Hermiz
Filing
16
OPINION and ORDER affirming 2/1/13 decision and judgment re 1 Bankruptcy Appeal Signed by District Judge George Caram Steeh. (MBea)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
IN RE: AZHAR HERMIZ,
Bkrptcy No. 12-52399
Debtor.
________________________/
AZHAR HERMIZ,
Civil Case No. 13-11199
Plaintiff-Appellant,
HON. GEORGE CARAM STEEH
vs.
FEDERAL HOME LOAN MORTGAGE
CORPORATION, a corporation organized
under the laws of United States,
and JPMORGAN CHASE BANK, NATIONAL
ASSOCIATION,
Defendants-Appellees,
and
FEDERAL HOUSING FINANCE AGENCY
Intervenor-Appellee.
_____________________________________/
OPINION AND ORDER AFFIRMING
FEBRUARY 1, 2013 DECISION AND JUDGMENT
Before the Court is an appeal by Appellant Azhar Hermiz (“Appellant”) of a
February 1, 2013 judgment entered by the Bankruptcy Court granting motions to
dismiss from an adversary proceeding under Fed. R. Bankr. P. 7012(b) and Fed. R. Civ.
P. 12(b)(6) in favor of Appellees Federal Home Loan Mortgage Corp. (“Freddie Mac”),
JPMorgan Chase Bank, N.A. (“Chase”), and Federal Housing Finance Agency (“FHFA”)
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(collectively “Appellees”). A hearing was held on June 25, 2013. For the reasons set
forth below, the February 1, 2013 decision and judgment is AFFIRMED.
I. BACKGROUND
Appellant and her husband, Abdulkarim Hermiz purchased a home at 7621 Acorn
Hill Court, West Bloomfield, MI 48323 (the “property”) in April of 2003 with a mortgage loan
in the amount of $305,000 from Chase Manhattan Mortgage Corporation, predecessor to
Chase. Appellant defaulted on the loan and Chase foreclosed by advertisement and
conveyed the property to Freddie Mac on May 17, 2011 through a sheriff’s deed. Under
M.C.L.A. § 600.3240, Appellant had a one year redemption period from the date the
property was sold to Freddie Mac to pay the bid price as well as the sheriff’s fee paid by
Freddie Mac, with interest calculated from the date of sale to Freddie Mac. After Appellant
initiated Chapter 13 bankruptcy proceedings on May 17, 2012, the redemption period was
extended to July 16, 2012. Appellant failed to pay the sum required for redemption by this
date.
On June 25, 2012 Appellant filed an adversary complaint against Appellees in the
Bankruptcy Court. During adversary proceedings, Appellees each filed motions to dismiss
under Fed. R. Bankr. P. 7012(b) and Fed. R. Civ. P. 12(b)(6). The Bankruptcy Court
granted Appellees’ motions based on Kapla v. Federal National Mortgage Corporation, 485
B.R. 136 (Bankr. E.D. Mich. 2012), for reasons stated on the record. The Bankruptcy Court
responded to Appellant’s claim of a due process violation by citing Kapla, holding that there
is no significant difference between the facts in Kapla and the facts presented during the
adversary proceeding.
The Bankruptcy Court responded to Appellant’s remaining
arguments regarding timeliness of filing by pointing to unspecified opinions, also written by
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Bankruptcy Court Judge Shapero. After the Bankruptcy Court granted Appellees’ motions
to dismiss, Appellant appealed to this Court for review.
II. STANDARD OF REVIEW
Under 28 U.S.C. § 158(a)(1) this Court has “jurisdiction to hear appeals from final
judgments” of Bankruptcy Court. The Court applies de novo review to legal conclusions
appealed from Bankruptcy Court. In re Batie, 995 F.2d 85, 88-89 (6th Cir. 1993). See In
re Cannon, 277 F.3d 838, 849 (6th Cir. 2001). A ruling on a motion to dismiss is a legal
determination to which de novo review is applied. In re Grenier, 430 B.R. 446, 449 (E.D.
Mich 2010). However, the Court will not set aside the Bankruptcy Court’s findings of
fact unless the findings are “clearly erroneous.” Fed. R. Bankr. P. 8013; Batie, 992 F.2d
at 88 (citing In re Barrett, 964 F.2d 588, 591 (6th Cir. 1992)).
Appellees’ original Fed. R. Civ. P. 12(b)(6) motion to dismiss was litigated within
Bankruptcy Court adversary proceedings conducted under Fed. R. Bankr. P. 7012(b). This
Court applies the same standard as did the Bankruptcy Court when reviewing the motion
de novo. “To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). Pleadings that are merely conceivable are not sufficient to survive a motion to
dismiss. Twombly, 550 U.S. at 570. Similarly, a pleading “requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action.” Id. at 555. A
claim for fraud is a special matter, and has a higher pleading standard set forth in Fed. R.
Civ. P. 9(b), requiring a party to “state with particularity the circumstances constituting fraud
or mistake.”
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III. ANALYSIS
A. Due Process
Appellant alleges that as a federal instrumentality through conservatorship, Freddie
Mac violated her due process rights when it foreclosed on the property without a judicial
foreclosure proceeding. Appellant argues that Freddie Mac is a federal instrumentality for
constitutional purposes, specifically for her claim of violation of due process. An individual
may only bring a due process claim against a federal instrumentality as the Fifth
Amendment does not restrict private actors. Pub. Utils. Comm’n v. Pollak, 343 U.S. 451,
461 (1952). For a private corporation like Freddie Mac to be considered a federal
instrumentality for constitutional purposes, it must be created “by special law for the
furtherance of governmental objectives, and [the government] retains for itself permanent
authority to appoint a majority of the directors.” Lebron v. Nat’l R.R. Passenger Corp., 513
U.S. 374, 400 (1995). Prior to conservatorship, Freddie Mac was a private actor, and not
under government control because the government only maintained authority to appoint
5 of the 18 directors on Freddie Mac’s Board of Directors, well below the majority required
in Lebron. Id. See Herron v. Fannie Mae, 857 F. Supp. 2d 87, 92 (D.D.C. 2012) (holding
that Fannie Mae was a private actor before it went into conservatorship.). Conservatorship
does not make the government’s relatively recent control over Freddie Mac permanent,
even if its control is indefinite. Under 12 U.S.C. § 4617(a)(2), FHFA may “be appointed
conservator or receiver for the purpose of reorganizing, rehabilitating, or winding up the
affairs of a regulated entity.” See Kapla, 485 B.R. at 152. This language implies that
conservatorship is inherently temporary because when the task of “reorganizing,
rehabilitating, or winding up” is completed, the FHFA may no longer act under its
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discretionary appointment, and further, 12 U.S.C. § 4617(a)(4)(D) establishes the
framework to terminate conservatorship. The presence of FHFA as a conservator is
insufficient as a factual basis to plausibly conclude for constitutional purposes that Freddie
Mac is a government actor. Kapla, 485 B.R. at 153. In finding that Freddie Mac is not a
federal instrumentality for constitutional purposes, and is instead a private actor, Appellant’s
due process claim necessarily fails.
Alternatively, Appellant argues that Michigan’s non-judicial foreclosure statute, MCL
600.3201, violates her due process rights. “[T]he Sixth Circuit has already found that
Michigan’s foreclosure by advertisement statute [sic] comports with the requirements of due
process.” Rubin v. Fannie Mae, Case No. 12-cv-12832, 2012 WL 6000572 at *3 (E.D. Mich.
Nov. 30, 2012) (citing Sutton v. U.S. Small Bus. Admin., 92 F. App’x 112, 121 (6th Cir.
2003)). Appellant argues that Sutton can be distinguished from the present case because
the United States was the defendant in Sutton. The Court does not find this argument
persuasive; moreover, like in Sutton, Appellants had adequate and actual notice through
foreclosure by advertisement. Sutton, 92 F. App’x at 121.
After reviewing the arguments presented to the Bankruptcy Court during adversary
proceedings, this Court affirms the Bankruptcy Court’s finding that under Kapla, Freddie
Mac was not a federal instrumentality, and therefore Appellant’s due process rights were
not violated by Michigan law.
B. Redemption Period, Slander of Title, Fraud
Appellant may not challenge the sheriff’s sale after the redemption period has
expired. “[W]here a plaintiff does not avail herself of the right of redemption in the
foreclosure proceedings before the expiration of such right, all of the plaintiff’s rights in and
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to the property are extinguished.” Awad v. Gen. Motors Acceptance Corp., 2012 WL
1415166 at *2 (Mich. Ct. App. April 24, 2012) (citing Piotrowski v. State Land Office Bd, 203
Mich. 179, 187 (1942)). Michigan courts have previously viewed challenges to foreclosure
sales brought after the expiration of the redemption period as lacking standing. See Page
v. Everhome Mortg. Co., 2012 WL 3640304 at *2 (Mich. Ct. App., Aug. 23, 2012); Overton
v. Mortg. Electronic Registration System, Inc., 2009 WL 1507342 (Mich. Ct. App. May 28,
2009). Alternatively, federal courts have accepted the holding in Overton, but indicated that
the case holds on its merits, not solely on its conclusions relating to standing. Langley v.
Chase Home Fin. LLC, 2011 WL 1130926 at *2 (W.D. Mich., Mar. 28, 2011). However,
Awad provides for an equitable extension of the redemption period in the case of “a clear
showing of fraud, or irregularity” in the foreclosure process itself. Awad v. Gen. Motors
Acceptance Corp., 2012 WL 1415166 at *2 (Mich. Ct. App. April 24, 2012) (quoting
Schulthies v. Barron, 16 Mich. App. 246, 247-48 (Mich. Ct. App. 1969)). If there were a
sufficient pleading of fraud, the redemption period would be extended by five years under
MCL 600.5801(1).
While Appellant alleges fraud on the part of Chase, for providing the wrong sale date
for the sheriff’s sale, the pleadings do not satisfy the heightened requirements under Fed.
R. Civ. P. 9(b). Under these requirements, Appellant must plead and prove:
(1) the defendant made a material representation; (2) the representation was
false; (3) when the defendant made the representation, the defendant knew
that it was false, or made it recklessly, without knowledge of its truth as a
positive assertion; (4) the defendant made the representation with the
intention that the plaintiff would act upon it; (5) the plaintiff acted in reliance
upon it; and (6) the plaintiff suffered damage.
Colbert v. Fed. Nat’l Mortg. Ass’n, 2013 WL 1629305 at *32 (E.D. Mich., Apr. 16, 2013)
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(quoting Hi-Way Motor Co. v. Int’l Harvester Co., 247 N.W.2d 813, 816 (Mich. 1976)).
Appellant’s claim of fraud is founded on an assertion that a Chase representative told her
the sheriff’s sale was to take place one week later than it actually took place. At best, the
facts presented by Appellant simply indicate that there was a miscommunication regarding
the date of the sheriff’s sale. However, Appellees maintain in their brief to the Court that
notice of the sale was posted at the property four weeks prior to the sale, as well as notice
published in the newspaper, providing sufficient warning to Appellant that the sale was
indeed on May 17, 2011 rather than one week later as Appellant claims she was told by a
Chase representative. Even if we ignore the facts presented by Appellees, this Court must
still conclude that Appellant has not alleged sufficient facts to support a fraud claim,
because at most, only the first, second and fifth elements required in Colbert, supra, are
even asserted in Appellant’s arguments. Further, Appellant merely presents a legal
conclusion that the discrepancy of foreclosure sale date signifies fraud, which is insufficient
to survive a motion to dismiss. See Twombly, 550 U.S. at 555. Therefore, failing a
successful pleading for the fraud claim, Appellant’s argument that the redemption period
was not equitably extended to five years under MCL 600.5801(1) necessarily fails.
Appellant also argues that she has a claim for slander of title that should not be
dismissed. However, because the redemption period has already expired, Appellant may
not challenge the foreclosure sale, which precludes the slander of title claim. Even if
Appellant had filed her suit prior to the expiration of the redemption period, her claim for
slander of title would not survive a motion to dismiss because, as with the claim for fraud,
the pleadings fail to articulate the requisite intent and malice for a slander of title claim. B
& B Inv. Grp. v. Gitler, 581 N.W.2d 17, 20 (Mich. Ct. App. 1998); Stanton v. Dachille, 463
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N.W.2d 479, 486 (Mich. Ct. App. 1990). If this Court accepts that the Chase representative
incorrectly informed Appellant of the date of the sheriff’s sale, the pleadings are still
insufficient without any allegations of facts demonstrating malice by Chase or reasonable
reliance by Appellant. See Twombly, 550 U.S. at 555. Appellant’s complaint fails a motion
to dismiss for the fraud claim, and is likewise insufficient to state the necessary malice to
survive a motion to dismiss for the slander of title claim. Moreover, the Bankruptcy Court
correctly found that the redemption period had expired, barring both the fraud and slander
of title claims.
IV. CONCLUSION
For the foregoing reasons, the Bankruptcy Court’s decision to grant Appellees’
motions to dismiss adversary proceedings is hereby AFFIRMED. Judgment will enter
for Appellees.
IT IS SO ORDERED.
Dated: July 3, 2013
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE
CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
July 3, 2013, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk
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