Britto et al v. Bank of America N.A.

Filing 34

ORDER GRANTING MOTION TO DISMISS by Hon. William Alsup granting 5 Motion to Dismiss.(whalc3, COURT STAFF) (Filed on 10/10/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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For the Northern District of California

United States District Court

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No. C 13-03508 WHA

KEITH BRITTO and YVONNE BRITTO,
Plaintiffs,
v.

ORDER RE
MOTION TO DISMISS

BANK OF AMERICA, N.A., et al.

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Defendants.
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INTRODUCTION

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In this foreclosure action, defendants move to dismiss the complaint for lack of standing

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and failure to state a claim. To the extent stated below, defendants’ motion to dismiss is

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GRANTED.

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STATEMENT

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Plaintiffs Keith and Yvonne Britto took out a promissory note and deed of trust with

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Realty Mortgage, LLC.* In 2006, Realty Mortgage sold its interest in plaintiffs’ note and deed of

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trust via securitization to Countrywide Home Loans, Inc., which acted as “originator, sponsor,

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and seller of the securitization process.” Countrywide sold its interest in plaintiffs’ deed of trust

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to Countrywide Mortgage Backed Securities, Inc. (“CMBS”) as depositor, and CMBS assigned

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all of its interest to defendant Bank of New York Mellon (“BNY Mellon”) as trustee for the

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certificate holders of the securitized trust. Countrywide Home Loans was the servicer of the

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The complaint confusingly oscillates between “mortgage” and “deed of trust.” The existence and
authenticity of a deed of trust has been judicially noticed, so this order will refer to a deed of trust and
promissory note.

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trust until July 1, 2008, when it was purchased by defendant Bank of America (“BOA”) and

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BOA assumed the rights as servicer of the trust (Compl. ¶¶ 4, 10, 12–13).

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Plaintiffs allege a host of violations during the securitization process. Realty Mortgage

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allegedly did not endorse or record a sale or assignment of the deed of trust to any entity and

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Countrywide Home Loans allegedly did not endorse or record a sale or assignment to BNY

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Mellon. Failure to endorse or record the transfers of ownership of the deed of trust and note

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allegedly violated the governing pooling and servicing agreement of the securitized mortgage

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and the real estate mortgage investment conduit (“REMIC”) provisions of the deed of trust. The

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REMIC provisions of the deed of trust, which are intended to prevent double taxation for the sale
of mortgage-backed securities, allegedly state that any procedural defects relating to the

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For the Northern District of California

United States District Court

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assignment of rights in the deed of trust and note weaken or defeat defendants’ right to foreclose

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on the property. Thus, plaintiffs argue that BOA does not retain servicing rights to the deed of

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trust, BNY Mellon does not have any interest as legal trustee of the trust, and “no entity . . . has

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any valid lien or legal, recorded, documentable, standing on the Plaintiff’s [sic] mortgage loan”

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(id. ¶¶ 14–15, 18–20, 26–27).

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Moreover, defendant Mortgage Electronic Registration Systems, Inc. (MERS) was

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named beneficiary and nominee in the deed of trust prior to the securitization. In 2011, MERS

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transferred all of its beneficial interest under the deed of trust to BNY Mellon. Plaintiffs allege

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that after the deed of trust and promissory note were securitized in 2006 and improper transfers

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of ownership to the deed of trust occurred, MERS’ nominal rights were extinguished. Thus,

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MERS could not have properly transferred its interests to BNY Mellon in 2011, and BNY

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Mellon cannot foreclose on the property now (id. ¶¶ 32–36). Plaintiffs seek declaratory relief

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and claim breach of express agreements by defendants, breach of implied agreements by

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defendants, slander of title by defendants, violation of 18 U.S.C. 1962, and violation of

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California Business and Professions Code Section 17200.

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On March 13, 2010, represented by bankruptcy counsel, plaintiffs filed for protection

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under Chapter 7 of the Bankruptcy Code. Both plaintiffs’ bankruptcy petition and the resulting

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bankruptcy discharge order have been judicially noticed. In the schedule of assets
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accompanying the bankruptcy petition, plaintiffs failed to disclose the claims they assert here

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(RJN, Exh. A at 13). This order follows full briefing and oral argument.

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ANALYSIS

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To survive a motion to dismiss, a pleading must contain sufficient factual matter,

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accepted as true, to state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556

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U.S. 662, 663 (2009). Because plaintiffs lack standing, however, this order does not reach the

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question of whether they have pled sufficient facts to maintain the current action. Our court of

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appeals has been clear about the legal consequences of failing to disclose potential claims to the

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bankruptcy court; plaintiffs’ claims against defendants belong to their bankruptcy estate. The
commencement of a bankruptcy case creates a bankruptcy estate that holds all legal and

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For the Northern District of California

United States District Court

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equitable interests in a person’s assets. 11 U.S.C. 541(a). The estate consists of all tangible, as

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well as intangible, assets, including claims for relief owned at the time of the bankruptcy

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petition. Turner v. Cook, 362 F.3d 1219, 1225-26 (9th Cir. 2004) (citations omitted). Because

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upon filing for bankruptcy, the debtor’s claims belong to the bankruptcy estate, the debtor loses

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standing to pursue them. Ibid.

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Bankruptcy claimants have an affirmative duty to “schedule” all of their assets and

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liabilities, i.e., disclose and list them for the bankruptcy court. 11 U.S.C. 521(a). Any

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unscheduled assets, i.e., assets the claimant fails to list during the bankruptcy proceedings, are

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permanently held by the bankruptcy estate at the close of the proceedings. 11 U.S.C. 554(d).

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Unscheduled assets include claims for damages. Cusano v. Klein, 264 F.3d 936, 945-46 (9th Cir.

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2001). Thus, a plaintiff who fails to disclose a claim therefore lacks standing to assert it and “the

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estate becomes the only real party in interest unless the bankruptcy trustee abandons the claim.”

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Flowers v. Wells Fargo Bank, N.A., 2011 WL 2748650, at *3 (N.D. Cal. July 13, 2011) (Judge

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Phyllis Hamilton). Property is not abandoned by the trustee by operation of law unless the

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debtor formally schedules the property before the close of the case. Cusano, 264 F.3d at 946.

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In the opposition to defendants’ motion to dismiss, plaintiffs’ sole rebuttal is that they

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listed the subject property and therefore “Plaintiff’s [sic] causes of action c [sic] pertaining to the

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Subject Property identified as property of the estate have been properly identified” (Opp. at 6).
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Our court of appeals, however, has specifically stated that “[c]auses of action are separate assets

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which must be formally listed” and “[s]imply listing the underlying asset out of which the cause

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of action arises is not sufficient.” Cusano, 264 F.3d at 947. Thus, plaintiffs’ argument fails.

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At the October 10 motion hearing, plaintiffs argued for the first time that the complaint

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references a 2011 assignment of the deed of trust to defendant BNY Mellon and therefore creates

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a post-petition claim for relief. This order notes that plaintiffs did not raise this argument in their

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opposition to defendants’ motion to dismiss. Regardless, this argument also fails. The 2011

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assignment was merely an incidental effect of events that preceded plaintiffs’ 2010 bankruptcy

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petition. Realty Mortgage, the original lender, sold its interest in the deed of trust via
securitization in 2006 (Compl. at 20). Plaintiffs were aware of this as they admitted in the

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For the Northern District of California

United States District Court

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schedule attached to their bankruptcy petition that defendant BOA, and not Realty Mortgage, has

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a secured lien interest in the subject property (RJN, Exh. A at 16). The doctrine of judicial

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estoppel prevents plaintiffs from claiming that BOA has a secured lien interest in the property to

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the bankruptcy court but later denying that BOA owns a secured interest after they received a

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discharge order from the bankruptcy court. Hamilton v. State Farm Fire & Casualty Co., 270

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F.3d 778, 782 (9th Cir. 2001). Moreover, the complaint details defendants’ allegedly wrongful

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activity by asserting a “securitizing trail” that began in 2006 (Compl. ¶ 10–15). Plaintiffs’

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claims against defendants belong to the bankruptcy estate because they arise from known facts

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that preceded the bankruptcy petition. Thus, plaintiffs lack standing to bring this action.
CONCLUSION

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To the extent stated above, defendants’ motion to dismiss is GRANTED. Plaintiffs may

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petition the bankruptcy court to reopen their case. If that succeeds, plaintiffs may possibly be

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able to file a new lawsuit. This one, however, is at an end.

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IT IS SO ORDERED.
Dated: October 10, 2013.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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