Patel et al v. U.S. Bank, N.A. et al

Filing 77

ORDER REGARDING DEFENDANTS MOTION FOR SUMMARY JUDGMENT. Signed by Magistrate Judge Sallie Kim on 7/27/2016. (mklS, COURT STAFF) (Filed on 7/27/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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ASVINI PATEL, et al.,

Case No. 13-cv-00748-SK

Plaintiffs,
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ORDER REGARDING DEFENDANTS’
MOTION FOR SUMMARY JUDGMENT

v.
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U.S. BANK, N.A., et al.,
Defendants.

Regarding Docket No. 67

United States District Court
Northern District of California

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Now before the Court, on remand, is the motion for summary judgment filed by

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Defendants U.S Bank N.A., Wells Fargo Bank, N.A., Homeward Residential, Inc., Power Default

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Services, Inc. and Mortgage Electronic Registration Systems, Inc. (collectively, “Defendants”).

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In an order dated August 6, 2014, the Court granted Defendants’ motion for summary judgment on

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the grounds that Plaintiffs Asvini and Pravina Patel (collectively, “Plaintiffs”) lacked standing to

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bring their wrongful foreclosure claim. The Ninth Circuit remanded this action for the Court to

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reconsider the order granting summary judgment in light of the California Supreme Court’s ruling

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in Yvanova v. New Century Mortgage Corporation, 62 Cal. 4th 919 (2016).

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In Yanova, the California Supreme Court held that “[a] borrower who has suffered a

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nonjudicial foreclosure does not lack standing to sue for wrongful foreclosure based on an

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allegedly void assignment merely because he or she was in default on the loan and was not a party

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to the challenged assignment.” Id. at 924 (emphasis added). However, if the alleged defect

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rendered the assignment merely voidable, a borrower would not have standing to sue. Id. Upon

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remand, the Court requested supplemental briefing from the party on the issue of whether

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Plaintiffs’ alleged defects rendered the assignments void or voidable. The Court noted that, since

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Yvanova, courts held that if the pooling and servicing agreement (“PSA”) for investment loan

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trusts is governed by New York law, as the PSA is here, the alleged defect renders the assignment

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merely voidable and not void. See, e.g. Saterbak v. JPMorgan Chase Bank, N.A., 245 Cal. App.

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4th 808 (2016); Morgan v. Aurora Loan Services, LLC, --- Fed Appx. ---, 2016 WL 1179733, *2

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(9th Cir. March 28, 2016) (finding that plaintiff lacked standing “because an act in violation of a

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trust agreement is voidable – not void – under New York law, which governs the [PSA] at

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issue[.]”); Reed v. Wilmington Trust, N.A., 2016 WL 3124611, *5 (N.D. Cal. June 3, 2016);

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Croskrey v. Ocwen Loan Servicing, LLC, 2016 WL 3135643 (C.D. Cal. June 2, 2016); Hard v.

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Bank of New York Mellon, 2016 WL 2593911,*12 (E.D. Cal. May 5, 2016).

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The Second Circuit thoughtfully analyzed this issue and determined that, under New York
law, a borrower does not have standing to challenge an assignment that was purportedly made in

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violation of the PSA. See Rajamin v. Deutsche Bank Nat’l Trust Co., 757 F.3d 79, 87-89 (2d Cir.

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United States District Court
Northern District of California

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2014). Because, “[u]nder New York law, unauthorized acts by trustees are generally subject to

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ratification by the trust beneficiaries[,]” the court held that only trust beneficiaries have standing to

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claim a breach of trust. Id. at 89-90. The court noted that void acts are not subject to ratification.

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Therefore, unauthorized acts by a trustee are “merely voidable by the beneficiary.” Id. at 90.

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The court examined a New York statute, New York Estates, Powers & Trusts Law

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(“EPTL”) § 7-2.4. This statute states: “[i]f the trust is expressed in the instrument creating the

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estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust,

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except as authorized by this article and by any other provision of law, is void.” N.Y. Estates,

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Powers and Trusts Law § 7-2.4. However, because, as noted above, beneficiaries may ratify

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unauthorized acts by trustees, the court found that ultra vires acts were merely voidable, not void.

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Rajamin, 757 F.3d at 88. The court found that “the weight of New York authority is contrary to

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[the] contention that any failure to comply with the terms of the PSAs rendered defendants’

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acquisition of plaintiffs’ loans and mortgages void as a matter of law.” Id. The court noted that

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no New York appellate decision has applied EPTL § 7-2.4 to hold that actions taken in violation

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of PSAs are void, as opposed to voidable. Rajamin, 757 F.3d at 90.

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Rajamin has been cited with approval by several New York state appellate courts. See U.S.

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Bank Nat. Ass’n v. Carnivale, 138 A.D. 3d 1220, 1222 (N.Y. App. Div. 2016) (finding that the

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homeowner lacked standing to challenge the foreclosure based on the purported noncompliance
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with the PSA); Wells Fargo Bank, N.A. v. Erobobo, 127 A.D. 3d 1176 (N.Y. App. Div. 2015) (“a

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mortgagor whose loan is owned by a trust[] does not have standing to challenge the [bank’s] …

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status as an assignee of the note and mortgage based on purported noncompliance with certain

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provisions of the PSA”); Bank of Am. Nat. Ass’n v. Patino, 128 A.D. 3d 994, 994-95 (N.Y. App.

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Div. 2015) (same); Bank of New York Mellon v. Gales, 116 A.D. 3d 723, 725 (N.Y. App. Div.

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2014) (same). Similarly, New York trial courts have followed Rajamin as well. See U.S. Bank

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Nat. Ass’n v. Duthie, 35 Misc. 3d 1218(A), 3 N.Y.S 3d 287 (2014) (citing Rajamin and holding

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that the borrower did not have standing to assert noncompliance with the PSA because “acts may

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be ratified by the trust’s beneficiaries and are voidable only at the instance of a trust beneficiary or

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a person acting on his behalf”) (internal quotation marks and citation omitted). Notably, the Court

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United States District Court
Northern District of California

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did not locate any New York state court rejecting the holding of Rajamin.

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Nevertheless, in their supplemental brief, Plaintiffs urge the Court not to follow the Second

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Circuit’s order in Rajamin. Instead, Plaintiffs contend that the Court is bound by the literal

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language of EPTL § 7-2.4. However, “this provision has not been applied literally by New York

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courts.” Berezovskaya v. Deutsche Bank Nat. Trust Co., 2014 WL 441560, *6 (E.D.N.Y. Aug. 1,

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2014); see also Calderon v. Bank of Am. N.A., 941 F. Supp. 2d 753, 766 (W.D. Tex. 2013) (“New

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York case law . . . makes clear that [EPTL] section 7-2.4 is not applied literally in New York.”)

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(internal quotation marks and citation omitted). Instead, despite the term “void,” courts

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interpreting this provision have found that trust beneficiaries may consent to and ratify acts that

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violate the terms of the trust. See, e.g. Duthie, 35 Misc. 3d 1218(A), 3 N.Y.S 3d 287; see also

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Feldman v. Torres, 34 Misc. 3d 47, 939 N.Y.S.2d 221, 224 (N.Y. App. Term 2011) (rejecting

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argument that a loan that violated the terms of the trust was void under EPTL § 7-2.4 because the

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because the borrower had not demonstrated as a matter of law that the trustee, who had executed

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the promissory note for the loan, lacked actual or apparent authority to bind the trust to the note);

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In re Jepson, 816 F.3d 942, 947 (7th Cir. 2016); Berezovskaya, 2014 WL 441560 at *6; Tran v.

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Bank of New York, 2014 WL 1225575, at *4-5 (S.D.N.Y. Mar. 24, 2014). If a beneficiary may

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ratify an ultra vires act, then the act is merely voidable, and not void. See Tran, 2014 WL

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1225575 at *5 (citing Hackett v. Hackett, 2012 WL669525, at *20 (N.Y. Sup. Ct. Feb. 21, 2012)
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(“A void contract cannot be ratified; it binds no one and is a nullity. However, an agreement that

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is merely voidable by one party leaves both parties at liberty to ratify the transaction and insist

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upon its performance.”) (internal citation omitted)).

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Plaintiffs cite several cases that have applied EPTL § 7-2.4 to hold that actions by trustees

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are void. See Mater of Newlin, 119 Misc. 2d 815, 820 (1982); Matter of Pepi, 268 AD 2d 477,

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478 (2000); Aurora Loan Servs. LLC v. Scheller, 2014 NY Slip Op 31416; Dye v. Lewis, 67 Misc.

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2d 426, 428 (1971). However, none of these cases address the New York case law regarding

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ratification. See Rajamin, 757 F.3d at 89-90 (finding authority relying on EPTL § 7-2.4 to void

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acts were unpersuasive due to the failure to discuss the New York authorities holding that
beneficiaries may ratify otherwise unauthorized acts of the trustee); Berezovskaya v. Deutsche

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United States District Court
Northern District of California

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Bank Nat. Trust Co., 2014 WL 441560 (E.D. NY Aug. 1, 2014) (discounting cases that apply

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EPTL § 7-2.4 to void transactions without considering the “well-settled rule that a beneficiary may

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ratify a trustee’s ultra vires act, thus making such an act voidable, rather than void”). Therefore,

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these cases are not persuasive.

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The Court finds that the weight of the authority demonstrates that an assignment done in

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violation of the PSA is merely voidable, not void, under New York law. Therefore, Plaintiffs lack

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standing to challenge the assignments and the Court GRANTS Defendants’ motion for summary

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judgment.

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IT IS SO ORDERED.
Dated: July 27, 2016
______________________________________
SALLIE KIM
United States Magistrate Judge

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