Clark v. Equity One Incorporated et al

Filing 23

ORDER granting 11 Motion to with Dismiss. Petitioners request to file an amended complaint adding a claim for wrongful foreclosure is procedurally improper and substantively unsupported. The Clerk of the Court is instructed to enter judgment accordingly and close this case. Signed by Magistrate Judge Leslie A Bowman on 7/2/14.(SMBE)

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UNITED STATES DISTRICT COURT

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DISTRICT OF ARIZONA

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Michelle Clark, an individual,

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Plaintiff,
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v.
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Equity One, Inc; et al.,
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Defendants.
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CIV 13-1199 TUC LAB
ORDER

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Pending before the court is a motion to dismiss filed by the defendants Aurora

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Commercial Corp., Lehman ABS Corporation, and Mortgage Electronic Registration Systems,

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Inc. (Doc. 11)

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The plaintiff in this action, Michelle Clark, borrowed money from the defendant Equity

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One, Inc. to purchase residential property. She subsequently defaulted, and the property was

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sold at a non-judicial foreclosure trustee’s sale. In the pending action, Clark claims that none

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of the defendants had “standing” to foreclose and she was fraudulently induced to borrow the

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money in the first place. In the pending motion, the defendants move that the complaint be

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dismissed with prejudice pursuant to Fed.R.Civ.P. 8, 9(b), and 12(b)(6).

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The Magistrate Judge presides over this case pursuant to 28 U.S.C. § 636(c) having

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received the written consent of all appearing parties. See FED.R.CIV.P. 73; (Docs. 10, 21). The

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court finds the motion suitable for decision without oral argument. See Fed.R.Civ.P. 78(b).

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Background

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On November 21, 2003, Clark borrowed $181,440 from Equity One to buy residential

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property. (Doc. 11, p. 3) She executed a promissory note in favor of the lender and a deed of

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trust securing the note. The deed of trust named Commonwealth Land Title Insurance Co. as

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the trustee. The defendant Mortgage Electronic Registration Systems, Inc. (MERS) was named

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the beneficiary and the nominee for the lender. Id.

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The deed of trust explained that MERS held legal title to the interests granted by the

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borrower to the lender. (Doc. 11, pp. 3-4) Accordingly, MERS had the right to foreclose and

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sell the property in the event of default. Id. The deed further explained that the note or interest

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in the note could be sold without notice to the borrower. (Doc. 11, p. 4)

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MERS is a private electronic database that tracks the transfer of the beneficial interest

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in a loan and any changes in the loan servicer. See Cervantes v. Countrywide Home Loans Inc.,

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656 F.3d 1034, 1038-39 (9th Cir. 2011). MERS facilitates the financial industry’s practice of

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selling the notes, “bundling” them, and creating mortgage-backed securities for sale to third

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parties. Id. Before MERS, every time the note was sold, the new owner would have to record

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the transfer of the deed with the county recorder’s office. Id. After MERS, this recording chore

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was eliminated because the nominal deed holder stayed the same no matter how many times the

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note was sold or assigned. Id.

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MERS subsequently substituted Cal-Western Reconveyance Corporation (Cal-Western)

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as the trustee. (Doc. 11, p. 4) MERS also assigned the beneficial interest in the deed of trust

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to Aurora Loan Services LLC, which in turn conveyed that interest to Nationstar Mortgage

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LLC. Id.

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Clark defaulted on her loan, and on February 15, 2013, Cal-Western gave notice of a

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trustee sale to be held on May 24, 2013. Id. The notice of sale was recorded on February 19,

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2013. Id.

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The property was sold at the trustee’s sale in a non-judicial foreclosure. (Doc. 11, p. 4)
The deed was recorded on July 15, 2013. Id.
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On August 6, 2013, shortly after the sale, Clark filed the pending action in Pima County

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Superior Court. (Doc. 1-2, p. 5) Her complaint is divided into four claims: Lack of Standing

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to Foreclose, Fraud in Concealment, Fraud in Inducement, and Declaratory Relief. (Doc. 1-2,

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pp. 20-28)

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Also included within the complaint is a request for injunctive relief. (Doc. 1-2, p. 28)

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Clark argues she is entitled to relief because she can establish “(A) a strong likelihood of

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success on the merits; (B) the possibility of irreparable injury not remediable by damages; (C)

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a balance of hardships in [her] favor; and (D) public policy favoring the requested relief.” Id.

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On September 20, 2013, the action was removed to this court by the defendant Aurora

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Commercial Corp. based on diversity jurisdiction. (Doc. 1, p. 1) Clark was evicted on

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November 4, 2013. (Doc. 11, p. 4)

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The defendants Aurora Commercial Corp., Lehman ABS Corporation, and Mortgage

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Electronic Registration Systems, Inc. filed the pending motion on December 19, 2013. (Doc.

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11) They move that this court dismiss the complaint with prejudice pursuant to Fed.R.Civ.P. 8,

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9(b), and 12(b)(6). Id.

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Standard of Review

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“A Rule 12(b)(6) motion tests the legal sufficiency of the claim.” Cook v. Brewer, 637

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F.3d 1002, 1004 (9th Cir. 2011). The claim must allege a legally cognizable theory of relief and

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include factual allegations sufficient to support that theory. Hinds Investments, L.P. v. Angioli,

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654 F.3d 846, 850 (9th Cir. 2011).

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To survive the motion to dismiss, “[f]actual allegations must be enough to raise a right

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to relief above the speculative level . . . on the assumption that all the allegations in the

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complaint are true even if doubtful in fact.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555,

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127 S.Ct. 1955, 1965 (2007) (internal punctuation omitted). “[A] well-pleaded complaint may

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proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that

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a recovery is very remote and unlikely.” Id. at 556, 1965 (internal punctuation omitted).

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Discussion

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In Count 1, Clark claims the defendants lack standing to foreclose because they cannot

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prove they have a beneficial interest in the note. Moreover, she argues MERS does not have

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the authority to act as the lender’s agent and is merely a sham beneficiary. In Count 4, she

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reiterates her objections to the trustee sale and moves that this court award the property to her.

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Clark’s objection to the propriety of the sale, however, comes too late.

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Pursuant to A.R.S. § 33-811(C), “[t]he trustor . . . shall waive all defenses and objections

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to the sale not raised in an action that results in the issuance of a court order granting relief

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pursuant to rule 65, Arizona rules of civil procedure, entered before 5:00 p.m. mountain

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standard time on the last business day before the scheduled date of the sale.” (emphasis added)

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Clark’s action was filed after the sale had already occurred. She has waived any objection to

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the propriety of the sale. See BT Capital, LLC v. TD Service Co. of Arizona, 229 Ariz. 299, 301,

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275 P.3d 598, 600 (2012) (“Where, as here, a trustee’s sale is completed, a person subject to

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§ 33–811(C) cannot later challenge the sale based on pre-sale defenses or objections.”). Counts

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1 and 4 are precluded by the waiver provision of A.R.S. § 33-811(C).

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The waiver provision, however, does not affect Counts 2 and 3 because they do not

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depend on the validity of the sale. See Custom Homes By Via LLC v. Bank of Oklahoma, 2013

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WL 5783400, 5 (D.Ariz.2013).

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In Count 2, Clark claims the “[d]efendants concealed the fact that the Loans were

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securitized as well as the terms of the Securitization Agreements . . . .” (Doc. 1-2, p. 24) In

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Count 3, she claims the defendants intentionally misrepresented to her that they are the “holder

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and owner” of the note and that they have the authority to foreclose on the property. Had she

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not been so mislead, she would not have borrowed the money in the first place.

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These are both claims for fraud. Accordingly, they must be constructed in accordance

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with Fed.R.Civ.P. 9, which states that “circumstances constituting fraud” must be stated with

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“particularity.” In other words, “the pleader must state the time, place, and specific content of

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the false representations as well as the identities of the parties to the misrepresentation.”

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Schreiber Distributing Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1401 (9th Cir.

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1986). Clark did not do that. Accordingly, the claims should be dismissed.

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The court finds in the alternative that these claims are barred by the three-year statute of

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limitations for fraud. A.R.S. § 12-543(3). The alleged misrepresentations were made in 2003

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when the money was borrowed. Clark filed her complaint in 2013, almost ten years later. Clark

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offers no argument to the contrary in her response. (Doc. 13) Accordingly, the court concludes

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these claims must be dismissed.

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The court further notes that the nature of these two claims makes them particularly

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problematic. In Count 3, Clark alleges the defendants intentionally misrepresented to her that

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they are the “holder and owner” of the note and that they have the authority to foreclose on the

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property. This was not a misrepresentation. The defendants did have the authority to foreclose.

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As the deed of trust specifically states, “MERS holds . . . legal title to the interests granted by

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the Borrower” and has “the right to foreclose and sell the property.” (Doc. 11-1, p. 8) This is

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a true statement of how MERS operates. See Cervantes v. Countrywide Home Loans Inc., 656

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F.3d 1034, 1038-39 (9th Cir. 2011); see also Hogan v. Washington Mut. Bank, N.A., 230 Ariz.

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584, 585, 277 P.3d 781, 782 (2012) (“Arizona’s non-judicial foreclosure statutes do not require

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the beneficiary to prove its authority or ‘show the note’ before the trustee may commence a

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non-judicial foreclosure.”). A true statement cannot support an action for fraud. See Meritage

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Homes Corp. v. Hancock, 522 F.Supp.2d 1203, 1219 (D.Ariz. 2007) (“A true statement cannot

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form the basis for a fraudulent inducement claim. . . .”).

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In Count 2, Clark claims the “[d]efendants concealed the fact that the Loans were

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securitized as well as the terms of the Securitization Agreements . . . .” (Doc. 1-2, p. 24) She

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further argues she reasonably relied on the defendants’ misrepresentations to her detriment. Id.

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Presumably this securitizing occurred after the loan was made, sold, and bundled, so it

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is difficult to see how the defendants could have concealed what had not yet occurred. In the

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alternative, Clark might be claiming that the defendants concealed their intentions to sell the

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note some time in the future. This theory of the case, however, fails to account for the statement

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in the deed of trust warning Clark of this very possibility. The deed of trust explicitly states that

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the “Note or a partial interest in the Note (together with [the deed of trust]) [could] be sold one

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or more times without prior notice to Borrower.” (Doc. 11-1, p. 16, ¶ 20) It is difficult to see

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how Clark could have reasonably relied on the defendants’ alleged misrepresentation in light

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of this explicit notice to the contrary.

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Embedded within the complaint is a request for injunctive relief. (Doc. 1-2, p. 28) Clark

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argues she is entitled to relief because she can establish “(A) a strong likelihood of success on

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the merits; (B) the possibility of irreparable injury not remediable by damages; (C) a balance

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of hardships in [her] favor; and (D) public policy favoring the requested relief.” Id. Clark,

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however, has not established “a strong likelihood of success on the merits” on any of her claims.

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In fact, she has not alleged any claims that will survive the pending motion to dismiss.

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Injunctive relief will not be granted. See Henkels v. J.P. Morgan Chase, 2011 WL 2357874,

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7 (D.Ariz. 2011) (“Plaintiff must base his requests for injunctive and declaratory relief on a

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cognizable legal theory.”).

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In her response to the pending motion, Clark requests permission to amend the complaint

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to add a claim for wrongful foreclosure. Her request, however, is procedurally improper

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because she fails to comply with the Local Rules, which require a movant seeking to amend to

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submit a copy of the proposed amended pleading for the court’s inspection. LRCiv. 15.1. The

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defendants noticed this oversight in their reply brief, but Clark has made no attempt to correct

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her error.

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Moreover, wrongful foreclosure is not a cause of action currently recognized by the

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Arizona state courts. Cervantes v. Countrywide Home Loans Inc., 656 F.3d 1034, 1042-43 (9th

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Cir. 2011). There have been a few instances where a federal district court has permitted a

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wrongful foreclosure action to proceed on the assumption that Arizona might recognize that

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cause of action, but in those cases cited by Clark, the action was premised on the theory that the

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foreclosure was wrongful because the plaintiff was not in default. Id. Clark makes no such

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allegation here. Accordingly, even if this court were to permit a wrongful foreclosure claim,

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Clark fails to allege a factual basis to support such a claim. See In re Mortgage Eletronic

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Registration Systems, Inc., __ F.3d.__, 2014 WL 2611314, *9 (9th Cir. 2014) (“But even if we

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were to assume that the tort of wrongful foreclosure exists in Arizona, one of its elements would

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very likely be lack of default or tender to cure the default . . . .”). Accordingly,

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IT IS ORDERED that the motion to dismiss filed by the defendants Aurora Commercial

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Corp., Lehman ABS Corporation, and Mortgage Electronic Registration Systems, Inc. is

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GRANTED. (Doc. 11) Clark’s request to file an amended complaint adding a claim for

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wrongful foreclosure is “procedurally improper and substantively unsupported.” Cervantes v.

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Countrywide Home Loans Inc., 656 F.3d 1034, 1043 (9th Cir. 2011). The Clerk of the Court is

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instructed to enter judgment accordingly and close this case.

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DATED this 2nd day of July, 2014.

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