Novak et al v. JPMorgan Chase Bank, N.A. et al
Filing
25
ORDER granting 4 Motion to Dismiss; denying 10 Motion to Remand to State Court (Written Opinion). Signed by Senior Judge David S. Doty on 8/23/2012. (PJM)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 12-589(DSD/LIB)
Sandra L. Novak, Paul R. Olson,
Damaris M. Olson, Lisa E. Belflower,
Benjamin P. Carter, Daryl K. Hoffbeck,
Christopher J. Hardy, Wendy K. Richter
and Joan K. Hoffbeck,
Plaintiffs,
ORDER
v.
JP Morgan Chase Bank, N.A.,
Chase Home Finance, LLC,
Mortgage Electronic Registration
Systems, Inc., Merscorp, Inc. and
Federal National Mortgage
Association,
Defendants.
William B. Butler, Esq. and Butler Liberty Law, LLC, 33
South Sixth Street, Suite 4100, Minneapolis, MN 55402,
counsel for plaintiffs.
Timothy M. Kelley, Esq., Calvin P. Hoffman, Esq. and
Leonard, Street and Deinard, PA, 150 South Fifth Street,
Suite
2300,
Minneapolis,
MN
55402,
counsel
for
defendants.
This matter is before the court upon the motion to remand by
plaintiffs and the motion to dismiss by defendants.
Based on a
review of the file, record and proceedings herein, and for the
following reasons, the motion to remand is denied and the motion to
dismiss is granted.1
1
Other judges in this district have dismissed materially
identical complaints.
See Anderson v. CitiMortgage, Inc., No.
12–230, 2012 WL 3025100 (D. Minn. July 24, 2012) (Montgomery, J.);
Johnson v. Deutsche Bank Nat. Trust Co., No. 12-445, 2012 WL
(continued...)
BACKGROUND
In this mortgage-foreclosure dispute, plaintiffs Sandra L.
Novak, Paul R. and Damaris M. Olson,2 Lisa E. Belflower, Benjamin
P. Cater, Daryl K. and Joan K. Hoffbeck, Christopher J. Hardy and
Wendy
K.
Richter
challenge
foreclosure-by-advertisement
proceedings, or threatened proceedings, by defendants JP Morgan
Chase Bank, N.A. and Chase Home Finance LLC.
Plaintiffs also sue
defendants Mortgage Electronic Registration Systems, Inc. (MERS);
MERSCORP, Inc. and Federal National Mortgage Association (FNMA).
Each plaintiff executed a promissory note and mortgage of real
property in Minnesota.
Thereafter, each plaintiff defaulted.
The
mortgages are in various stages of default, ranging from potential
foreclosure to completed sheriff’s sale.
Each mortgage defines the term “lender.”
Ex.
See, e.g., Compl.
1,
Freedom
ECF
Corporation”).
No.
1-1,
at
49
(“Lender
is
Mortgage
Each mortgage contains a covenant by plaintiffs to
“pay when due the principal of, and interest on, the debt evidenced
by the Note.”
See, e.g., id. Ex. 1 § 1, ECF No. 1-1, at 51.
Each
mortgage gives the lender and its successors and assignees the
right to “require immediate payment in full of all sums secured by
1
(...continued)
2119258 (D. Minn. June 11, 2012) (Frank, J.).
reasoning of those decisions persuasive.
2
The court finds the
The parties stipulated to dismissal of the Olsons’ claims
against defendants. ECF No. 13.
2
[the mortgage] without further demand” and to “invoke the power of
sale and any other remedies permitted by Applicable Law” following
a “breach of any covenant or agreement in [the mortgage]” by the
borrower.
See, e.g., id. Ex. 1 § 22, ECF No. 1-1, at 60.
The promissory note defines lender in the same way as the
mortgage.
Id. Ex. A, ¶ 1, ECF No. 1-1, at 23 (“The Lender is
Freedom Mortgage Corporation.”) Unlike the mortgage, the note also
defines “note holder”: “[t]he Lender or anyone who takes this Note
by transfer and who is entitled to receive payments under the Note
is called the Note Holder.”
Id.
The court summarizes the relevant details of each transaction
from which this action arises.
In December 2007, Novak executed a promissory note and gave a
mortgage of real property to MERS as nominee for lender Freedom
Mortgage Corporation.
Compl. Ex. 1.
recorded the mortgage.
Id.
The Ramsey County Recorder
On November 2, 2010, MERS assigned the
mortgage to Chase Home Finance.
Butler Aff. Ex. 8.
2011, Chase Home Finance foreclosed the mortgage.
On July 22,
Id. Ex. 9.
In October 2002, Belflower executed a promissory note and gave
a mortgage of real property to Central Mortgage Corporation.
Compl. Ex. 3.
Id.
The Dakota County Recorder recorded the mortgage.
Thereafter, the mortgage was assigned from Central Mortgage
3
Corporation to Regions Mortgage to JP Morgan Chase Bank to Chase
Home Finance.
All assignments are recorded.
Butler Aff. Exs. 2,
3; Kelley Aff. Ex. 1.
In June 2005, Carter executed a promissory note and gave a
mortgage of property to MERS as nominee for lender Southstar
Funding.
Compl. Ex. 4.
the mortgage.
The Washington County Recorder recorded
Id.
In June 2005, the Hoffbecks executed a promissory note and
gave a mortgage of property to Chase Bank USA, N.A.
Goodhue County Recorder recorded the mortgage.
Id. Ex. 5. The
Id.
In April 2007, Hardy and Richter executed a promissory note
and gave a mortgage of property to MERS as nominee for lender
Integrity Lending, Inc.
Id. Ex. 6.
recorded the mortgage.
Id.
The Wright County Recorder
On March 9, 2011, MERS assigned the
mortgage to Chase Home Finance.
Butler Aff. Ex. 6.
County Recorder recorded the assignment.
Morgan,
as
successor
to
Chase
Home
Id.
The Wright
On July 19, 2011, JP
Finance,
foreclosed
the
mortgage.
The present action began in Minnesota court on February 17,
2012.
Plaintiffs
seek
to
quiet
title,
a
declaration
that
defendants have no right to foreclose and a declaration regarding
the right to accelerate.
Defendants timely removed.
Plaintiffs also claim slander of title.
Defendants move to dismiss for failure
to state a claim, and plaintiffs move to remand.
4
DISCUSSION
I.
Motion to Remand
The
court
must
resolve
questions
of
jurisdiction
before
considering the merits of an action. See Crawford v. F. Hoffman-La
Roche Ltd., 267 F.3d 760, 764 (8th Cir. 2001).
A plaintiff may
move to remand an action removed to federal court if “it appears
that the district court lacks subject matter jurisdiction” at any
time before entry of final judgment.
28 U.S.C. § 1447(c).
The
removing party bears the burden to establish the existence of
subject-matter jurisdiction.
See Altimore v. Mount Mercy Coll.,
420 F.3d 763, 768 (8th Cir. 2005).
The court “resolve[s] all
doubts about federal jurisdiction in favor of remand.”
Transit
Cas. Co. v. Certain Underwriters at Lloyd’s of London, 119 F.3d
619, 625 (8th Cir. 1997).
Plaintiffs argue that the court lacks jurisdiction under the
doctrine of prior exclusive jurisdiction because they brought the
action first in state court, and because defendants brought an
eviction action against Novak before removal.
The doctrine avoids
“unseemly and disastrous conflicts in the administration of our
dual judicial system” when one court has assumed and retains
ongoing in rem or quasi-in-rem jurisdiction. Penn Gen. Cas. Co. v.
Pennsylvania ex rel. Schnader, 294 U.S. 189, 195 (1935).
“The
prior exclusive jurisdiction doctrine holds that ‘when one court is
exercising in rem jurisdiction over a res, a second court will not
5
assume in rem jurisdiction over the same res.’”
Deutsche Bank Nat. Trust Co.,
Chapman v.
651 F.3d 1039, 1043 (9th Cir. 2011)
(quoting Marshall v. Marshall, 547 U.S. 293, 311 (2006)).
The doctrine of prior exclusive jurisdiction does not apply to
the present action; the state court is not exercising jurisdiction
over this action.
This is not a case where parallel proceedings
are occurring or where the parties filed independent actions in
state and federal court.
Instead, a single action exists in
federal court following removal.
Accord Maves v. First Horizon
Home Loans, No. 10–17230, 2011 WL 6256501, at *1 (9th Cir. Dec. 15,
2011) (holding prior-exclusive-jurisdiction doctrine not applicable
after removal of quiet title action).
Plaintiffs rely on In re Trust Created by Hill on December 31,
1917 for the Benefit of Schroll (In re Hill), 728 F. Supp. 564 (D.
Minn. 1990).
But In re Hill is inapposite.
It involved trusts,
over which “Minnesota courts often have continuing jurisdiction and
supervisory responsibilities.”
Id. at 567 (distinguishing removed
actions that did not involve trusts or continuing state-court
jurisdiction).
The present action bears no resemblance to the
trust that the state court exercised jurisdiction over for decades
in In re Hill.
Cf. id. at 568.
Moreover, even if the state court
were exercising ongoing in rem jurisdiction in the present action,
6
Congress expressly allows removal of actions where goods or an
estate have come under the control of the state court.
See 28
U.S.C. § 1450.
Moreover, the eviction action is unrelated to the instant
action.
Indeed, the claims that plaintiff assert in this action
cannot be raised in an eviction action.
See Keller v. Henvit, 18
N.W.2d 544, 547 (Minn. 1945); JBI & Assoc., Inc. v. Soltan, No.
A05-1031, 2006 WL 1229484, at *2 (Minn. Ct. App. May 9, 2006).
Plaintiffs next argue that the Torrens statutes give the
Minnesota
properties.
state
courts
exclusive
jurisdiction
This argument is without merit.
over
Torrens
“On its face, the
statute applies only to ‘an application for registration’ and ‘all
proceedings thereunder.’ It does not vest the state district court
with
continuing
jurisdiction
to
hear
any
claims
registered property that arise after the registration.”
involving
Anderson
v. CitiMortgage, Inc., No. 12-cv-230, slip op. at 8-9 (D. Minn.
Apr. 25, 2012) (Boylan, M.J.), adopted by No. 12-cv-230, slip op.
at 1 (May 15, 2012) (Montgomery, J.); see also Olson v. Bank of
Am., N.A., No. 11-3710, 2012 WL 1660615, at *3 (D. Minn. Apr. 19,
2012) (“Plaintiffs also contend that because one of the properties
is registered under Minnesota’s Torrens statute the state court has
exclusive jurisdiction over that property. This argument is wholly
7
without
merit
and
deserves
no
discussion.”)
Therefore,
the
doctrine of prior exclusive jurisdiction does not apply, and remand
is not warranted.
II.
Motion to Dismiss
A.
Standard of Review
To survive a motion to dismiss for failure to state a claim,
“‘a complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.’”
Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009)
(quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)).
“A
claim has facial plausibility when the plaintiff [has pleaded]
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”
Iqbal, 129 S. Ct. at 1949 (citing Bell Atl. Corp. v. Twombly, 550
U.S. 544, 556 (2007)).
Although a complaint need not contain
detailed factual allegations, it must raise a right to relief above
the speculative level.
See Twombly, 550 U.S. at 555.
“[L]abels
and conclusions or a formulaic recitation of the elements of a
cause of action are not sufficient to state a claim.”
Iqbal, 129
S. Ct. at 1949 (citation and internal quotation marks omitted).
The court does not consider matters outside the pleadings in
deciding a motion to dismiss under Rule 12(b)(6). See Fed. R. Civ.
P. 12(d).
The court may consider materials “that are part of the
public record,”
Porous Media Corp. v. Pall Corp., 186 F.3d 1077,
8
1079 (8th Cir. 1999), and matters “necessarily embraced by the
pleadings and exhibits attached to the complaint.”
Mattes v. ABC
Plastics, Inc., 323 F.3d 695, 698 n.4 (8th Cir. 2003).
present
action,
the
court
considers
the
notes,
In the
mortgages,
assignments and other foreclosure-related documents as they are
necessarily embraced by the pleadings and most are public records.
B.
Quiet Title3
Minnesota law permits persons in possession of real property
to “bring an action against another who claims an estate or
interest therein, or a lien thereon, adverse to the person bringing
the action, for the purpose of determining such adverse claim and
the rights of the parties, respectively.”
Minn. Stat. § 559.01.
As an initial matter, in Minnesota, “[a]ctions to quiet title and
determine
adverse
claims
are
equitable
actions.”
Gabler
v.
Fedoruk, 756 N.W.2d 725, 730 (Minn. Ct. App. 2008) (citing Miller
v. Hennen, 438 N.W.2d 366, 371 (Minn. 1989)); Denman v. Gans, 607
N.W.2d 788, 793 (Minn. Ct. App. 2000) (“[W]here the plaintiff is in
possession of the property and brings an action to determine an
adverse claim to the property, the case is equitable....”); cf.
Leggett v. Cole, 3 F. 332, 332 (C.C.D. Minn. 1880) (holding action
under predecessor statute to § 559.01 “belongs on the equity
3
Section 559.01 does not concern actions to quiet title; it
addresses actions to determine adverse claims. The court follows
the nomenclature used by plaintiffs.
9
docket”).
A plaintiff who seeks equity must come into court with
clean hands.
Santee v. Travelers Ins. Co., 275 N.W. 366, 368
(Minn. 1937).
Plaintiffs in the present action come to court with unclean
hands.
They defaulted on their mortgage loans by failing to make
promised payments.
Plaintiffs now live in the houses without
making payment, and they seek to declare their mortgages invalid
after defaulting.
In short, plaintiffs seek equitable relief from
an outcome of their own creation.
When pressed at oral argument,
plaintiffs argued that the actions of banks and MERS during the
present housing crisis are even more offensive than their own. But
“it is irrelevant whether anyone other than [plaintiffs] acted with
‘unclean hands.’” Heidbreder v. Carton, 645 N.W.2d 355, 371 (Minn.
2002).
As
a
result,
given
their
present
state
of
default,
plaintiffs cannot state a quiet-title claim, and dismissal is
warranted.
Even if a quiet-title action were available to plaintiffs, to
state a quiet-title claim, a plaintiff must state facts sufficient
to allow the court to draw the reasonable inference that he or she
is in possession of property and that a defendant claims a right or
title to the property but has no such right or title.
See Iqbal,
129 S. Ct. at 1949; Smola v. City of W. St. Paul, 47 N.W.2d 789,
789–90 (Minn. 1951).
10
Here, plaintiffs claim, “upon information and belief” that
defendants have no right or title to the properties “for some or
all of the following” possible reasons: the mortgages are not
perfected; defendants are not note holders; defendants are not
entitled
to
receive
payments
under
the
notes;
notices
and
assignments were not executed by an authorized individual; and the
mortgage assignments were invalid.
Compl. ¶ 45. On its face, this
conclusory allegation fails to state a claim for relief.
In the
interest of justice, however, the court considers whether the
complaint states a claim for any of plaintiffs’ possible reasons.
1.
Perfection of Mortgages
Plaintiffs first argue that “[t]he mortgages are not properly
perfected.”
Compl. ¶ 45(a).
Plaintiffs offer no facts to support
this conclusory assertion. Plaintiffs also fail to explain what is
required to “perfect” a mortgage in Minnesota or why failure to do
so has any effect on foreclosure.
To the extent that plaintiffs
suggest that the mortgages have not been recorded, the claim is
meritless
because
the
record
shows
that
all
mortgages
were
recorded.
As a result, plaintiffs fail to state a claim regarding
perfection of the mortgages.
2.
Note Holders and Entitlement to Receive Payments
Plaintiffs next argue that defendants are not note holders as
defined by the original notes and are not entitled to receive
payments. See Compl. ¶ 45(b), (c). Specifically, plaintiffs argue
11
that the foreclosures were invalid because no default occurred by
which
the
power
to
sell
became
operative.
See
Minn.
Stat.
§ 580.02(1).
Construction of a mortgage is a question of law.
Hanson, 769 N.W.2d 285, 288 (Minn. 2009).
effect to all language in a mortgage.
Bus. Bank v.
The court must give
Id.
In general, “where
several instruments are executed as part of one transaction, and
they are all consistent with each other, they will be read and
construed together even if their terms do not refer to each other.”
Anda Const. Co. v. First Fed. Sav. & Loan Ass’n, Duluth, 349 N.W.2d
275,
278
(Minn.
Ct.
App.
1984).
However,
Minnesota
courts
recognize that “the note and the mortgage are separate and distinct
instruments.”
Id. (quoting Winne v. Lahart, 193 N.W. 587, 588–89
(Minn. 1923)).
But see Roemhildt v. Kristall Dev., Inc., 798
N.W.2d 371, 374–75 (Minn. Ct. App. 2011) (noting question of
simultaneously
executed
documents
is
determined
on
facts
of
particular case).
The mortgages unambiguously state that the lender “may
require immediate payment in full of all sums secured by [the
mortgage] ... and may invoke the power of sale” when a mortagor
defaults under the mortgage.
Compl. Ex. 1 § 22.
Unlike each note,
the mortgages define “lender” without reference to holding the note
or entitlement to receive payments.
No mortgage incorporates the
definition of lender from the note.
12
Under the terms of the
mortgages,
the
mortgagees
and
their
accelerate
and
foreclose
provided
assigns
that
the
are
entitled
assignments
to
are
recorded.
Moreover, imposing the note definition of lender upon the
mortgage
renders
the
definition
of
lender
provisions of the mortgage — inoperative.
—
and
foreclosure
Under Minnesota law,
“any mortgage of real estate containing a power of sale, upon
default being made in any condition thereof, may be foreclosed by
advertisement.”
Minn. Stat. § 580.01.
The holder of the recorded
mortgage is entitled to foreclose and need not be a note holder to
do so. Jackson v. Mortg. Elec. Registration Sys., Inc., 770 N.W.2d
487, 497 (Minn. 2009); see Stein v. Chase Home Fin., LLC, 662 F.3d
976, 980 (8th Cir. 2011).
Use of different definitions in the note
and mortgage shows that the parties know how to restrict the
meaning of the term lender to the party holding the note.
parties did not do so in the mortgages.
The
Indeed, placing different
requirements on the note holder and mortgage holder is consistent
with Minnesota law allowing separation of equitable and legal
title.
Therefore, plaintiffs’ argument fails, and defendants, as
the holders of recorded mortgages, are entitled to foreclose.
3.
Execution of Assignments
Plaintiffs next claim that “upon information and belief, the
assignments have not been executed ... as required by Minnesota
law.”
Compl. ¶ 22; see id. ¶ 45(d).
13
On its face, this conclusory
statement does not meet the requirements of Federal Rule of Civil
Procedure 8, and dismissal is warranted. Moreover, plaintiffs lack
standing to challenge the assignment: they are not parties to the
assignment and any dispute would be between the assignor and
assignee.
Therefore, this argument fails.
4.
Validity of Assignments
Plaintiffs next claim that “upon information and belief,
the
chain
of
title
to
Plaintiffs’
Mortgages
is
broken
and
Defendants have no, (sic) right, title or interest in Plaintiffs’
property.” Compl. ¶ 23. Plaintiffs allege that “[t]he Assignments
of Plaintiff’s (sic) Mortgages were invalid” apparently because
“upon information and belief, the assignments ... have not been
recorded as required by Minnesota law.”
Id. ¶ 22; see id. ¶ 45(e).
The complaint contains no facts in support of this claim, and this
bare conclusory statement does not meet the requirements of Federal
Rule of Civil Procedure 8.
As a result dismissal is warranted.
Plaintiffs also seek to introduce new facts in the memorandum
in opposition and accompanying affidavits, which state that several
original lenders entered into pooling and service agreements with
other entities. Plaintiffs argue that an unrecorded assignment may
exist
that
renders
invalid
the
recorded
assignments.
Even
accepting the affidavits as necessarily embraced by the pleadings,
the pooling and service agreements allow only speculation; they do
not allow a plausible inference, especially when defendants present
14
a facially valid record of assignments.
As a result, dismissal is
warranted.
C.
Declaratory Judgment
1.
Pooling and Service Agreements
Plaintiffs next seek a declaration that defendants have no
right to foreclose based on their “information and belief” that the
notes and mortgages were assigned into a trust.
As the court
already noted, the complaint contains only conclusory statements
regarding transfer of the notes and mortgages into trusts.
The
complaint fails to state a claim on its face, and dismissal is
warranted.
Moreover, even considering the affidavits and accepting that
the original lenders entered into pooling and service agreements,
the argument fails because plaintiffs are not parties to those
agreements, and lack standing to challenge a purported breach. See
Blaylock v. Wells Fargo Bank, N.A., No. 12-693, 2012 WL 2529197, at
*5 (D. Minn. June 29, 2012).
As a result, for this additional
reason, plaintiffs are not entitled to a declaration regarding the
validity or effect of the alleged trust agreements. Therefore, the
complaint fails to state a claim for declaratory relief as to the
pooling and service agreements.
2.
Acceleration of Payments
Plaintiffs next seek a declaration regarding the right to
accelerate payments.
Any dispute about acceleration and sale is
15
between the note holder and mortgage holder; plaintiffs lack
standing to challenge such potential disputes.
N.W.2d at 550.
allegations
See Jackson, 770
Moreover, the complaint contains no facts or
suggesting
that
defendants
accelerated
balances.
Therefore, plaintiffs fail to state a claim, and dismissal is
warranted.
D.
Slander of Title
Plaintiffs next claim slander of title.
To state a claim for
slander of title, a plaintiff must allege facts that show:
(1)
That
there
was
a
false
statement
concerning the real property owned by the
plaintiff; (2) That the false statement was
published to others; (3) That the false
statement was published maliciously; and
(4) That the publication of the false
statement concerning title to the property
caused the plaintiff pecuniary loss in the
form of special damages.
Paidar v. Hughes,
615 N.W.2d 276, 279–80 (Minn. 2000).
The filing
of an instrument known to be inoperative is a false statement that,
if done maliciously, constitutes slander of title.
Kelly v. First
State Bank of Rothsay, 177 N.W. 347, 347 (Minn. 1920).
In the present case, plaintiffs fail to allege facts from
which the court could infer that defendants made a false statement,
that defendants acted with malice or that plaintiffs suffered any
pecuniary damages from the publication of amounts due on their
mortgages.
Therefore, plaintiffs fail to state a claim, and
dismissal is warranted.
16
CONCLUSION
Accordingly, based on the above, IT IS HEREBY ORDERED that:
1.
The motion to remand [ECF No. 10] is denied;
2.
The motion to dismiss [ECF No. 4] is granted; and
3.
This action is dismissed with prejudice.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated;
August 23, 2012
s/David S. Doty
David S. Doty, Judge
United States District Court
17
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