Kataviravong et al v. Mirabella Mortgage, LLC et al
Filing
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MEMORANDUM OPINION AND ORDER granting 4 MERS Defendants' Motion to Dismiss; Counts II, III, and V of the Kataviravong's Complaint, Notice of Removal 1 are DISMISSED with prejudice (Written Opinion). Signed by Judge Ann D. Montgomery on 06/06/12. (TLU)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Darouny L. Kataviravong;
Bounleuang Kataviravong,
Plaintiffs,
MEMORANDUM OPINION
AND ORDER
Civil No. 12-493 ADM/JJG
v.
Mirabella Mortgage, LLC; MERSCORP
Holdings, Inc.; Mortgage Electronic Registration
Systems, Inc.; Countrywide Bank, N.A.;
JPMorgan Chase Bank, N.A.; Title and Closing,
Inc.; Negotiation Specialists; American
Independent Mortgage; and Federal
National Mortgage Association, a/k/a
Fannie Mae;
Defendants.
______________________________________________________________________________
Shauna F. Kieffer, Esq., Ford Law Office, Hopkins, MN, on behalf of Plaintiffs.
Calvin P. Hoffman, Esq., and Marc. D. Simpson, Esq., Leonard, Street and Deinard, PA,
Minneapolis, MN, on behalf of Defendants MERSCORP Holdings, Inc., Mortgage Electronic
Registration Systems, Inc., JPMorgan Chase Bank, N.A., and Federal National Mortgage
Association.
______________________________________________________________________________
I. INTRODUCTION
On May 10, 2012, the undersigned United States District Judge heard oral argument on a
Motion to Dismiss [Docket No. 4] brought by Defendants JPMorgan Chase Bank, N.A.
(“Chase”), Federal National Mortgage Association (“Fannie Mae”), MERSCORP, Inc.
(“MERSCORP”) and Mortgage Electronic Registration Systems, Inc.’s (“MERS”) (collectively,
“MERS Defendants”). For the reasons stated below, MERS Defendants’ Motion is granted.
II. BACKGROUND1
In October 2005, Plaintiffs Darouny L. Kataviravong and Bounleuang Kataviravong
(collectively, the “Kataviravongs”) refinanced an existing mortgage on their home in Burnsville,
Minnesota (the “Property”). Notice of Removal [Docket No. 1] Ex. 1 (“Compl.”) ¶¶ 1, 5. The
mortgage refinance was granted in favor of MERS and later assigned to Chase. Id. ¶¶ 5–7. The
Kataviravongs allege that at the time of the origination of the mortgage, MERS Defendants
misled them as to the terms and effect of the refinancing, and that these misrepresentations,
coupled with financial distress, caused them to fall behind on their mortgage payments. The
Kataviravongs attempted to refinance or modify their mortgage in 2008. Id. ¶ 2. These attempts
were unsuccessful. Id. ¶¶ 33–36. The Kataviravongs were notified of a mortgage foreclosure
sale in early 2011, and on February 24, 2011, the Property was purchased by Chase at a sheriff’s
sale. Id. ¶ 36. On August 24, 2011, the Kataviravongs’ statutory redemption period expired. Id.
On November 1, 2011, the Kataviravongs filed this Complaint.
III. DISCUSSION
A. Standard of Review
Rule 12(b)(6) of the Federal Rules of Civil Procedure governs a motion to dismiss for
failure to state a claim. In considering a Rule 12(b)(6) motion, the court views the pleadings in
the light most favorable to the nonmoving party and treats the alleged facts as true. See Ossman
v. Diana Corp., 825 F. Supp. 870, 879-80 (D. Minn. 1993). Conclusions of law made by the
nonmoving party, however, are not “blindly accept[ed].” Westcott v. City of Omaha, 901 F.2d
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In considering Defendants’ Motion to Dismiss, the Court takes the facts alleged in the
Kataviravongs’ Complaint to be true. See Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994).
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1486, 1488 (8th Cir. 1990). A court may consider materials outside the complaint, including
documents which are part of the public record and materials “necessarily embraced by the
pleadings.” Missouri ex rel. Nixon v. Couer D’Alene Tribe, 164 F.3d 1102, 1107 (8th Cir.
1999); Piper Jaffray Cos. v. Nat’l Union Fire Ins. Co., 967 F. Supp. 1148, 1152 (D. Minn. 1997).
A Rule 12(b)(6) motion to dismiss is granted when the factual allegations, even assumed to be
true, do not entitle that party to relief. See, e.g., Taxi Connection v. Dakota, Minn. & E. R.R.
Corp., 513 F.3d 823, 826-27 (8th Cir. 2008).
Pleadings must “contain a short and plain statement of the claim showing that the pleader
is entitled to relief.” Fed. R. Civ. P. 8(a). Rule 8(a) has been interpreted to mean that a pleading
must allege “enough facts to state a claim of relief that is plausible on its face.” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007). To satisfy the standard of facial plausibility, a claim
must “plead[] factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).
This plausibility determination is “context-specific” and “requires the reviewing court to draw
on its judicial experience and common sense.” Id. at 1950. However, “where the well-pleaded
facts do not permit the court to infer more than the mere possibility of misconduct, the
complaint has alleged—but not ‘shown’—‘that the pleader is entitled to relief.’” Id. (quoting
Fed. R. Civ. P. 8(a)(2)).
B. Analysis
The Kataviravongs’ Complaint alleges that MERS Defendants violated the Home
Ownership Equity Protection Act (“HOEPA”) and asserts several state causes of action including
negligence, negligent misrepresentation, contract reformation, and violations of Minnesota
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Statute § 325F.691 and Minnesota Statute § 58.13. MERS Defendants dispute that the
Kataviravongs have sufficiently pled a claim under HOEPA and argue that even if the claim was
sufficient, the HOEPA claim is barred by the statute of limitations. MERS Defendants maintain
that because the Kataviravongs’ HOEPA claim fails, all the state claims fail as a matter of law.
These arguments are discussed below.
1. HOEPA Claim
The Truth in Lending Act (“TILA”) was enacted in 1968 and specifies what lenders are
required to disclose to consumers about loans, fees, and costs. 15 U.S.C. § 1601–1667. The
expressed purpose of TILA was to “assure a meaningful disclosure of credit terms so that the
consumer will be able to compare more readily the various credit terms available to him and
avoid the uninformed use of credit . . . .” 15 U.S.C. § 1601(a). In response to abusive home
mortgage lending practices, Congress enacted HOEPA in 1994 as an amendment to TILA. Pub.
L. 103-325 (amending TILA at 15 U.S.C. §§ 1601–02, 1604, 1610, 1639–41, 1638).
When a mortgage has associated points and fees exceeding 8% of the total mortgage
amount and that mortgage is over a certain inflation-adjusted amount set annually, that mortgage
is governed by HOEPA’s requirements. 15 U.S.C. § 1602(a); 12 C.F.R. § 226.32(a). HOEPA
imposes several requirements on lenders, including that the lender may not make the loan
without regard to the consumer’s ability to pay. 12 C.F.R. § 226.34(a)(4). HOEPA also expands
assignee liability, making assignees of covered mortgages liable for all claims a consumer could
assert against the originator. 15 U.S.C. § 1641(d)(1).
TILA and HOEPA allow a borrower to recover damages or rescind a covered loan in the
event of a lender’s violation. However, the borrower must act within one year of entering the
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mortgage if seeking monetary damages and within three years if seeking to rescind the mortgage.
15 U.S.C. §§ 1635(f), 1640(e); see also Beach v. Ocwen Fed. Bank, 523 U.S. 410, 417–19
(1998); Lobato v. Acqura Loan Svcs., No. 11-cv-2601, 2012 WL 607624, at *3 (S.D. Cal. Feb.
23, 2012) (“HOEPA is simply a component of TILA, and thus, it is governed by the same statute
of limitations.”).
Fundamentally, the Kataviravongs have failed to plead facts indicating that MERS
Defendants violated HOEPA. The Kataviravongs’ Complaint alleges that “Plaintiffs’ [loan]
modification through Mirabella as the lender, and MERS was not made with their ability to
repay.” Compl. ¶ 22. HOEPA does provide that “[a] creditor shall not engage in a pattern or
practice of extending credit to consumers under mortgages in section 1602(aa) . . . without
regard to the consumers’ repayment ability, including the consumers’ current and expected
income, current obligations, and employment.” 15 U.S.C. § 1639(h). The Kataviravongs’
Complaint, however, fails to sufficiently plead the factual allegations to support a pattern or
practice of such conduct. The Kataviravongs’ Complaint discloses no other instances of similar
conduct by these MERS Defendants, and has therefore failed to state a claim under this HOEPA
provision. Additionally, the bare assertion that MERS and Mirabella made the loan
modification, without any factual assertions about how they failed to account for the
Kataviravongs’ ability to pay, falls far short of the Iqbal and Twombly standard. For this reason,
the Kataviravongs’ HOEPA claims are dismissed as to MERS Defendants.
Additionally, the Kataviravongs assert their HOEPA claim well after the statute of
limitations expired for filing a HOEPA claim. The statutes of limitations for HOEPA are one
year for monetary damages and three years for rescission of a mortgage loan. See 15 U.S.C. §§
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1635(f), 1640(e). The Kataviravongs filed their Complaint on November 1, 2011, but the
mortgage they are challenging was signed on October 7, 2005, more than six years before.
Regardless of the remedy sought, the Kataviravongs’ HOEPA claim is outside the relevant
statutes of limitations.
The Kataviravongs argue that their HOEPA claim is not barred by the statute of
limitations because their claim is one of recoupment. Recoupment is a defense, and the HOEPA
statute of limitations “does not bar a person from asserting a [TILA] violation . . . in an action to
collect the debt . . . as a matter of defense by recoupment or set-off in such action . . . .” 15
U.S.C. § 1640(e). However, the Kataviravongs filed the present suit so they cannot rely on the
defense of recoupment. See, e.g., Tacheny v. M&I Marshall Ilsley Bank, No. 10-CV-2067, 2011
WL 1657877, at *5 (D. Minn. Apr. 29, 2011) (finding that the recoupment exception to the 15
U.S.C. § 1640(e) statute of limitations does not apply when raised by a plaintiff in its pleadings).
Moreover, the Kataviravongs have not clearly stated that MERS Defendants are seeking to
collect a debt, a required element for a claim of recoupment. For both these reasons, the
Kataviravongs’ argument that their HOEPA claim is one of recoupment fails, the statutes of
limitations apply, and their claim is thereby barred as to MERS Defendants.
2. Minn. Stat. § 325F.691 Claim
In Count II, the Kataviravongs claim that MERS Defendants violated Minn. Stat. §
325F.691, which provides in part:
A lender . . . who causes unreasonable delay in processing a loan application
beyond the expiration date of an interest rate or discount point agreement is liable
to the borrower for a penalty in an amount not to exceed the borrower’s actual
out-of-pocket damages, including the present value of the increased interest costs
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over the normal life of the loan, or specific performance of the agreement.
Minn. Stat. § 325F.691, subd. 1. The Kataviravongs allege that Chase and Fannie Mae violated
Minnesota state law by failing to modify their mortgage through the Home Affordable
Modification Program (“HAMP”). Compl. ¶¶ 26, 29, 33.
The Kataviravongs’ claim under Minn. Stat. § 325F.691 fails for several reasons. First,
HAMP does not provide a private cause of action. See, e.g., Ming’ate v. Bank of America, N.A.,
No. 11-1787, 2011 WL 4590431, at *3 (D. Minn. Sept. 30, 2011) (“[C]ourts in [the District of
Minnesota] have consistently ruled that HAMP fails to provide a private right of action.”).
Inasmuch as the Kataviravongs attempt to state a cause of action alleging a failure to modify
their mortgage under HAMP, their claim fails for this reason. Second, the Kataviravongs have
failed to sufficiently state how Chase or Fannie Mae are “lenders” under Minn. Stat. § 325F.691.
The only allegations against Chase and Fannie Mae allege that they failed to modify the
Kataviravongs’ existing loan, not that they unreasonably delayed the processing of a loan
application. This statute applies to mortgage lenders, not to institutions engaged in loan
modifications. Because Minn. Stat. § 325F.691 only prohibits unreasonable delay in processing
a loan application, not in modifying an existing loan, the Kataviravongs have failed to state a
valid claim under Minn. Stat. § 325F.691. Count II of the Kataviravongs’ Complaint is
accordingly dismissed.
3. Negligence Claim
The Kataviravongs’ third cause of action alleges that Chase was negligent in its duty to
“make a good faith effort to work with [Plaintiffs] on keeping their home.” Compl. ¶ 40. The
elements for a negligence claim in Minnesota are: (1) duty; (2) breach of that duty; (3) the
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breach was the proximate cause of plaintiff’s injury; and (4) plaintiff did in fact suffer an actual
injury. Hudson v. Snyder Body, Inc., 326 N.W.2d 149, 157 (Minn. 1982).
The Kataviravongs’ claim fails because Chase owed no duty to them and because any
breach of that alleged duty was not the proximate cause of the alleged injury. In Minnesota, the
relationship between a bank and a bank customer is that of creditor and debtor. See Klein v.
First Edina Nat’l Bank, 196 N.W.2d 619, 623. Unless a special relationship exists between the
bank and the borrower, where the bank has reason to know of the customer's trust and reliance,
“when a bank transacts business with a depositor or other customer, it has no special duty to
counsel the customer . . . .” Id. The Kataviravongs allege no special relationship they shared
with Chase; accordingly, Chase owed no duty to the Kataviravongs, and their negligence claim
falls on this element.
Additionally, the Kataviravongs have not stated how Chase’s alleged breach of their
supposed duty proximately caused them harm. The harm alleged is the loss of the
Kataviravongs’ home. Compl. ¶ 42. However, the Kataviravongs’ failure to pay mortgage
payments was the direct cause of the foreclosure, the sheriff’s sale, and the passing of the
statutory redemption period. Therefore, the Kataviravongs’ negligence claim also founders on
the causal element and is dismissed.
4. Negligent Misrepresentation
In Count IV, the Kataviravongs allege a claim of negligent misrepresentation against
MERS. It is unclear whether the Kataviravongs are bringing a negligence claim or a negligent
misrepresentation claim, as the cause of action is entitled negligence but nevertheless alleges
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material misrepresentations. If they are bringing a claim of negligence against MERS, the claim
fails for the aforementioned reasons — namely, that MERS does not owe a fiduciary duty to the
Kataviravongs in the state of Minnesota. Moreover, “MERS does not originate, lend, service, or
invest in home mortgage loans. Instead, MERS acts as the nominal mortgagee for the loans
owned by its members.” Jackson v. Mortg. Elec. Registration Sys., Inc., 770 N.W.2d 487, 490
(Minn. 2009). MERS, therefore, was not in a creditor/debtor relationship with the
Kataviravongs. They have failed to sufficiently allege any duty of or even a direct relationship
with MERS, and their claim of negligence fails.
If the Kataviravongs’ fourth cause of action is one for negligent misrepresentation or
fraud, it too must fail. A claim of misrepresentation must be pled with particularity. See Fed. R.
Civ. P. 9(b) (“[A] party must state with particularity the circumstances constituting fraud or
mistake.”). This heightened particularity standard requires pleadings to allege the “who, what,
when, where, and how” of the fraud. United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441
F.3d 552, 556 (8th Cir. 2006) (citation omitted). Minnesota law requires a claim of negligent
misrepresentation to allege the following: (1) that the defendant “supplie[d] false information for
the guidance of others in their business transactions”; and (2) in doing so “fail[ed] to exercise
reasonable care or competence in obtaining or communicating the information.” Florenzano v.
Olson, 387 N.W.2d 168, 174 n.3 (Minn. 1986).
The Kataviravongs have failed to plead a misrepresentation or fraud claim with the
required Rule 9 specificity. Specifically, the Kataviravongs’ allegations fail to articulate what
material misrepresentations were made, nor did they advance any arguments as to how MERS
concealed the terms. See Compl. ¶¶ 46, 48. Additionally, the Kataviravongs do not identify
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when the misrepresentations were made or where they were made. Therefore, their fourth cause
of action is dismissed as to MERS Defendants for failure to comply with Rule 9.
The Kataviravongs’ fourth cause of action also mentions that MERS “cannot assign
mortgages” and that it “filed or transferred an invalid mortgage.” Compl. ¶¶ 51-52. The express
terms of the mortgage refute this argument, specifically contemplating MERS could assign
mortgages and take any action required. See generally Hoffman Aff. [Docket No. 12] Ex. A.
This contractual right is consistent with Minnesota statutory law, which states that an assignment
is valid if properly recorded and filed with the state as long as the mortgage is granted to a
mortgagee as nominee, the subsequent assignment is executed by the mortgagee, and the
assignment is in recordable form. See Minn. Stat. § 507.413(a). The Kataviravongs’ claim
specifies none of these factual bases supporting a claim that MERS improperly assigned or
transferred the mortgage, so this part of the fourth cause of action must also be dismissed as to
MERS Defendants.
5. Reformation of Contract Claim
In their fifth cause of action, the Kataviravongs request the equitable remedy of contract
reformation. The elements for reformation of contract are: (1) a valid agreement between the
parties expressing their real intentions; (2) the written instrument failed to express the real
intentions of the parties; and (3) this failure was due to a mutual mistake of the parties, or a
unilateral mistake accompanied by fraud or inequitable conduct by the defendant. Nichols v.
Shelard Nat'l Bank, 294 N.W.2d 730, 734 (Minn. 1980).
The Kataviravongs have failed to state what the real intentions of the parties were at the
time of the mortgage refinancing in 2005. Additionally, the Kataviravongs have failed to allege
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what mutual mistake was made by both parties. Finally, they have failed to plead with
specificity fraud or inequitable conduct giving rise to a unilateral mistake. See United States ex
rel. Joshi, 441 F.3d at 556; Fed. R. Civ. P. 9(b). As a result, the Kataviravongs' fifth cause of
action cannot stand.2
6. Minn. Stat. § 58.13 Claim3
The Kataviravongs have apparently abandoned Count VI, which alleges a violation of
Minn. Stat. § 58.13. See Pls.’ Mem. in Opp’n to Mot. to Dismiss [Docket No. 15]. Even were
they to contest its dismissal, their claim would fail because they have not alleged any public
benefit potentially arising from their claim. In Minnesota, a mortgage originator or servicer shall
not provide a residential mortgage loan without verifying the borrower’s reasonable ability to
pay all the applicable payments. Minn. Stat. § 58.13, subd. 1(24). This statute falls under the
Private Attorney General Statute, Minn. Stat. § 8.31, subd. 3(a), and as a result plaintiffs must
show that their cause of action benefits the public. See, e.g., Tuttle v. Lorillard Tobacco Co.,
No. 99-1550, 2003 WL 1571584, at *5–6 (D. Minn. Mar. 3, 2003); Ly v. Nystrom, 615 N.W.2d
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Although Count V of the Kataviravongs’ Complaint mentions MERS, Mirabella, and
Title & Closing, Inc., it only alleges unlawful conduct on behalf of Fannie Mae in its cause of
action for reformation of contract. Since Count V is dismissed as to Fannie Mae, it is “patently
obvious” that the Kataviravongs cannot succeed on their reformation of contract claim against
the remaining defendants; therefore, this Court exercises its power under Rule 12(b)(6) to
dismiss a claim sua sponte for failure to state a claim against the remaining defendants. See
Hanson v. Sullivan, No. 3:91-706, 1992 WL 227610, at *3 (D. Minn. June 2, 1992); see also
Smith v. Boyd, 945 F.2d 1041, 1042–43 (8th Cir. 1991) (affirming a court’s sua sponte dismissal
of a complaint under Rule 12(b)(6) for failure to state a claim).
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Although the Kataviravongs caption Count VI as a cause of action arising from a
violation of “Minn. Stat. § 59.13 Subdiv. 1(24) (2010),” this statute was repealed in 1975. See
Minn. Stat. § 59 repealed by 1975 Minn. Laws. 493, ch. 166, § 8. Additionally, the body of
Count VI refers to Minn. Stat. § 58, so the Court will construe Count VI as alleging a violation
of Minn. Stat. § 58.13, subd. 1(24).
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302, 314 (Minn. 2000). Here, the Kataviravongs have failed to allege a pattern or practice of
failing to verify a borrower’s ability to pay, and they seek personal damages only. Furthermore,
as they allege no public benefit, the Kataviravongs’ claim under Minn. Stat. § 58.13 fails as a
matter of law and is dismissed as to MERS Defendants.
IV. CONCLUSION
Based upon the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1.
MERS Defendants’ Motion to Dismiss [Docket No. 4] is GRANTED; and
2.
Counts II, III, and V of the Kataviravong’s Complaint, Notice of Removal
[Docket No. 1] Ex. 1, are DISMISSED with prejudice.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: June 6, 2012.
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