Koenig v. Bank of America, N.A.

Filing 81

ORDER RE: Motion to Dismiss 68 , signed by District Judge Anthony W. Ishii on 3/18/16. (CASE CLOSED)(Hellings, J)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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PHILIP KOENIG,

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CASE NO. 1:13-CV-0693 AWI BAM
Plaintif

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v.

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ORDER RE: MOTION TO DISMISS

BANK OF AMERICA, N.A.,

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Defendant

(Doc. 68)

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I. Background
Plaintiff Philip Koenig (“Plaintiff”) and his wife owned and were domiciled at the property

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located at 8772 North Chickadee Lane, Clovis, CA, 93619 (“Property”), which they purchased in

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2007. Doc. 67, ¶84. A Deed of Trust (“DOT”) was recorded with the Fresno County Recorder on

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April 13, 2007. Doc. 5-1, Ex. A. Plaintiff and his wife are identified as “Borrower” and are the

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trustors under the DOT; American Brokers Conduit is identified as “Lender”; First American Title

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is identified as “Trustee”; Mortgage Electronic Registration Systems, Inc. (“MERS”) is identified

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as “a nominee for Lender” and “beneficiary under this Security Instrument”. Doc. 5-1, Ex. A. The

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Federal Home Loan Mortgage Corporation (“Freddie Mac”) acquired the loan on May 17, 2007.

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Doc. 45, Ex. B. Defendant Bank of America (“Defendant”) is the servicer of the loan on behalf of

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Freddie Mac. Doc. 45, Ex. D. MERS recorded on February 29, 2012 an assignment all beneficial

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interest under the DOT to Defendant. Doc. 5-1, Ex. B. Defendant recorded on February 19, 2013

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a substitution of Quality Loan Service Corporation (“Quality”) as Trustee in place of First

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American Title. Doc. 5-1, Ex. C. Quality then recorded a Notice of Default and Election to Sell

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Under Deed of Trust on March 5, 2013, after Plaintiff fell behind on mortgage payments. Doc. 5-

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1, Ex. D. It does not appear that the foreclosure was ever completed.

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Plaintiff sued Defendant alleging causes of action based on declaratory relief, the Fair Debt

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Collection Practices Act (“FDCPA”), and the Racketeer Influenced and Corrupt Organizations Act

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(“RICO”). Doc. 1. Defendant filed the first motion to dismiss. Doc. 5. Plaintiff opposed the

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motion. Doc. 10. The FDCPA cause of action was dismissed with prejudice while the declaratory

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relief and RICO causes of action were dismissed with leave to amend. Doc. 24. Plaintiff sought

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reconsideration of this order, objecting to the court’s taking judicial notice of certain documents.

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Doc. 26. That motion was denied. Doc. 34. Plaintiff then made a motion for leave to add parties

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and additional causes of action, filing a proposed amended complaint. Docs. 45 and 46. Plaintiff’s

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motion was denied in part due to the fact that Plaintiff had not yet resolved the factual deficiencies

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that lead to the grant of the original motion to dismiss; Plaintiff was granted another opportunity to

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amend. Doc. 54. The operative pleading is the First Amended Complaint. Doc. 67. Plaintiff

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asserts two causes of action based on declaratory relief and RICO. Defendant has made a second

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motion to dismiss. Doc. 68. Plaintiff opposes the motion. Doc. 74.

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II. Legal Standard

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Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the

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plaintiff’s “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). A

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dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the

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absence of sufficient facts alleged under a cognizable legal theory. Conservation Force v. Salazar,

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646 F.3d 1240, 1242 (9th Cir. 2011); Johnson v. Riverside Healthcare Sys., 534 F.3d 1116, 1121

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(9th Cir. 2008). In reviewing a complaint under Rule 12(b)(6), all allegations of material fact are

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taken as true and construed in the light most favorable to the non-moving party. Faulkner v. ADT

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Sec. Servs., 706 F.3d 1017, 1019 (9th Cir. 2013). However, complaints that offer no more than

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“labels and conclusions” or “a formulaic recitation of the elements of action will not do.” Ashcroft

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v. Iqbal, 556 U.S. 662, 678 (2009). The Court is not required “to accept as true allegations that are

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merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Wilson v.

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Hewlett-Packard Co., 668 F.3d 1136, 1145 n. 4 (9th Cir. 2012); Sprewell v. Golden State
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Warriors, 266 F.3d 979, 988 (9th Cir. 2001). To avoid a Rule 12(b)(6) dismissal, “a complaint

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must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on

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its face. A claim has facial plausibility when the plaintiff pleads factual content that allows the

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court draw the reasonable inference that the defendant is liable for the misconduct alleged. The

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plausibility 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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009);

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Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). The Ninth Circuit has distilled the

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following principles from Iqbal and Twombly: (1) to be entitled to the presumption of truth,

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allegations in a complaint or counterclaim may not simply recite the elements of a cause of action,

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but must contain sufficient allegations of underlying facts to give fair notice and to enable the

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opposing party to defend itself effectively; (2) the factual allegations that are taken as true must

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plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to

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be subjected to the expense of discovery and continued litigation. Starr v. Baca, 652 F.3d 1202,

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1216 (9th Cir. 2011). In assessing a motion to dismiss, courts may consider documents attached to

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the complaint, documents incorporated by reference in the complaint, or matters of judicial notice.

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Dichter-Mad Family Partners. LLP v. United States, 709 F.3d 749, 761 (9th Cir. 2013). If a

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motion to dismiss is granted, “[the] district court should grant leave to amend even if no request to

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amend the pleading was made.” Henry A. v. Willden, 678 F.3d 991, 1005 (9th Cir. 2012).

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However, leave to amend need not be granted if amendment would be futile or if the plaintiff has

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failed to cure deficiencies despite repeated opportunities. Mueller v. Aulker, 700 F.3d 1180, 1191

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(9th Cir. 2012); Telesaurus VPC. LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 2010).

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III. Discussion
A. Declaratory Relief

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Plaintiff argues that he is entitled to declaratory relief on the basis of his claim that

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Defendant is wrongfully foreclosing on his property: “Defendant is not the owner or holder of any

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Note encumbering the Property; that Defendant has no secured interest in Plaintiff’s property; that

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Defendant was never a mortgagee, beneficiary or assignee of any mortgage or deed of trust
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encumbering Plaintiff’s property; and that Plaintiff has no legal relationship with Defendant.”

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Doc. at 36. Specifically, Plaintiff argues that Defendant was not a holder in due course due to (1)

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knowing that many borrowers could not afford their mortgages and (2) improper transfer of notes.

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Doc. 67, at 37-39. Plaintiff had raised these arguments in the original complaint, which was

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dismissed without prejudice.

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Regarding the first argument, the requirements for holder in due course status is set out in

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Cal. U. Com. Code § 3302 but that provision is not applicable to non judicial foreclosure. See

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Debrunner v. Deutsche Bank National Trust Co., 204 Cal. App. 4th 433, 440-41 (Cal. App. 6th

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Dist. 2012) (“reliance on the California Uniform Commercial Code provisions pertaining to

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negotiable instruments is misplaced. The comprehensive statutory framework established [in Cal

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Civ. Code §§ 2924 to 2924k] to govern nonjudicial foreclosure sales is intended to be exhaustive.

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Because of the exhaustive nature of this scheme, California appellate courts have refused to read

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any additional requirements into the non-judicial foreclosure statute”) ; Chaoui v. Bank of Am.,

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N.A., 2013 Cal. App. Unpub. LEXIS 6879, *23 (Cal. App. 2d Dist. Sept. 26, 2013) (“California

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Uniform Commercial Code section 3302 defines the ‘holder in due course’ of a negotiable

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instrument, but Commercial Code provisions dealing with negotiable instruments do not apply to

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California’s comprehensive nonjudicial foreclosure scheme”); Usher v. Greenpoint Mortg.

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Funding, Inc., 2010 U.S. Dist. LEXIS 127311, *25 (E.D. Cal. Dec. 1, 2010) (“Plaintiff also alleges

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that the foreclosure proceedings brought against the subject property were unlawful because none

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of the defendants were the ‘holder in due course.’ Plaintiff's claim is frivolous”).

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The heart of Plaintiff’s allegations in this case involves his second argument, that through

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an improper transfer of notes, Defendant does not have the right to foreclose (or direct another

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party to foreclose) on the Property. Plaintiff makes a scattershot of allegations that various entities

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connected with his mortgage did not have the authority to take part in the issuance of mortgages or

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to transfer the interests therein. In the prior order dismissing the original complaint, it was

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determined that Plaintiff did not plead sufficient facts to state a cause of action based on this

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argument. Plaintiff objects that “the Court impermissibly took judicial notice of the truth of a

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number of factual representations made in the Deed of Trust, Assignment of Deed of Trust,
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Substitution of Trustee and Notice of Default and Election to Sell Under Deed of Trust. As a

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result, the Court concluded that Defendant was authorized to foreclose the property under the

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Deed of Trust.” Doc. 74, at 3. As explained before, courts may take judicial notice of the dates,

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parties, and legally operative language of these documents because they are “not subject to

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reasonable dispute.” Fed. R. Evid. 201(b); Permito v. Wells Fargo Bank, 2012 WL 1380322, *2

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(N.D. Cal. Apr. 20, 2012) (“The Court will take judicial notice of the dates, parties, and legally

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operative language of these documents”). Recorded deeds of trust and associated documents have

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automatic legal effect. For example, the statute governing substitution of trustees specifies, “Once

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the document required by this paragraph is recorded, it shall constitute conclusive evidence of

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compliance with the requirements of this paragraph in favor of substituted trustees acting pursuant

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to this section.” Cal. Civ. Code § 2934a(a)(2)(D). It is recognized that “Under California law, a

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substitution of trustee is effective from the time it is recorded.” Bello v. Chase Home Fin., LLC,

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622 Fed. Appx. 663 (9th Cir. 2015). It is this legally operative effect that the court takes judicial

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notice of. The chain of recorded documents provided gives Defendant the right to foreclose.

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Plaintiff asserts that these documents are not valid but raises only speculative objections.

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Conclusory allegations disputing the validity of documents properly recorded with a county

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recorder’s office are insufficient to state a claim when evaluated under the motion to dismiss

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standard. See Burnett v. Northwest Tr. Servs., 2015 U.S. Dist. LEXIS 16121, *5 (C.D. Cal. Feb. 9,

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2015).

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Plaintiff alleges “At all relevant times, MERS is ‘suspended’ in California, and is not

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authorized to assign a Deed of Trust to Bank of America, or otherwise to do business in

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California.” Doc. 67, at 2. Defendant points out that “a corporation’s past, unregistered business

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activities are ‘retroactively validated’ upon later, successful registration with the Secretary of

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State.” Adam v. Mortgage Elec. Registration Sys., Inc., 2011 WL 63651, *3 (C.D. Cal. Jan. 4,

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2011). Plaintiff admits that “The Secretary of State’s records show a ‘MORTGAGE

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ELECTRONIC REGISTRATION SYSTEMS, INC.’ currently active as #C3306164, which was

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filed on 07/21/2010.” Doc. 67, at 7. In other cases in which MERS’s suspension in California has

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been raised, courts have rejected it as a reason for voiding the assignment of a deed of trust. See
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Wallace v. Mortg. Elec. Registration Sys., 2012 U.S. Dist. LEXIS 3977, *5-7 (C.D. Cal. Jan. 11,

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2012); Bever v. CitiMortgage, Inc., 2014 U.S. Dist. LEXIS 54390, *47-48 (E.D. Cal. Apr. 17,

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2014).

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Plaintiff also alleges that “The loan was sold to Freddie Mac (on May 17, 2007) before

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MERS assigned it to Bank of America (on February 27, 2012). Therefore, MERS attempted to

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assign to Bank of America a loan that its principal (American Brokers Conduit) did not own” and

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“MERS is not a beneficiary and does not have the ability to transfer the beneficial interest in a

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promissory note without more agency in this capacity than being named as a nominee on a deed of

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trust.” Doc. 67, at 2 and 11. The DOT on the Property states “The beneficiary of this Security

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Instrument is MERS (solely as nominee for Lender and Lender’s successors and assigns) and the

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successors and assigns of MERS.” Doc. 5-1, Ex. A. Being a nominee for the lender is no bar to

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exercising all rights and duties of a beneficiary. See Lane v. Vitek Real Estate Indus. Group, 713

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F. Supp. 2d 1092, 1099 (E.D. Cal. 2010) (“MERS has standing to foreclose as the nominee for the

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lender and beneficiary of the Deed of Trust and may assign its beneficial interest to another

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party”). MERS is also the beneficiary/nominee for any successors or assignees of American

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Brokers Conduit. “[A] trustor who agreed under the terms of the deed of trust that MERS, as the

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lender’s nominee, has the authority to exercise all of the rights and interests of the lender,

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including the right to foreclose, is precluded from maintaining a cause of action based on the

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allegation that MERS has no authority to exercise those rights.” Siliga v. Mortgage Electronic

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Registration Systems, Inc., 219 Cal. App. 4th 75, 83 (Cal. App. 2d Dist. 2013), overruled on other

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grounds at Yvanova v. New Century Mortgage Corp., 2016 Cal. LEXIS 956, *37 n.13 (Cal. Feb.

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18, 2016).

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Regarding the assignment from MERS to Defendant, Plaintiff states “124. The Assignment

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was purportedly signed by Swarupa Slee as Vice-President of MERS (but NOT as Nominee for

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any party). 125. (*) Swarupa Slee is not Vice-President of MERS. 126. (*) Swarupa Slee did not

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have authority to sign the Assignment of Deed of Trust.” Doc. 67, at 21. Plaintiff explains that in

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his complaint, “Paragraphs marked (*) are ‘specifically so identified’ under Rule 11, and will

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likely have evidentiary support after a reasonable opportunity for further investigation or
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discovery.” Doc. 67, at 4. Thus, the court must conclude that Plaintiff has no factual basis for his

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assertion that Swarupa Slee was not an agent of MERS. Again, the court takes judicial notice of

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the assignment of the DOT (duly filed with the Fresno Country Recorder). Plaintiff’s purely

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speculative assertions about lack of authority are insufficient to state a claim. See Cerecedes v.

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U.S. Bankcorp, 2011 U.S. Dist. LEXIS 75559, *15 (C.D. Cal. July 11, 2011) (“Rule 9(b) and

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Twombly require plaintiffs to set forth more than bare allegations of ‘robo-signing’ without any

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other factual support”); Burnett v. Northwest Tr. Servs., 2015 U.S. Dist. LEXIS 16121, *5 (C.D.

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Cal. Feb. 9, 2015).

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Plaintiff alleges “181. Quality Loan Service Corporation falsely claims to be Trustee under

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a Deed of Trust encumbering the Property, as a result of a substitution of Trustee recorded on

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February 9, 2013 as 2013-0025900, purportedly signed Jan 18 2013.... 182. The Substitution is

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purportedly signed by ‘BANK OF AMERICA, N.A. [NOT ‘as successor’] by Quality Loan

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Service Corporation as its attorney in fact, BY Tim Bargenquast, Assistant Vice President’ and

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notarized by Michele A. Kittinger. 183. (*) Tim Bargenquast did not have authority to sign the

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Substitution.” Doc. 67, at 30-31. As with the allegation concerning Swarupa Slee above, Plaintiff

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does not have any factual support for the statement that Tim Bargenquast did not have authority to

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sign the substitution of trustee. Plaintiff has not provided enough to state a claim.

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Plaintiff has already been given two opportunities to amend his complaint. At this point,
the court concludes that amendment is futile and dismissal with prejudice is appropriate.

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B. RICO
“A civil RICO claim requires allegations of the conduct of an enterprise through a pattern

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of racketeering activity that proximately caused injury to the plaintiff.” Swartz v. KPMG LLP, 476

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F.3d 756, 760-61 (9th Cir. 2007). Plaintiff alleges “a pattern of racketeering activity consisting of

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at least two acts of mail fraud and one act of wire fraud and a scheme to defraud homeowners and

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rental property owners” through “a pattern and practice of mailing false foreclosure letters (Notice

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of Default, Notice of Trustee Sale, requests for mortgage payments, etc.) to targeted homeowners

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and rental property owners, even though Defendant is not the owner or holders of any Note
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encumbering their properties” and “a pattern and practice of transmitting or causing to be

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transmitted to credit reporting agencies, by means of wire communication in interstate or foreign

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commerce, writings to the effect that the homeowners are past due on their mortgages.” Doc. 67,

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at 39-40 and 42. In other cases involving general statements that defendants had improperly

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enforced a deed of trust due to lack of authority or improper transfer, courts have found that these

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allegations were insufficient to constitute racketeering. See, e.g. Tjaden v. H.S.B.C. Bank USA

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N.A., 2015 U.S. Dist. LEXIS 49023, *16-17 (S.D. Cal. Apr. 14, 2015) (“Plaintiffs allege that

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Defendants mailed false monthly collection statements; recorded false assignments and notices of

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default, foreclosure, and trustee’s sale; falsely reported Plaintiffs’ late payments and default to

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credit agencies”); Pratap v. Wells Fargo Bank, N.A., 63 F. Supp. 3d 1101, 1114 (N.D. Cal. 2014);

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Engler v. ReconTrust Co., 2013 U.S. Dist. LEXIS 179950, *9 (C.D. Cal. Dec. 20, 2013);

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Simmons v. Aurora Bank, FSB, 2013 U.S. Dist. LEXIS 142917, *13-14 (N.D. Cal. Sept. 30,

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2013); Gilmore v. Am. Mortg. Network, Inc., 2012 U.S. Dist. LEXIS 176194, *32-34 (C.D. Cal.

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Dec. 10, 2012); Pedersen v. Greenpoint Mortgate Funding, Inc., 900 F. Supp. 2d 1071, 1082 (E.D.

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Cal. 2012). Plaintiff’s RICO claim is dismissed with prejudice.

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IV. Order
Defendant’s motion is GRANTED. Plaintiff’s claims are DISMISSED with prejudice.
The Clerk of the Court is directed to CLOSE this case.

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IT IS SO ORDERED.
Dated: March 18, 2016
SENIOR DISTRICT JUDGE

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