Hard v. Bank of New York Mellon et al

Filing 46

ORDER signed by District Judge Troy L. Nunley on 4/9/18 GRANTING 34 Motion to Dismiss Plaintiff's Sixth Cause of Action for Wrongful Foreclosure: Defendants are afforded twenty-one (21) days from entry of this Order to answer the SAC. (Kaminski, H)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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KEITH HARD,

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Plaintiff,

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No. 2:14-cv-01948-TLN-CMK

v.

ORDER

BANK OF NEW YORK MELLON, AS
TRUSTEE OF FIRST HORIZAON
ALTERNATIVE MORTGAGE
SECRURITIES TRUST 2006-FA7
MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 2006-FA7;
FIRST HORIZON HOME LOAN
CORPORATION; and DOES 1 through
50, inclusive,

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ORDER GRANTING DEFENDANTS’
MOTION TO DISMISS PORTIONS OF
PLAINITFF’S SECOND AMENDED
COMPLAINT

Defendants.

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This matter is before the Court pursuant to Bank of New York Mellon, as Trustee of First

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Horizon Alternative Mortgage Securities Trust (“BNY Mellon”), and First Horizon Home Loan

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Corporation’s (“Horizon”) (collectively, “Defendants”)1 Motion to Dismiss Portions of Second

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Amended Complaint. (Mot. to Dismiss Second Am. Compl., ECF Nos. 34.) Plaintiff Keith Hard

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(“Plaintiff”) opposes the Motion. (Opp’n, ECF No. 37.) For the reasons set forth below,

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Defendants’ Motion to Dismiss Portions of Second Amended Complaint is GRANTED.

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Defendants contend they were sued under erroneous names. For clarity, the Court will denote the
Defendants as those listed in the Second Amended Complaint.

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I.

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The facts of this case were addressed in great detail in this Court’s prior Order and are

FACTUAL BACKGROUND

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incorporated herein by reference. (See Order, ECF No. 31.) Therefore, the Court provides below

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only the factual allegations relevant to the current motion.
The Second Amended Complaint (“SAC”) alleges the following. Around December 13,

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2005, Plaintiff obtained a residential mortgage loan for the property located at 4211 Leftout Lane,

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Chico, California 95973 (“Subject Property”). (Second Am. Compl., ECF No. 32 ¶ 2.) On

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March 2, 2010, Defendants attempted to transfer Plaintiff’s Deed of Trust on the Subject Property

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to a securitized trust (“Trust”) “that alleges to own all of the beneficial interest in [Plaintiff’s]

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Deed of Trust.”2 (ECF No. 32 ¶¶ 4, 20.) Pursuant to the terms of the Trust’s pooling and

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servicing agreement (“PSA”), the Trust’s closing date was October 30, 2006. (ECF No. 32 ¶ 17.)

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Under the PSA and under New York law, which governs the Trust, each loan was required to be

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transferred into the Trust within 90 days of the closing date. (ECF No. 32 ¶¶ 17–18.)

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On September 12, 2011, the Subject Property was sold at a foreclosure sale. (ECF No. 32

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¶ 32.) However, Plaintiff alleges that because Defendants’ transfer of Plaintiff’s Deed of Trust

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occurred years after the closing date of the Trust, it violates both the PSA and New York law, and

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is thus void. (ECF No. 32 ¶¶ 20–21, 77–78.) Therefore, Plaintiff alleges that Defendants never

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possessed the right to enforce the terms of Plaintiff’s Deed of Trust and wrongfully foreclosed on

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the Subject Property. (ECF No. 32 ¶ 21.)

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II.

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On July 16, 2014, Plaintiff filed a Complaint in the Superior Court of California in Butte

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County. (ECF No. 1-1 at 2.) On August 21, 2014, Defendants filed a Notice of Removal to this

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Court. (ECF No. 1.) Thereafter, on August 28, 2014, Defendants filed a Motion to Dismiss

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Plaintiff’s Complaint. (ECF No. 6.) On March 5, 2015, Plaintiff requested leave to file an

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amended complaint (ECF No. 16), and the Court granted his request on March 26, 2015, (ECF

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No. 20). Plaintiff filed a First Amended Complaint (“FAC”) on March 31, 2015 (ECF No. 21),

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PROCEDURAL HISTORY

The SAC alleges that BNY Mellon is the purported trustee of the Trust. (ECF No. 32 ¶ 3.) Horizon was the
purported Master Servicer of Plaintiff’s loan, as appointed by the Trust. (ECF No. 32 ¶ 5.) For clarity, the Court will
refer to activity by BNY Mellon or Horizon solely as activity by Defendants.

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and on April 24, 2015, Defendants filed a Motion to Dismiss the entire FAC, (ECF No. 22). On

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May 4, 2016, the Court granted in part and denied in part Defendants’ Motion to Dismiss with

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leave to amend. (ECF No. 31.) The Court granted Defendants’ Motion to Dismiss with leave to

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amend as to the following claims: Third Cause of Action for Breach of the Implied Covenant of

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Good Faith and Fair Dealing pursuant to tort; Sixth Cause of Action for Intentional Infliction of

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Emotional Distress; Seventh Cause of Action for Negligence; and Eighth Cause of Action for

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Wrongful Foreclosure. (ECF No. 31 at 21.) On June 3, 2016, Plaintiff filed the SAC (ECF No.

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32), and on July 8, 2016, Defendants filed the instant Motion to Dismiss, (ECF No. 34).

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III.

STANDARD OF LAW

A motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure

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12(b)(6) tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir.

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2001). Federal Rule of Civil Procedure 8(a) requires that a pleading contain “a short and plain

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statement of the claim showing that the pleader is entitled to relief.” See Ashcroft v. Iqbal, 556

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U.S. 662, 678–79 (2009). Under notice pleading in federal court, the complaint must “give the

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defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atlantic

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v. Twombly, 550 U.S. 544, 555 (2007). “This simplified notice pleading standard relies on liberal

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discovery rules and summary judgment motions to define disputed facts and issues and to dispose

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of unmeritorious claims.” Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002).

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On a motion to dismiss, the factual allegations of the complaint must be accepted

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as true. Cruz v. Beto, 405 U.S. 319, 322 (1972). A court is bound to give plaintiff the benefit of

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every reasonable inference to be drawn from the “well-pleaded” allegations of the complaint.

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Retail Clerks Int’l Ass’n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). A plaintiff need not

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allege “‘specific facts’ beyond those necessary to state his claim and the grounds showing

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entitlement to relief.” Twombly, 550 U.S. at 570. “A claim has facial plausibility when the

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plaintiff pleads factual content that allows the court to draw the reasonable inference that the

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defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S.

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544, 556 (2007)).

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Nevertheless, a court “need not assume the truth of legal conclusions cast in the
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form of factual allegations.” United States ex rel. Chunie v. RingrosHee, 788 F.2d 638, 643 n.2

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(9th Cir. 1986). While Rule 8(a) does not require detailed factual allegations, “it demands more

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than an unadorned, the defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. A

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pleading is insufficient if it offers mere “labels and conclusions” or “a formulaic recitation of the

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elements of a cause of action.” Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 678

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(“Threadbare recitals of the elements of a cause of action, supported by mere conclusory

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statements, do not suffice.”). Moreover, it is inappropriate to assume that the plaintiff “can prove

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facts that it has not alleged or that the defendants have violated the . . . laws in ways that have not

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been alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459

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U.S. 519, 526 (1983).
Ultimately, a court may not dismiss a complaint in which the plaintiff has alleged

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“enough facts to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 697

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(quoting Twombly, 550 U.S. at 570). Only where a plaintiff fails to “nudge[] [his or her] claims .

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. . across the line from conceivable to plausible,” is the complaint properly dismissed. Id. at 680.

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While the plausibility requirement is not akin to a probability requirement, it demands more than

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“a sheer possibility that a defendant has acted unlawfully.” Id. at 678. This plausibility inquiry is

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“a context-specific task that requires the reviewing court to draw on its judicial experience and

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common sense.” Id. at 679.

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If a complaint fails to state a plausible claim, “[a] district court should grant leave to

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amend even if no request to amend the pleading was made, unless it determines that the pleading

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could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130

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(9th Cir. 2000) (en banc) (quoting Doe v. United States, 58 F.3d 484, 497 (9th Cir. 1995)); see

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also Gardner v. Marino, 563 F.3d 981, 990 (9th Cir. 2009) (finding no abuse of discretion in

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denying leave to amend when amendment would be futile). Although a district court should

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freely give leave to amend when justice so requires under Federal Rule of Civil Procedure

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15(a)(2), “the court’s discretion to deny such leave is ‘particularly broad’ where the plaintiff has

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previously amended its complaint.” Ecological Rights Found. v. Pac. Gas & Elec. Co., 713 F.3d

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502, 520 (9th Cir. 2013) (quoting Miller v. Yokohama Tire Corp., 358 F.3d 616, 622 (9th Cir.
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2004)).

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IV.

ANALYSIS

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Plaintiff asserts the following claims against Defendant: (1) Breach of Written Contract;

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(2) Promissory Estoppel; (3) Breach of the Implied Covenant of Good Faith and Fair Dealing; (4)

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Fraud – False Promise; (5) Unlawful Business Practices; and (6) Wrongful Foreclosure.

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Defendants move to dismiss Plaintiff’s Sixth Cause of Action for Wrongful Foreclosure on the

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basis that Plaintiff lacks standing. (ECF No. 35 at 4.) Defendants contend that Plaintiff lacks

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standing to assert a cause of action for wrongful foreclosure because the assignment of Plaintiff’s

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Deed of Trust to the Trust is voidable, rather than void. (ECF No. 35 at 4–5.) Plaintiff argues

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that the assignment is void, and therefore Plaintiff has properly asserted a claim for wrongful

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foreclosure. (ECF No. 37 at 9.)

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“Wrongful foreclosure is an action in equity where a plaintiff seeks to set aside a

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foreclosure sale.” Lane v. Vitek Real Estate Industries Group, 713 F. Supp. 2d 1092, 1097 (E.D.

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Cal. 2010). “A trustee or mortgagee may be liable to the trustor or mortgagor for damages

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sustained where there has been an illegal, fraudulent, or willfully oppressive sale of property

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under the power of sale contained in the mortgage or deed of trust.” Munger v. Moore, 11 Cal.

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App. 3d 1, 7 (1970); see also Alvarado v. Bank of America, N.A., No. CV F 12–2078 LJO GSA,

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2013 WL 28584, at *9 (E.D. Cal. 2013). Under California law, “a borrower [has] standing to

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challenge an assignment of her note and deed of trust on the basis of defects allegedly rendering

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the assignment void.” Morgan v. Aurora Loan Services, LLC, No. 14–55203, 2016 WL

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1179733, at *2 (9th Cir. March 28th, 2016) (citing Yvanova v. New Century Mortg. Corp., 62

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Cal. 4th 919, 931 (2016)).

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However, a borrower does not have standing to challenge defects in trust assignments

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that are merely voidable. Morgan, No. 14–55203 at *3; Yvanova, 62 Cal. 4th at 939. As the

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California Supreme Court stated, “[w]hen an assignment is merely voidable, the power to ratify

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or avoid the transaction lies solely with the parties to the assignment” and consequently, a

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plaintiff who sets forth a claim on defects within the assignment that render it voidable is

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attempting to “assert an interest belonging solely to the parties to the assignment rather than to
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herself.” Id. at 936; see also Lundy v. Selene Finance, LP, Case No. 15-cv-05676-JST, 2016 WL

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1059423, at *9 (N.D. Cal. March, 17, 2016).

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Plaintiff alleges that on March 2, 2010, Defendants attempted to transfer Plaintiff’s Deed

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of Trust on the Subject Property to the Trust. (ECF No. 32 ¶ 20.) Plaintiff alleges that this

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assignment is void, and therefore Defendants did not own the Deed of Trust to the Subject

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Property and had no legal right to foreclose upon the Subject Property. (ECF No. 32 ¶ 21.)

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Plaintiff argues that the assignment is void for two reasons. First, Plaintiff argues that the

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purported assignment is contrary to the requirements of the PSA and consequently invalid. (ECF

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No. 37 at 4–8.) Second, Plaintiff alleges that the Trust is a Real Estate Mortgage Investment

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Conduit (“REMIC”), and the Internal Revenue Code requires “that a REMIC maintains its loan

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pool with loans received not later than 90 days of its creation.” (ECF No. 37 at 1–4.) Thus,

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Plaintiff argues that because the purported assignment was “made well after the 90-day period set

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forth by the Internal Revenue Code,” it is a “prohibited transaction” under 26 U.S.C. 860, et seq.,

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and thus, is void. (ECF No. 32 ¶ 78; ECF No. 37 at 2–3.) The Court will discuss each in

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argument in turn.

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First, Plaintiff argues that Defendants’ assignment after the 90-day period was in

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violation of the Trust, and that a violation of the Trust renders the assignment void. (ECF No. 37

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at 4–8.) As discussed in detail in its previous order, this Court held that Defendants’ alleged

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violation of the Trust creates a voidable, rather than a void assignment. (ECF No. 31 at 20–21.)

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Thus, the fact that Defendants’ actions may have violated the Trust does not render the

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assignment void.

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Second, Plaintiff advances a new argument, contending that the late assignment is void

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because the purported late assignment is a “prohibited transaction” under the Internal Revenue

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Code. (ECF No. 32 ¶ 78; ECF No. 37 at 2–3.) Plaintiff argues that courts have failed to

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“analyze the effect of an external impetus – such as the Internal Revenue Code – that expressly

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prohibits and penalizes specific transactions with respect to a REMIC.” (ECF No. 37 at 2.)

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Because these transactions allegedly violate the Internal Revenue Code, Plaintiff argues that “a

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REMIC’s certificate holders should have no power to ratify [the assignment] and thus it is void
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and not voidable.” (ECF No. 37 at 3.) This argument lacks merit.
“The tax implications of securitization simply do not render a voidable transaction void.”

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Mendoza v. JPMorgan Chase Bank, N.A., 6 Cal. App. 5th 802, 818 (2016). Moreover, Plaintiff

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provides no authority for his argument that potential tax implications would somehow void

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Defendants’ assignment. Indeed, courts have explicitly rejected “the notion that an untimely

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transfer to a REMIC automatically voids the transaction.” Id. (“[W]e do not believe that losing

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favorable tax treatment renders a transaction void as a matter of law.”); see Williams v. GMAC

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Mortg., Inc., No. 13 CIV. 4315 (JPO), 2014 WL 2560605, at *4 (S.D.N.Y. June 6, 2014)

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(“While transferring a note to the REMIC might have negative tax consequences for the REMIC

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investors, Plaintiffs have not argued any reason why such a transfer would be ‘meaningless and

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legally unenforceable.’”); Elliott v. Mortg. Elec. Registration Sys., No. 12-CV-4370 YGR, 2013

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U.S. 2013 WL 1820904, at *3 (N.D. Cal. Apr. 30, 2013) (“[T]he alleged breach seems to affect

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only the trust’s ability to claim a certain tax status, a matter wholly irrelevant to Plaintiffs'

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claims.”). Accordingly, the Court concludes that Plaintiff has failed to allege facts

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demonstrating that the assignment was void, and thus, lacks standing to bring a wrongful

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foreclosure claim.

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Therefore, Defendants’ Motion to Dismiss Plaintiff’s Sixth Cause of Action is
GRANTED without leave to amend.

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V.

CONCLUSION

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For the foregoing reasons, the Court hereby GRANTS Defendants’ Motion to Dismiss

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Plaintiff’s Sixth Cause of Action for Wrongful Foreclosure. Defendants are afforded twenty-one

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(21) days from entry of this Order to answer the SAC.

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IT IS SO ORDERED.

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Dated: April 9, 2018

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Troy L. Nunley
United States District Judge

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