Galvin et al v. U.S. Bank, National Association as Trustee Relating to Chevy Chase Funding, LLC Mortgage Back Certificates Series 2007-1 et al
Filing
22
Judge Richard G. Stearns: ORDER entered granting 8 Motion to Dismiss for Failure to State a Claim. "For the foregoing reasons, defendants' partial motion to dismiss Counts I, II, III, V, and VII (this count as to MERS only) of the Complaint is ALLOWED." (RGS, int2)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 14-14723-RGS
MARK B. GALVIN and JENNY G. GALVIN
v.
U.S. BANK NATIONAL ASSOCIATION as TRUSTEE RELATING TO
CHEVY CHASE FUNDING, LLC MORTGAGE BACK CERTIFICATES
SERIES 2007-1;
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.;
CAPITAL ONE, N.A., a/k/a CAPITAL ONE BANK, f/k/a CHEVY CHASE
BANK, FSB
MEMORANDUM AND ORDER ON DEFENDANTS’ PARTIAL
MOTION TO DISMISS
March 9, 2015
STEARNS, D.J.
Plaintiffs Mark and Jenny Galvin challenge the November 2014
foreclosure of property they owned at 14 Skip Jack Way, Tisbury (Vineyard
Haven), Dukes County, Massachusetts.
They seek a declaration that
defendants U.S. Bank National Association as Trustee Relating to Chevy
Chase Funding, LLC Mortgage Back Certificate Series 2007-1 (U.S. Bank
Trustee), and Mortgage Electronic Registration Systems, Inc. (MERS)
lacked sufficient title to force a sale (Count I).
They also allege that
defendants breached the terms of the mortgage contract (Count II) and its
implied covenant of good faith and fair dealing (Count III); that U.S. Bank
Trustee committed common-law trespass on the property (Count IV); that
defendants failed to supervise actions taken by others with respect to the
administration of the mortgage (Count V); that U.S. Bank Trustee engaged
in unfair and deceptive business practices in violation of the Massachusetts
Consumer Protection Act, ch. 93A (Count VI); and that defendants
intentionally and/or negligently caused them emotional distress (Count
VII). Defendants 1 move to dismiss Counts I, II, III, V, and VII (this count
as to MERS only) pursuant to Fed. R. Civ. P. 12(b)(6).
BACKGROUND
In 2006, the Galvins took out a loan of $2,385,000 from Chevy Chase
Bank and executed a mortgage on the property to MERS “solely as nominee
for Lender and Lender’s successors and assigns.” Defs.’ Ex. A – MERS
Mortgage at 1. See Alt. Energy, Inc. v. St. Paul Fire and Marine Ins. Co.,
267 F.3d 30, 33 (1st Cir. 2001) (In resolving a motion to dismiss, the court
may properly consider “documents the authenticity of which are not
disputed by the parties; [] official public records; [] documents central to
plaintiffs’ claim; or [] documents sufficiently referred to in the complaint.”).
In late 2009, plaintiffs defaulted on their loan. In March of 2011, they
received a “Notice of Default and Intent to Foreclose” from Specialized
Capital One, N.A., a/k/a Capital One Bank, f/k/a Chevy Chase Bank,
FSB, has yet to appear in this litigation.
2
1
Loan Servicing, LLC (SLS), the servicer on the mortgage. In July of 2012,
MERS assigned the mortgage to U.S. Bank Trustee. The assignment was
recorded in the Dukes County Registry of Deeds in October of 2012. 2 See
Boateng v. Interamerican Univ., Inc., 210 F.3d 56, 60 (1st Cir. 2000) (“[A]
court may look to matters of public record in deciding a Rule 12(b)(6)
motion without converting the motion into one for summary judgment.”).
In May of 2013, an “Affidavit Pursuant to M.G.L. Ch. 244, §§ 35B
and 35C”3 was recorded in the Dukes County Registry of Deeds stating that
U.S. Bank Trustee was the holder of the promissory note secured by the
MERS mortgage. A further “Affidavit Regarding Note Secured by Mortgage
Being Foreclosed” was recorded in the Dukes County Registry of Deeds in
October of 2014, indicating that U.S. Bank Trustee then held both the
mortgage and the note on the Galvins’ property.
U.S. Bank Trustee
foreclosed on the property in November of 2014.
A previous assignment by MERS was judicially nullified and
expunged as having been assigned to a non-juridical entity.
2
Mass. Gen. Laws ch. 244, § 35C(b) requires that “[a] creditor shall
not cause publication of notice of foreclosure . . . when the creditor knows
that the mortgagee is neither the holder of the mortgage note nor the
authorized agent of the note holder,” and that “[p]rior to publishing a
notice of a foreclosure sale . . . the creditor, or . . . an officer or duly
authorized agent of the creditor, shall certify compliance with this
subsection in an affidavit based upon a review of the creditor’s business
records.”
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3
DISCUSSION
In evaluating a motion to dismiss,
we assume the truth of all well-pleaded facts and indulge all
reasonable inferences that fit the plaintiff’s stated theory of
liability. Rogan v. Menino, 175 F.3d 75, 77 (1st Cir.1999);
Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir. 1996). We are not
bound, however, to credit “bald assertions, unsupportable
conclusions, and opprobrious epithets” woven into the fabric of
the complaint. Chongris v. Bd. of Appeals, 811 F.2d 36, 37 (1st
Cir. 1987) (citation and internal quotation marks omitted).
In re Colonial Mortg. Bankers Corp., 324 F.3d 12, 15 (1st Cir. 2003).
Count I – Declaratory Judgment of Invalid Foreclosure
Plaintiffs’ first broadside is aimed principally at MERS. The Galvins
argue that the July 2012 MERS assignment to U.S. Bank Trustee was void
because MERS as a nominee mortgagee held no assignable interest in the
underlying promissory note; moreover, that the entire transaction
contravened MERS’ internal rules (under these rules MERS acts as a
nominee mortgagee only for members that have signed the MERS
membership agreement – plaintiffs allege that neither Chevy Chase Bank
nor U.S. Bank Trustee are members of MERS); and these arguments aside,
defendants violated paragraphs 20 and 22 of the underlying mortgage
contract.
Applying “venerable precedents,” the First Circuit has squarely
deflected plaintiffs’ first arrow of contention – that MERS did not possess
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an assignable interest in the note. See Culhane v. Aurora Loan Servs. of
Nebraska, 708 F.3d 282, 293 (1st Cir. 2013).
Massachusetts law makes pellucid that the mortgage and the
note are separate instruments; when held by separate parties,
the mortgagee holds a bare legal interest and the noteholder
enjoys the beneficial interest. See [Eaton v. Fed. Nat’l Mortg.
Ass’n, 462 Mass 569, 575-576 (2012)]. The mortgagee need not
possess any scintilla of a beneficial interest in order to hold the
mortgage. . . .
MERS had the authority twice over to assign the mortgage to
Aurora. This authority derived both from MERS’s status as
equitable trustee [for the noteholder] and from the terms of the
mortgage contract. . . . The mortgage papers denominated
MERS as mortgagee “solely as nominee for [Preferred] and
[Preferred]’s successors and assigns.” Under Massachusetts
law, a nominee in such a situation holds title for the owner of
the beneficial interest. See Morrison v. Lennett, 415 Mass. 857,
[860-861] (1993); Black’s Law Dictionary 1149.
MERS
originally held title as nominee for Preferred; Preferred
assigned its beneficial interest in the loan to Deutsche; and
Deutsche designated Aurora as its loan servicer. MERS was,
therefore, authorized by the terms of the contract to transfer the
mortgage at the direction of Aurora.
In the assignment, MERS transferred to Aurora what it held:
bare legal title to the mortgaged property. That transfer was
valid.
Id. 4
Plaintiffs also complain that MERS has failed to convince them that
it was authorized by the actual noteholder in July of 2012 to transfer the
mortgage. They point to the fact that the first Section 35 affidavit reflecting
U.S. Bank Trustee’s ownership of the note was not recorded until May of
2013. However, as the second Section 35 affidavit makes clear, U.S. Bank
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4
Plaintiffs’ second sally, that the mortgage and the assignment violated
MERS rules, rests on an infirmity that, at best, might render the
transactions voidable by MERS members, but it does not make them void.
“Void” contracts or agreements are “those . . . that are of no
effect whatsoever; such as are a mere nullity, and incapable of
confirmation or ratification.” Allis v. Billings, 47 Mass. 415, 417
(1843).
By contrast, “voidable” refers to a contract or
agreement that is “injurious to the rights of one party, which he
may avoid at his election.” Ball v. Gilbert, 53 Mass. 397, 404
(1847). Thus, while the party injured by a voidable contract has
the option of avoiding its obligations, it may choose instead to
ratify the agreement and hold the other party to it.
Wilson v. HSBC Mortg. Servs., Inc., 744 F.3d 1, 9 (1st Cir. 2014). The
Galvins do not allege any irregularity in the formation of the mortgage
contract – they received $2,383,000 in exchange for executing the
promissory note and the mortgage. It will come as no surprise that under
the circumstances, plaintiffs cannot claim to be the adventitious
beneficiaries of irregular compliance by MERS with its own internal rules.
A claim that a corporate party has violated its own internal
procedures in the course of executing an assignment of its
rights amounts to nothing more than a claim that the corporate
officer who executed the assignment has exceeded the scope of
his or her authority. As both this court and the Court of
Appeals have noted, that type of claim merely renders an
assignment voidable at the election of the assignor.
Trustee held both the note and the mortgage prior to the foreclosure.
Consequently, the sequence of the transfers is of no import.
6
Galvin v. EMC Mortg. Corp., 2014 WL 4823657, at *5 (D.N.H. Sept. 25,
2014); 5 see also Wilson, 744 F.3d at 10 (“[W]hen a corporate officer acts
beyond the scope of his authority, [h]is acts in excess of his authority,
although voidable by the corporation, legally could be ratified and adopted
by it.”) (quotation marks omitted). 6 Plaintiffs, who (it goes without saying)
are not a party to the MERS membership agreement, perforce “do[] not
have standing to challenge shortcomings in an assignment that render it
merely voidable at the election of one party but [is] otherwise effective to
pass legal title.” Culhane, 708 F.3d at 291.
Plaintiffs’ next thrust is targeted at the mortgage contract itself. The
Galvins claim that paragraph 20, which states that “[t]he Note or a partial
interest in the Note (together with this Security Instrument) can be sold
one or more times without prior notice to Borrower,” Defs.’ Ex. A at 11,
requires that the mortgage be transferred together with the note. The First
Circuit rejected this attack on another MERS mortgage with identical
language as “jejune” – “[f]or one thing, this language is permissive and by
This opinion was issued with respect to identical arguments made in
a futile objection to the foreclosure of property the Galvins had mortgaged
in New Hampshire.
5
Plaintiffs’ concluding cavils, that the executer of the assignment
(Thaddeus Larrimer) lacked lawful signing authority and that the
assignment was improperly notarized, similarly render the transaction
voidable at best.
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no means prohibits the separation of the two instruments. For another
thing, the instruments were separated upon their inception: Preferred was
granted the note and MERS the mortgage.” Culhane, 708 F.3d at 293 n.6.
The Galvins finally contend that defendants breached paragraph 22 of
the mortgage. Paragraph 22, in relevant portions, states:
Acceleration; Remedies. Lender shall give notice to Borrower
prior to acceleration following Borrower’s breach of any
covenant or agreement in this Security Instrument (but not
prior to acceleration under Section 18 unless Applicable Law
provides otherwise). The notice shall specify: (a) the default;
(b) the action required to cure the default; (c) a date, not less
than 30 days from the date the notice is given to Borrower, by
which the default must be cured; and (d) that failure to cure the
default on or before the date specified in the notice may result
in the acceleration of the sums secured by this Security
Instrument and sale of the Property. The notice shall further
inform Borrower of the right to reinstate after acceleration and
the right to bring a court action to assert the non-existence of a
default or any other defense of Borrower to acceleration and
sale. If the default is not cured on or before the date specified in
the notice, Lender at its option may require immediate payment
in full of all sums secured by this Security instrument without
further demand and may invoke the STATUTORY POWER OF
SALE and any other remedies permitted by Applicable Law.
Plaintiffs allege that the March 2011 default notice failed to comply with
paragraph 22 because: (1) it did not issue from the lender (the sender was
SLS, the servicer); (2) it failed to correctly identify the true owner of the
debt (the notice listed SLS as the creditor); and (3) it listed a total overdue
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amount of $30,000 without providing an itemization (which the Galvins
requested by letter).
None of these alleged deficiencies are borne out by a plain reading of
the mortgage. Paragraph 22 does not require the lender to personally send
the default notice. As the Galvins acknowledge in their Complaint, SLS was
the mortgage servicer and as such was authorized to act on behalf of the
lender. See R.G. Fin. Corp. v. Vergara-Nunez, 446 F.3d 178, 187 (1st Cir.
2006) (“Typically, a mortgage servicer acts as the agent of the mortgagee to
effect collection of payments on the mortgage loan.”). The Galvins wax
wroth over the lack of an itemization of the overdue amount they owed, but
one is not required by paragraph 22.
Moreover, they are unable to
demonstrate any prejudice flowing from the form of the default notice –
most significantly, they do not allege that they did not owe the money
demanded in the notice.7, 8
Defendants properly note that the failure to strictly adhere to
statutory notice requirements would invalidate a foreclosure only if the
violations “rendered the foreclosure so fundamentally unfair that [they are]
entitled to affirmative equitable relief, specifically the setting aside of the
foreclosure sale for reasons other than failure to comply strictly with the
power of sale provided in the mortgage.” Coelho v. Asset Acquisition &
Resolution Entity, LLC, 2014 WL 1281513, at *2 (D. Mass. Mar. 31, 2014),
quoting U.S. Bank Nat’l Ass’n v. Shumacher, 467 Mass 421, 433 (2014)
(C.J. Gants, concurring).
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Count III – Breach of the Covenant of Good Faith and Fair Dealing
The Galvins allege that defendants breached the covenant of good
faith and fair dealing by: (1) violating MERS’ internal rules, its membership
agreement, and the strict terms of the mortgage; (2) unlawfully assigning
the mortgage; (3) repeatedly trespassing on the property; (4) providing
inadequate notice of default; and (5) failing to agree to a modification of
their mortgage. The covenant of good faith reflects an implied condition
that inheres in every contract “that neither party shall do anything that will
have the effect of destroying or injuring the right of the other party to
receive the fruits of the contract.”
Anthony’s Pier Four, Inc. v. HBC
Assocs., 411 Mass. 451, 471 (1991). “The covenant may not, however, be
invoked to create rights and duties not otherwise provided for in the
existing contractual relationship, as the purpose of the covenant is to
guarantee that the parties remain faithful to the intended and agreed
expectations of the parties in their performance.”
Uno Rests., Inc. v.
Boston Kenmore Realty Corp., 441 Mass. 376, 385 (2004).
As previously noted, the Galvins have no standing to enforce the
MERS rules or its membership agreement. They have also not pled facts of
Similarly, plaintiffs’ factual allegations fail to state a claim of breach
of contract based on paragraphs 20 and 22 of the mortgage as a matter of
law.
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sufficient plausibility to support a viable claim of breach of contract in the
assignment of the mortgage, or in the issuance of the default notice. The
claims of trespass (and alleged illegal lockouts) implicate rights that arise
independently of the mortgage contract. Finally, the mortgage does not
give the Galvins a right to a modification of the terms to which they agreed
upon accepting the proceeds.9 Because the litany of alleged abuse does not
concern the formation or performance of any contractual term, there can be
no breach of the covenant of good faith as a matter of law.
Count V – Negligence
The Galvins next allege that MERS negligently failed to abide by its
membership agreements and rules in supervising MERS members, and that
U.S. Bank Trustee negligently failed to supervise its agents in insuring
compliance with the MERS mortgage terms and applicable laws. To make
out a negligence cause of action, plaintiffs must allege “(1) a legal duty owed
by defendant to plaintiff; (2) a breach of that duty; (3) proximate or legal
cause; and (4) actual damage or injury.” Jorgensen v. Massachusetts Port
Auth., 905 F.2d 515, 522 (1st Cir. 1990).
Plaintiffs also do not challenge the assertion by defendants’ in the
October 2014 affidavit that their mortgage was not eligible for statutory
modification.
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9
As defendants correctly note, “a lender owes no general duty of care
to a borrower.” Corcoran v. Saxon Mortg. Servs., Inc., 2010 WL 2106179,
at *4 (D. Mass. May 24, 2010); see also Shaw v. BAC Home Loans
Servicing, LP, 2013 WL 789195, at *4 (D. Mass. Mar. 1, 2013) (“[T]he mere
relationship between mortgage holder or servicer and borrower does not
give rise to a fiduciary duty to the latter.”). Plaintiffs contend that they
were third-party beneficiaries of the MERS membership agreement and
that MERS as a consequence owed them a duty of care. It is not necessary
to explore at any length the theory that status as a third-party beneficiary
gives rise to a duty incumbent on a party to the underlying contract10
because the Galvins expressly concede that none of the putative tortfeasors
were MERS members or parties to the membership Agreement.
With respect to U.S. Bank Trustee, the Galvins’ allegations amount to
no more than an attempt to recast the breach of contract claim into a claim
based on a theory of negligent breach of contract. The theory founders on
the well established proposition that the “failure to perform a contractual
“Where a contractual relationship creates a duty of care to third
parties, the duty rests in tort, not contract, and therefore a breach is
committed only by the negligent performance of that duty, not by a mere
contractual breach.” LeBlanc v. Logan Hilton Joint Venture, 463 Mass.
316, 328 (2012).
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obligation is not a tort in the absence of a duty to act apart from the
promise made.” Anderson v. Fox Hill Vill. Homeowners Corp., 424 Mass.
365, 368 (1997). Because the defendants owed no duty of care to the
plaintiffs by virtue of their status as a mortgagee-creditor, the negligence
claim fails as a matter of law. 11
only)
Count VII – Intentional Infliction of Emotional Distress (as to MERS
To make out a count of intentional infliction of emotional distress,
plaintiffs must allege acts that are “extreme and outrageous,” either
reasonably viewed as an attempt “to shock and harm a person’s peace of
mind,” or if not individually such, are part of a pattern of harassment
intended to accomplish the same end. See Ratner v. Noble, 35 Mass. App.
Ct. 137, 139-140 (1993); Foley v. Polaroid Corp., 400 Mass. 82, 99 (1987)
So too does plaintiffs’ claim of negligent infliction of emotional
distress.
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As the plaintiff points out, a mortgagee exercising a power of
sale has a contractual duty to act in good faith, and to use
reasonable diligence to protect the mortgagor’s economic
interest in maximizing the sale proceeds. Williams v.
Resolution GGF OY, 417 Mass. 377, 382-383 (1994). But the
existence of that contractual duty provides no support to the
plaintiff’s theory that a party in the position of the defendant
here has a general duty in the course of servicing a loan to
exercise care to protect the plaintiff’s emotional condition.
Calautti v. Am. Home Mortg. Servicing, Inc., 2012 WL 5240262, at *6
(Mass. Super. Aug. 7, 2012).
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(appalling conduct required to trigger the tort); Conway v. Smerling, 37
Mass. App. Ct. 1, 8 (1994) (same, “profoundly shocking” conduct); see also
Sena v. Commonwealth, 417 Mass. 250, 264 (1994) (Whether a defendant’s
conduct is “beyond all bounds of decency and . . . utterly intolerable in a
civilized community” is an issue of law for the trial judge.).
In essence, plaintiffs allege nothing more than possible technical
defects in MERS’s assignment of the mortgage. It is impossible to weave
with this thin thread any conceivable raiment of personal hurt that would
shock a civilized community (or a judge inured to the ways of commerce),
especially where those pleading victimhood cannot have been themselves
shocked by the efforts of their creditors to collect on a debt that they
admittedly owed.
ORDER
For the foregoing reasons, defendants’ partial motion to dismiss
Counts I, II, III, V, and VII (this count as to MERS only) of the Complaint is
ALLOWED.
SO ORDERED.
/s/ Richard G. Stearns
___________________________
UNITED STATES DISTRICT JUDGE
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