Lee v. Mortgage Electronic Registration Systems, Inc. et al
Filing
67
ORDER (1) Granting In Part And Denying In Part Defendant Mortgage Electronic Registration Systems, Inc.'s Motion To Dismiss, Doc. No. 57 ; And (2) Granting Defendant Countrywide Bank, FSB's Motion To Dismiss, Doc. No. 56 . Signed by JUDGE J. MICHAEL SEABRIGHT on 6/27/12. (gls, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
JUANITA FAYE PUALANI LEE,
)
)
Plaintiff,
)
)
vs.
)
)
MORTGAGE ELECTRONIC
)
REGISTRATION SYSTEMS, INC.;
)
COUNTRYWIDE BANK, FSB; and
)
DOES 1-10,
)
)
Defendants.
)
________________________________ )
CIVIL NO. 10-00687 JMS/BMK
ORDER (1) GRANTING IN PART
AND DENYING IN PART
DEFENDANT MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC.’S MOTION TO
DISMISS, DOC. NO. 57; AND
(2) GRANTING DEFENDANT
COUNTRYWIDE BANK, FSB’S
MOTION TO DISMISS, DOC. NO.
56
ORDER (1) GRANTING IN PART AND DENYING IN PART DEFENDANT
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.’S
MOTION TO DISMISS, DOC. NO. 57; AND (2) GRANTING DEFENDANT
COUNTRYWIDE BANK, FSB’S MOTION TO DISMISS, DOC. NO. 56
I. INTRODUCTION
On October 11, 2010, Plaintiff Juanita Faye Pualani Lee (“Plaintiff”)
filed this action in the First Circuit Court of the State of Hawaii alleging state law
claims against Defendants Mortgage Electronic Registration Systems, Inc.
(“MERS”) and Countrywide Bank, FSB (“Countrywide”) (collectively
“Defendants”) stemming from MERS’s non-judicial foreclosure of Plaintiff’s
home located at 954 Alewa Drive, Honolulu, Hawaii 96817 (the “subject
property”). On November 19, 2010, MERS removed the action to this court.
On January 3, 2011, the Judicial Panel on Multidistrict Litigation
transferred the lawsuit to the United States District Court for the District of
Arizona (“MDL Court”) for inclusion in the consolidated MERS proceedings
pending there. On October 3, 2011, the MDL Court remanded to this court a claim
against Countrywide for “common law contract damages,” and a claim against
Defendants seeking an “accounting.” After Defendants filed Motions to Dismiss,
the court allowed Plaintiff to file a First Amended Complaint (“FAC”) clarifying
these claims.
Currently before the court are Countrywide’s and MERS’s Motions to
Dismiss, in which they argue that the FAC fails to state a claim upon which relief
can be granted. Based upon the following, the court GRANTS in part and
DENIES in part MERS’s Motion to Dismiss, and GRANTS Countrywide’s Motion
to Dismiss.
II. BACKGROUND
A.
Factual Background
As alleged in the FAC, on or about July 25, 2007, Plaintiff entered
into a mortgage loan transaction with Aegis Wholesale Corporation (“Aegis”) for
$728,000 to purchase the subject property. Doc. No. 52, FAC ¶ 6. The mortgage
describes that MERS “is a separate corporation that is acting solely as a nominee
2
for [Aegis] and [Aegis’] successors and assigns. MERS is the mortgagee under
this Security Instrument.” Doc. No. 1-1, Compl. Ex. 2 at 2.1
Aegis filed for Chapter 11 bankruptcy two weeks after making the
loan to Plaintiff. Doc. No. 52, FAC ¶ 9. On December 18, 2008, MERS, as
nominee for Aegis, asserted that Plaintiff was in default on her mortgage and filed
a Notice of Mortgagee’s Intention to Foreclose Under Power of Sale (“Notice of
Foreclosure”), setting an auction for February 6, 2009. Id. ¶ 8; Doc. No. 1-1,
Compl. Ex. 3. The FAC asserts that prior to the Notice of Foreclosure, Plaintiff’s
lender failed to provide “notice of default, notice of the right to cure, notice of
acceleration, and notice of the invocation of the power of sale.” Doc. No. 52, FAC
¶ 8. The FAC further asserts that MERS had no authority and/or capacity to
foreclose on the subject property given Aegis’ bankruptcy, which terminated
MERS’s rights as a nominee under the mortgage as a matter of law. Id. ¶ 10.
The Notice of Foreclosure was signed by “Jason Cotton,” who
allegedly falsely purported to be the “Assistant Secretary” of MERS, and was
1
Although Plaintiff did not attach the mortgage to the FAC, Plaintiff attached the
mortgage and other documents recorded in the Hawaii Bureau of Conveyances to her initial
Complaint. The court takes judicial notice of these documents. See United States v. 14.02 Acres
of Land More or Less in Fresno Cnty., 547 F.3d 943, 955 (9th Cir. 2008) (explaining that the
court may take judicial notice of “matters of public record”); Lindsey v. Matayoshi, 2012 WL
1656931, at *4 (D. Haw. May 9, 2012) (explaining when the court may take judicial notice of
documents).
3
notarized by “Hillary Cotton,” who allegedly knew that he did not hold such
position. Id. ¶ 8; Doc. No. 1-1, Compl. Ex. 3 at 2. The Notice of Foreclosure
instructed that the successful bidder “shall pay at least 10% of the highest
successful bid price” at the auction, and pay the remaining balance “no later than
the 21st day following sale.” Doc. No. 1-1, Compl. Ex. 3 at 1; see also Doc. No.
52, FAC ¶ 11.
Countrywide won the auction with a bid of $495,000, and on March 6,
2009, MERS transferred the subject property to Countrywide via a Mortgagee’s
Quitclaim Deed. Doc. No. 52, FAC ¶ 15; Doc. No. 1-1, Compl. Ex. 6. The FAC
asserts that the Quitclaim Deed was signed for MERS by “Kevin A. Durham,” who
falsely purported to be “Assistant Secretary” of MERS, and was falsely notarized
in San Diego County. Doc. No. 52, FAC ¶ 15.
Plaintiff subsequently refused to vacate the subject property, which
resulted in Countrywide filing a Complaint for Ejectment in the First Circuit Court
of the State of Hawaii on April 1, 2009. Id. ¶ 16; Doc. No. 1-1, Compl. Ex. 8.
Countrywide obtained an interim Writ of Ejectment and took possession of the
subject property, but ultimately voluntarily dismissed the action without prejudice.
Doc. No. 52, FAC ¶ 17. On August 17, 2009, Countrywide transferred the subject
property to a third party for $560,000. Id. ¶ 18; Doc. No. 1-1, Compl. Ex. 11.
4
B.
Procedural Background
On October 11, 2010, Plaintiff filed this class action in the First
Circuit Court of the State of Hawaii alleging six state law claims against
Defendants. On November 19, 2010, MERS removed the action to this court.
On January 3, 2011, the Judicial Panel on Multidistrict Litigation
transferred the action to the MDL Court for inclusion in the consolidated MERS
proceedings pending there. On October 3, 2011, the MDL Court remanded Count
II of the Complaint, titled “Common Law Contract Damages Against MERS,” and
part of Count VI, titled “Accounting by MERS and by Countrywide” (to the extent
unrelated to the formation and/or operation of the MERS system) to this court.
Defendants filed Motions to Dismiss the Complaint, and in the course
of briefing those motions (and in particular, the effect of Aegis’ bankruptcy on
MERS’s ability to foreclose), Defendants asserted that the mortgage loan was
transferred to Countrywide prior to Aegis’ bankruptcy. See Doc. No. 46. In light
of this assertion, the court (1) denied the Motions to Dismiss as moot and without
prejudice to refiling by agreement of the parties, and (2) granted Plaintiff leave to
file an amended complaint asserting claims within the scope of those remanded by
the MDL Court.
On March 19, 2012, Plaintiff filed her FAC, asserting a claim against
5
MERS titled “Contract Collection Damages Against MERS,” and a claim against
Defendants titled “Accounting by MERS and by Countrywide.” On April 19,
2012, Defendants filed their Motion to Dismiss. Plaintiff filed an Opposition on
June 4, 2012, and Defendants filed Replies on June 8, 2012. A hearing was held
on June 25, 2012.
III. STANDARDS OF REVIEW
A.
Rule 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss
a claim for “failure to state a claim upon which relief can be granted[.]”
“To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)); see also Weber v. Dep’t of Veterans Affairs,
521 F.3d 1061, 1065 (9th Cir. 2008). This tenet -- that the court must accept as
true all of the allegations contained in the complaint -- “is inapplicable to legal
conclusions.” Iqbal, 556 U.S. at 678. Accordingly, “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Id. (citing Twombly, 550 U.S. at 555); see also Starr v. Baca, 652 F.3d
1202, 1216 (9th Cir. 2011) (“[A]llegations in a complaint or counterclaim may not
6
simply recite the elements of a cause of action, but must contain sufficient
allegations of underlying facts to give fair notice and to enable the opposing party
to defend itself effectively.”).
Rather, “[a] claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 556). In other words, “the factual allegations that are taken
as true must plausibly suggest an entitlement to relief, such that it is not unfair to
require the opposing party to be subjected to the expense of discovery and
continued litigation.” Starr, 652 F.3d at 1216. Factual allegations that only permit
the court to infer “the mere possibility of misconduct” do not show that the pleader
is entitled to relief as required by Rule 8. Iqbal, 556 U.S. at 679.
B.
Rule 8
A complaint must also meet the requirements of Federal Rule of Civil
Procedure 8, mandating that a complaint include a “short and plain statement of the
claim,” Fed. R. Civ. P. 8(a)(2), and that “each allegation must be simple, concise,
and direct.” Fed. R. Civ. P. 8(d)(1). A complaint that is so confusing that its “true
substance, if any, is well disguised” may be dismissed sua sponte for failure to
satisfy Rule 8. Hearns v. San Bernardino Police Dep’t, 530 F.3d 1124, 1131 (9th
7
Cir. 2008) (quoting Gillibeau v. City of Richmond, 417 F.2d 426, 431 (9th Cir.
1969)); see also McHenry v. Renne, 84 F.3d 1172, 1180 (9th Cir. 1996)
(“Something labeled a complaint but written . . ., prolix in evidentiary detail, yet
without simplicity, conciseness and clarity as to whom plaintiffs are suing for what
wrongs, fails to perform the essential functions of a complaint.”).
Put differently, a district court may dismiss a complaint for failure to
comply with Rule 8 where the complaint fails to provide defendants with fair
notice of the wrongs they have allegedly committed. See McHenry, 84 F.3d at
1178-80 (affirming dismissal of complaint where “one cannot determine from the
complaint who is being sued, for what relief, and on what theory, with enough
detail to guide discovery”); cf. Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d
1097, 1105 n.4 (9th Cir. 2008) (finding dismissal under Rule 8 was in error where
“the complaint provide[d] fair notice of the wrongs allegedly committed by
defendants and [did] not qualify as overly verbose, confusing, or rambling”). Rule
8 requires more than “the-defendant-unlawfully-harmed-me accusation[s]” and “[a]
pleading that offers labels and conclusions or a formulaic recitation of the elements
of a cause of action will not do.” Iqbal, 129 S. Ct. at 1949 (citations and
quotations omitted).
8
IV. DISCUSSION
Defendants argue that the FAC fails to state a claim upon which relief
can be granted. The court addresses each Count of the FAC in turn.
A.
“Contract Collection Damages Against MERS”
The FAC asserts that MERS “violated the laws of the State of Hawaii
and federal bankruptcy laws, and in doing so materially breached contractually the
terms and conditions of the underlying mortgage.” Doc. No. 52, FAC ¶ 24.
Specifically, the FAC asserts that MERS breached the provision in the mortgage
that the Lender may “invoke the power of sale and any other remedies permitted by
Applicable Law,” see Doc. No. 1-1, Compl. Ex. 2 ¶ 22, when it: (1) conducted the
nonjudicial foreclosure sale even though Aegis was in Chapter 11 bankruptcy; (2)
used “robo-signers” to falsely sign and notarize loan documents in violation of
Hawaii Revised Statutes (“HRS”) §§ 708-852, 710-1061, 456-8, 501-196, 502-41,
and 502-3; and (3) violated HRS §§ 667-5 and 667-5.7.2 Doc. No. 52, FAC ¶ 24.
The FAC further asserts that MERS violated the mortgage’s provision that the
2
The court recognizes that the MDL Court dismissed without leave to amend some
similar claims raised by Plaintiff, including that Defendants violated HRS § 667-5.7, and
fraudulently initiated foreclosure while Aegis was in bankruptcy. See In re MERS Litig., 2012
WL 1906503 (D. Ariz. May 25, 2012). The parties do not raise whether these findings bar
Plaintiff from raising such similar claims in this action, even if couched as part of breach of
contract claim. The court need not determine this issue, however, given that the court’s
independent analysis of these claims is consistent with the MDL Court’s findings as described
below.
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“Lender shall give notice to Borrower prior to acceleration following Borrower’s
breach of any covenant or agreement in [the mortgage],” see id., when it failed to
give Plaintiff notice of her default under the mortgage prior to accelerating
payments. MERS argues that none of these allegations amounts to a cognizable
claim. The court agrees in part.
1.
Aegis’ Bankruptcy
The FAC asserts in the most conclusory fashion that MERS could not
foreclose on the subject property because Aegis was in Chapter 11 bankruptcy. Id.
¶ 24(c). This generalized assertion fails to state a plausible claim -- assuming that
the mortgage loan was part of Aegis’ bankruptcy estate, the FAC fails to explain
how Aegis’ filing for Chapter 11 bankruptcy prevented it from authorizing MERS
to foreclose on its behalf in the ordinary course of Aegis’ business. Indeed, in
general, the filing of Chapter 11 bankruptcy permits a business to continue to
operate its business in the ordinary course. See 11 U.S.C. §§ 1107(a), 1108; see
also In re Alta+Cast, LLC, 2004 WL 484881, at *5 (Bankr. D. Del. Mar. 2, 2004)
(stating that a “chapter 11 debtor is automatically authorized to operate its
business”); In re Continental Air Lines, Inc., 61 B.R. 758, 762 n.1 (S.D. Tex. 1986)
(noting that “[d]ebtors-in-possession are automatically given leave to operate their
business after filing of a Chapter 11 petition . . . the interplay between sections
10
1106, 1107, and 1108 makes it clear that the debtor has all of the statutory rights
and duties of a trustee in bankruptcy, with a few limited exceptions”). Thus, the
fact that Aegis entered into Chapter 11 bankruptcy, on its own, does not support a
claim that MERS could not validly foreclose on the subject property on behalf of
Aegis.
In opposition, Plaintiff offers no explanation of how she can state a
plausible claim based on Aegis’ bankruptcy. Indeed, Plaintiff actually
acknowledges that Aegis’s bankruptcy is not really an issue because Countrywide
has clarified that it was transferred the mortgage loan before Aegis declared
bankruptcy. See Doc. No. 61, Pl.’s Opp’n at 9. Specifically, the Complaint
asserted a similar claim against Defendants based on Aegis’ bankruptcy, and
during the previous round of Motions to Dismiss the parties submitted
supplemental briefing regarding Aegis’ bankruptcy. And in that supplemental
briefing, MERS presented evidence that Aegis transferred the mortgage loan to
Countrywide before it declared bankruptcy. Doc. No. 46. In its Opposition to the
present round of Motions to Dismiss, Plaintiff apparently now accepts that Aegis
transferred the mortgage loan to Countrywide before it declared bankruptcy, see
Doc. No. 61, Pl.’s Opp’n at 9, such that Plaintiff effectively admits that she cannot
assert a claim based on Aegis’ bankruptcy. The court therefore GRANTS MERS’s
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Motion to Dismiss Plaintiff’s claim based on Aegis’ bankruptcy, without leave to
amend.
2.
Use of “Robosigners”
The FAC alleges that MERS used “robo-signers” to falsely sign and
notarize loan documents in violation of HRS §§ 708-852, 710-1061, 456-8, 501196, 502-41, and 502-3. Doc. No. 52, FAC ¶ 24(c). Specifically, the FAC asserts
that “Jason Cotton” falsely purported to be the “Assistant Secretary” of MERS on
the Notice of Foreclosure, and “Kevin A. Durham” falsely purported to be another
“Assistant Secretary” of MERS on the Quitclaim Deed. Id. ¶¶ 8, 15.
Putting aside the fact that most of the HRS provisions cited by the
FAC appear to be inapplicable,3 the allegations of the FAC are wholly speculative
and therefore fail to state a plausible claim. The FAC fails to assert any facts
corroborating the legal conclusion that these individuals lacked authority to sign
3
For example, HRS § 456-8 provides that the attorney general “may prescribe such rules
as the attorney general deems advisable concerning the administration of this chapter, the
appointment and duties of notaries public, the duties of other officers thereunder, and such
measures as may be necessary to prevent the fraudulent use of a notarized document after
placement of the notary’s seal.” HRS § 501-196 provides that “[n]o erasure, alteration, or
amendment shall be made upon the registration book after the entry of a certificate of title or of a
memorandum thereon, and the approval of the same by the registrar or an assistant registrar
except by order of the court recorded with the assistant registrar . . . .” HRS § 502-3 provides
that “[t]he registrar, under the direction of the board of land and natural resources, shall appoint a
deputy, for whose official acts the registrar shall be responsible, and whose appointment the
registrar shall announce by public notice.” Given the plain language of these provisions, the
court is at a loss as to how they might apply in this action, and Plaintiff offers no explanation.
12
these documents on behalf of MERS, or any facts explaining how any
“robosigning” caused Plaintiff any harm or damages. Further, it is unclear what
claim Plaintiff could possibly raise where MERS has not contested these
individuals’ authority to act. The court therefore joins other courts addressing
similar claims in finding that such conclusory assertions of “robo-signing” fail to
state a plausible claim. See Abubo v. Bank of New York Mellon, 2011 WL
6011787, at *7 (D. Haw. 2011) (citing Cooper v. Bank of New York Mellon, 2011
WL 3705058, at *13 (D. Haw. Aug. 23, 2011) (rejecting identical argument that
Durham was not authorized to execute an assignment on behalf of MERS); Singer
v. BAC Home Loan Servicing, LP, 2011 WL 2940733, at *2 (D. Ariz. July 21,
2011) (rejecting as unsupported an assertion that a “robosigner” unlawfully signed
a substitution of trustee form)); see also Nastrom v. New Century Mortg. Corp.,
2012 WL 2090145, at *6 (E.D. Cal. June 8, 2012) (dismissing claim where
“Plaintiffs offer no factual allegations (or legal theory) indicating how the alleged
robo-signing of documents which assigned the subject loans harmed Plaintiffs”);
Block v. BAC Home Loans Servicing LP, 2012 WL 2031640, at *4 (E.D. Mich.
June 6, 2012) (“Plaintiffs’ vague and speculative assertions of what has been
labeled as ‘robo-signing’ are insufficient to state a plausible claim of fraud or
irregularity.”); Schultz v. BAC Home Loans Servicing, LP, 2011 WL 3684481, at
13
*2 (D. Ariz. Aug. 23, 2011) (“[A]lthough Plaintiff asserts that various
‘robosigners’ were involved with signing documents pertaining to her mortgage,
she has provided no facts supporting this claim or why she is accordingly entitled
to relief for breach of contract.”).
The court therefore GRANTS MERS’s Motion to Dismiss Plaintiff’s
claim based on robo-signing. Because amendment would be futile, this dismissal
is without leave to amend.
3.
HRS § 667-5.7
HRS § 667-5.7 provides that “[a]t any public sale pursuant to section
667-5, the successful bidder at the public sale, as the purchaser, shall not be
required to make a down payment to the foreclosing mortgagee of more than ten
percent of the highest successful bid price.” The FAC asserts that MERS violated
HRS § 667-5.7 by requiring that the successful bidder pay the full purchase price
twenty-one days after the auction, where closing is scheduled for thirty days after
the auction. The FAC acknowledges that this court has rejected this same claim
asserted by Plaintiff’s counsel in other cases, and explains that Plaintiff includes
this claim “solely for the purpose of preserving that claim for the record on
appeal.” Doc. No. 52, FAC ¶ 27.
The court rejects this claim for the same reasons as explained in Saiki
14
v. LaSalle Bank Nat’l Ass’n, 2011 WL 601139 (D. Haw. Feb. 10, 2011); Gaspar v.
Bank of Am., N.A., 2010 WL 4226466 (Oct. 18, 2010), and Rundgren v. Bank of
New York Mellon, 2010 WL 4066878 (Oct. 14, 2010). As explained in these
orders, § 667-5.7 does not create any requirement limiting when, after the public
sale, the mortgagee can demand payment of the balance of the bid price. The court
came to this conclusion based on the plain language of the statute -- the phrase
“[a]t any public sale” acts as a temporal limitation and qualifies the words that
follow, meaning that at the public sale, a mortgagee cannot require the successful
bidder to pay more than a ten percent down payment. Although recognizing that
the analysis could stop at this point, the court nonetheless considered the legislative
history of § 667-5.7 to find additional support for its interpretation, and also
rejected Plaintiff’s policy arguments on the basis that the court cannot rewrite the
statute where the language is clear. See Gaspar, 2010 WL 4226466, at *4-6;
Rundgren, 2010 WL 4066878, at *3-4. The court has also rejected arguments by
Plaintiff’s counsel that § 667-5.7 is at all ambiguous and/or the court should certify
this issue to the Hawaii Supreme Court. Saiki, 2011 WL 601139, at *5-6.
The court therefore rejects that Plaintiff can state a cognizable claim
for violation of HRS § 667-5.7 for the same reasons the court has already
explained. Thus, the court DISMISSES Plaintiff’s claim for violation of HRS
15
§ 667-5.7 without leave to amend.
4.
HRS § 667-5
HRS § 667-5 provides:
When a power of sale is contained in a mortgage, and
where the mortgagee, the mortgagee’s successor in
interest, or any person authorized by the power to act in
the premises, desires to foreclose under power of sale
upon breach of a condition of the mortgage, the
mortgagee, successor, or person shall be represented by
an attorney who is licensed to practice law in the State
and is physically located in the State. . . .
Section 667-5 further requires that the mortgagee’s attorney shall take various
steps in seeking a nonjudicial foreclosure.
The FAC does not identify any particular provision of § 667-5 that
MERS allegedly violated, much less include any factual allegations explaining
how MERS violated HRS § 667-5. Because the FAC fails to give MERS notice of
the claim against it, the court GRANTS MERS’s Motion to Dismiss.
As to whether Plaintiff could amend the FAC to state a plausible
claim, Plaintiff argues in her Opposition that MERS violated § 667-5 by failing to
identify the true mortgagee in the Notice of Foreclosure. Doc. No. 61, Pl.’s Opp’n
at 12. According to MERS, Aegis transferred the mortgage loan to Countrywide
such that Countrywide and not Aegis owned the mortgage loan at the time of
foreclosure. If true, the Notice of Foreclosure failed to identify Countrywide as the
16
mortgagee and instead states that foreclosure is being brought by MERS, as
nominee for Aegis. The parties have not addressed in any meaningful way whether
HRS § 667-5 requires the Notice of Foreclosure to properly identify the mortgagee
(see HRS § 667-5(a)(1) (requiring the attorney to “[g]ive notice of the
mortgagee’s, successor’s or person’s intention to foreclose”)),4 much less how any
failure to identify Countrywide in the Notice of Foreclosure caused Plaintiff
damages. As a result, the court cannot say at this time that amendment would be
futile. The court therefore GRANTS MERS’s Motion to Dismiss Plaintiff’s claim
for violation of § 667-5, with leave to amend.
5.
Failure to Give Notice of Default
MERS did not address the FAC’s assertion that MERS violated the
terms of the Mortgage by failing to give notice of Plaintiff’s default prior to the
filing its Notice of Foreclosure such that MERS could not foreclose on the subject
property. See Doc. No. 52, FAC ¶ 24(a)(ii). Indeed, MERS apparently missed this
allegation in the FAC -- MERS erroneously asserts in its Reply that Plaintiff raised
this claim for the first time in her Opposition and that MERS is collecting evidence
to rebut such claim. See Doc. No. 63, MERS Reply at 11 n.7. The court will not
4
Although MERS summarily argues in its Reply that HRS § 667-5 “does not require that
the note holder be named on the Notice in the affidavit of sale,” Doc. No. 63, MERS Reply at 12,
the case that MERS cites for such proposition, Lee v. HSBC Bank USA, 121 Haw. 287, 292, 218
P.3d 775, 780 (2009), does not address this issue.
17
consider evidence on a Motion to Dismiss, much less arguments and/or evidence
presented after the briefing has already been submitted. The court therefore
DENIES MERS’s Motion to Dismiss as to Plaintiff’s claim for failure to properly
notify Plaintiff of the default before seeking foreclosure.
B.
Accounting by MERS and by Countrywide
The FAC asserts that this claim is:
based on allegations that MERS and CW as coconspirators were unjustly enriched by MERS’ material
breach of contract aforesaid, depriving Plaintiff of title to
her property and to its possession, use and enjoyment,
and to her equity therein, entitling Plaintiff to a full
accounting of all such ill gotten profits and all such
unjust enrichment, including the imposition of
constructive trusts imposed upon each of them as
involuntary trustees for the benefit of the Plaintiff to the
extent that said profits can be traced to the purchase and
generation of other profits, and including an award of
attorneys’ fees and costs.
Doc. No. 52, FAC ¶ 29.
The FAC leaves wholly unanswered what Countrywide did that is the
basis of any claim and/or how it acted as a “co-conspirator” with MERS. The FAC
includes no allegations of any wrongdoing by Countrywide, and if all that
Countrywide did was purchase the subject property (as alleged in the FAC), then
Plaintiff has no basis to assert a claim against it.
Further, even setting aside this basic pleading deficiency, this court
18
has already explained that a claim for an “accounting” fails as a matter of law. See
Gaspar, 2010 WL 4226466, at *7. “The action of accounting is designed to
provide a remedy to compel a person who, by virtue of some confidential or trust
relationship, has received or been entrusted with money or property belonging to
another or which is to be applied or disposed of in a particular manner, to render an
account thereof.” Block v. Lea, 5 Haw. App. 266, 277, 688 P.2d 724, 732-33
(1984) (quoting 1 Am. Jur. 2d Accounts & Accounting § 45 (1962)). “The
necessary prerequisite to the right to maintain a suit for an equitable accounting,
like all other equitable remedies is . . . the absence of an adequate remedy at law.”
Porter v. Hu, 116 Haw. 42, 55, 169 P.3d 994, 1007 (Haw. App. 2007) (citation and
quotation signals omitted).
The FAC contains no facts explaining why Plaintiff is entitled to an
equitable accounting from Defendants -- a mortgagee does not have a “confidential
or trust relationship” with its mortgagor unless the mortgagee exceeds its role as a
lender of money. See, e.g., Gzell v. Novastar Mortg., Inc., 2010 WL 3293537, at
*10 (E.D. Cal. Aug. 19, 2010) (“A financial institution owes no duty of care to a
borrower when the institution’s involvement in the loan transaction does not
exceed the scope of its conventional role as a mere lender of money.” (quotation
and citation signals omitted)); Lane v. Vitek Real Estate Indus. Grp., 713 F. Supp.
19
2d 1092, 1104 (9th Cir. 2010) (dismissing breach of fiduciary duty claim because
plaintiff failed to plead facts to “override the presumption that a lender owes no
fiduciary duty to its borrowers”); Mulato v. WMC Mortg. Corp., 2010 WL
1532276, at *2 (N.D. Cal. Apr. 16, 2010) (dismissing claim where plaintiff failed
to plead facts to show that MERS exceeded its traditional role involved with lender
of money to support a duty). Nor has Plaintiff pled any factual allegations from
which the court can infer that no adequate remedy at law exists, such as, for
example, that an accounting is necessary because the mortgage accounts are so
complicated that only a court can discern them. See Dairy Queen, Inc. v. Wood,
369 U.S. 469, 478-79 (1962).
In sum, Plaintiff is not entitled to an accounting; indeed, if she is able
to state a claim upon which relief may be granted, she may seek such information
through discovery. The court therefore GRANTS Defendants’ Motions to Dismiss
Count VI of the FAC without leave to amend.
V. CONCLUSION
Based on the above, the court GRANTS in part and DENIES in part
MERS’s Motion to Dismiss, and GRANTS Countrywide’s Motion to Dismiss.
Plaintiff’s claim against MERS for breach of contract by failing to provide notice
of default before filing its Notice of Foreclosure remains.
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If Plaintiff so chooses, she may file a Second Amended Complaint,
consistent with this Order asserting a claim against MERS and/or Countrywide for
violation of HRS § 667-5, by July 16, 2012. Plaintiff is further notified that a
Second Amended Complaint supersedes the Complaint and FAC. Ferdik v.
Bonzelet, 963 F.2d 1258 (9th Cir. 1992); Hal Roach Studios v. Richard Feiner &
Co., 896 F.2d 1542, 1546 (9th Cir. 1990). After amendment, the court will treat
the Complaint and FAC as nonexistent. Ferdik, 963 F.2d at 1262. Any cause of
action that was raised in the original Complaint and FAC is waived if it is not
raised in the Second Amended Complaint. King v. Atiyeh, 814 F.2d 565, 567 (9th
Cir. 1987).
This Order limits Plaintiff to filing a Second Amended Complaint that
attempts to cure the specific deficiencies identified in this Order. That is, this
Order does not grant Plaintiff leave to amend to file a Second Amended Complaint
that asserts any different theories or causes of action. In limiting Plaintiff’s ability
at this time to file a Second Amended Complaint, the court recognizes that Plaintiff
asserted in her Opposition and at the June 25, 2012 hearing that she may wish to
assert a fraud claim and that discovery may be necessary to uncover the details of
such claim. But as the court explained at the June 25, 2012 hearing, if Plaintiff
believes that she can assert a plausible fraud claim, Plaintiff must first file a
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separate Motion complying with the requirements of Federal Rule of Civil
Procedure 15, regarding amended pleadings.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, June 27, 2012.
/s/ J. Michael Seabright
_____________________________
J. Michael Seabright
United States District Judge
Lee v. Mortg. Electronic Registration Sys. et al., Civ. No. 10-00687 JMS/BMK, Order (1) Granting
in Part and Denying in Part Defendant Mortgage Electronic Registration Systems, Inc.’s Motion to
Dismiss, Doc. No. 57; and (2) Granting Defendant Countrywide Bank, FSB’s Motion to Dismiss,
Doc. No. 56
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