Purdy v. Bank of America, N.A. et al

Filing 24

ORDER ADOPTING 20 REPORT AND RECOMMENDATIONS ; granting 12 Motion to Dismiss. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (dks)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

WESLEY D. PURDY,
Case No. 1:11-CV-00640-EJL-REB
Plaintiff,
ORDER ADOPTING REPORT
AND RECOMMENDATION

v.
BANK OF AMERICA, et al.,

Defendants.

On August 17, 2012, United States Magistrate Ronald E. Bush issued an Order,
Report and Recommendation on the pending motion to dismiss, Dkt. 20. Pursuant to 28
U.S.C. § 636(b)(1), the parties had fourteen days in which to file written objections to the
Report and Recommendation portion of the Order, Report and Recommendation. Plaintiff
Wesley D. Purdy (“Purdy”) filed an objection to the Report and Recommendation on
August 31, 2012, Dkt. 22. Defendants filed a response to Plaintiff’s objection on
September 14, 2012, Dkt. 23. The matter is now ripe for this Court’s review.

ORDER ADOPTING REPORT AND RECOMMENDATION- 1

DISCUSSION
Pursuant to 28 U.S.C. § 636(b)(1)(C), this Court “may accept, reject, or modify, in
whole or in part, the findings and recommendations made by the magistrate judge.”
Where the parties object to a report and recommendation, this Court “shall make a de
novo determination of those portions of the report which objection is made.” Id. Where,
however, no objections are filed the district court need not conduct a de novo review. In
United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003), the court interpreted
the requirements of 28 U.S.C. 636(b)(1)(C):
The statute [28 U.S.C. § 636(b)(1)(C)] makes it clear that the district judge
must review the magistrate judge's findings and recommendations de novo
if objection is made, but not otherwise. As the Peretz Court instructed, “to
the extent de novo review is required to satisfy Article III concerns, it need
not be exercised unless requested by the parties.” Peretz, 501 U.S. at 939
(internal citation omitted). Neither the Constitution nor the statute requires a
district judge to review, de novo, findings and recommendations that the
parties themselves accept as correct. See Ciapponi, 77 F.3d at 1251
(“Absent an objection or request for review by the defendant, the district
court was not required to engage in any more formal review of the plea
proceeding.”); see also Peretz, 501 U.S. at 937-39 (clarifying that de novo
review not required for Article III purposes unless requested by the parties)
....
See also Wang v. Masaitis, 416 F.3d 993, 1000 & n.13 (9th Cir. 2005). Furthermore, to
the extent that no objections are made, arguments to the contrary are waived. See Fed. R.
Civ. P. 72; 28 U.S.C. § 636(b)(1) (objections are waived if they are not filed within
fourteen days of service of the Report and Recommendation).

ORDER ADOPTING REPORT AND RECOMMENDATION- 2

FACTUAL BACKGROUND
The Court adopts the factual background as set forth in the Order, Report and
Recommendation, pp. 2-4, Dkt. 20:

Plaintiff Wesley Purdy (“Purdy”) initially filed this case in state
court seeking to quiet title to property located at 217 Kingsbury Lane in
Blaine County, Idaho (the “Property”). The case was removed to this Court
on December 16, 2011 by Mortgage Electronic Registration Systems, Inc.
(“MERS”), Countrywide Home Loans, Inc. (“CHL”), Bank of America,
N.A. (“BANA”), The Bank of New York Mellon fka The Bank of New
York, as Trustee for the Benefit of the Certificate holders of the CWALT
Inc., Alternative Loan Trust 2005-4, Mortgage Pass-Through Certificates,
Series 2005-4 (“BONY”), and ReconTrust Company, N.A. (“ReconTrust”)
(collectively “Defendants”). Purdy then filed a First Amended Complaint
alleging the following three causes of action related to non-judicial
foreclosure action taken on the Deed of Trust securing a note on the
Property: (1) Quiet Title, (2) Violation of the Fair Debt Collection Practices
Act (“FDCPA”), and (3) Declaratory Judgment.
Purdy initially financed his purchase of the Property on July 8, 2005
with a $481,250.00 mortgage loan (“first mortgage”) from Aegis Wholesale
Corporation. Compl.1 ¶ 14 (Dkt. 8); Dina Aff., Ex. A (Dkt. 13-1). The first
mortgage was memorialized in a promissory note (“Note”) and secured by
a first Deed of Trust naming Aegis Wholesale Corporation as the lender,
First American Title Company, Inc. (“First American”) as the trustee, and
MERS as the beneficiary “acting solely as a nominee for Lender and
Lender’s successors and assigns.”2 Compl. ¶ 14, Dina Aff., Ex. B.

1

The Complaint referred to throughout this document is the First Amended
Complaint filed at docket number 8.
2

On July 26, 2005, Purdy also obtained a Home Equity Line of Credit
(“HELOC”) for the Property in the amount of $145,000.00 from Aegis Home Equity
(“Aegis Funding”). Compl. ¶ 15. The HELOC Deed of Trust named Aegis Funding as
the lender, First American as the trustee, and MERS as the beneficiary, but this Deed of
Trust is not at issue in the present proceedings. Dina Aff., Ex. C.
ORDER ADOPTING REPORT AND RECOMMENDATION- 3

On August 22, 2011, MERS assigned its interest in the Deed of
Trust to BONY by way of a Corporation Assignment of Deed of Trust and
BONY then appointed ReconTrust as successor trustee. Dina Aff., Exs. E
& F. Although the Corporation Assignment from MERS to BONY stated
that the Deed of Trust was being assigned “together with the notes or notes
therein described,” Defendants acknowledge that the note securing the first
mortgage was transferred to BONY in a separate transaction. Defs.’ Mem.,
p. 4 (Dkt. 12-2). There are no documents in the record evincing a transfer
of the Note to BONY. The record does contain an “Allonge to Note” in
which Aegis Wholesale Corporation endorsed the Note to Aegis Mortgage
Corporation, and Aegis Mortgage Corporation endorsed the Note in
general, without naming the entity entitled to payment on the Note (i.e., a
blank endorsement).3 Dina Aff., Ex. A (Dkt. 13-2). The Note also states
that “Lender may transfer this Note” and “anyone who takes this Note by
transfer and who is entitled to receive payments under this Note is called
the ‘Note Holder.’” Id., Ex. A, ¶ 1.
On the same day MERS assigned its interest in the Deed of Trust to
BONY, August 22, 2011, ReconTrust issued a Notice of Default, recording
the Notice on August 23, 2011. Compl. ¶ 18; Dina Aff., Ex. G. The Notice
of Default stated that Plaintiff’s account had been in arrears since May 1,
2010 and that, as of August 22, 2011, Purdy owed $46,739.44. Dina Aff.,
Ex. G.
On August 29, 2011, ReconTrust caused a Notice of Trustee’s Sale
to be issued, scheduling the sale of the Property for January 3, 2012. Dina
Aff., Ex. H. Nothing in the record before the Court indicates that a
foreclosure sale has occurred, despite the notice.
MOTION TO DISMISS STANDARD OF REVIEW
Plaintiff objects that the magistrate judge did not apply the proper standard of
review for the motion to dismiss. Purdy argues the Court must rely on the evidence in
the record that establishes that the BONY and BANA acquired whatever interest they
held in the Note after the Note was in default. The Court has reviewed the record and

3

Defendants’ counsel averred that she obtained the records submitted in her
affidavit from Defendants. Dina Aff., ¶ 3. Neither of the Aegis entities is named as a
defendant in this case.
ORDER ADOPTING REPORT AND RECOMMENDATION- 4

finds it will make this assumption based on the record for purposes of reviewing the
objections to the Report and Recommendation. However, the Court finds the standard of
review for a motion to dismiss was properly stated by Judge Bush on pages 4-6 of the
Order, Report and Recommendation:
Federal Rule of Civil Procedure 8(a)(2) requires only “a short and
plain statement of the claim showing that the pleader is entitled to relief,” in
order to “give the defendant fair notice of what the . . . claim is and the
grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 555 (2007). While a complaint attacked by a Rule 12(b)(6) motion to
dismiss “does not need detailed factual allegations,” it must set forth “more
than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Id. at 555. 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.” Id. at 570. 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. Id. at 556. The plausibility standard is not akin to a
“probability requirement,” but it asks for more than a sheer possibility that
a defendant has acted unlawfully. Id. Where a complaint pleads facts that
are “merely consistent with” a defendant’s liability, it “stops short of the
line between possibility and plausibility of ‘entitlement to relief.’” Id. at
557.
In a more recent case, the Supreme Court identified two “working
principles” that underlie the decision in Twombly. See Ashcroft v. Iqbal,
556 U.S. 662, 663 (2009). First, the tenet that a court must accept as true
all of the allegations contained in a complaint is inapplicable to legal
conclusions. See id. “Rule 8 marks a notable and generous departure from
the hyper-technical, code-pleading regime of a prior era, but it does not
unlock the doors of discovery for a plaintiff armed with nothing more than
conclusions.” Id. at 678-79. Second, only a complaint that states a
plausible claim for relief survives a motion to dismiss. Id. at 679.
“Determining whether a complaint states a plausible claim for relief will . .
. be a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense.” Id.

ORDER ADOPTING REPORT AND RECOMMENDATION- 5

Providing too much in the complaint may also be fatal to a plaintiff.
Dismissal may be appropriate when the plaintiff has included sufficient
allegations disclosing some absolute defense or bar to recovery. See
Weisbuch v. County of L.A., 119 F.3d 778, 783, n.1 (9th Cir. 1997) (stating
that “[i]f the pleadings establish facts compelling a decision one way, that
is as good as if depositions and other . . . evidence on summary judgment
establishes the identical facts.”).
A dismissal without leave to amend is improper unless it is beyond
doubt that the complaint “could not be saved by any amendment.” Harris
v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir. 2009) (issued two months after
Iqbal).4 The Ninth Circuit has held that “in dismissals for failure to state a
claim, a district court should grant leave to amend even if no request to
amend the pleading was made, unless it determines that the pleading could
not possibly be cured by the allegation of other facts.” Cook, Perkiss and
Liehe, Inc. v. Northern California Collection Serv., Inc., 911 F.2d 242, 247
(9th Cir. 1990). The issue is not whether the plaintiff will prevail but
whether he “is entitled to offer evidence to support the claims.” Diaz v.
Int’l Longshore and Warehouse Union, Local 13, 474 F.3d 1202, 1205 (9th
Cir. 2008) (citations omitted).
OBJECTIONS
Judge Bush recommends granting the pending motion to dismiss and that all
claims except the FDCPA claims be dismissed with prejudice. Judge Bush recommends
that this Court grant Plaintiff leave to amend the FDCPA claim. Plaintiff objects to the

4

The Court has some concern about the continued vitality of the liberal
amendment policy adopted in Harris v. Amgen, based as it is on language in Conley v.
Gibson, 355 U.S. 41, 45-46 (1957), suggesting, in part, that “a complaint should not be
dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can
prove no set of facts in support of his claim . . . .” Given Twombly and Iqbal’s rejection
of the liberal pleading standards adopted by Conley, a question arises whether the liberal
amendment policy of Harris v. Amgen still exists. Nevertheless, the Circuit has continued
to apply the liberal amendment policy even after dismissing claims for violating Iqbal and
Twombly. See, e.g., Market Trading, Inc. v. AT&T Mobility, LLC, 2010 WL 2836092
(9th Cir. July 20, 2010) (not for publication). Accordingly, the Court will continue to
employ the liberal amendment policy.
ORDER ADOPTING REPORT AND RECOMMENDATION- 6

recommendation arguing the bank defendants cannot show a present right to possession
of Purdy’s property to support the foreclosure arguing the bank defendants are “debt
collectors” under the FDCPA. Purdy also argues there are defects in the documents that
prevent the pending foreclosure from proceeding. Plaintiff also argues the bank
defendants do not have standing to bring the motion to dismiss. The Court has reviewed
these objections and under the current state of the foreclosure law in Idaho, the Court
finds the objections should be denied. The Court acknowledges that its interpretation of
the FDCPA has changed since it first began ruling on cases in the District of Idaho and
new case law has been reported.5 Additionally, the Court does not find bankruptcy cases
cited by Plaintiff to be controlling in an action for a non-judicial foreclosure.
1. Standing to foreclose.
The law in Idaho is now settled that a trustee need not prove it has standing before
foreclosing on a deed of trust via the statutory non-judicial foreclosure process set forth in
the Idaho Deed of Trust Act, Idaho Code § 45-1502-1515. Trotter v. Bank of New York
Mellon, 275 P.3d 857, 863 (Idaho 2012). Based on Trotter, the Court rejects Plaintiff’s
argument that the trustee or bank defendant needs to produce the original note before
proceeding with a non-judicial foreclosure.

5

Specifically, the Court finds Plaintiff’s reliance on the Armacost v. HSBC Bank
USA, 2011 WL 825151 (D. Idaho 2011) ruling is no longer binding precedent in the
District of Idaho and the Meyer v. Bank of Amercia, N.A., 2011 WL 4584762 (D. Idaho
2011) ruling is inapplicable as Meyer was not an FDCPA case.
ORDER ADOPTING REPORT AND RECOMMENDATION- 7

Purdy’s arguments regarding the applicability of the Uniform Commercial Code
are misplaced and have also been rejected by the Idaho Supreme Court. As stated by
Judge Bush, “The power to conduct a trustee’s sale granted by the Deed of Trust is not
the same as enforcing a security instrument under the UCC, and there is no requirement
for the production of the note prior to foreclosing on the property.” Order, Report and
Recommendation at p. 8. See Diessner v. Mortgage Elec. Reg. Sys., 618 F.Supp 1184,
1187 (D. Ariz. 2009).

Moreover, Purdy’s claim to quiet title fails as a matter of law based on his failure
to plead tender. Trusty v. Ray, 249 P.2d 814, 817 (Idaho 1952). Purdy’s argument that he
should be able to proceed with the quiet title action without tendering payment of the
debt is without merit as Purdy would have a legal claim if, as he speculates, he paid the
wrong holder of the Note and was not given credit for his payments. Because these
speculations are not the facts before the Court, the tender requirement applies and
Plaintiff’s quite title action cannot survive.
Finally, the Court agrees with Judge Bush that the securitization of the Note does
not impact the right to foreclose on the Deed of Trust. West v. Bank of America, 2011
WL 2491295, *2 (D. Nev. 2011); Washburn v. Bank of America, 2011 WL 7053617, *45 (D. Idaho 2011). Nor does the use of BONY as the beneficiary under the Deed of Trust
while BANA is the holder of the Note extinguish the right to foreclose. Cervantes v.
Countrywide Home Loans, Inc., 656 F.3d 1034 (9th Cir. 2011).

ORDER ADOPTING REPORT AND RECOMMENDATION- 8

2. Bank Defendants as Debt Collectors under the FDCPA.
Plaintiff maintains his FDCPA claim should not be dismissed as the bank
defendants are acting as “debt collectors” since they took their interests after Purdy was
already in default on his payments. The Court finds this argument unpersuasive. For
argument purposes, even if the bank defendants could be considered “debt collectors”
under the FDCPA (which the Court does not concede is true as a matter of law), it simply
does not create a claim under the FDCPA since the bank defendants are not attempting to
collect monies due on the Note. Rather, the bank defendants are foreclosing on a deed of
trust. While there may be a split of authority on this issue, the Court is now persuaded by
Cherian v. Counrtywide Home Loans, Inc., 2012 WL 2865979 (D. Idaho) that the
FDCPA was not intended to include non-judicial foreclosure actions as the non-judicial
foreclosure process does not rise to the level of a “debt collection activity” under the
FDCPA. See also, Hulse v. Ocwen Fed. Bank, FSB, 195 F.Supp.2d 1188m 1204 (D. Or.
2002).
Even if a party has not requested leave to amend, a dismissal without leave to
amend is improper unless it is beyond doubt that the complaint “could not be saved by
any amendment.” Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir.2009). The Court
finds allowing Plaintiff leave to amend his Complaint on this FDCPA claim in this case
would be futile based on this Court determination non-judicial foreclosure proceedings
are not debt collection activities under the FDCPA. Therefore, the Court will decline to

ORDER ADOPTING REPORT AND RECOMMENDATION- 9

allow the FDCPA claim to survive the motion to dismiss subject to leave to amend the
Complaint.
3. Defects in Recording.
Plaintiff maintains the foreclosure cannot proceed as there are defects in the
recording process by the bank defendants for the notice of default. The Court
respectfully disagrees. As discussed earlier, the Court has determined that bank
defendants need not produce the note in order to effectuate a non-judicial foreclosure in
Idaho. Plaintiff has not provided any evidence that rebuts the beneficial interest and
trustee status held by BONY and ReconTrust or that BANA is not as a matter of law the
holder of the underlying Note based on certain assignments from the original lender
Aegis Mortgage Corporation.
It is undisputed that Purdy was in default on Note secured by a Deed of Trust. It is
also undisputed that MERS transferred its beneficial interest under the Deed of Trust to
BONY and BANA (as attorney in fact for BONY) appointed ReconTrust as trustee. It is
also undisputed that the change in the beneficial interest and the trustee were recorded
and that ReconTrust recorded a Notice of Default indicating BONY is the beneficiary of
the Deed of Trust. The remaining dispute between the parties is whether on not the
recording of assignments of the beneficial interests in the Deed of Trust and the change in
trustee were properly recorded.

ORDER ADOPTING REPORT AND RECOMMENDATION- 10

Judge Bush did not find the alleged defects by Plaintiff relevant as to whether or
not the case survives the motion to dismiss. While Plaintiff speculates regarding the
impact of certain affidavits completed by notaries, there is no evidence to support the
affidavits are invalid. The only alleged defect this Court is troubled with is the allegation
that the power of attorney appointing BANA as attorney in fact for BONY was not
recorded. Plaintiff is correct that Idaho Code §55-806 requires “an instrument executed
by an attorney in fact must not be recorded until the power of attorney authorizing the
execution of the instrument is filed for record in the same office.” However, the purpose
of the recording statutes is to provide notice to subsequent purchasers and a failure to
record the power of attorney does not void the effect of the appointment of ReconTrust as
the trustee in this case. The recording statutes do not require instruments to be recorded,
considering unrecorded instruments are valid between parties that created them, and
those who have actual notice of them. Idaho Code § 55-815. Thus, the failure to record
BANA’s power of attorney does not invalidate the change in trustees in this case as
Purdy is not a subsequent purchaser and he was on notice of the power of attorney status
of BANA by the instruments that were recorded.
Furthermore, the Notice of Default recorded by ReconTrust is not a “conveyance”
under Idaho Code 55-813, therefore, the alleged failure to record the power of attorney
held by BANA for BONY does not invalidate the non-judicial foreclosure process by the
bank defendants. Stated another way, it is the recording of the original Deed of Trust that
provided notice of conveyance and a mortgage interest in Plaintiff’s property to all
ORDER ADOPTING REPORT AND RECOMMENDATION- 11

subsequent purchasers and mortgagees. It is undisputed that the transfer of beneficial
interest in the Deed of Trust was properly recorded by BONY and that BONY informed
the trustee, ReconTrust of the undisputed default on the Note by Plaintiff which led to the
filing of the Notice of Default. Therefore, the alleged defect in recording the power of
attorney status of BANA is insufficient to invalidate the statutory non-judicial foreclosure
process which was complied with by the bank defendants.

CONCLUSION
After having reviewed the record in this matter, the Court finds the record does
support a finding that the defendants have standing to proceed with a non-judicial
foreclosure, that the foreclosure proceedings were valid and the undisputed notice of
default was properly noticed. Therefore, the motion to dismiss Plaintiff’s claim for quiet
title, claim for a violation of the FDCPA and claim for declaratory relief must be granted
and the case will be dismissed in its entirety.
The Court having reviewed the Report and Recommendation and the record in this
matter and finds no clear error on the face of the record. Moreover, the Court finds the
Report and Recommendation is well-founded in the law based on the facts of this
particular case and this Court is in agreement with the same unless otherwise modified by
this Order.

ORDER ADOPTING REPORT AND RECOMMENDATION- 12

ORDER
NOW THEREFORE IT IS HEREBY ORDERED that the Report and
Recommendation (Dkt. 20) shall be INCORPORATED by reference and ADOPTED
consistent with the analysis in this Order.
IT IS FURTHER ORDERED:
Defendants’ Motion to Dismiss (Dkt. 12) is GRANTED and the case is
DISMISSED IN ITS ENTIRETY.
DATED: September 26, 2012

Honorable Edward J. Lodge
U. S. District Judge

ORDER ADOPTING REPORT AND RECOMMENDATION- 13