Robinett et al v. Loancare, LLC et al

Filing 19

MEMORANDUM DECISION AND ORDER - IT IS HEREBY ORDERED: 1. Defendants Motion to Dismiss (Dkt. 11 ) is GRANTED. 2. Counts Three and Four are DISMISSED WITH PREJUDICE. 3. Counts One, Two, and Five, are DISMISSED WITHOUT PREJUDICE and Plaintiffs shall ha ve leave to amend their Complaint with regard to these three claims. 4. Plaintiffs shall file an Amended Complaint within three weeks of the issuance of this Order. Failure to do so will result in the dismissal of this action with prejudice. Signed by Judge David C. Nye. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjs)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
DOUGLAS ROBINETT and LISA
ROBINETT,

Case No. 3:17-cv-000424-DCN
MEMORANDUM DECISION AND
ORDER

Plaintiffs,
v.
LOANCARE, LLC, AMERICAN
FINANCIAL RESOURCES, INC., and
LAKEVIEW LOAN SERVICING, LLC,
Defendants.

I. OVERVIEW
This matter comes before the Court on Defendants’ Motion to Dismiss. Having
reviewed the record, the Court finds that the facts and legal arguments are adequately
presented in the briefs. Accordingly, in the interest of avoiding further delay, and because
the Court finds that the decisional process would not be significantly aided by oral
argument, the Court decides the Motion on the record without oral argument. Dist. Idaho
Loc. Civ. R. 7.1(d)(2)(ii). For the reasons set forth below, the Court GRANTS the Motion
to Dismiss but also gives Plaintiffs leave to amend their Complaint.
II. FACTS
On January 1, 2012, Plaintiffs Douglas Robinett and Lisa Robinett granted a Deed
of Trust in their home in Kamiah, Idaho, (hereinafter “the Property”) to Defendant

MEMORANDUM DECISION AND ORDER – PAGE 1

American Financial Resources, Inc. (“AFR”).1 At all relevant times, Defendant LoanCare
serviced the indebtedness secured by the Deed of Trust. Under the Deed of Trust,
Plaintiffs were obligated to maintain property insurance on the Property and to name the
lender as an additional insured. Plaintiffs obtained insurance that satisfied this obligation
through Foremost Insurance Group.
The Deed of Trust provided that, “[i]n the event of a loss . . . . [a]ll or any part of
the insurance proceeds may be applied by Lender, at its option, either (a) to reduction of
the indebtedness under the Note and this Security instrument, . . . or (b) to the restoration
or repair of the damaged Property.” Dkt. 11-2, at 3.
On August 15, 2015, improvements on the Property were destroyed during the
Clearwater Complex and Lawyer Complex forest fires.
After the complete loss of their home, Plaintiffs made claims to their insurer. On
August, 28, 2015, Foremost Insurance Group issued checks in the amount of $97,650 and
$30,000, payable to Plaintiffs and LoanCare (as an agent/loan servicer for AFR). Upon
receipt, Plaintiffs endorsed the checks and forwarded them to LoanCare.
Thereafter, Plaintiffs asked that Defendants apply the insurance proceed to the
debt secured by the Property. Plaintiffs then made several requests to Defendants for
“payoff information” (documentation that their debt had been paid off). Plaintiffs were
attempting to refinance their existing debt and facilitate the rebuilding of their destroyed

1

A deed of trust typically involves three parties: a borrower, a trustee, and a lender. For the Deed
of Trust at issue in this case, Plaintiffs were the borrowers, Inland Title and Escrow was the
trustee, and AFR, initially, was the lender. Dkt. 11-2, at 1.

MEMORANDUM DECISION AND ORDER – PAGE 2

home. Between September of 2015 and May of 2016, LoanCare failed to apply the
insurance proceeds to the debt or to provide the requested payoff information.
On November 6, 2015, the Kamiah Community Credit Union rejected Plaintiffs’
application for refinancing due to the absence of payoff information that reflected the
application of the insurance proceeds to the Plaintiffs’ then existing indebtedness. On
November 30, 2015, AFR transferred its interest in the Deed of Trust to Defendant
Lakeview Loan Servicing, L.L.C. (“Lakeview”). However, LoanCare continued to
service the loan.
In April of 2016, Plaintiffs reapplied for financing from Kamiah Community
Credit Union. On April 18 and 26, 2016, Kamiah Community Credit Union made
additional requests to LoanCare seeking Plaintiffs’ payoff information. Each time,
LoanCare responded by providing a written payoff statement that did not reflect the
application of the insurance proceeds to the debt.
On or around May 11, 2016, Mortgage Electronic Registration Systems, Inc.,
acting as an agent for Lakeview, caused a Notice of Default regarding the subject real
property to be recorded in the county land records in Idaho County, Idaho. Shortly
thereafter, on or about May 20, 2016, LoanCare provided a payoff statement showing
application of the insurance proceeds to Plaintiffs’ debt. In June of 2016, after LoanCare
applied the insurance proceeds to Plaintiffs’ debt, Lakeview’s interest in the Property,
secured by the Deed of Trust, was released. There was some delay in releasing the
interest in the Property—which allowed Plaintiffs to obtain new financing to rebuild their
home—due to the Notice of Default filed in Idaho County in May of 2016.
MEMORANDUM DECISION AND ORDER – PAGE 3

On September 5, 2017, Plaintiffs filed suit in Idaho County against LoanCare,
Lakeview, and AFR. On October 12, 2017, Defendants removed this action to federal
court on the basis of diversity jurisdiction. Plaintiffs assert five claims against
Defendants: (1) breach of contract; (2) conversion; (3) negligence and breach of fiduciary
duty; (4) bad faith; and (5) slander of title. Defendants have now moved to dismiss all
five of these claims under Federal Rule of Civil Procedure 12(b)(6).
III. LEGAL STANDARD
Federal Rule of Civil Procedure 8(a) requires that a complaint contain “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.” See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554 (2007). A complaint that
fails to meet this Rule 8(a) standard is subject to attack by a Rule 12(b)(6) motion to
dismiss for failure to state a claim upon which the Court can grant relief. 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. 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.” Id. at 555. Further, “a formulaic recitation
of the elements of a cause of action will not do.” Id. In considering a Rule 12(b)(6)
motion, the Court must view the “complaint in the light most favorable to” the claimant
and “accept[] all well-pleaded factual allegations as true, as well as any reasonable
inference drawn from them.” Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116,

MEMORANDUM DECISION AND ORDER – PAGE 4

112s (9th Cir. 2008). However, the Court need not accept all asserted legal conclusions as
true. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
IV. ANALYSIS
Plaintiffs do not object to the dismissal of Count Three, negligence and breach of
fiduciary duty, or Count Four, bad faith. The Court, therefore, dismisses those claims
with prejudice. The Court addresses the remaining claims, in turn, below.
A. Breach of Contract and Breach of the
Implied Covenant of Good Faith and Fair Dealing
In Count One, Plaintiffs allege that Defendants breached express terms of the
Deed of Trust and the covenant of good faith and fair dealing implied therein. In Idaho,
“[t]he elements for a claim for breach of contract are: (a) the existence of the contract, (b)
the breach of the contract, (c) the breach caused damages, and (d) the amount of those
damages.” Mosell Equities, LLC v. Berryhill & Co., Inc., 297 P.3d 232, 241 (Idaho 2013).
The covenant of good faith and fair dealing is implied in every contract. Idaho First Nat.
Bank v. Bliss Valley Foods, Inc., 121 Idaho 266, 289 (Idaho 1991). This covenant
requires “that the parties perform in good faith the obligations imposed by their
agreement.” Id. (citation omitted). A party violates this covenant when an action by that
party “violates, nullifies or significantly impairs any benefit of the . . . contract.” Id.
(quoting Metcalf v. Intermountain Gas Co., 778 P.2d 744 (1989)).
The parties agree that a contract—the Deed of Trust—exists. The parties also
agree that the Deed of Trust provides for two alternatives in the event insurance proceeds
are received after the Property has suffered a loss: the Defendants may either apply the

MEMORANDUM DECISION AND ORDER – PAGE 5

insurance proceeds “(a) to reduction of the indebtedness under the Note and this Security
instrument, . . . or (b) to the restoration or repair of the damaged Property.” Dkt. 11-2, at
3. However, the parties dispute whether Plaintiffs have sufficiently alleged that
Defendants breached this provision of the Deed of Trust.
In their Complaint, Plaintiffs assert that Defendants “breached their contractual
obligations to Plaintiffs by failing to apply the subject insurance proceeds in a timely
manner, by failing to provide timely and accurate pay-off information upon request, and
by violating the implied covenant of good faith and fair dealing.” Dkt. 9, at 9. Plaintiffs
have thus plainly alleged that Defendants failed to complete the first of the two options
available to Defendants under the contract for distribution of the insurance proceeds.
Plaintiffs did not explicitly allege in their Complaint that Defendants also failed to
complete the second of the two available options.
In their response to the Motion to Dismiss, Plaintiffs argue Defendants breached
the Deed of Trust by failing to take any action with regard to the funds. As a general rule,
“a district court may not consider any material beyond the pleadings in ruling on a Rule
12(b)(6) motion,” Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) (citation
omitted), including allegations in the briefs. See Schneider v. Cal. Dep’t of Corrections,
151 F.3d 1194, 1197 n. 1 (9th Cir. 1998). Thus, the Court cannot consider any facts or
legal conclusions Plaintiffs have asserted in their briefs.
Looking only at the face of the Complaint, Plaintiffs have not alleged how
Defendants have failed to complete the second of the contract’s two available options for
applying the obtained insurance proceeds. This is detrimental to Plaintiffs’ breach of
MEMORANDUM DECISION AND ORDER – PAGE 6

contract claim at this stage as Plaintiffs must allege that Defendants failed to complete
both available options to state a breach of contract claim upon which relief may be
granted. Nevertheless, the Court finds Plaintiffs could remedy this deficiency with the
allegation of additional facts. The Court, therefore, grants Plaintiffs leave to amend their
Complaint.2
The Court turns briefly to the claim that Defendants breached the implied
covenant of good faith and fair dealing. The covenant of good faith and fair dealing does
not override the express terms of the contract. Bushi v. Sage Health Care, PLLC, 146
Idaho 764, 768, 203 P.3d 694, 698 (2009). Rather, the covenant only requires “that the
parties perform in good faith the obligations imposed by their agreement.” Idaho First
Nat. Bank, 121 Idaho at 289. The Court agrees with Defendants that the covenant of good
faith and fair dealing did not require them to apply the insurance proceeds to Plaintiffs’

2

The parties discuss several non-binding cases at length. Defendants argue these cases require
dismissal with prejudice. These cases involve the same contractual provision and are
informative, but do not require dismissal with prejudice because they are factually
distinguishable. Edwards v. Bank of Am., N.A., No. 2260 SEPT. TERM 2014, 2015 WL
9257696, at *5 (Md. Ct. Spec. App. Dec. 17, 2015) (dismissing breach of contract claim because
plaintiff failed to tender insurance proceeds to lender, but acknowledging that lender had the
option to either apply the insurance funds to plaintiff’s debt or to repairs to the damaged
property); Plymouth Commons Realty Corp. v. Ne. Sav., F.A., No. CV 93-0456534, 1994 WL
622009, at *3 (Conn. Super. Ct. Oct. 7, 1994) (dismissing breach of contract claim because bank
adhered to contract by applying insurance proceeds to debt; but, allowing plaintiffs to proceed on
good faith and fair dealing claim because, although bank strictly complied with contract, plaintiff
sufficiently alleged that bank did so in a manner that increased their damages); Hopkins v. Wells
Fargo Bank, N.A., No. CIV. 2:13-cv-00444 WBS, 2013 WL 2253837, at *6–9 (E.D. Cal. May
22, 2013) at (E.D. Cal. May 22, 2013) (finding lender did not breach deed of trust because the
lender distributed some of the insurance proceeds to pay down plaintiff’s loan, as permitted by
the deed of trust, but also concluding plaintiff may have a claim for breach of the implied
covenant of good faith and fair dealing because lender failed to apply the remainder of the
insurance proceeds to either of two options available under the deed of trust).

MEMORANDUM DECISION AND ORDER – PAGE 7

debt as Plaintiffs’ requested. Plymouth Commons Realty Corp. v. Ne. Sav., F.A., No. CV
93-0456534, 1994 WL 622009, at *4 (Conn. Super. Ct. Oct. 7, 1994) (“[T]he defendant
has not breached any covenant of good faith and fair dealing by selecting one option over
the other.”). However, Defendants may have breached the covenant if “the manner” in
which Defendants carried out its obligations under the Deed of Trust violated, nullified,
or significantly impaired any benefit of the Deed of Trust. Id.; Idaho First Nat. Bank, 121
Idaho at 289.
Plaintiff has failed to provide sufficient factual details to state such a claim for
breach of the implied covenant of good faith and fair dealing upon which relief can be
granted. Rather, Plaintiffs have conclusorily alleged that Defendants have breached this
covenant. The Court also finds Plaintiffs may be able to remedy this deficiency with
additional facts. Therefore, Plaintiffs are granted leave to amend to expand the factual
basis of this claim.
B. Conversion
In Count Two, Plaintiffs assert a claim of conversion. Under Idaho law, a claim
for conversion has three elements: “(1) that the charged party wrongfully gained
dominion of property; (2) that property is owned or possessed by plaintiff at the time of
possession; and (3) the property in question is personal property.” Taylor v. McNichols,
243 P.3d 642, 662 (Idaho 2010). The Idaho Supreme Court has held that a check or
“specifically identifiable monies” may be the subject of a conversion claim. Med.
Recovery Servs., LLC v. Bonneville Billing & Collections, Inc., 336 P.3d 802, 807 (2014)
(citations omitted).
MEMORANDUM DECISION AND ORDER – PAGE 8

Defendants argue that Plaintiffs have failed to state a conversion claim for two
reasons. First, because both Plaintiffs and LoanCare had an equal right to possess and
control the insurance proceeds LoanCare did not wrongfully exercise dominion over the
property. At least initially, the Court agrees. Foremost Insurance Group issued the
insurance proceed checks to both Plaintiffs and LoanCare. Plaintiffs endorsed the checks
and forwarded them to LoanCare. Under Idaho Code, “[i]f an instrument is payable to
two (2) or more persons alternatively, it is payable to any of them and may be negotiated,
discharged, or enforced by any or all of them in possession of the instrument.” Idaho
Code § 28-3-110(4). Under this provision, LoanCare at least initially had the right to
exercise dominion over the insurance proceed checks.
Second, Defendants argue that they also did not convert the insurance proceeds at
any time from September 2015 to May 2016 because, during this time, their actions (as
alleged in the Complaint) were not inconsistent with Plaintiffs’ rights in the insurance
proceeds. Defendants cite Hopkins v. Wells Fargo Bank, N.A., No. CIV. 2:13-cv-00444
WBS, 2013 WL 2253837 (E.D. Cal. May 22, 2013), in support of this argument. Hopkins
is, factually, very similar to this case. Like here, in Hopkins, a deed of trust provided that
the defendant-lender could apply insurance proceeds, obtained after a loss to the
plaintiff’s property, to either (a) the debt the property secured or (b) repairs to the
property. Id. at *6. The plaintiff turned over insurance proceeds she received after fire
damaged her property to the lender-defendant. Id. She then brought suit against the
lender-defendant, claiming the lender-defendant failed to distribute the insurance
proceeds in accordance with one of the two options available under the deed of trust. The
MEMORANDUM DECISION AND ORDER – PAGE 9

plaintiff brought, among other things, claims for breach of contract, breach of the
covenant of good faith and fair dealing, and conversion. Id. at *6–10. The Hopkins court
conclude that “[t]he allegations in th[e] case do not fit a claim for conversion.” Id. at *10.
Specifically, the court found that the question of “[w]hether defendants damaged plaintiff
by . . . using the [insurance] proceeds contrary to the requirements in the deed of trust is
properly resolved by plaintiff’s breach of contract and implied covenant claims, not a
conversion claim.” Id. The court then dismissed the conversion claim without leave to
amend, finding amendment would be futile. Id.
Plaintiffs respond by citation to Luzar v. Western Surety Co., 692 P.2d 337 (Idaho
1984). Unlike in Hopkins, the Luzar court held that “conversion is a remedy available to
a [borrower] against a secured party-[lender] who refuses to return” collateral that is the
subject of a security agreement “if [the] security agreement does not give a legal right [to
the lender] to retain the collateral after a demand for return by the [borrower].”3 Id. at
340. For such a conversion claim to stand, the borrower must first “make[] a rightful and
reasonable demand for return of the collateral,” and the lender must act unreasonably in
refusing to return the property. Id. When, as here, the parties have a written security

3

Recently, the Idaho Supreme Court re-explained the holding in Luzar. Carpenter v. Turrell, 227
P.3d 575, 581 (Idaho 2010) (“In Luzar, this Court held that “where the owner [of property] had
given possession of his property to another under the terms of a contract, pledging the property
as security for an obligation, the secured party would not be wrongfully exercising dominion
over the property by refusing to return it upon demand if it had a contractual right to continue
retaining possession of the property.”). In this explanation, the Idaho Supreme Court made no
indication that Luzar was no longer good law. Although the explanation was in dicta, the Court
finds explanation supports a finding that Luzar is still the law in Idaho.
MEMORANDUM DECISION AND ORDER – PAGE 10

agreement, “the interpretation and legal effect of th[at] security agreement” will be
determinative of whether a conversion claim is valid. Id.
Plaintiffs have alleged that they made a demand on Defendants to apply the
insurance proceeds to their debt, the first option available under the Deed of Trust, and
that Defendants refused to do so. Plaintiffs have not alleged any facts with regard to “a
rightful and reasonable demand” they made on Defendants that relates to the second
option available for distribution of the insurance funds under the Deed of Trust or that
Defendants unreasonably withheld funds in light of this provision. Without such an
allegation, Plaintiffs’ have not stated a claim for conversion under Luzar. The Court finds
Plaintiffs may be able to remedy this deficiency by pleading additional facts. The Court,
therefore, dismisses Plaintiffs’ conversion claim, but grants Plaintiffs leave to amend this
claim.
C. Slander of Title
Finally, Plaintiffs assert a claim for slander of tile under Idaho law. “Slander of
title requires proof of four elements: (1) publication of a slanderous statement; (2) its
falsity; (3) malice; and (4) resulting special damages.” Weitz v. Green, 862, 230 P.3d 743,
754 (Idaho 2010). Plaintiffs base this claim on the Notice of Default regarding Plaintiffs’
Property Mortgage Electronic Registration Systems filed, on behalf of Defendants, in the
land records of Idaho County, Idaho, on or around May 11, 2016. Defendants argue
Plaintiffs have failed to allege that the Notice of Default was in fact false or that
Defendants acted with malice.

MEMORANDUM DECISION AND ORDER – PAGE 11

Plaintiffs have not identified what exactly was stated in the Notice of Default.
Plaintiffs also did not attached the Notice of Default to their Complaint. Without this
information, the Court has no way of evaluating the statement at this stage. The Court can
assume that the Notice of Default stated Plaintiffs had defaulted on their payment
obligations under the Deed of Trust. However, the Court is not in the business of making
such assumptions and cannot even purport to guess what details the Notice of Default
contains. Even if the Court assumed the Notice of Default contained such a statement,
Plaintiffs have also failed to explain why such a statement would be false. Rather, they
simply assert that the Notice of Default is false. Thus, Plaintiffs ask the Court to presume
they had not defaulted on their payment obligations. Plaintiffs have not alleged facts to
support a finding that they were not in default. For these reasons, the Court finds
dismissal of this claim is appropriate. However, as with the other claims, amendment may
not be futile, so the Court will grant leave to amend.
V. ORDER
IT IS HEREBY ORDERED:
1. Defendants’ Motion to Dismiss (Dkt. 11) is GRANTED.
2. Counts Three and Four are DISMISSED WITH PREJUDICE.
3. Counts One, Two, and Five, are DISMISSED WITHOUT PREJUDICE and
Plaintiffs shall have leave to amend their Complaint with regard to these three
claims.

MEMORANDUM DECISION AND ORDER – PAGE 12

4. Plaintiffs shall file an Amended Complaint within three weeks of the issuance of
this Order. Failure to do so will result in the dismissal of this action with
prejudice.

DATED: January 3, 2018

_________________________
David C. Nye
U.S. District Court Judge

MEMORANDUM DECISION AND ORDER – PAGE 13