Smith v. BANK OF AMERICA, NA, Successor to BAC Home Loans Servicing, L.P.

Filing 24

OPINION and ORDER Granting 12 MOTION to Dismiss First Amended Complaint - Signed by District Judge Laurie J. Michelson. (JJoh)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
JOSEPH CONRAD SMITH, II,
Plaintiff,
v.

Case No. 14-cv-11458
Honorable Laurie J. Michelson
Magistrate Judge Michael J. Hluchaniuk

BANK OF AMERICA, NA, and MORTGAGE
ELECTRONIC REGISTRATION SYSTEMS,
INC.,
Defendants.
OPINION AND ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS [12]
In 2008, Plaintiff Joseph Conrad Smith, II, moved his family out of their home after he
fell behind in mortgage payments and Defendants foreclosed the property. Then a Michigan
Court of Appeals ruling in 2011 suggested the foreclosure was invalid. Although the ruling was
reversed later that year by the Michigan Supreme Court, Defendants had expunged the
foreclosure in the meantime. They recorded the expungement, but no one drew it to Smith’s
attention. He was therefore surprised and confused when in 2012 he started receiving default
notices for a mortgage he thought had already been foreclosed. Smith responded by filing this
lawsuit. Defendants’ Motion to Dismiss the First Amended Complaint (Dkt. 12) is now before
the Court. For the reasons that follow, the Court finds that Smith has not stated a claim for fraud,
fraud in the inducement, violation of the Michigan Consumer Protection Act, unjust enrichment,
or quiet enjoyment. Defendants’ Motion to Dismiss the First Amended Complaint (Dkt. 12) is
therefore GRANTED.

I. LEGAL STANDARD
The Federal Rules of Civil Procedure require that pleadings contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A
plaintiff “must allege ‘enough facts to state a claim of relief that is plausible on its face.’”
Traverse Bay Area Int. Sch. Dist. v. Mich. Dep’t of Educ., 615 F.3d 622, 627 (6th Cir. 2010)
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Facial plausibility means
that “the complaint has to ‘plead[] factual content that allows the court to draw the reasonable
inference that the defendant[s are] liable for the misconduct alleged.’” Ohio Police & Fire
Pension Fund v. Std. & Poor’s Fin. Servs., LLC, 700 F.3d 829, 835 (6th Cir. 2012) (alteration in
original) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “This standard does not require
detailed factual allegations, but a complaint containing a statement of facts that merely creates a
suspicion of a legally cognizable right of action is insufficient.” HDC, LLC v. City of Ann Arbor,
675 F.3d 608, 614 (6th Cir. 2012) (citation and internal quotation marks omitted).
The court must “accept all well-pleaded factual allegations as true and construe the
complaint in the light most favorable to plaintiffs.” Bennet v. MIS Corp., 607 F.3d 1076, 1091
(6th Cir. 2010). The court “need not, however, accept unwarranted factual inferences.” Id. (citing
Twombly, 550 U.S. at 570). Nor are “[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements” entitled to an assumption of truth. Iqbal, 556 U.S. at
678. “[W]here 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 ‘show[n]’—‘that the pleader
is entitled to relief.’” Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
In general, “a district court may not consider matters beyond the complaint” when
analyzing a motion to dismiss. Winget v. Morgan Chase Bank, N.A., 537 F.3d 565, 575 (6th Cir.

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2008). But the court may examine “orders, items appearing in the case record, exhibits attached
to the complaint, and documents referred to in the complaint and central to the plaintiff’s claim.”
Johnson v. Trott & Trott, P.C., 829 F. Supp. 2d 564, 568 (W.D. Mich. 2011). Further,
“documents that a defendant attaches to a motion to dismiss are considered part of the pleadings
if they are referred to in the plaintiff’s complaint and are central to her claim.” Weiner v. Klais &
Co., 108 F.3d 86 (6th Cir. 1997). Finally, the court may consider materials that are “public
records or are otherwise appropriate for the taking of judicial notice.” New Eng. Health Care
Employees Pension Fund v. Ernst & Young, LLP, 336 F.3d 495, 501 (6th Cir. 2003).
II. ALLEGATIONS OF THE COMPLAINT
Smith purchased a home at 2400 Edison, Detroit, (the “Property”) in February 2000.
(Dkt. 10, Am. Compl. ¶ 11; see Dkt. 10-2, Am. Compl. Ex. 1, Warranty Deed.) The deed was
recorded. (Am. Compl. ¶ 12; see Warranty Deed.) In April 2002, Smith mortgaged the Property
to Countrywide Home Loans, Inc., for $150,015.00. (Id. ¶ 15; see Am. Compl. Ex. 2, Mortgage;
Dkt. 12-2, Mot. Ex. 1, Note.) The mortgage was recorded. (Id.)
Smith fell behind on his mortgage payments. (See Am. Compl. ¶ 18.) In June 2008,
counsel for Defendant Mortgage Electronic Registration Systems, Inc., (“MERS”) as nominee
for the lender, published a notice of foreclosure in the Detroit Legal News and posted it on the
Property. (Am. Compl. ¶ 19; see Dkt. 10-4, Am. Compl. Ex. 3, Foreclosure Notice.) In July
2008, MERS, again as nominee for the lender, purchased the Property at a sheriff’s sale. (See
Am. Compl. ¶ 20; Dkt. 10-5, Am. Compl. Ex. 4, Sheriff’s Deed on Mortgage Sale.) The deed
was recorded. (Id.) MERS quitclaimed the Property to Fannie Mae. (See Am. Compl. ¶ 21; Dkt.
10-6, Am. Compl. Ex. 5, MERS Quit Claim Deed.) The deed was recorded in August 2008. (Id.)

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Smith made many repairs and upgrades to the Property while he lived there. (Am. Compl.
¶¶ 13–14, 23.) Smith and his family moved out of the Property between July 29, 2008, when the
Sherriff’s Deed on Mortgage Sale was recorded, and August 7, 2008, when the Property was
quitclaimed to Fannie Mae. (See Am. Compl. ¶ 24.) The foreclosure and sale “caused Plaintiff to
discontinue his pursuit of obtaining the funds to redeem the property prior to the Redemption
period expiration, and refocus on finding immediate and adequate housing to accommodate a
family of 6.” (Am. Compl. ¶ 27.) After Plaintiff moved out, the Property was vandalized by
removal of plumbing, wiring, and other items. (See Am. Compl. ¶¶ 29–30, 49; Dkt. 10-13, Am.
Compl. Ex. 13, Review Notice and Request at Pg ID 251.)
In November 2008, Fannie Mae quitclaimed the Property to Countrywide, which
transferred the Property to the Secretary of Housing and Urban Development (“HUD”) by
warranty deed in February 2009. (Am. Compl. ¶¶ 31–32; see Dkt. 12-6, Mot. Ex. 5, Fannie Mae
Quit Claim Deed; Dkt. 10-7, Am. Compl. Ex. 6, Countrywide Warranty Deed.) Both deeds were
recorded. (Id.)
Then in April 2011, the Michigan Court of Appeals ruled in Residential Funding
Company v. Saurman that MERS could not foreclose by advertisement as authorized by
Michigan Compiled Laws 600.3204(1)(d) because MERS was not “the owner of the
indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent
of the mortgage” within the meaning of the statute. 807 N.W.2d 412, 416 (Mich. Ct. App. 2011).
The Michigan Supreme Court later reversed the ruling, in November 2011. Residential Funding
Co. v. Saurman, 805 N.W.2d 183, 184 (Mich. 2011). But in the meantime, in August 2011,
counsel for MERS recorded an affidavit expunging the Sheriff’s Deed on Mortgage Sale for the
Property. (Am. Compl. ¶ 37; see Dkt. 12-8, Mot. Ex. 7, Affidivit Expunging Sheriff’s Deed.)

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In October 2011, HUD quitclaimed the Property to Defendant Bank of America, N.A.,
(“BANA”) which had acquired Countrywide—the original mortgagee—in 2008. (Am. Compl. ¶
40; see Dkt. 10-9, Am. Compl. Ex. 9, HUD Quit Claim Deed.) The deed was recorded. (See
HUD Quit Claim Deed.) In January 2012, MERS assigned the Mortgage to BANA and recorded
the assignment. (See Dkt. 12-10, Mot. Ex. 9, MERS Assignment.)
Smith was not notified that the 2008 foreclosure had been expunged. (See Review Notice
and Request at Pg ID 251; Am. Compl. ¶¶ 34, 41–42, 45–46, 50(3).) On February 6, 2012, Smith
received a letter from counsel for BANA. (Am. Compl. ¶ 43; see Dkt. 10-10, Am. Compl. Ex.
10, Feb. 2012 Letter.) The letter stated that the mortgage loan for the Property was in default for
non-payment, with the total amount then due $202,992.72. (Id.) The letter further stated that if a
meeting to discuss modification was requested within 30 days, foreclosure proceedings would
not be commenced for at least 90 days from the date of the letter. (See Feb. 2012 Letter.)
On March 6, 2012, BANA counsel wrote Smith another letter acknowledging his request
for a meeting to discuss loan modification or loss mitigation options and requesting financial
information and other documents by April 6, 2012, to avoid foreclosure. (Am. Compl. ¶ 44; see
Dkt. 10-11, Am. Compl. Ex. 11, March 2012 Letter.) Smith returned the requested documents
“forthwith.” (Am. Compl. ¶ 45.) But Smith was confused about why he was receiving
communications as if he were still the owner of the Property, and tried to contact BANA counsel
to learn more. (Id. ¶¶ 45–46.)
In a letter dated April 13, 2012, counsel for BANA stated, “notice is hereby given that
said mortgage will be foreclosed by a sale of the mortgaged premises . . . on May 17, 2012.”
(Dkt. 10-12, Am. Compl. Ex. 12, April 2012 Letter; see Am. Compl. ¶ 47.) The letter stated that
the amount due on the mortgage was $417,162.80. (Id.)

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Around the same time, Smith received a notice that he could be eligible for an
Independent Foreclosure Review required by federal bank regulators because the Property “was
active in the foreclosure process between January 1, 2009 and December 31, 2010.” (See Am.
Compl. ¶ 48; Review Notice and Request at Pg ID 248–49.) Smith submitted a request for
review. (Id.)
Defendants reinstated Smith’s original loan without notifying him and reported to
creditors as if he had never lost possession of the Property between 2008 and 2011. (Am. Compl.
¶ 50(3). Current billing shows that Smith owes a principal balance of $155,000.00 and an
overdue balance of $144,045.75. (Id. ¶ 50 (7).) During the three-year period when the home was
deemed foreclosed, it was left unsecured. (Id. ¶ 50(6).) As a result, Smith has had to incur labor,
construction, and repair without the assistance of homeowner’s insurance to attempt to restore
his home. (See id.) Smith also incurred costs to relocate his family and pay for an alternate
residence. (See id. ¶ 50(2).)
Smith filed this lawsuit on April 10, 2014. (See Dkt. 1.)
III. ANALYSIS
The current complaint (amended in June after Defendants’ Motion to Dismiss was filed)
contains three counts: (1) fraud and fraud in the inducement and Consumer Protection Act; (2)
unjust enrichment; and (3) denial of quiet and peaceful enjoyment. (Am. Compl. ¶¶ 51–84.)
Smith asks the Court to award damages “in an amount greater than $100,000” as well as
expenses, attorney fees, and punitive damages; deny Defendants “any entitlement to alter or
make declaratory relief applicable in any actions pertaining to the subject property”; and
“remove any debt associated with the terms of any mortgage previously held or entered into by

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Plaintiff and award Plaintiff full ownership of the subject property.” (Am. Compl. at Pg ID 210.)
The Court examines each ground for relief and finds that Smith has not stated a claim.
A. Fraud and Fraud in the Inducement
To state a claim for fraud under Michigan law, the following elements must be alleged:
“(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. M&D, Inc. v. W.B. McConkey, 585 N.W.2d 33, 36 (Mich.
Ct. App. 1998) (citing Hi-Way Motor Co. v. Int'l Harvester Co., 247 N.W.2d 813, 815 (1976)).
Michigan also recognizes fraud in the inducement, which has the same elements and “occurs
where a party materially misrepresents future conduct under circumstances in which the
assertions may reasonably be expected to be relied upon and are relied upon.” Custom Data
Solutions, Inc. v. Preferred Capital, Inc., 733 N.W.2d 102, 104–05 (Mich. Ct. App. 2006).
The federal rules require a heightened pleading standard for fraud: “[i]n alleging fraud or
mistake, a party must state with particularity the circumstances constituting fraud or mistake.
Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.”
Fed. R. Civ. P. 9(b). The Sixth Circuit has held “[t]his rule requires a plaintiff: (1) to specify the
allegedly fraudulent statements; (2) to identify the speaker; (3) to plead when and where the
statements were made; and (4) to explain what made the statements fraudulent.” Republic Bank
& Trust Co. v. Bear Stearns & Co., 683 F.3d 239, 247 (6th Cir. 2012).
In response to Defendants’ contention that Smith has failed to satisfy this heightened
pleading requirement, Smith points out that his Amended Complaint alleges “Defendant and or

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its representatives intentionally misrepresented, published, filed and or foreclosed on the subject
property on or about June 2008 with fraudulent intent,” and “Defendant intentionally provided
Plaintiff with knowingly false information in order to obtain possession of Plaintiff primary
home and cause him to move from his primary residence of 10-years into different living
quarters along with his family.” (Dkt. 15, Resp. at Pg ID 375 (quoting Am. Compl. ¶¶ 52–53).)
Smith’s failure to identify even which Defendant is meant obviously does not comport
with Rule 9. Nor does he identify specific statements, speakers, and dates. And even assuming
that the foreclosure documents attached to the Amended Complaint provide this required
information, Smith does not explain what made the statements fraudulent. MERS foreclosed
Smith’s property by advertisement in 2008. There is no indication that MERS or BANA knew or
should have known in 2008 that such foreclosures might not be valid. And the Michigan
Supreme Court has now held that MERS is authorized to foreclose by advertisement under
Michigan law. Saurman, 807 N.W.2d 412. To state a claim for fraud under Michigan law, the
Plaintiff must plausibly allege “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.”
M&D, Inc., 585 N.W.2d at 36. Smith has not plausibly alleged that MERS or BANA knew in
2008 that the Michigan Court of Appeals would find that MERS could not foreclose by
advertisement, or were reckless in that regard. See Jones v. Colonial Sav. F.A., No. 13-CV12092, 2013 WL 6473708, at *13 (E.D. Mich. Dec. 10, 2013) (adopting the magistrate judge’s
recommendation to dismiss claim that foreclosure by MERS in 2010 was fraud because
“Plaintiffs have not averred that Defendants knew their exercise of ownership was false unless
and until the Michigan Court of Appeals said so in April 2011”). Smith has not stated a claim for
fraud or fraud in the inducement.

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B. Michigan Consumer Protection Act
Defendants argue that Smith’s allegation that they violated the Michigan Consumer
Protection Act (“MCPA”) does not state a claim because the MCPA does not apply to mortgage
transactions. (Mot. at 12–13.) Smith does not address this argument. The Court agrees that the
MCPA does not apply to Defendants’ actions as alleged in the Amended Complaint. See Mich.
Comp. Laws Ann. § 445.904(a) (“This act does not apply to . . . A transaction or conduct
specifically authorized under laws administered by a regulatory board or officer acting under
statutory authority of this state or the United States.”); Meyer v. Citimortgage, Inc., No. 1113432, 2012 WL 511995, at *10 (E.D. Mich. Feb. 16, 2012) (“This claim must be dismissed
because the MCPA does not apply to mortgage transactions.”); Newton v. West, 686 N.W.2d
491, 494 (Mich. Ct. App. 2004) (holding that banks making residential mortgage loans are
engaged in transactions specifically authorized by state and federal statutes and are therefore
exempt under § 445.904(a)). Smith has not stated a claim for violation of the MCPA.
C. Unjust Enrichment
Defendants argue that Smith cannot state a claim for unjust enrichment. (Mot. at 13–14.)
Smith argues that Defendants “have continued to bill Plaintiff as if he never lost ownership of his
subject property,” “while knowing that the subject property has a diminished value associated
with its ownership,” and that “Defendants have been Unjustly Enriched and specifically by the
funds expended, time and effort, labor and repairs made to the subject property.” (Resp. at Pg ID
376–77 (quoting Am. Compl. ¶¶ 75–79).) Michigan law will imply a contract to prevent unjust
enrichment if the plaintiff establishes “(1) the receipt of a benefit by defendant from plaintiff,
and (2) an inequity resulting to plaintiff because of the retention of the benefit by defendant.”
Belle Isle Grill Corp. v. City of Detroit, 666 N.W.2d 271, 280 (Mich. Ct. App. 2003). But “a

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contract will be implied only if there is no express contract covering the same subject matter.” Id.
Smith’s mortgage states: “Borrower understands and agrees that . . . if necessary to comply with
law or custom, MERS, (as nominee for Lender and Lender’s successor’s and assigns), has the
right to exercise any or all of those interests, including, but not limited to, the right to foreclose
and sell the Property.” (Mortgage at Pg ID 216 or 290.) Because the parties’ contract covers the
subject matter of Smith’s allegations, Smith cannot state a claim for unjust enrichment. See
Collins v. Wickersham, 862 F. Supp. 2d 649, 658 (E.D. Mich. 2012) (“Plaintiffs’ mortgage
granted the mortgagee a power of sale, expressly permitting foreclosure by advertisement.”).
D. Quiet Enjoyment
Defendants argue that Smith cannot state a claim for quiet enjoyment because such
claims are limited to landlord-tenant relationships. (Mot. at 14.) Smith responds that this
argument “should be denied, due to the manner in which this progressed through the various
courts and thereafter the removal (to federal court) does not negate the claim that could have
been asserted at the lower courts but contained herein.” (Resp. at Pg ID 377.) But Smith has not
identified any authority that recognizes a claim under Michigan law for breach of an implied
covenant of quiet enjoyment in the mortgage context. Michigan courts hold that “the covenant of
quiet enjoyment is breached only ‘when the landlord obstructs, interferes with, or takes away
from the tenant in a substantial degree the beneficial use of the leasehold.’” Slatterly v. Madiol,
668 N.W.2d 154, 164 (Mich. Ct. App. 2003). Because Smith has not alleged a landlord-tenant
relationship, therefore, he has not stated a claim for quiet enjoyment. See Ghiaciuc v. Bank of
Am., N.A., No. 11-CV-13274, 2012 WL 4178699, at *4 (E.D. Mich. Sept. 18, 2012) (“Without
establishing the predicate landlord-tenant relationship, which Plaintiff cannot do, there can be no
breach of the covenant of quiet enjoyment.”); D&T Constr. Co. v. McVickers Shelby, L.L.C., No.

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06-10533, 2006 WL 3447083, at *4 (E.D. Mich. Nov. 28, 2006) (“All the cases and secondary
authority the Court has found illustrates one point: a claim that an express or implied covenant
for quiet enjoyment was breached is premised upon contract law in the landlord-tenant
relationship.”).
E. Unclean Hands
Defendants further argue that Smith’s request for declaratory relief is barred by the
unclean hands doctrine because he has not made a payment since October 2007. (Mot. at 15.)
Smith responds that “if Defendants were ‘clean in their dealings’ the need for judicial
interference would not have been prevalent, numerous confusing filing, Motions Setting Aside
filings, lawsuits and settlements by Defendants as it relates to these same type of actions, would
not be present and in the legal and historical records today.” (Resp. at Pg ID 379.) Smith’s case
is unusual. It is not clear what his contractual obligations are at this point, years after he moved
out of the Property because he believed it had been foreclosed. Regardless, Smith has failed to
state a claim for relief and therefore the Court need not decide whether his hands are unclean.
IV. CONCLUSION AND ORDER
Smith has not stated a claim for fraud, fraud in the inducement, violation of the Michigan
Consumer Protection Act, unjust enrichment, or quiet enjoyment. Defendants’ Motion to Dismiss
the First Amended Complaint (Dkt. 12) is GRANTED. The Court previously allowed Smith to
amend his complaint in response to an earlier motion to dismiss for failure to state a claim. (Dkt.
6.) Smith now having failed to state a claim on his second attempt, the Court does not expect that
further amendment will be sought. The case will be closed and a separate judgment entered.
s/Laurie J. Michelson
LAURIE J. MICHELSON
UNITED STATES DISTRICT JUDGE
Dated: January 23, 2015
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CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing document was served on the
attorneys and/or parties of record by electronic means or U.S. Mail on January 23, 2015.
s/Jane Johnson
Case Manager to
Honorable Laurie J. Michelson

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