Deutsche Bank National Trust Company v. Moynihan et al
Filing
41
Magistrate Judge Marianne B. Bowler: ORDER entered. MEMORANDUM AND ORDER Re: Defendant James P. Moynihan's Motion to Dismiss for Lack of Subject Matter Jurisdiction (Docket Entry # 9 ); Defendant James P. Moynihan's Motion to Dismiss for Failure to State a Claim (Docket Entry # 11 ). The Rule 12(b)(1) motion to dismiss (Docket Entry # 9 ) and the Rule 12(b)(6) motion to dismiss (Docket Entry # 11 ) are DENIED. This court will conduct a scheduling conference on August 8, 2016 at 2:45 p.m. (Patton, Christine)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
DEUTSCHE BANK NATIONAL TRUST,
AS TRUSTEE FOR IXIS 2006-HE3,
Plaintiff,
v.
CIVIL ACTION NO.
15-14155-MBB
JAMES P. MOYNIHAN and DURHAM
COMMERCIAL CAPITAL CORP.,
Defendants.
MEMORANDUM AND ORDER RE:
DEFENDANT JAMES P. MOYNIHAN’S MOTION TO DISMISS FOR LACK OF
SUBJECT MATTER JURISDICTION (DOCKET ENTRY # 9); DEFENDANT
JAMES P. MOYNIHAN’S MOTION TO DISMISS FOR FAILURE TO STATE A
CLAIM (DOCKET ENTRY # 11)
July 28, 2016
BOWLER, U.S.M.J.
Pending before this court are two motions to dismiss filed
by defendant James P. Moynihan (“Moynihan”).
Moynihan moves to
dismiss the complaint under Fed.R.Civ.P. 12(b)(1) (“Rule
12(b)(1)”) on the basis of lack of subject matter jurisdiction.
(Docket Entry # 9).
Moynihan also moves to dismiss the
complaint under Fed.R.Civ.P. 12(b)(6) (“Rule 12(b)(6)”) on the
basis of failure to state a claim.
(Docket Entry # 11).
Plaintiff Deutsche Bank National Trust, as Trustee for IXIS
2006-HE3, (“plaintiff”) opposes both motions.
21, 25).
(Docket Entry ##
Defendant Durham Commercial Capital Corp. (“Durham”)
did not join or oppose Moynihan’s motions.
After conducting a
hearing on April 22, 2016, this court took both motions under
advisement.
(Docket Entry # 38).
PROCEDURAL BACKGROUND
The parties’ dispute arises out of a promissory note
executed by Moynihan and secured by a mortgage on property in
Lowell, Massachusetts, where Moynihan resides (“the property”).
(Docket Entry # 1).
Plaintiff filed this action on December 16,
2015 to establish the terms of the note.
(Docket Entry # 1).
The complaint states that this court has original jurisdiction
because there is complete diversity between plaintiff and
Moynihan and Durham (“defendants”) and the amount in controversy
is more than $75,000 because the outstanding balance due on the
note and the mortgage from Moynihan to plaintiff exceeds
$688,000.
(Docket Entry # 1, ¶ 4).
The complaint sets out two counts against defendants.
(Docket Entry # 1, p. 8).
Count I requests a declaratory
judgment in favor of plaintiff against both Durham and Moynihan
establishing that plaintiff rightfully owns the note and is
“entitled to immediate physical possession of the original [of
the note].”
(Docket Entry # 1, ¶ 40).
Count II requests a
declaratory judgment in favor of plaintiff against Moynihan
establishing that plaintiff, under section one of Massachusetts
General Laws chapter 231A and section 3-301(iii) of
Massachusetts General Laws chapter 106 (“chapter 106”), is
2
entitled to enforce the terms of the note and the mortgage
granting plaintiff a security interest in the property and may
exercise the “default remedies provided for in the mortgage
including exercise of the statutory power of sale.”
(Docket
Entry # 1, ¶ 45).
Moynihan moves for dismissal of the complaint for lack of
subject matter jurisdiction due to the absence of the $75,000
threshold and for failure to state a claim upon which relief can
be granted.
(Docket Entry ## 9, 11).
Conversely, plaintiff
contends that Moynihan’s motion should be denied because the
facts establish the necessary $75,000 and the complaint includes
factual allegations that demonstrate a plausible claim to
relief.
I.
(Docket Entry ## 21, 25).
Rule 12(b)(1) Motion to Dismiss
STANDARD OF REVIEW
Where, as here, a district court considers a Fed.R.Civ.P.
12(b)(1) (“Rule 12(b)(1)”) motion, it must credit the
plaintiff’s well-pled factual allegations and draw all
reasonable inferences in the plaintiff’s favor.
Merlonghi v.
United States, 620 F.3d 50, 54 (1st Cir. 2010) (citing Valentin
v. Hospital Bella Vista, 254 F.3d 358, 363 (1st Cir. 2001));
Sánchez ex rel. D.R.-S. v. United States, 671 F.3d 86, 92 (1st
Cir. 2012) (“‘credit[ing] the plaintiff’s well-pled factual
allegations and draw[ing] all reasonable inferences in the
3
plaintiff’s favor’” under Rule 12(b)(1) (internal citation
omitted)).
“The district court may also ‘consider whatever
evidence has been submitted, such as the depositions and
exhibits submitted.’”
Merlonghi v. United States, 620 F.3d at
54 (quoting Aversa v. United States, 99 F.3d 1200, 1210 (1st Cir.
1996)).
Moreover, “‘Federal courts are courts of limited
jurisdiction’” and “[t]he existence of subject-matter
jurisdiction [is therefore] ‘never presumed.’”
Fafel v.
Dipaola, 399 F.3d 403, 410 (1st Cir. 2005) (internal citations
omitted).
When a defendant challenges subject matter
jurisdiction, the plaintiff bears the burden of proving
jurisdiction.
Johansen v. United States, 506 F.3d 65, 68 (1st
Cir. 2007).
Rule 12(b)(1) is “[t]he proper vehicle for challenging a
court’s subject matter jurisdiction.”
Bella Vista, 254 F.3d at 362.
Valentin v. Hospital
Because federal courts are courts
of limited jurisdiction, federal jurisdiction is never presumed.
See Viqueira v. First Bank, 140 F.3d 12, 16 (1st Cir. 1998).
“A
court should treat all well pleaded facts as true and provide
plaintiff the benefit of all reasonable inferences.”
Lindsay v.
Wells Fargo Bank, N.A., 2013 WL 5010977, at *2 (D.Mass. Sept.
11, 2013) (citing Fothergill v. United States, 566 F.3d 248, 251
(1st Cir. 2009)).
Dismissal is only appropriate when the facts
4
alleged in the complaint, taken as true, do not support a
finding of federal subject matter jurisdiction.
United States, 566 F.3d at 251.
Fothergill v.
Adhering with this framework,
the record sets out the following facts.
FACTUAL BACKGROUND
In a deed dated August 28, 2003 and recorded at the
Middlesex North Registry of Deeds in book 16104, page 44,
Moynihan acquired the property located at 619-621 Stevens Street
in Lowell.
(Docket Entry # 1, ¶ 6).
Moynihan, as borrower,
gave the promissory note to New Century Mortgage Corporation
(“New Century”), as lender, in the original principal amount of
$360,000 dated May 1, 2006.
(Docket Entry # 1, ¶ 7) (Docket
Entry # 1-3) (Docket Entry # 24, ¶ 6).
The note bore a single
indorsement payable “to the order of” New Century “without
recourse.”
(Docket Entry # 1, ¶ 8) (Docket Entry # 1-3) (Docket
Entry # 24, ¶ 6).
Moynihan was the only borrower on the note.
(Docket Entry # 1-3).
The note expressly allows “the Lender” to
transfer the note and states that, “The Lender or anyone who
takes [the note] by transfer and who is entitled to receive
payments under [the note] is called the ‘Note Holder.’”
(Docket
Entry # 1-3).
Moynihan agreed to make monthly payments of $2,703.90 on
the first day of each month starting on June 1, 2006.
Entry # 1-3).
The note also warranted that the monthly payments
5
(Docket
applied to interest before principal.
(Docket Entry # 1-3).
The note further contained a flexible index-based interest rate
that adjusted every six months after the first day of May 2008.
(Docket Entry # 1-3).
The interest rate on the principal in the
note would range between 9.013% and 10.513% at the first
adjustment date and would not drop below 9.013% nor exceed
16.013%.
(Docket Entry # 1-3).
The note also represented that
Moynihan would default if he failed to make his monthly payments
in full.
(Docket Entry # 1-3).
As stated in the note, the
“Note Holder may enforce its rights under this [n]ote against
each [borrower] individually or against all of [the borrowers]
together.”
(Docket Entry # 1-3).
The note was “governed by
federal law and the law of the jurisdiction in which the
property encumbered by the Security Instrument . . . [was]
located.”
(Docket Entry # 1-3).
On May 1, 2006, to secure the repayment and other
obligations contained in the note, Moynihan granted a mortgage
encumbering the property to New Century.
10) (Docket Entry # 1-4).
(Docket Entry # 1, ¶
The mortgage is recorded at the
Middlesex North Registry of Deeds in book 20067, page 159.
(Docket Entry # 1, ¶ 10) (Docket Entry # 1-4).
The mortgage
provides notice to Moynihan that “one or more changes of the
Loan Servicer [might occur] unrelated to a sale of the [note]”
during the life of the mortgage.
(Docket Entry # 1-4, ¶ 20).
6
Under the terms of the mortgage, Moynihan conveyed and granted
New Century and its “successors and assigns” the “power of
sale.”
(Docket Entry # 1-4, pp. 4, 14).1
Plaintiff acquired physical possession of the original of
the note on or about May 12, 2006.
(Docket Entry # 1, ¶ 9).
Thereafter, New Century sold the note to NC Capital Corporation
(“NC Capital”) under a Mortgage Loan Purchase and Servicing
Agreement (“MLPSA”) dated as of December 1, 1998.
# 1, ¶ 11).2
(Docket Entry
NC Capital then sold the note to IXIS Real Estate
Capital, Inc. (“IXIS”) under a Third Amended and Restated
Mortgage Loan Purchase and Warranties Agreement dated April 1,
2006.
(Docket Entry # 1, ¶ 12).3
IXIS then sold the note to
Morgan Stanley ABS Capital I Inc. (“Morgan Stanley”) effective
September 29, 2006.
(Docket Entry # 1, ¶ 13).4
Morgan Stanley then sold the note to plaintiff, as trustee
and custodian, pursuant to a pooling and servicing agreement
establishing IXIS Real Estate Capital Trust 2006-HE (“the PSA”)
dated September 1, 2006 and effective September 29, 2006.
1
Page numbers refer to the page as docketed as opposed to the
page number of the document itself.
2
The complaint states that New Century sold “the loan” to NC
Capital. (Docket Entry # 1, ¶ 11). This court reasonably
infers that the reference to “the loan” refers to the note as
opposed to the mortgage because the complaint attaches an
assignment of the mortgage by itself without the note from New
Century directly to plaintiff dated November 11, 2008. (Docket
Entry # 1-5).
3
See the previous footnote.
4
See footnote two.
7
(Docket Entry # 1, ¶ 14).5
The PSA also established Saxon
Mortgage Services, Inc. (“Saxon”) as a loan servicer.
(Docket
Entry # 1, ¶ 14).
Before January 1, 2008, Moynihan defaulted on his monthly
payments.
(Docket Entry # 24, ¶ 11) (Docket Entry # 24-2).
On
June 23, 2008, Moynihan filed for bankruptcy in the United
States Bankruptcy Court for the District of Massachusetts (“the
bankruptcy court”).
(Docket Entry # 1, ¶ 19).
On October 7,
2008, the bankruptcy court granted Moynihan a chapter seven
discharge.
(Docket Entry # 1, ¶ 19) (Docket Entry # 10-1).
In the assignment dated November 11, 2008 and effective May
7, 2008, New Century transferred the mortgage to plaintiff, as
trustee, in care of Saxon as servicer.
(Docket Entry # 1, ¶ 15)
(Docket Entry # 1-5, p. 2) (Docket Entry # 24, ¶ 8).
The
assignment was recorded at the Middlesex North Registry of Deeds
in book 22959, page 228.
(Docket Entry # 1, ¶ 15) (Docket Entry
# 1-5).
Effective April 16, 2010, Ocwen Loan Servicing, LLC
(“Ocwen”) obtained the servicing rights on the loan from Saxon.
(Docket Entry # 24, ¶ 10) (Docket Entry # 24-1).
Ocwen’s
obligations as plaintiff’s servicer included:
sending statements or coupons to the borrower to facilitate
payment, collecting payments from the borrower and making
scheduled disbursements of principal and interest to
5
See footnote two.
8
accounts making disbursements from such account[s] to pay
real estate taxes and or hazard insurance premiums due in
connection with the [p]roperty and to perform other usual
and customary residential loan servicing functions.
(Docket Entry # 24, ¶ 3).
In a document dated May 21, 2010,
plaintiff granted a limited power of attorney (“the LPOA”) to
Ocwen.
(Docket Entry # 21-2).
The LPOA was recorded at the
Middlesex North Registry of Deeds in book 25043, page 286.
(Docket Entry # 21-2).
The LPOA authorized Ocwen to execute
various documents on behalf of plaintiff regarding foreclosure
proceeding for loans held by plaintiff.
(Docket Entry # 21-2).
On August 16, 2010, Moynihan filed a complaint in the
Massachusetts Land Court Department of the Trial Court (“the
land court”) seeking a determination that plaintiff did not hold
the mortgage encumbering the property.
(Docket Entry # 1-6).
(Docket Entry # 1, ¶ 16)
During this proceeding, Ablitt Scofield,
P.C. (“Ablitt”), a law firm located in Woburn, Massachusetts,
represented plaintiff.
(Docket Entry # 21-1, p. 5) (Docket
Entry # 10-2, p. 2).
On or about July 20, 2011, plaintiff temporarily gave the
original of the note to Ocwen “to facilitate Ocwen’s . . .
foreclosure of the mortgage on behalf of plaintiff.”
Entry # 1, ¶ 20).
(Docket
On or about August 16, 2011, Ocwen returned
the file, which contained the original of the note, to
plaintiff.
(Docket Entry # 1, ¶ 21).
9
On October 18, 2011,
plaintiff again temporarily gave the file, which included the
original of the note, to Ocwen to facilitate conducting the
foreclosure of the property.
(Docket Entry # 1, ¶ 22).
On or
about November 21, 2011, Ocwen gave the original of the note to
Ablitt to commence and proceed with foreclosure of the property.
(Docket Entry # 1, ¶ 23).
Plaintiff alleges that it possessed
“the original Note directly or indirectly through its attorney,
agent and/or custodian and [is] entitled to enforce the terms of
such Note, when, at some point . . . [after] Ocwen transmitted
the original note to Ablitt . . . in November 2011, loss of
possession of the note occurred.”
(Docket Entry # 1, ¶ 42).
On December 30, 2011, the land court entered a judgment
that, by virtue of the November 2008 assignment of the
mortgage, plaintiff was “the current record holder of the
Mortgage, entitled to exercise the power of sale contained in
the Mortgage.”
(Docket Entry # 1-6).
The judgment also
declared that plaintiff “may exercise the power of sale
contained in the Mortgage to foreclose it without regard to
whether or not plaintiff is the current holder of the Note.”6
(Docket Entry # 1-6).
Neither plaintiff nor Moynihan filed an
appeal in of the land court’s judgment.
(Docket Entry # 1, ¶
17).
6
The judgment pre-dates the 2012 decision in Eaton v. Fed.
Nat’l Mortg. Ass’n, 969 N.E.2d 1118, 1124 (Mass. 2012).
10
Sometime in 2012 or earlier, Ablitt began having cash-flow
issues.
(Docket Entry # 1, ¶ 24).
On or about November 7,
2012, Ablitt entered into a factoring agreement titled
“Nonrecourse Receivables Purchase Contract and Security
Agreement” (“the factoring agreement”) with Durham.
Entry # 1, ¶ 25).
(Docket
Under the factoring agreement, Durham agreed
to purchase “certain of [Ablitt]’s receivables at terms
specified therein up to a maximum advance for such receivables
at any given time of $1,200,000.”
(Docket Entry # 1, ¶ 25).
In
the factoring agreement, Ablitt also gave Durham a security
interest in Ablitt’s accounts, “‘promissory notes, chattel
paper’ . . . [and] ‘general intangibles.’”
27).
(Docket Entry # 1, ¶
The security interest also included “custody and control
over [Ablitt]’s assets, files, records, electronically stored
data, hard drives and/or case management systems, not otherwise
identified and retrieved by [Ablitt]’s former clients.”
Entry # 1, ¶ 35).
early 2014.
(Docket
Ablitt continued to deteriorate in 2013 and
(Docket Entry # 1, ¶ 28).
As a result, Durham
“began to exert a level of managerial control over [Ablitt’s]
affairs.”
(Docket Entry # 1, ¶ 28).
On or about March 4, 2014, Ablitt changed its name to
Connolly, Geaney, Ablitt and Willard, P.C. (“CGAW”).
Entry # 1, ¶ 29).
ceased operations.
Sometime in late July or August 2014, CGAW
(Docket Entry # 1, ¶ 30).
11
(Docket
In August 2014,
Ocwen’s personnel visited CGAW’s office to collect Ocwen’s “ongoing foreclosure, eviction, bankruptcy and litigation files”
then held by CGAW.
(Docket Entry # 1, ¶ 31).
On or about
September 3, 2014, three or more creditors of CWAG filed on
CWAG’s behalf “[a]n involuntary chapter 7 bankruptcy petition”
in the bankruptcy court.
(Docket Entry # 1, ¶ 32).
CGAW never
returned the original of the note to plaintiff or Ocwen.
(Docket Entry # 1, ¶ 33).
“Despite [a] diligent search,”
plaintiff and Ocwen have not been able to locate the original
note.
(Docket Entry # 33).
Neither plaintiff nor Ocwen know
the present location of the original of the note. (Docket Entry
# 1, ¶¶ 33-34).
Plaintiff believes that the missing original of
the note “is amongst the assets, files and/or records obtained
and retained by Durham at or about the time [CGAW] ceased active
operations.”
(Docket Entry # 1, ¶ 36).
In November 2014, Ocwen obtained an estimated fair market
valuation of the property of $264,000.
13) (Docket Entry # 24-3).
(Docket Entry # 24, ¶
In December 2015, Ocwen obtained an
estimated fair market valuation of the property of $268,000.
(Docket Entry # 24, ¶ 14) (Docket Entry # 24-4).
As of February
25, 2016, the property had an assessed valuation of $282,900.
(Docket Entry # 10-3).
The “mortgage account with Ocwen is now due for the January
1, 2008 payment together with all subsequently accrued but
12
unpaid installments.”
24-2).
(Docket Entry # 24, ¶ 11) (Docket Entry #
The principal balance due is $359,944.32.
# 24, ¶ 12) (Docket Entry # 24-2).
(Docket Entry
This amount does not include
“accrued interest, late charges, escrow advances, attorney’s
fees and other charges assessed to the account in accordance
with the terms and conditions of the [note] and [mortgage].”
(Docket Entry # 24, ¶ 12) (Docket Entry # 24-2).
Plaintiff now
seeks to foreclose the mortgage “pursuant to the power of sale
contained therein but cannot until the terms of the lost note
and [p]laintiff’s ownership thereof are established.”
(Docket
Entry # 1, ¶ 18).
DISCUSSION
Moynihan moves to dismiss both counts in the complaint on
the basis that plaintiff failed to allege enough facts to meet
the amount in controversy of $75,000.
(Docket Entry # 9).
Plaintiff opposes dismissal submitting that it pled enough facts
to establish the amount in controversy.
(Docket Entry # 23).
Diversity jurisdiction has two components:
(1) a dispute
between citizens of different states; and (2) an amount in
controversy in excess of $75,000.
28 U.S.C. § 1332.
Moynihan
has not challenged the citizenship of the parties and this court
is satisfied that the parties are diverse in terms of
citizenship as defined under 28 U.S.C. § 1332.
The dispositive
issue is therefore the amount in controversy requirement.
13
A.
Whether the Claims have Underlying Monetary Value
In light of Moynihan’s challenge to the amount in
controversy, plaintiff bears “the burden to establish that the
minimum amount in controversy has been met.”
Abdel-Aleem v. OPK
Biotech LLC, 665 F.3d 38, 41 (1st Cir. 2012); Spielman v. Genzyme
Corp., 251 F.3d 1, 4 (1st Cir. 2001) (“as the party seeking to
invoke jurisdiction, Spielman has the burden of showing that he
has met the statutory requirements”).
A plaintiff’s general
allegation in the complaint “suffices unless questioned by the
opposing party.”
Id. at 5.
Where, however, the defendant
challenges the amount, “‘the party seeking to invoke
jurisdiction [here, plaintiff] has the burden of alleging with
sufficient particularity facts indicating that it is not a legal
certainty that the claim involves less than the jurisdictional
amount.’”
Id. at 5; accord Stewart v. Tupperware Corp., 356
F.3d 335, 338 (1st Cir. 2004) (because “plaintiffs seek to invoke
federal diversity jurisdiction, they have the burden of showing
that their claims meet the amount-in-controversy requirement”).
A court may weigh the evidence to find the facts of a case, as
long the court avoids going into the merits of the dispute.
See
Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006).
In a declaratory judgment action where plaintiff relies on
diversity jurisdiction, the amount in controversy “is the value
of the right or the viability of the legal claim to be declared,
14
such as a right to indemnification or a duty to defend.”
C.E.
Design Ltd. V. Am. Econ. Ins. Co., 755 F.3d 39, 43 (1st Cir.
2014); accord Bedard v. Mortg. Elec. Registration Sys., Inc.,
2011 WL 1792738, at *2 (D.N.H. May 11, 2011) (characterizing
value of right or viability of legal claim as determining the
“value of the object of the litigation”).
More particularly,
“‘When the validity of a contract or a right to property is
called into question in its entirety, the value of the property
controls the amount in controversy.’”
Nationstar Mortg. LLC v.
Knox, 2009 WL 2605356, at *3 (5th Cir. Aug. 25, 2009).
Furthermore, “in a case seeking equitable relief against a
foreclosure sale, the fair market value of the property is an
acceptable measure of the amount in controversy for purposes of
diversity jurisdiction.”
Bedard v. Mortg. Elec. Registration
Sys., Inc., 2011 WL 1792738, at *3.
In the case at bar, plaintiff seeks a declaratory judgment
in favor of plaintiff for ownership of the note in order to
enforce the terms of the note and the mortgage, which include
foreclosure and the statutory power of sale of the property.
(Docket Entry # 1, ¶¶ 40, 45).
The underlying value of the
right is not mere possession but rather the right to enforce the
power of sale that would render plaintiff a monetary sum derived
from the property’s value.
Consistent with Bedard and
Nationstar, the property’s value provides the appropriate
15
measure for the amount in controversy.
See Nationstar Mortg. LLC
v. Knox, 2009 WL 2605356, at *3; Bedard v. Mortg. Elec.
Registration Sys., Inc., 2011 WL 1792738, at *2-3.
Moynihan, in opposing the monetary value of plaintiff’s
claims, relies on a series of cases that do not directly apply
in the case at bar.
Moynihan maintains that the object of the
litigation is not the value of the property but rather the right
to begin a foreclosure proceeding for mere possession of the
property.
(Docket Entry # 10, ¶ IV(B)); see PHH Mortg. Corp. v.
Lanou, 2015 WL 162911, at *3 (D.Mass. Jan. 13, 2015) (noting
that “where Plaintiff merely seeks possession of property it
already owns as well as incidental damages stemming therefrom,
courts have held that the amount in controversy is not the value
of the property.”).
The holding in Lanou, however, does not
apply here because plaintiff does not currently own the property
and the value of the underlying right that plaintiff seeks is
not simply a right of possession but a series of rights that
would allow plaintiff to recover a monetary sum that meets the
amount in controversy requirement.
Moynihan next asserts that a number of courts have reasoned
that “where a mortgagor ‘is not challenging the validity’ of the
loan or mortgage but ‘merely disputes that defendants are the
ones having the right to enforce those documents,’ using the
value of the property as the amount in controversy is not
16
appropriate.’”
Bedard v. Mortgage Elec. Registration Sys.,
Inc., 2011 WL 1792738, at *3 & n.2 (noting that many courts have
found “the fair market value of the property [as] an acceptable
measure of the amount in controversy for purposes of diversity
jurisdiction” and applying that standard to court’s holding, but
also citing, as a lone counter-example, holding in Ballew v.
America’s Servicing Co., 2011 WL 880135, at *5 (N.D. Tex. March
14, 2011)).
The Ballew decision is distinguishable because the
plaintiff in Ballew was the mortgagor, who merely sought an
injunctive order preventing the defendant mortgagee from taking
possession of the property already owned by the defendant.
id. at *1.
See
In the case at bar, plaintiff is the mortgagee
seeking to establish ownership of the note to foreclose on the
property and sell the property for a monetary sum.
Here, as
discussed below, plaintiff provides sufficient facts regarding
the value of the property showing that it is not a legal
certainty that the claims involve less than the $75,000
jurisdictional amount.
B.
Amount in Controversy
The amount in controversy requirement of diversity
jurisdiction turns on whether it appears “‘to a legal certainty
that the claim is really for less than the jurisdictional
amount.’”
Spielman v. Genzyme Corp., 251 F.3d at 5 (internal
citation omitted).
Plaintiff must make a good faith proffer of
17
any amount that meets the $75,000 minimum.
Aleem v. OPK Biotech LLC, 665 F.3d at 41.
See generally AbdelMoreover, in a
similar enforcement action involving a note and a deed on a
property where the amount in controversy was challenged, the
court held that the value of the underlying interest in a note
worth $350,000 and a deed on a property valued at $300,000 met
the amount in controversy of $75,000.
See Hien Pham v. Bank of
New York, 856 F.Supp.2d 804, 810-11 (E.D.Va. 2012) (determining
that object of litigation was mortgagee’s interest in note and
deed securing interest in property and property greatly exceeded
$75,000 in value).
In the case at bar, plaintiff submitted sufficient evidence
that satisfies the amount in controversy such that it cannot be
proven with legal certainty that the amount in controversy is
below $75,000.
Moynihan, however, points out that the
bankruptcy renders the note uncollectable and worthless and the
mortgage provides only an in rem right to payment.
Even if
plaintiff cannot ultimately claim the value of the underlying
debt from the note due to Moynihan’s bankruptcy, the mortgage
survived the bankruptcy proceeding and retains an underlying
value potentially measured by the proceeds from a sale of the
property.
Plaintiff has a right “to repossession or obtaining
an amount of money reflecting the value of the collateral” and
this right takes the form of the “‘right to the proceeds from
18
the sale of the [] property.’”
Arruda v. Sears, Roebuck & Co.,
310 F.3d 13, 22 (1st Cir. 2002) (internal citation omitted).
Moynihan correctly asserts that plaintiff needs to establish the
likelihood of receiving $75,000 in proceeds from a foreclosure
sale.
(Docket Entry # 10, p. 5).
Plaintiff has provided
valuations and assessments in the record, however, that show the
present value of the property as well over $75,000.
The
December 2014 appraisal valued the property at $264,000.
(Docket Entry # 24, ¶ 13) (Docket Entry # 24-3).
2015 appraised value of the property is $268,000.
# 24, ¶ 14) (Docket Entry # 24-4).
(Docket Entry
As of February 25, 2016, the
city of Lowell assessed the property at $282,900.
# 10-3).
The December
(Docket Entry
When considering plaintiff’s incurred costs of selling
of the property and their effect on the proceeds, the proceeds
are highly unlikely to fall below $75,000 from the $264,000 to
$282,000 range of values established by the appraisals and
assessments.
Therefore, plaintiff established that it is not a
legal certainty that the amount in controversy involves less
than $75,000.
Indeed, with respect to both counts, plaintiff
alleges a claim that meets the jurisdictional requirements of
diversity among parties and an amount in controversy of over
$75,000.
The complaint therefore survives the Rule 12(b)(1)
motion to dismiss.
19
II.
Rule 12(b)(6) Motion to Dismiss
STANDARD OF REVIEW
The standard of review for a Rule 12(b)(6) motion is well
established.
To survive a Rule 12(b)(6) motion to dismiss, the
complaint must include factual allegations that when taken as
true demonstrate a plausible claim to relief even if actual
proof of the facts is improbable.
Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555-58 (2007).
Thus, while “not
equivalent to a probability requirement, the plausibility
standard asks for more than a sheer possibility that a defendant
has acted unlawfully.”
Boroian v. Mueller, 616 F.3d 60, 65 (1st
Cir. 2010) (internal quotation marks and internal citations
omitted).
“Where the well-pleaded facts do not permit the court
to infer more than the mere possibility of misconduct, the
complaint . . . has not shown that the pleader is entitled to
relief.”
Feliciano-Hernandez v. Pereira-Castillo, 663 F.3d 527,
533 (1st Cir. 2011) (internal quotation marks, brackets and
citations omitted).
Discarding legal conclusions and taking the
facts in the governing complaint as “true and read in a
plaintiff’s favor” even if seemingly incredible, the complaint
“must state a plausible, but not a merely conceivable, case for
relief.”
Sepúlveda–Villarini v. Dept. of Educ. of Puerto Rico,
628 F.3d 25, 29-30 (1st Cir. 2010).
In reviewing a complaint, a court considers the complaint
20
and any documents attached to it.
Fed.R.Civ.P. 10(c) (“an
exhibit to a pleading is part of the pleading for all
purposes”).
The lease attached to the complaint is therefore
part of the Rule 12(b)(6) record.
In evaluating a Rule 12(b)(6)
motion, the court may also consider a limited category of
documents outside the complaint without converting the motion
into one for summary judgment.
Such documents include public
records and documents sufficiently referred to in the complaint.
See Butler v. Balolia, 736 F.3d 609, 611 (1st Cir. 2013)
(supplementing facts in complaint “by examining ‘documents
incorporated by reference into the complaint, matters of public
record, and facts susceptible to judicial notice’”) (internal
citation omitted); Freeman v. Town of Hudson, 714 F.3d 29, 36
(1st Cir. 2013) (court may consider “‘official public records;
documents central to plaintiffs’ claim; and documents
sufficiently referred to in the complaint’”) (ellipses, internal
brackets and citation omitted).
FACTUAL BACKGROUND7
In a deed dated August 28, 2003 and recorded at the
Middlesex North Registry of Deeds in book 16104, page 44,
Moynihan acquired the property located at 619-621 Stevens Street
in Lowell.
(Docket Entry # 1, ¶ 6).
Moynihan, as borrower,
7
The facts in the Rule 12(b)(6) record are similar to the facts
in the Rule 12(b)(1) record.
21
gave the promissory note to New Century, as lender, in the
original principal amount of $360,000 dated May 1, 2006.
(Docket Entry # 1, ¶ 7) (Docket Entry # 1-3).
The note bore a
single indorsement payable “to the order of” New Century
“without recourse.”
3).
(Docket Entry # 1, ¶ 8) (Docket Entry # 1-
Moynihan was the only borrower on the note.
# 1-3).
(Docket Entry
The note expressly allows “the Lender” to transfer the
note and states that, “The Lender or anyone who takes [the note]
by transfer and who is entitled to receive payments under [the
note] is called the ‘Note Holder.’”
(Docket Entry # 1-3).
Moynihan agreed to make monthly payments of $2,703.90 on
the first day of each month starting on June 1, 2006.
Entry # 1-3).
(Docket
The note also warranted that the monthly payments
applied to interest before principal.
(Docket Entry # 1-3).
The note also represented that Moynihan would default if he
failed to make his monthly payments in full.
3).
(Docket Entry # 1-
As stated in the note, the “Note Holder may enforce its
rights under this [n]ote against each [borrower] individually or
against all of [the borrowers] together.”
(Docket Entry # 1-3).
On May 1, 2006, to secure the repayment and other
obligations contained in the note, Moynihan granted the mortgage
encumbering the property to New Century.
10) (Docket Entry # 1-4).
(Docket Entry # 1, ¶
The mortgage is recorded at the
Middlesex North Registry of Deeds in book 20067, page 159.
22
(Docket Entry # 1, ¶ 10) (Docket Entry # 1-4).
The mortgage
provides notice to Moynihan that “one or more changes of the
Loan Servicer [might occur] unrelated to a sale of the [note]”
during the life of the mortgage.
(Docket Entry # 1-4, ¶ 20).
Under the terms of the mortgage, Moynihan conveyed and granted
New Century and its “successors and assigns” the “power of
sale.”
(Docket Entry # 1-4, pp. 4, 14).
Plaintiff acquired physical possession of the original of
the note on or about May 12, 2006.
(Docket Entry # 21, p. 2).
(Docket Entry # 1, ¶ 9)
Thereafter, New Century sold the note
to NC Capital under the MLPSA dated December 1, 1998.
Entry # 1, ¶ 11).8
(Docket
NC Capital then sold the loan to IXIS under
the Third Amended and Restated Mortgage Loan Purchase and
Warranties Agreement dated April 1, 2006.
12).9
(Docket Entry # 1, ¶
IXIS then sold the note to Morgan Stanley effective
September 29, 2006.
(Docket Entry # 1, ¶ 13).10
Morgan Stanley
then sold the note to plaintiff, as trustee and custodian,
pursuant to the PSA dated September 1, 2006 and effective
September 29, 2006.
(Docket Entry # 1, ¶ 14).11
On June 23, 2008, Moynihan filed for bankruptcy in the
8
The complaint states that New Century sold “the loan” to NC
Capital. As explained in footnote two, this court reasonably
infers that the reference to “the loan” refers to the note as
opposed to the mortgage.
9
See footnote two.
10
See footnote two.
11
See footnote two.
23
bankruptcy court.
(Docket Entry # 1, ¶ 19).
On October 7,
2008, the bankruptcy court granted Moynihan the chapter seven
discharge.
(Docket Entry # 1, ¶ 19) (Docket Entry # 10-1).
In the assignment dated November 11, 2008 and effective May
7, 2008, New Century transferred the mortgage to plaintiff, as
trustee, in care of Saxon as servicer.
(Docket Entry # 1-5, p. 2).
(Docket Entry # 1, ¶ 15)
The assignment was recorded at the
Middlesex North Registry of Deeds in book 22959, page 228.
(Docket Entry # 1, ¶ 15) (Docket Entry # 1-5).
On May 21, 2010, plaintiff granted the LPOA to Ocwen.
(Docket Entry # 21-2).
The LPOA was recorded at the Middlesex
North Registry of Deeds in book 25043, page 286.
# 21-2).
(Docket Entry
The LPOA authorized Ocwen to execute various documents
on behalf of plaintiff regarding foreclosure proceedings for
loans held by plaintiff.
(Docket Entry # 21-2).
On August 16, 2010, Moynihan filed the complaint in the
land court seeking to determine that plaintiff did not hold the
mortgage encumbering the property.
(Docket Entry # 1, ¶ 16)
(Docket Entry # 1-6).
During this proceeding, Ablitt
represented plaintiff.
(Docket Entry # 21-1, p. 5).
On or about July 20, 2011, plaintiff temporarily gave the
original of the note to Ocwen “to facilitate Ocwen’s . . .
foreclosure of the mortgage on behalf of plaintiff.”
Entry # 1, ¶ 20).
On or about August 16, 2011, Ocwen returned
24
(Docket
the file, which contained the original of the note, to
plaintiff.
(Docket Entry # 1, ¶ 21).
On October 18, 2011,
plaintiff again temporarily gave the file, which included the
original of the note, to Ocwen to prosecute a foreclosure of the
mortgage on behalf of plaintiff.
(Docket Entry # 1, ¶ 22).
On
or about November 21, 2011, Ocwen gave the original of the note
to Ablitt to commence and proceed with a foreclosure of the
property on behalf of plaintiff.
(Docket Entry # 1, ¶ 23).
Plaintiff alleges that it possessed “the original Note directly
or indirectly through its attorney, agent and/or custodian and
[is] entitled to enforce the terms of such Note, when, at some
point . . . [after] Ocwen transmitted the original note to
Ablitt in November 2011, loss of possession of the note
occurred.”
(Docket Entry # 1, ¶ 42).
On December 30, 2011, the land court entered the judgment
that, “by virtue of the [November 2008] assignment of the
mortgage, plaintiff was the current record holder of the
Mortgage, entitled to exercise the power of sale contained in
the Mortgage.”
(Docket Entry # 1-6).
The judgment declared
that plaintiff “may exercise the power of sale contained in the
Mortgage to foreclose it without regard to whether or not
plaintiff is the current holder of the Note.”12
1-6).
12
See footnote six.
25
(Docket Entry #
Sometime in 2012 or earlier, Ablitt began having cash-flow
issues.
(Docket Entry # 1, ¶ 24).
On or about November 7,
2012, Ablitt entered into the factoring agreement with Durham.
(Docket Entry # 1, ¶ 25).
Under the factoring agreement, Durham
agreed to purchase “certain of [Ablitt]’s receivables at terms
specified therein up to a maximum advance for such receivables
at any given time of $1,200,000.”
(Docket Entry # 1, ¶ 25).
In
the factoring agreement, Ablitt also gave Durham a security
interest in Ablitt’s accounts, “‘promissory notes, chattel
paper’ . . . [and] ‘general intangibles.’”
27).
(Docket Entry # 1, ¶
The security interest also included “custody and control
over [Ablitt]’s assets, files, records, electronically stored
data, hard drives and/or case management systems, not otherwise
identified and retrieved by [Ablitt]’s former clients.”
Entry # 1, ¶ 35).
early 2014.
(Docket
Ablitt continued to deteriorate in 2013 and
(Docket Entry # 1, ¶ 28).
As a result, Durham
“began to exert a level of managerial control over [Ablitt’s]
affairs.”
(Docket Entry # 1, ¶ 28).
On or about March 4, 2014, Ablitt changed its name to CGAW.
(Docket Entry # 1, ¶ 29).
CGAW ceased operations.
Sometime in late July or August 2014,
(Docket Entry # 1, ¶ 30).
In August
2014, Ocwen’s personnel visited CGAW’s office to collect Ocwen’s
“on-going foreclosure, eviction, bankruptcy and litigation
files” then held by CGAW.
(Docket Entry # 1, ¶ 31).
26
On or
about September 3, 2014, three or more creditors of CWAG filed
on CWAG’s behalf “[a]n involuntary chapter 7 bankruptcy
petition” in the bankruptcy court.
(Docket Entry # 1, ¶ 32).
CGAW never returned the original of the note to plaintiff or
Ocwen.
(Docket Entry # 1, ¶ 33).
“Despite [a] diligent
search,” plaintiff and Ocwen have not been able to locate the
original note.
(Docket Entry # 33).
Neither plaintiff nor
Ocwen know the present location of the original of the note.
(Docket Entry # 1, ¶¶ 33-34).
Plaintiff believes that the
missing original of the note “is amongst the assets, files
and/or records obtained and retained by Durham at or about the
time [CGAW] ceased active operations.”
(Docket Entry # 1, ¶
36).
As of February 25, 2016, the property had an assessed
valuation of $282,900.
(Docket Entry # 10-3).
Plaintiff now
seeks to foreclose the mortgage “pursuant to the power of sale
contained therein but cannot until the terms of the lost note
and [p]laintiff’s ownership thereof are established.”
(Docket
Entry # 1, ¶ 18).
DISCUSSION
Moynihan seeks dismissal based on two arguments.
First,
Moynihan submits that plaintiff did not “actually” possess the
note at the time that the note was lost and that principles of
agency do not apply to the governing statute, chapter 106,
27
section 3-309 (“section 3-309”).
(Docket Entry ## 12, 36).
Second, even if agency applies, Moynihan submits that the loss
of possession by plaintiff was the result of a transfer of both
the note and the enforcement rights of the note to Ocwen.
(Docket Entry ## 12, 36).
Plaintiff contends that it possessed
the note through its agents, including its attorney (Ablitt) and
servicer (Ocwen).
I.
(Docket Entry # 21).
Actual Possession and Agency
Plaintiff alleges that it constructively possessed the note
through its agents at the time the note was lost.
Moynihan
contends that plaintiff fails to state a claim because plaintiff
did not “actually” possess the note at the time the note was
lost.
The note is governed by Massachusetts law.
1-3).
(Docket Entry #
In Massachusetts, a person may enforce a note if the
person is “(i) the holder of the [note], (ii) a nonholder in
possession of the [note] who has the rights of a holder, or
(iii) a person not in possession of the [note] who is entitled
to enforce the [note] pursuant to . . . 3-309.”
ch. 106, § 3-301.
Mass. Gen. L.
Plaintiff has brought an action to establish
its ability to enforce the lost note given by Moynihan.
(Docket
Entry # 1).
Section 3-309 provides that:
A person not in possession of an instrument is entitled to
28
enforce the instrument if (i) the person was in possession
of the instrument and entitled to enforce it when loss of
possession occurred, (ii) the loss of possession was not the
result of a transfer by the person or a lawful seizure, and
(iii) the person cannot reasonably obtain possession of the
instrument because the instrument was destroyed, its
whereabouts cannot be determined, or it is in the wrongful
possession of an unknown person or a person that cannot be
found or is not amenable to service of process.
Mass. Gen. L. ch. 106, § 3-309(a) (emphasis added).
Section 3-
309 further requires that a person not in possession of an
instrument and:
seeking enforcement of an instrument . . . must prove the
terms of the instrument and the person’s right to enforce
the instrument. If that proof is made, section 3-308
applies to the case as if the person seeking enforcement
had produced the instrument. The court may not enter
judgment in favor of the person seeking enforcement unless
it finds that the person required to pay the instrument is
adequately protected against loss that might occur by
reason of a claim by another person to enforce the
instrument. Adequate protection may be provided by any
reasonable means.
Mass. Gen. L. ch. 106, § 3-309(b).
Section 3-309 governs the enforceability of a lost note
under Massachusetts law.
See In re Harborhouse of Gloucester,
LLC, 505 B.R. 365, 370 (Bankr.D.Mass. 2014), aff’d, 523 B.R. 749
(B.A.P. 1st Cir. 2014).
“The purpose of the possession
requirement . . . is to protect the [d]ebtor from multiple
enforcement claims to the same note.”
Marks v. Braunstein, 439
B.R. 248, 251 (D.Mass. 2010) (citing In re Gavin, 319 B.R. 27,
33 (B.A.P. 1st Cir. 2004).
In addition to the specific
provisions of section 3-309, section 1-103 of chapter 106 states
29
that, “Unless displaced by the particular provisions of [chapter
106], the principles of law and equity, including . . . the law
relative to . . . principal and agent . . . supplement [chapter
106’s] provisions.”
Mass. Gen. L. ch. 106, § 1-103 (“section 1-
103”); see also Terry v. Kemper Ins. Co., 456 N.E.2d 465, 467
(Mass. 1983) (applying common law principles of agency in
insurance claim case where governing statute lacked
specificity).
The “enactment of the U.C.C. in Massachusetts
does not necessarily require us to ignore well-settled
principles of agency law.”
at 467.
Terry v. Kemper Ins. Co., 456 N.E.2d
On the other hand, “the common law does not roam freely
over and through specific Code provisions but supplies a lossallocation framework only when specific . . . provisions do
not.”
Prestige Imports, Inc. v. South Weymouth Savings Bank,
916 N.E.2d 1015, 1024 n.13 (Mass.App.Ct. 2009) (citing inter
alia section 1-103).
Consequently, “Where a UCC provision [as
enacted in Massachusetts] specifically defines parties’ rights
and remedies, it displaces analogous common-law theories of
liability.”
Gossels v. Fleet Nat. Bank, 902 N.E.2d 370, 376
(Mass. 2009).
Turning to section 3-309, statutory interpretation “always
starts with the language of the statute itself.”
Matamoros v.
Starbucks Corp., 699 F.3d 129, 134 (1st Cir. 2012) (interpreting
Massachusetts law).
Typically, “the ordinary meaning of the
30
statutory language” applies.
Id.
“[R]esort to extrinsic aids
to statutory construction (such as legislative history)” is
appropriate “only when the wording of the statute is freighted
with ambiguity or leads to an unreasonable result.”
Id.
Here,
the plain language of section 3-309 entitles “[a] person not in
possession of an instrument” to enforce it “if . . . the person
was in possession of the instrument and entitled to enforce it
when loss of possession occurred.”
Mass. Gen. L. ch. 106, § 3-
309(a).
Relying on two bankruptcy court decisions in this district,
In re Harborhouse of Gloucester, LLC, 505 B.R. at 373
(“Desmond”), aff’d, 523 B.R. 749 (B.A.P. 1st Cir. 2014),13 and
Marks v. Braunstein, 439 B.R. 248, 251 (D.Mass. 2010) (“Marks”),
Moynihan argues that plaintiff did not have possession of the
note when it was lost.
Actual possession is the standard,
according to Moynihan, and plaintiff did not have actual
possession because Ocwen and then Ablitt (now CGAW) had actual
possession at the time the note was lost.
Moynihan further
submits that plaintiff transferred the note to Ocwen and
therefore cannot rely on agency principles as a means to enforce
the note.
13
Moynihan cites to the case as Desmond v. Raymond C. Green,
Inc., 505 B.R. 365 (Bankr.D.Mass. 2014), which, for ease of
reference, this court refers to as Desmond.
31
A Massachusetts Land Court decision succinctly explains the
import of Desmond and Marks, both of which interpret section 3309, as:
mean[ing] that a mortgage note that was lost or destroyed
prior to its assignment by a person executing a lost note
affidavit cannot be enforced by a downstream assignee in
possession of the mortgage instrument, who was not in
possession of the note and entitled to enforce it at the
time the note was lost.
Zullo v. HMC Assets, LLC, 2014 WL 4217417, at *8 (Mass. Land Ct.
Aug. 27, 2014), aff’d, 43 N.E.3d 348 (Mass.App.Ct. 2015) (citing
Desmond, 505 B.R. at 373, and Marks, 439 B.R. at 251, and noting
that Marks follows Dennis Joslin Co., LLC v. Robinson Broad.
Corp., 977 F.Supp. 491, 495 (D.D.C. 1997) (“Joslin”)).
First
and foremost, plaintiff is not a downstream assignee or
transferee.14
Under the facts construed in plaintiff’s favor,
plaintiff is the entity which had actual, physical possession of
the note, gave the note to its agent (Ocwen) and Ocwen gave it
to Ablitt (now CGAW), plaintiff’s agent and attorney.
Thus, the
Rule 12(b)(6) facts easily allow a finding that, “when loss of
possession occurred” of the note, Mass. Gen. L. ch. 106, § 3309, plaintiff’s agent had actual possession.
The Rule 12(b)(6)
facts likewise readily permit a finding that there was no
14
As explained below, taking the facts in the Rule 12(b)(6)
record as true, Ocwen was plaintiff’s agent as was Ablitt (now
CGAW).
32
transfer of ownership in the note from plaintiff to another
entity.
In contrast, Desmond involved the enforcement of a note
lost by an upstream transferor, Philip J. Hansbury, as trustee
of the 90 Rantoul Real Estate Trust (“Hansbury”), who executed a
lost note affidavit.
B.R. at 367.
In re Harborhouse of Gloucester, LLC, 505
Hansbury then transferred the note to Connect Plus
International Corporation (“CPIC”), which then assigned the note
to the defendant Green.
Id.
As stipulated by Green, he never
had possession of the note at the time it was lost by Hansbury.
Id. at 370.
Similarly, the person attempting to enforce the lost
promissory note in Marks “stipulated that he was not in
possession of the Note and he did not know where it was located
nor who was in possession of it.”
at 250.
Marks v. Braunstein, 439 B.R.
In light of such evidence, the lower court determined
that Marks “did not meet the prerequisites of § 3–309 because he
offered no proof that he was ever in possession of the Note.”
Id. at 251 (emphasis in original).
The court in Marks affirmed
this finding as well as the lower court’s denial of a motion for
reconsideration.
Id. at 250-52.
Likewise, the plaintiff in
Joslin seeking to enforce a lost note “never had actual
possession of the note, and plaintiff concede[d] that the note
was lost while the FDIC-not plaintiff-was in possession.”
33
Dennis Joslin Co., LLC v. Robinson Broad. Corp., 977 F.Supp. at
494.
Desmond, Marks and Joslin are therefore distinguishable
because the parties seeking to enforce a lost note never also
had possession of the note at the required time, i.e., “when
loss of possession occurred.”
Mass. Gen. L. ch. 106, § 3-309.
Here, construing the Rule 12(b)(6) facts in plaintiff’s favor,
plaintiff’s agent had possession of the note when the loss
occurred, plaintiff has not transferred or assigned the note to
another entity, and plaintiff (as opposed to the downstream
entity) is seeking to enforce the note.
The language of section 3-309 lends support to this
distinction.
It provides that, “A person not in possession of
[the note] is entitled to enforce the [note] if (i) the person
was in possession of the [note] and entitled to enforce it when
loss of possession occurred.”
Mass. Gen. L. ch. 106, § 3-309.
Thus, the reference initially to “[a] person” and then to “the
person” indicates that it is the same person who had possession
of the note at the time of the loss and who presently seeks to
enforce the note under section 3-309.
Moynihan’s reliance on an illustration of possession under
section 3-309 in Marks quoting a well known treatise is also
misplaced.
The quoted illustration of the concept of possession
in section 3-309 reads as follows:
34
“A payee who receives a check in payment for service and
then loses the check while walking home can still enforce
the instrument. Similarly, if the payee was the victim of
a mugging on the way home, and the thief made off with the
payee’s wallet containing the check, the payee remains
entitled to enforce the instrument.
If, on the other hand, the drawer had entrusted a messenger
with delivery of the check to the payee, and the messenger
instead chose to flee to Jamaica with the check, the payee
would not be able to enforce the instrument because the
payee would not have had possession at the time of the
loss.”
Marks v. Braunstein, 439 B.R. at 251 (quoting 2 James White and
Robert Summers, Uniform Commercial Code § 18-2 (5th ed. 2009)).
Moynihan submits that plaintiff is the payee and Ocwen and
Ablitt are the “entrusted messengers.”
(Docket Entry # 12).
Under the facts in the illustration, however, the entrusted
messenger is the agent of the drawer, which never delivered the
check to the payee because the drawer’s messenger absconded with
it.
Thus, neither the payee nor its agent had possession of the
note.
The illustration therefore does not apply to plaintiff
because, construing the Rule 12(b)(6) facts in its favor,
plaintiff had actual, physical possession of the note and, when
the loss occurred, plaintiff’s agent had possession of the note
and plaintiff was entitled to enforce it.
In short, construing
the Rule 12(b)(6) facts in plaintiff’s favor, Ocwen, as agent,
or Ablitt, as plaintiff’s attorney, held the note on behalf of
plaintiff, as noteholder, with plaintiff retaining enforcement
rights associated with the note.
35
Moynihan further cites a Massachusetts case that recognizes
that, “The ‘fiction of “constructive possession” has no
application when another is in actual possession.’”
Attorney
General v. Dime Sav. Bank of New York, FSB, 596 N.E.2d 1013,
1016 (Mass. 1992) (finding constructive possession inapplicable
where mortgagee sought to bring trespass action against holdover
tenant then in physical possession of property).
Dime Savings
is distinguishable because it involved an action for trespass
against a holdover tenant as opposed to a plaintiff not in
possession of a note seeking to enforce the note under section
3-309.
The issue therefore reduces to whether the term “person” in
section 3-309 includes the person’s agents, i.e., whether
section 3-309 displaces Massachusetts principles of common law
agency.
See Mass. Gen. L. ch. 106, § 1-103.
Examining whether
the particular provisions of section 3-309 displace principles
of agency under Massachusetts common law, the plain language of
section 3-309 refers to “the person” without any reference to
the person’s agents or any other principle of agency law.
Overall, there is nothing in the section that specifically
requires abandonment of common law principles of agency.
See
Terry v. Kemper Ins. Co., 456 N.E.2d at 467 (construing section
1-103 and “find[ing] nothing in G.L. c. 106, § 3-116 and § 3404, which specifically requires abandonment of common law
36
agency principles in connection with the facts of this case”);
see also Inn Foods, Inc. v. Equitable Co-Operative Bank, 45 F.3d
594, 597 (1st Cir. 1995) (applying agency principle of
ratification of agent’s acts to conversion of check with forged
indorsement); Kenerson v. F.D.I.C., 44 F.3d 19, 32 (1st Cir.
1995) (“U.C.C. and the New Hampshire statute do not displace the
common law agency rule”); see generally Hurwitz v. Bocian, 670
N.E.2d 408, 412 (Mass.App.Ct. 1996) (“[s]ection 2-201 has been
held not to preclude recovery that is ‘warranted on the basis of
promissory estoppel’” and “[t]he differences between § 2-201 and
§ 8-319,” the provision at issue, “are not sufficiently
significant to justify a conclusion that estoppel is applicable
to one but not the other”) (internal citation omitted).
Ordinarily, corporations act through their agents.
See
Durand v. IDC Bellingham, LLC, 793 N.E.2d 359, 369 (Mass. 2003)
(“[c]orporations act through their authorized agents, and when a
corporation’s actions come into question, we attribute to the
corporation the actions, words, and knowledge of its agents
acting within their authority”); Sarvis v. Boston Safe Deposit
and Trust Co., 711 N.E.2d 911, 920 (Mass.App.Ct. 1999)
(“corporation is a creature of the law, a ‘separate and distinct
legal entity that can only act through its agents’”) (ellipses,
brackets and internal citation omitted).
Comments to section 3-
201, a section that defines “negotiation” as a “transfer of
37
possession,” further assume that possession of an instrument
occurs “directly or through an agent.”
Mass. Gen. L. ch. 106, §
3-201, cmt. 1.
Section 3-309 does not bar or foreclose claims of
possession grounded upon agency.
More specifically, nothing in
section 3-309 precludes a person from enforcing a lost note
when, at the time the loss occurred, the person had constructive
possession, through its agent, of the note; was entitled to
enforce the note at that time; and is now seeking to enforce it
without having transferred or assigned the note to another
person or entity downstream.
In such circumstances, principles
of agency do not displace the provisions of section 3-309.
In
sum, Moynihan is not entitled to a dismissal of the complaint
based on the argument that, under section 3-309, plaintiff did
not actually possess the note at the time of the loss.
II.
Transfer
Moynihan next argues that the agency relationship is
irrelevant because plaintiff transferred the enforcement rights
to either Ocwen or Ablitt under chapter 106, section 3-203
(“section 3-203”).
Moynihan asserts that “[t]he purpose of each
transfer was the prosecution of foreclosure, which is an
enforcement right under” chapter 106.
(Docket Entry # 12).
Plaintiff submits that it did not transfer the note to Ocwen or
Ablitt, its attorneys, for the purpose of giving them an
38
independent right to enforce the note.
Further, plaintiff
contends that Moynihan was discharged of any personal liability
on the note by the bankruptcy court and any transfer was for the
purpose of prosecuting the foreclosure of the mortgage as
opposed to enforcing the note against Moynihan.
(Docket Entry #
21).
Section 3-309(a)(ii) allows a person to enforce a lost
instrument if “the loss of possession was not the result of a
transfer by the person.”
(emphasis added).
promissory note.
Mass. Gen. L. ch. 106, § 3-309(a)
Section 3-203 governs the transfer of the
See In re Dudley, 502 B.R. 259, 276
(Bankr.W.D. Va. 2013) (citing section 3-203 and In re Gavin, 319
B.R. at 31).
Under section 3-203, “[a]n instrument is
transferred when it is delivered by a person other than its
issuer for the purpose of giving to the person receiving
delivery the right to enforce the instrument.”
Mass. Gen. L.
ch. 106, § 3-203(a); see In re Gavin, 319 B.R. at 31
(“instrument is ‘transferred’ when it is delivered by the holder
for the purpose of giving the recipient the right to enforce the
instrument”).
In order to show that plaintiff transferred the enforcement
rights to either Ocwen or Ablitt, the Rule 12(b)(6) record must
show “first, that physical delivery of the Note was made [to
that party], and second, that the intent of the transferor was
39
to give [that] party ‘the right to enforce the instrument.’”
Zea v. JP Morgan Chase Bank, 2012 WL 996767, at *5 (D.Mass.
March 22, 2012) (party established it was nonholder in
possession with rights of holder because note gave party right
to contest claims as part of that party’s enforcement rights).
The comment to section 3-203 “explains that while the transferee
of an instrument may enforce the instrument without being its
holder, the transferee, unlike a holder, is not entitled to the
presumption of the right of enforcement, and must prove the
transaction through which the instrument was acquired.”
In re
Thomas, 447 B.R. 402, 411 (Bankr.D.Mass. 2011) (citing section
3–203, cmt. 1 (1999)); see Mass. Gen. L. ch. 106, § 3–203, cmt.
1 (1999).
“If delivery [of the instrument] is for some other
purpose, there has not been a transfer.”
22 Williston on
Contracts § 60:27 (4th ed. 2015) (citing Uniform Commerical Code
section 3-203(a)); accord Mass. Gen. L. ch. 106, § 3-203, cmt. 1
(1999) (if delivery “is for some purpose other than transfer of
the right to enforce,” no section 3-203 transfer takes place).
“A delivery of an instrument to someone for safekeeping is not a
transfer.”
22 Williston on Contracts § 60:27 (4th ed. 2015)
“Similarly, the presentment of a check to a drawee for payment
is not a transfer.”
Id.
The Rule 12(b)(6) facts set out a plausible theory that
plaintiff intended to give the note to Ocwen, as its agent, for
40
a purpose other than enforcing the note.
Cf. In re Neals, 459
B.R. 612, 618 (Bankr.D.S.C. 2011); In re Miller, 2014 WL
2860985, at *4 (Bankr.D.Vt. June 23, 2014); see generally In re
Montagne, 421 B.R. 65, 77 (Bankr.D.Vt. 2009).
Furthermore,
Ocwen provided physical delivery of the orginal note to Ablitt,
which plaintiff identifies as its attorney.
Therefore, in light
of the facts evidencing that plaintiff may not have intended to
give Ocwen and Ablitt enforcement rights, Moynihan’s argument
does not warrant a dismissal of the complaint.
CONCLUSION
In accordance with the foregoing discussion, the Rule
12(b)(1) motion to dismiss (Docket Entry # 9) and the Rule
12(b)(6) motion to dismiss (Docket Entry # 11) are DENIED.
This
court will conduct a scheduling conference on August 8, 2016 at
2:45 p.m.
/s/ Marianne B. Bowler
MARIANNE B. BOWLER
United States Magistrate Judge
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