¶ 32-33, 311 P.3d at 243-44.

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The same is true here. The acknowledgment defect in the property documents

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could not have affected Plaintiff’s choice of action as the owner/trustor. The purpose of

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the acknowledgment here was to effect constructive notice to later buyers or

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encumbrancers.

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constructive notice of the deed’s contents to ‘all persons,’ including subsequent

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purchasers.” Manicom v. CitiMortgage, Inc., 236 Ariz. 153, 156 ¶ 8, 336 P.3d 1274,

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1277 (Ct. App. 2014) (quoting A.R.S. § 33-818).

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effective only if the deed of trust or other document is properly acknowledged and

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notarized:

A deed of trust recorded under the Deed of Trust Act “provides

But such constructive notice is

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Except as otherwise provided in this section, a trust deed, substitution of
trustee, notice of resignation of trustee, assignment of a beneficial interest
under a trust deed, notice of sale, cancellation of notice of sale, trustee’s
deed, deed of release, and any instrument by which a trust deed is
subordinated or waived as to priority, if acknowledged as provided by law,
shall from the time of being recorded impart notice of the content to all
persons, including subsequent purchasers and encumbrancers for value.

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A.R.S. § 33-818 (emphasis added); see also W. W. Planning, Inc. v. Clark, 10 Ariz. App.

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86, 88, 456 P.2d 406, 408 (1969) (“Before an instrument will be deemed to be lawfully

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recorded and to impart constructive notice it must have been acknowledged.”).

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Accordingly, defective acknowledgment does not invalidate the documents as such; at

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most it defeats constructive notice.3

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It is not clear there was a failure of constructive notice here. That the documents
were acknowledged before a notary whose commission had expired is at most a latent
defect, as anyone searching county records would have thought the documents were
properly acknowledged and notarized. See In re Wonderfair Stores, Inc. of Arizona, 511
F.2d 1206, 1214 (9th Cir. 1975) (holding, under Arizona law, that even if certain pages of
a recorded lease were not properly acknowledged or notarized, lease gave constructive
notice because defect was “technical” and “not apparent from the instrument”); accord In
re Bisbee, 157 Ariz. 31, 35, 754 P.2d 1135, 1139 (1988) (citing In re Wonderfair with
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Here any failure of constructive notice could not harm Plaintiff. He could lose no

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right or interest. It would not reduce the number of bidders who appear at the trustee’s

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sale because only people with actual notice do that.

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circumstances it is hard to imagine practical harm to anybody from lack of constructive

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notice of a pending trustee’s sale. Admittedly, if an intervening buyer had no actual or

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constructive notice of the pending trustee’s sale, that buyer might prevail over a later

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buyer at the trustee’s sale. See Phipps v. CW Leasing, Inc., 186 Ariz. 397, 401, 923 P.2d

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863, 867 (Ct. App. 1996). But that circumstance is improbable. An intervening buyer

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without notice of the pending sale would still have constructive notice of the previously

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recorded deed of trust. That buyer could not get clear title without paying off the note,

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which would cause the beneficiary to cancel the trustee’s sale altogether.

Indeed, in usual commercial

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Even if one can imagine circumstances in which someone else would be harmed,

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all that matters here is that failure of constructive notice could not harm Plaintiff as the

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owner/trustor. Even “an unrecorded instrument is fully enforceable between the parties

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to the transaction,” since “recording acts are intended to protect a later purchaser’s

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reliance on a seller’s title and to provide a means of resolving competing title claims, not

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to invalidate a transfer between the parties to the deeds of trust.” 3502 Lending, LLC v.

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CTC Real Estate Serv., 224 Ariz. 274, 277, 229 P.3d 1016, 1019 (Ct. App. 2010). The

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documents relating to the trustee’s sale of Plaintiff’s house were substantively valid.

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Plaintiff does not claim title to the house or seek to unwind the sale. Rather, he seeks a

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windfall based on an immaterial acknowledgment defect. In the words of Sitton, the

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acknowledgment defect could not have affected Plaintiff’s choice of action in the

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transaction in question. Therefore, it was immaterial to him as a matter of law and his

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claim under A.R.S. § 44-420(A) fails.

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approval). This is not a case where acknowledgment was wholly lacking or flawed in a
recognizable way. E.g., Phipps v. CW Leasing, Inc., 186 Ariz. 397, 399, 923 P.2d 863,
865 (Ct. App. 1996) (recorded document wholly lacked certificate of acknowledgment
and so gave no constructive notice). The parties have not briefed this question.
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IV.

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Even apart from the immateriality to Plaintiff of the acknowledgment defect, two

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statutes validate the acknowledgments in any event. Under the governing recording
statutes and the Deed of Trust Act, the acknowledgments were fully validated after
having been recorded for one year and when the property passed to a purchaser for value
and without notice. Both those times have long passed. The acknowledgments have
been doubly redeemed. The Court need not decide what penalties Plaintiff would have if
he had filed an action before then.
A.

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recorded in order to give constructive notice to subsequent purchasers:
A.
No instrument affecting real property gives notice of its contents to
subsequent purchasers or encumbrance holders for valuable consideration
without notice, unless recorded as provided by law in the office of the
county recorder of the county in which the property is located.

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The Recording Statutes

Under A.R.S. § 33-411, a document affecting real property must be properly

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BY OPERATION OF LAW THE ACKNOWLEDGMENTS ARE FULLY
VALID.

A.R.S. § 33-411(A). Proper recordation, in turn, generally requires a proper certificate of
acknowledgment:

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B.
An instrument shall not be deemed lawfully recorded unless it has
been previously acknowledged in the manner prescribed in this chapter
except in the case of master mortgages as provided in § 33-415.

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A.R.S. § 33-411(B). However, any “defect, omission or informality in the certificate of

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acknowledgment” is cured when the document has been recorded for longer than one

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year:

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C.
For purposes of this section, an instrument affecting real property
containing any defect, omission or informality in the certificate of
acknowledgment and which has been recorded for longer than one year in
the office of the county recorder of the county in which the property is
located shall be deemed to have been lawfully recorded on and after the
date of its recording.
A.R.S. § 33-411(C) (emphasis added).

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Plaintiff’s challenge here is for a “defect, omission or informality in the certificate

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of acknowledgment” in the recorded documents. But this action was filed nearly four

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years after the recordings. Therefore, even if the defective acknowledgments invalidated

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the documents when originally recorded, in whole or in part, such invalidation has been

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cured back to the date of the recording by the passage of a year. A.R.S. § 33-411(C).

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Plaintiff argues § 33-411(C) does not apply here because it is explicitly limited

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“[f]or purposes of this section.” But “this section” includes subsection B’s requirement

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that an instrument be properly “acknowledged” in order to be lawfully recorded. Thus,

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the one-year cure of “any defect, omission or informality in the certificate of

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acknowledgment” reaches the documents Plaintiff claims were improperly recorded. The

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very title of § 33-411—“acknowledgment required for proper recording”—supports this.

12

After one year, therefore, § 33-411(C) cures an acknowledgment defect as though

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the document was “lawfully recorded on and after the date of its recording.” The broad

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purpose is to prevent belated objections based on mere defects in acknowledgments in

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documents that are regular on their face. That purpose of saving honest transactions

16

cannot have the perverse effect of retroactively imposing constructive notice to a time

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when there was none and invalidating transactions that were valid when made. Phipps v.

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CW Leasing, Inc., 186 Ariz. 397, 401, 923 P.2d 863, 867 (Ct. App. 1996) (document

19

recorded without acknowledgment “deemed to have been lawfully recorded on and after

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the date of its recording as to anyone purchasing after the year’s period, but not as to

21

someone who purchased during that period”).

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In Phipps a right of first refusal was not acknowledged at all and was unrecorded

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for several years. Id. at 399, 923 P.2d at 865. A few months after it was recorded, the

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owner sold to a different person without knowledge of the right of first refusal. Id. The

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buyer prevailed over the holder of the unacknowledged right of first refusal because the

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court concluded there was no constructive notice at the time he bought. Id. at 402, 923

27

P.2d at 868. Thus, the court excluded retroactive constructive notice from the retroactive

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cure of defective acknowledgment, to avoid substantive injustice that would defeat, not

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serve, the purpose of § 33-411(C). The court’s opinion does not limit the statute’s

2

otherwise broad instruction to deem defective documents “lawfully recorded on and after

3

the date of its recording.” Nor does the opinion govern the facts of this case. Phipps

4

dealt with the complete absence of any acknowledgment in a recorded document, not the

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revocation of a notary’s commission in an acknowledgment otherwise valid on its face.

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The court itself noted that a total absence of acknowledgment “may not even fall within

7

the language of A.R.S. section 33-411(C),” which addresses only a “defect, omission or

8

informality in the certificate of acknowledgment.” Id. at 402 n.1, 923 P.2d at 868 n.1.

9

Seizing on that distinction, Plaintiff argues § 33-411(C) does not apply here

10

because the revocation of the commission is more than just a “defect, omission or

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informality” in the acknowledgment but rather a complete absence of acknowledgment.

12

This is unpersuasive because the acknowledgment was regular on its face. The defect

13

was exactly the kind that cannot be recognized and that people cannot be expected to

14

ferret out by checking the licensing status of every notary with whom they deal and

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whose seal is facially valid.

16

The case Plaintiff relies on is of little help. In Zrihan v. Wells Fargo Bank, N.A.,

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No. CV-12-02073-PHX-DGC, 2014 WL 348197 (D. Ariz. Jan. 31, 2014), the evidence

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on summary judgment clashed on whether the principal’s signature itself was true or

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forged. Id. at *4. There was no evidence on whether the notary was licensed or not at the

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time, but the notary’s purported seal listed the expiration date of her commission beyond

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what the statutes allowed. See id. Zrihan reached no legal conclusion and denied

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summary judgment.

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Plaintiff also argues A.R.S. § 12-550 provides a four-year statute of limitations for

24

his penalty claim. This is true. Sitton v. Deutsche Bank Nat’l Tr. Co., 233 Ariz. 215,

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219, 311 P.3d 237, 241 (Ct. App. 2013). But § 33-411(C) is not a statute of limitations.

26

Rather, it deems a document with a defective certificate of acknowledgment “to have

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been lawfully recorded on and after the date of its recording.” This operates differently

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from a statute of limitations: here the claims, if any, are erased. If there was a claim in

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the beginning, now there is not and never was one.

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This interpretation of § 33-411(C) is consistent with Arizona and federal cases

4

holding that minor technical defects in a notarization or the underlying property

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document do not defeat an otherwise proper recording under Arizona law. See Watson

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Constr. Co. v. Amfac Mortg. Corp., 124 Ariz. 570, 575-76, 606 P.2d 421, 426-27 (1979)

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(recorded deed of trust gave constructive notice despite missing caption and two pages);

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In re Bisbee, 157 Ariz. 31, 35, 754 P.2d 1135, 1139 (1988) (recorded deed of trust gave

9

constructive notice despite failing to name trustee); In re Wonderfair Stores, Inc. of

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Arizona, 511 F.2d 1206, 1214 (9th Cir. 1975) (recorded lease gave constructive notice

11

under Arizona law despite improper acknowledgment); AA Am. Dev. Corp. v. United

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States, No. CIV06-2450-PHX-SMM, 2007 WL 2330869, at *5 (D. Ariz. Aug. 14, 2007)

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(notice of lis pendens recorded for more than one year but lacking acknowledgment gave

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constructive notice under Arizona law); Robertson v. DLJ Mortg. Capital, Inc., No. CV-

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12-8033-PCT-LOA, 2012 WL 4840033, at *11 (D. Ariz. Oct. 11, 2012), aff’d (Mar. 29,

16

2013) (rejecting “technical arguments” under Arizona law against documents recorded

17

for more than one year).

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B.

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The Deed of Trust Act itself independently cured the defect in the

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acknowledgment years before Plaintiff brought this action. The original Deed of Trust

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Act addressed procedural defects in trustee’s sales and documents, “including recording”:

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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 post of notice of sale and the conduct of 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.

27

A.R.S. § 33-811(B) (emphasis added). Plaintiff alleges that he and the class members

28

lost their homes by foreclosure or forced sales. Unless the buyers knew of the revocation

23
24
25

The Deed of Trust Act

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of the notary’s commission, they were purchasers “for value without notice.” Plaintiff

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does not allege that any buyers did know. In fact, at oral argument he conceded he has no

3

basis to allege that the third party who purchased his home was anyone other than a

4

purchaser for value and without actual notice. Thus, this statute independently renders

5

Plaintiff’s claims non-existent by legislating that all such compliance is deemed to have

6

occurred (regardless of the historical facts). This extinguishes Plaintiff’s penalty claims

7

under A.R.S. § 33-420(A).

8
9

This extinguishment of claims by A.R.S. § 33-811(B) is different from the
§ 33-811(C) waiver of “all defenses and objections to the sale” not raised before sale:

13

The trustor, its successors or assigns, and all persons to whom the trustee
mails a notice of a sale under a trust deed pursuant to § 33-809 shall waive
all defenses and objections to the sale not raised in an action that results in
the issuance of a court order granting relief pursuant to rule 65, Arizona
rules of civil procedure, entered before 5:00 p.m. mountain standard time
on the last business day before the scheduled date of the sale.

14

A.R.S. § 33-811(C). This subsection protects the buyer’s title from cloud by cutting off

15

the trustor’s defenses and objections to the sale. A § 33-420(A) penalty is not a defense

16

or objection to the sale and so is not cut off by subsection 811(C):

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11
12

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19
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[F]ailure to enjoin a trustee’s sale does not waive claims for monetary
awards under § 33-420(A). Section 33-811(C) contemplates the waiver of
“defenses and objections to the sale” only, and nothing in § 33-420(A)
provides a defense to a sale or makes recovery contingent upon a sale.
Sitton, 233 Ariz. at 218 ¶ 13, 311 P.3d at 240.

21

But § 33-811(B) does what § 33-811(C) does not: it legislates that the procedural

22

requirement at issue, recording, was met. The premise for a § 33-420(A) penalty is

23

expunged ab initio. Subsection 811(B) legislates for the past as well as the future. That

24

must mean the then-unasserted § 33-420(A) penalty cannot be asserted after the sale

25

because it does not exist.

26

The Court need not address the legal effect of a plaintiff bringing this kind of

27

§ 33-420(A) penalty claim before the sale concluded. The Plaintiff here did not. If he

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had, the beneficiary would have cancelled the sale and re-noticed it. The noticed sale

2

would never have been completed.

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4
5
6

V.

PLAINTIFF HAS ADEQUATELY PLED KNOWLEDGE.
Plaintiff alleges “on information and belief” that Defendants knew the notary’s

commission had been revoked. Defendants argue this allegation is insufficient.

7

“Although there is no express authorization in the federal rules for pleading on

8

information and belief, allegations in this form have been held to be permissible, even

9

after the Twombly and Iqbal decisions.” 5 Charles Alan Wright et al., Federal Practice

10

& Procedure § 1224 (3d ed., Apr. 2015 update) (collecting cases).

11

information and belief is a desirable and essential expedient when matters that are

12

necessary to complete the statement of a claim are not within the knowledge of the

13

plaintiff but he has sufficient data to justify interposing an allegation on the subject.” Id.

14

The Ninth Circuit has adopted this approach after Twombly and Iqbal in at least one

15

context. Carolina Cas. Ins. Co. v. Team Equip., Inc., 741 F.3d 1082, 1088 (9th Cir.

16

2014) (holding that “when information regarding a defendant that is necessary to

17

establish diversity of citizenship is not reasonably available to a plaintiff, the plaintiff

18

should be permitted to plead jurisdictional allegations as to those defendants on

19

information and belief and without affirmatively asserting specific details regarding the

20

citizenship of those defendants”).

“Pleading on

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“Some cases suggest that when allegations are made on the basis of information

22

and belief, the facts on which the pleader’s belief is founded should also be alleged.” 5

23

Wright et al., Federal Practice & Procedure § 1224, supra. That requirement may be

24

appropriate, depending on the circumstances. In Menard v. CSX Transportation, Inc., for

25

example, the plaintiff alleged “upon information and belief” that a company’s employees

26

“knew” he was injured and “had sufficient time to take action to prevent further injury to

27

him.” 698 F.3d 40, 44 (1st Cir. 2012). The First Circuit noted that the complaint

28

provided no facts indicating that the plaintiff was seen by the company’s employees or

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that he could have been rescued. Id. The court stated: “[I]f he had any facts to support

2

this assertion, they should have been set forth. ‘Information and belief’ does not mean

3

pure speculation.” Id. Ultimately, however, the First Circuit vacated the district court’s

4

dismissal of the complaint and remanded to give the plaintiff an opportunity to say more

5

if he could. Id. at 45-46.

6

Here, it is unlikely that the Defendant corporations knew on December 16 of

7

revocation of the notary’s commission on December 6. The most forceful inference from

8

these circumstances is that the notary kept her revocation secret to keep her job as long as

9

possible. It is difficult to believe highly regulated businesses would knowingly let a

10

revoked notary keep doing their notarizations. There would be no benefit, even illicit

11

benefit, for them to do that.

12

Nevertheless, whether Defendants in fact knew or had reason to know that the

13

notary’s commission had been revoked may not be a matter within Plaintiff’s knowledge.

14

Therefore Plaintiff’s allegation survives the minimal pleading standard.

15

In reaching this conclusion, the Court does not accept Plaintiff’s theory that the

16

notary’s own knowledge of her revocation may be “imputed” to Defendants under agency

17

law principles. The Arizona Supreme Court expressly foreclosed this sort of theory with

18

respect to the knowledge requirement under A.R.S. § 33-420(A). Wyatt v. Wehmueller,

19

167 Ariz. 281, 285, 806 P.2d 870, 874 (1991).

20
21

VI.

LEAVE TO AMEND WOULD BE FUTILE.

22

Leave to amend should be freely given when justice so requires. Fed. R. Civ. P.

23

15(a)(2). In deciding whether to grant leave to amend, courts consider bad faith, undue

24

delay, prejudice to the opposing party, futility of amendment, and whether the party has

25

previously amended his pleadings. Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995).

26

Futility of amendment can, by itself, justify the denial of leave to amend. Id.

27
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1

Here, Plaintiff’s claim fails as a matter of law for the reasons explained above and

2

cannot be cured by amended pleadings. Therefore, this action must be dismissed without

3

leave to amend.

4
5
6
7
8

IT IS THEREFORE ORDERED that Defendants’ Motion to Dismiss Plaintiff’s
Amended Class Action Complaint (Doc. 16) is granted.
IT IS FURTHER ORDERED that the Clerk enter judgment dismissing this action
with prejudice for failure to state a claim upon which relief can be granted.

9

The Clerk shall terminate this case.

10

Dated this 31st day of March, 2016.

11
12

Neil V. Wake
United States District Judge

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