Estate of Jerry Malloy, Deceased v. PNC Bank, Successor to Commonwealth United Mortgage a Division of National City Bank of Indiana et al
Filing
47
ORDER granting 25 Motion to Dismiss as to U.S. Bank, N.A. Signed by District Judge Nancy G. Edmunds. (CHem)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
ESTATE OF JERRY MALLOY,
DECEASED, AND LUCIA MALLOYRANGEL,
Case No. 11-12922
Honorable Nancy G. Edmunds
Plaintiffs,
v.
PNC BANK, ET AL.,
Defendants.
/
OPINION AND ORDER GRANTING DEFENDANT U.S. BANK, N.A.’S MOTION TO
DISMISS [25]
Plaintiffs’ suit arises out of foreclosure proceedings on residential property located at
811 Barton, Ann Arbor, Michigan (the “Ann Arbor property”). It alleges state-law claims
against Defendants PNC Bank, U.S. Bank, N.A., as Trustee for Specialty Underwriting and
Residential Finance Trust Mortgage Loan Asset-Backed Certificates Series 2006-BCI
(“U.S. Bank”), and Trott & Trott, P.C. Defendant Trott & Trott has already been dismissed
from this action.
This mortgage-related dispute comes before the Court on Defendant U.S. Bank’s
motion to dismiss the claims in Plaintiffs’ First Amended Complaint. Plaintiffs’ amended
complaint alleges that Defendant U.S. Bank (1) violated Michigan’s foreclosure by
advertisement statute, Mich. Comp. Laws § 600.3204, because it was attempting to
foreclose on a mortgage without ownership of the indebtedness or an interest in the
indebtedness (Count I), there was a break in the record chain of title (Count II), and there
was an invalid assignment of the mortgage by Defendant PNC to Defendant U.S. Bank
(Count III); (2) lacks standing to assign, foreclose on, or take any action to enforce the
mortgage on the Ann Arbor property (Counts IV and V); and (3) breached the terms of the
underlying mortgage agreement (Count VI). Plaintiffs also seek to quiet title in the Ann
Arbor property (Count VIII),1 and to have the Court take physical custody of the mortgage
note while this litigation is pending (Count IX).
For the reasons stated below, this Court GRANTS Defendant U.S. Bank’s motion to
dismiss.
I.
Facts
A. Quit Claim Deed
On March 23, 2005, Jerry and Guadalupe Malloy quit claimed the Ann Arbor property
to “Jerry Malloy a married man, Guadalup Malloy and Lucia Malloy Rangel with full rights
of survivorship.” (Def.’s Mot., Ex. E.) That Quit Claim Deed was not recorded until January
30, 2007; after Jerry Malloy had executed a Mortgage and Note on the Ann Arbor property.
(Def.’s Mot., Ex. E.)
B. Mortgage Loan
On September 8, 2005, Jerry Malloy executed a Note promising to repay
Commonwealth United Mortgage (“Commonwealth”), a division of National City Bank of
Indiana, the $180,000 it had loaned to Malloy. (Am. Compl., Ex. 8; Def.’s Mot., Ex. A.) The
Note was secured by a Mortgage on property located at 811 Barton, Ann Arbor, Michigan.
That mortgage was recorded on September 26, 2005. (Id.)
1
Count VII is not asserted against Defendant U.S. Bank. (Am. Compl., Count VII.)
2
On or about March 7, 2007, Commonwealth assigned the Mortgage and Note to
National City Mortgage Company (“National City”), a subsidiary of National City Bank. That
Assignment was recorded on March 23, 2007. (Am. Compl., Ex. 15; Def.’s Mot. Ex. C.)
On or about September 29, 2010, Defendant PNC, as successor by merger to
National City, assigned the Mortgage and Note to Defendant U.S. Bank.2 That Assignment
was recorded on October 19, 2010. (Am. Compl., Ex. 5; Def.’s Mot., Ex. D.)
C. Mortgagor Jerry Malloy’s Death
The mortgagor-debtor, Jerry Malloy, died on October 3, 2009. Plaintiffs allege that
a copy of Malloy’s death certificate was filed with the Washtenaw County Clerk/Register
on October 13, 2009. (Am. Compl., Ex. 10.) That death certificate, however, does not
provide a Liber or Page number confirming that it was recorded in the Washtenaw County
Register of Deeds.3 (Am. Compl., Ex. 10.) Plaintiffs allege that Lucia Malloy-Rangel
became sole owner of the Ann Arbor property by right of survivorship. (Am. Compl. ¶ 11.)
On April 29, 2010, Plaintiff Malloy-Rangel was appointed Personal Representative of
her father’s estate. (Id. at ¶ 12; Am. Compl., Ex. 11, Letters of Authority.) On April 25,
2011, the Estate of Jerry L. Malloy was closed. (Am. Compl. at ¶ 26 and Ex. 14, Probate
Closing Statement.)
D. Foreclosure Proceedings
2
Defendant U.S. Bank is the Trustee of a mortgage pass-through trust ("U.S. Bank
Trust"). The U.S. Bank Trust was governed by a Pooling and Servicing Agreement, which,
among other things, served to control allocation of loan proceeds and losses to
bondholders, described how subject loans were to be serviced, and, according to Plaintiffs,
established a “closing date” deadline for the assignment of assets to the Trust.
3
It is undisputed that Guadalupe Malloy died before Jerry Malloy, as reflected in the
recorded Mortgage and Note.
3
After default on the mortgage loan, foreclosure proceedings began. (Id. at ¶ 21.)
On August 6, 2010, counsel for BAC Home Loans Servicing, L.P ("BAC"), Trott &
Trott, sent a notice addressed to Jerry Malloy at 811 Barton Drive, Ann Arbor, Michigan,
by first class, certified mail, restricted delivery with return receipt requested. The notice
informed the “Borrower/Mortgagor” that the mortgage loan on the Ann Arbor property was
in default, that $179,315.39 was due and owing, and advised mortgagor what he needed
to do to avoid foreclosure. (Def.’s Mot., Ex. G.)
On August 12, 2010, BAC’s counsel, Trott & Trott, published notice pursuant to Mich.
Comp. Laws § 700. 3205a(4), to “JERRY MALLOY, the borrowers and/or mortgagors
(hereinafter ‘Borrower’) regarding the property located at: 811 Barton Dr., Ann Arbor, MI
48105-1229" in the Washtenaw Legal News. That published notice provided Borrower with
the same information contained in the August 6, 2010 letter regarding how to avoid
foreclosure. (Def.’s Mot., Ex. J.)
On August 17, 2010, BAC’s counsel sent a letter to Jerry Malloy at the Ann Arbor
property address, confirming that either Jerry Malloy, “a co-mortgagor, or an approved
housing counselor” had requested a meeting to discuss loan modification and/or loss
mitigation options regarding the Ann Arbor property, confirming that “the foreclosure
process will not continue until on or after November 4, 2010,” and requested specific
documents. (Am. Compl., Ex. 13; Def.’s Mot., Ex. H.)
On September 16, 2010, BAC’s counsel sent another letter addressed to Jerry Malloy
at the Ann Arbor property address. It informed the “Borrower(s)” that counsel had not yet
received the requested documents and if documentation was not submitted “we may
proceed with foreclosure on or after November 4, 2010.” (Def.’s Mot., Ex. I.)
4
On May 19, 2011, counsel for the mortgage loan servicer published a Notice of
Mortgage Foreclosure Sale of the Ann Arbor property. (Def.’s Mot., Ex. K; Am. Compl., Ex.
1.)
On or before July 1, 2011, BAC sent a written notice to Jerry Malloy at the Ann Arbor
property address advising him that, effective July 1, 2011, the servicing of his mortgage
loan was being transferred from BAC Home Loans Servicing, L.P. to Bank of America, N.A.
(Am. Compl., Ex. 2.)
To date, the foreclosure sale has not occurred; rather, the sale is being adjourned
week to week. (Def.’s Mot. at 3.)
E. Plaintiffs’ Lawsuit
On July 6, 2011, Defendant Trott & Trott timely removed Plaintiffs’ lawsuit from the
Washtenaw County Circuit Court because Plaintiffs had alleged a federal claim against that
Defendant [1]. Plaintiffs subsequently filed an amended complaint, dismissing the sole
federal claim [13]. This Court subsequently denied Plaintiffs’ motion to remand, concluding
that Defendant Trott & Trott had been fraudulently joined [20] and granted Trott & Trott’s
motion to dismiss [39]. The matter is now before the Court on Defendant U.S. Bank’s
motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6).
II.
Motion to Dismiss Standard
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the
sufficiency of a complaint. In a light most favorable to the plaintiff, the court must assume
that the plaintiff’s factual allegations are true and determine whether the complaint states
a valid claim for relief. See Albright v. Oliver, 510 U.S. 266 (1994); Bower v. Fed. Express
Corp., 96 F.3d 200, 203 (6th Cir. 1996). To survive a Rule 12(b)(6) motion to dismiss, the
5
complaint’s “factual allegations must be enough to raise a right to relief above the
speculative level on the assumption that all of the allegations in the complaint are true.”
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations and emphasis
omitted). See also Ass’n of Cleveland Fire Fighters v. City of Cleveland, Ohio, 502 F.3d
545, 548 (6th Cir. 2007). “[T]hat a court must accept as true all of the allegations contained
in a complaint is inapplicable to legal conclusions. Threadbare recitals of all the elements
of a cause of action, supported by mere conclusory statements do not suffice.” Ashcroft
v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949 (2009) The court is “not bound to accept as
true a legal conclusion couched as a factual allegation.” Id. at 1950 (internal quotation
marks and citation omitted). Moreover, “[o]nly a complaint that states a plausible claim for
relief survives a motion to dismiss.” Id. “Determining whether a complaint states a
plausible claim for relief will . . . be a context-specific task that requires the reviewing court
to draw on its judicial experience and common sense. But where the well-pleaded facts
do not permit the court to infer more than the mere possibility of misconduct, the complaint
has alleged – but it has not shown – that the pleader is entitled to relief.” Id. (internal
quotation marks and citation omitted). Thus, “a court considering a motion to dismiss can
choose to begin by identifying pleadings that, because they are no more than conclusions,
are not entitled to the assumption of truth. While legal conclusions can provide the
framework of a complaint, they must be supported by factual allegations. When there are
well-pleaded factual allegations, a court should assume their veracity and then determine
whether they plausibly give rise to an entitlement to relief.” Id. In sum, “[t]o survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to
6
state a claim for relief that is plausible on its face.” Id. at 1949 (internal quotation marks
and citation omitted).
Moreover, "documents attached to the pleadings become part of the pleadings and
may be considered on a motion to dismiss." Commercial Money Ctr., Inc. v. Ill. Union Ins.
Co., 508 F.3d 327, 335 (6th Cir. 2007) (citing Fed. R. Civ. P. 10(c)). "A court may also
consider matters of public record in deciding a motion to dismiss without converting the
motion to one for summary judgment." Id. at 336. In addition, documents not attached to
the pleadings may still be considered part of the pleadings when the "document is referred
to in the complaint and is central to the plaintiff's claim." Greenberg v. Life Ins. Co. of Va.,
177 F.3d 507, 514 (6th Cir. 1999) (internal quotation marks and citations omitted).
III.
Analysis
Although Plaintiffs’ amended complaint asserts numerous causes of action, those
alleged against Defendant U.S. Bank challenge its standing and/or authority to foreclose,
including the validity of various assignments of the Malloy Mortgage and Note, because (1)
the assignments improperly transferred the Mortgage but not the Note and this caused a
break in the record chain of title, (2) the absence of an assignment from National City to
PNC caused a break in the record chain of title, and (3) an untimely transfer of the
Mortgage to the U.S. Bank Trust at issue breached certain terms of a Pooling and Servicing
Agreement ("PSA") and thus rendered U.S. Bank's assignment null and void. Plaintiffs also
allege that Defendant U.S. Bank violated Michigan’s foreclosure by advertisement statute,
Mich. Comp. Laws § 600.3204, including its loan modification notice provisions, Mich.
7
Comp. Laws § 600.3205a.4 Plaintiffs’ amended complaint seeks, among other forms of
relief, an order providing for “rescission of the proposed foreclosure” on the Ann Arbor
property, a declaration that Defendants “have no estate or interest whatsoever, in or to” the
Ann Arbor property, and an injunction precluding further assignments of the Malloy
Mortgage/Note or eviction or collection proceedings against Plaintiffs. Plaintiffs also seek
monetary damages, attorney fees and costs from Defendants for “wrongful foreclosure.”
(Am. Compl. at 22-23.)
A. Plaintiffs' Claims Challenging Standing, Holder-in-due-course
Status, Authority to Foreclose Fail
Plaintiffs assert that missing, defective, or flawed assignments have corrupted the
record chain of title and thus preclude Defendant U.S. Bank's standing to foreclose under
Michigan's foreclosure by advertisement statute. The Michigan Supreme Court, the Sixth
Circuit and this Court have previously rejected similar arguments. See Residential Funding
Co., L.L.C. v. Saurman, 805 N.W.2d 183, 184 (Mich. 2011) (quoting Arnold v. DMR Fin.,
532 N.W.2d 852, 856 (Mich. 1995), and observing that "'the validity of the foreclosure is not
affected by any unrecorded assignment of interest held for security.'"); Livonia Props.
Holdings, LLC v. 12840-12976 Farmington Road Holdings, LLC, No. 10-1782, 399 F. App'x
97, 102 (6th Cir. 2010) (rejecting arguments that a defective or flawed assignment corrupts
the chain of title because, among other reasons, "a litigant who is not a party to an
assignment lacks standing to challenge that assignment.")(internal quotation marks and
citations omitted), cert. denied, 131 S. Ct. 1696 (2011); Jarbo v. BAC Home Loan Serv.,
4
Plaintiffs do not allege a violation of § 600.3205a in a separate count; rather, it is
alleged in the “General Allegations” of their amended complaint. (Am. Compl. at ¶¶ 21-25.)
8
No. 10-12632, 2010 WL 5173825, *8 (E.D. Mich. Dec. 15, 2010) (same). Plaintiffs' reliance
on a recent decision from the Michigan Court of Appeals addressing Michigan's foreclosure
by advertisement statute is misplaced. In Kim v. JP Morgan Chase Bank, ___ N.W.2d ___,
2012 WL 104463 (Mich. Ct. App. Jan. 12, 2012), the Michigan Court of Appeals reasoned
that, because the defendant bank was the party seeking to foreclose by advertisement and
had acquired its interest in the mortgage by assignment, Michigan's statute required that
defendant bank record its mortgage interest, i.e., assignment of mortgage, before the date
of the sheriff's sale. Here, there has been no sheriff's sale, and Defendant U.S. Bank has
already recorded PNC's assignment of the Malloy Mortgage/Note to it. Thus, the holding
in Kim does nothing to advance Plaintiffs' claims.
This Court rejects the arguments that form the basis of Plaintiffs' claims against U.S.
Bank for the following reasons. First, Plaintiffs, who are not parties to the challenged
assignments, lack standing to bring claims that question their validity. See Livonia Props.
Holdings, 399 F. App'x at 102 (observing that "there is ample authority to support the
proposition that a litigant who is not a party to an assignment lacks standing to challenge
that assignment.") (internal quotation marks and citation omitted).
Even if they did have standing to challenge U.S. Bank's assignment generally,
Plaintiffs, who are neither parties to nor intended third-party beneficiaries of the U.S. Bank
Trust's Pooling and Servicing Agreement, lack standing to challenge U.S. Bank's
compliance with that Agreement. See Livonia Props. Holdings, LLC v. 12840-12976
Farmington Rd. Holdings, LLC, 717 F. Supp. 2d 724, 747-48 (E.D. Mich.) (observing that
the plaintiff/borrower lacked standing to challenge the defendant bank's compliance with
a pooling and servicing agreement because it was not a party to or a third party beneficiary
9
of that agreement and further observing that any breach in an underlying pooling and
servicing agreement "would not render the assignments themselves (which are separate
contracts) void."), aff'd, 399 F. App'x 97 (6th Cir. 2010), cert. denied, 131 S. Ct. 1696
(2011). See also Anderson v. Countrywide Home Loans, No. 10-2685, 2011 WL 1627945,
at *4 (D. Minn.) (rejecting an argument that the an assignment of a mortgage was invalid
because it violated the terms of a PSA and observing that "Plaintiffs do not have standing
to challenge the validity of the assignment to the Trust because they are not parties to the
PSA."), R. & R. adopted, 2011 WL 1630113 (D. Minn. Apr. 28, 2011); Wittenberg v. First
Indep. Mortg. Co., No. 3:10-CV-58, 2011 WL 1357483, at **21-22 (N.D. W. Va. Apr. 11,
2011) (rejecting argument similar to Plaintiffs' because the plaintiff/borrower there was
neither a party to the subject PSA or an intended beneficiary).
To the extent the
unpublished Washtenaw County Circuit Court decision, Henricks v. US Bank National
Association as Successor Trustee to Bank of America, Case No. 10-849-CH (Washtenaw
County Circuit Court, State of Michigan, June 7, 2011), concludes otherwise, it is rejected
by this Court as unpersuasive.
As to Plaintiffs' claim that National City failed to assign the Malloy Mortgage to PNC,
the Michigan Supreme Court recently reaffirmed its earlier holding that "'the validity of the
foreclosure is not affected by any unrecorded assignment of interest held for security.'"
Residential Funding Co., 805 N.W.2d at 184 (quoting Arnold v. DMR Fin., 532 N.W.2d at
856). In any event, when PNC became successor by merger to National City, PNC
obtained the Mortgage and Note by operation of law and thus there was no need for an
10
assignment. See Winiemko v. GE Capital Mortg. Serv., Inc., No. 177827, 1997 WL
33354482, at *2 (Mich. Ct. App. Jan. 17, 1997).5
Despite Plaintiffs' claims to the contrary, there is no defect in the record chain of title
that precludes Defendant U.S. Bank from pursuing foreclosure by advertisement under
Michigan law. Section 600.3204(3) of Michigan's foreclosure by advertisement statute
provides that: "[i]f the party foreclosing a mortgage by advertising is not the original
mortgagee, a record chain of title shall exist prior to the date of sale . . . evidencing the
assignment of the mortgage to the party foreclosing the mortgage." Mich. Comp. Laws §
600.3204(3). To comply, the Sixth Circuit recently observed, requires a record showing "a
clear chain of title from the original mortgagee to [the party foreclosing on the mortgage]."
Livonia Props. Holdings, 399 F. App'x at 101. Here, as in Livonia Props. Holdings, there
is such a record. The recorded Mortgage and assignments establish the required chain of
title from the original mortgagee to Defendant U.S. Bank. (Def.'s Mot., Exs. B, C. and D.)
Plaintiffs' claim in Count III -- that there is a defect in the record chain of title that
precludes foreclosure because the Mortgage and Note were improperly "split" or separately
assigned -- is rejected. First, the challenged assignments expressly transferred the Note
along with the Mortgage. Defendant U.S. Bank is both the mortgagee and the noteholder.
(Def.'s Mot., Exs. C and D.) Second, the Michigan Court of Appeals decision upon which
Plaintiffs base their claim was recently reversed by the Michigan Supreme Court. See
Residential Funding Co., LLC v. Saurman, ___ N.W.2d ___, 292 Mich. App. 321, 2011 WL
5
U.S. Bank's assignment expressly identifies PNC as "SBM" or successor by merger of
National City Mortgage Co., a subsidiary of National City Bank
11
1516819 (Mich. Ct. App.), rev'd, 805 N.W.2d 909 (Mich. 2011). The Michigan Court of
Appeals' decision addressed the issue "whether MERS, as a mortgagee, but not a
noteholder, could exercise its contractual right to foreclose by means of advertisement,"
and concluded that it could not because "the notes and the mortgages are separate
documents, providing evidence of separate obligations and interests," and "MERS's interest
in the mortgages did not give it an interest in the debts" and thus MERS could not be
considered "'the owner . . . of an interest in the indebtedness secured by the mortgage . .
. '" 2011 WL 1516819 at **3, 4 (quoting Mich. Comp. Laws § 600.3204(1)(d)). The court
also concluded that contractual language could not "grant MERS the authority to take
action" prohibited by § 600.3204(1)(d). Id. at 5.
On appeal, the Michigan Supreme Court agreed with the dissenting judge in the
Michigan Court of Appeals that MERS was "'the owner . . . of an interest indebtedness
secured by the mortgage . . . . because [MERS'] contractual obligations as mortgagee were
dependent upon whether the mortgagor met the obligation to pay the indebtedness which
the mortgage secured." Residential Funding, 805 N.W. 2d at 909 (internal quotation marks
and citation omitted). The Michigan Supreme Court clarified that there is a difference
between " an 'owner of an interest in the indebtedness'" and "an ownership interest in the
note" and that "MERS' status as an 'owner of an interest in the indebtedness' does not
equate to an ownership interest in the note." Id. It explained:
[A]s record-holder of the mortgage, MERS owned a security lien on the
[mortgaged] properties, the continued existence of which was contingent upon
the satisfaction of the indebtedness. This interest in the indebtedness -- i.e., the
ownership of legal title to a security lien whose existence is wholly contingent on
the satisfaction of the indebtedness -- authorized MERS to foreclose by
advertisement under MCL 600.3204(1)(d).
12
Id. at 909. It added that the Court of Appeals' majority decision was "inconsistent with
established legal principles governing Michigan's real property law, and specifically
foreclosure by advertisement." Id. Quoting well-settled Michigan law, the Michigan
Supreme Court observed that "the mortgage and note are to be construed together," that
"the mortgagee has a lien on the land to secure the debt," that "[i]t has never been
necessary that the mortgage should be given directly to the beneficiaries," that "[t]he
security is always made in trust to secure obligations, and the trust and the beneficial
interest need not be in the same hands," and "[o]nly the record holder of the mortgage has
the power to foreclose; the validity of the foreclosure is not affected by any unrecorded
assignment of interest held for security." Id. (internal quotation marks and citations
omitted).
The Michigan Supreme Court concluded that the Michigan Court of Appeals had
erroneously construed § 600.3204(1)(d) when it determined that "an undisputed record
holder of a mortgage, such as MERS, no longer possesses the statutory authority to
foreclose." Id. Rather, the proper construction is as follows:
[T]he Legislature's use of the phrase "interest in the indebtedness" to denote a
category of parties entitled to foreclose by advertisement indicates the intent to
include mortgagees of record among the parties entitled to foreclose by
advertisement, along with parties who "own[ ] the indebtedness" and parties who
act as "the servicing agent of the mortgage."
Id. (quoting Mich. Comp. Laws § 600.3204(1)(d)).
Here, Defendant U.S. Bank is an undisputed record holder of the Malloy Mortgage.
Not only is U.S. Bank the mortgagee on the Mortgage, it holds the Note. Thus, it's standing
13
to foreclose under § 600.3204(1)(d) is established as a matter of law. Plaintiffs' claims to
the contrary are dismissed with prejudice.6
B. Plaintiffs' Allegations of Improper Notice Fail to State a Claim
Plaintiffs' claims that foreclosure proceedings were initiated without providing required
notices under Mich. Comp. Laws § 600.3205a are also rejected. Despite Plaintiffs'
complaint that the notice was to Jerry Malloy rather than his estate, the exhibits attached
to Plaintiffs' amended complaint reveal that the challenged notices complied with the
language of § 600.3205a(4). (Am. Compl., Exs. 1, 12, 13.) Moreover, Plaintiffs' reliance
on a loan modification meeting notice issued under Mich. Comp. Laws § 600.3205a(4) does
nothing to establish Plaintiffs' claim that Defendant U.S. Bank wrongfully initiated
foreclosure proceedings.
The plain language of § 600.3205a provides that it is a
prerequisite to foreclosure.
It does not trigger the commencement of foreclosure
proceedings. Finally, Plaintiffs cannot claim that they lacked actual notice of the August
2010 loan modification meeting notice as their amended complaint references and attaches
6
This Court also rejects arguments Plaintiffs raise in their Response that BAC or
Defendant U.S. Bank's current servicing agent lack authority to foreclose under §
600.3204(1)(d). The plain language of that statute provides otherwise.
The Court also rejects Plaintiffs' arguments in their Response that, because the
servicing agent of the mortgage -- BAC -- initiated foreclosure proceedings, Plaintiffs are
or will be subjected to a double foreclosure. The documents Plaintiffs attach to and
reference in their amended complaint and the Michigan Supreme Court's recent decision
in Residential Funding preclude any such argument.
Finally, Plaintiffs' newly asserted U.C.C./breach of contract claims (based on the
same allegations/documents/arguments that transfer/assignment of Malloy Mortgage/Note
was improper and invalid) are also rejected as implausible for all the reasons stated above.
Plaintiffs have not and cannot state a cognizable U.C.C. claim, or breach of contract claim
based on any such U.C.C. violation. Their attempt to do so is rejected under Twombly and
Iqbal.
14
an August 17, 2010 letter from foreclosure counsel, Trott & Trott, addressed to Jerry Malloy
and delivered to the Ann Arbor property that discusses loan modification issues. (Am.
Compl. at ¶¶ 25, 52, Ex. 13.)
C. Plaintiffs' Fail to State a Breach of Contract Claim
Plaintiffs' breach of contract claims allege that Defendant U.S. Bank breached the
Malloy Mortgage and Note by making unauthorized assignments -- mortgage/note splitting
and violation of the PSA -- and by thus beginning foreclosure proceedings without proper
authority. These breach of contract claims fail under Twombly and Iqbal.
Because
Plaintiffs' breach of contract claims consist of nothing more than a restatement of the other
claims discussed above and dismissed, they too are dismissed with prejudice.
D. Plaintiffs' Fail to State a Quiet Title Claim
Plaintiffs' quiet title claims also fail. Under Michigan law, the plaintiff has the burden
of proof in an action to quiet title and must make out a prima facie case of title. Stinebaugh
v. Bristol, 347 N.W.2d 219, 221 (Mich. Ct. App. 1984). Plaintiffs here fail to provide any
legal or factual justification for their quiet title claim. Rather, this claim is founded on the
same factual allegations and legal arguments addressed above -- that Defendant U.S.
Bank lacks standing and/or authority to foreclose under Michigan's foreclosure by
15
advertisement statute.7 Accordingly, Plaintiffs' quiet title claims also fail under Twombly
and Iqbal.
E. Plaintiffs' Cause of Action for Claim and Delivery Fails
In Count IX of Plaintiffs' amended complaint, they allege that the Malloy Mortgage
Note is Plaintiffs' "private property" and "should be returned to it as necessary to prevent
fraudulent negotiation of the note[.]" (Am. Compl., ¶ 101.) Under Michigan law, a civil
action for claim and delivery "may be brought to recover possession of any goods or
chattels which have been unlawfully taken or unlawfully detained and to recover damages
sustained by the taking or unlawful detention."
Mich. Comp. Laws § 600.2920(1).
However, "an action may not be maintained under this section by a person who, at the time
the action is commenced, does not have a right to possession of the goods or chattels
taken or detained." Mich. Comp. Laws § 600.2920(1)(c). For all the reasons stated above,
Plaintiffs cannot state a cause of action for claim and delivery based on allegations that
Defendant U.S. Bank unlawfully took or detained the Mortgage Note at issue here.
Accordingly, Plaintiffs' cause of action for claim and delivery is dismissed as implausible
under Twombly and Iqbal.
IV.
Conclusion
7
Plaintiffs' claims for relief based on allegations that, because Defendant U.S. Bank has
"unclean hands," it should be estopped from foreclosure also fail. First, the allegations are
merely conclusory and thus fail to state a claim for relief. Second, the equitable doctrine
of "unclean hands" is invoked by a party as a defense to a claim raised by the opposing
party or by the court; it is not a cause of action. See Stachnik v. Winkel, 230 N.W.2d 529,
532 (1975) (observing that the equitable doctrine of unclean hands "is rooted in the
historical concept of the court of equity as a vehicle for affirmatively enforcing the
requirement of conscience and good faith. This presupposes a refusal on [the court's] part
to be the 'abettor of inequity.").
16
For the above-stated reasons, Defendant U.S. Bank's motion to dismiss is GRANTED,
and Plaintiffs' claims against this Defendant are DISMISSED WITH PREJUDICE.8
s/Nancy G. Edmunds
Nancy G. Edmunds
United States District Judge
Dated: January 23, 2012
I hereby certify that a copy of the foregoing document was served upon counsel of record
on January 23, 2012, by electronic and/or ordinary mail.
s/Carol A. Hemeyer
Case Manager
8
The only remaining Defendant is PNC Bank.
17
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