Richter et al v. Federal National Mortgage Association et al
MEMORANDUM OPINION AND ORDER granting 7 Defendants' Motion to Dismiss (Written Opinion). Signed by Judge Ann D. Montgomery on 06/25/2013. (TLU)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Wendy Richter and Chris Hardy,
Civil No. 13-00475 ADM/JJG
Federal National Mortgage Association,
Mortgage Electronic Registration System, Inc.,
Chase Home Finance LLC, Usset, Weingarden
and Liebo, PLLP, and all other persons,
unknown claiming any right, title, estate,
interest, or lien in the real estate described
in the complaint herein,
William B. Butler, Esq., Butler Liberty Law, LLC, Minneapolis, MN, on behalf of Plaintiffs.
Timothy M. Kelley, Esq., and Phillip J. Ashfield, Esq., Leonard Street and Deinard, PA,
Minneapolis, MN, on behalf of Defendants Federal National Mortgage Association, Mortgage
Electronic Registration System, and Chase Home Finance LLC.
Gerald G. Workinger, Jr., Esq., Usset, Weingarden & Liebo PLLP, Minneapolis, MN, on behalf
of Defendant Usset, Weingarden and Liebo, PLLP.
The undersigned United States District Judge heard oral argument on Defendants Federal
National Mortgage Association, Mortgage Electronic Registration System, Inc., Chase Home
Finance LLC, and Usset, Weingarden and Liebo, PLLP’s Motion to Dismiss Plaintiffs’
Complaint [Docket No. 7] on May 6, 2012. Plaintiffs Wendy Richter and Chris Hardy filed this
action seeking a quiet title judgment and the resolution of other claims in connection with a
foreclosure action on their home. For the reasons stated herein, Defendants’ motion is granted.
On April 19, 2007, Plaintiffs Wendy Richter and Chris Hardy became the owners of a
house in Wright County, Minnesota (the “Property”), via a warranty deed. Not. of Removal
[Docket No. 1] Ex. B (“Complaint”) ¶ 1. To complete their purchase, Plaintiffs received a loan
from Integrity Lending, Inc. (“Integrity”). Plaintiffs secured their loan by granting a mortgage
on the Property in favor of Defendant Mortgage Electronic Registration System, Inc. (“MERS”)
as nominee for Integrity. Id. at Ex. 1.
Although the timing is unclear from the record, at some point, Plaintiffs defaulted on
their loan. On or about March 24, 2011, MERS assigned its interest in Plaintiffs’ mortgage to
Defendant Chase Home Finance, LLC (“Chase Home Finance”). Id. at Ex. 2. Brian Liebo, an
attorney with Defendant Usset, Weingarden and Liebo, PLLP, (“Usset”) executed the document
as a vice president of MERS. See id. MERS had previously executed an agreement conferring
signing authority and officer status to Liebo. Weingarden Aff. [Docket No. 10] Ex. D. The
assignment of mortgage was recorded on March 25, 2011. Compl. Ex. 2.
On the same day, Chase Home Finance initiated a foreclosure by filing a Notice of
Pendency of Proceeding and Power of Attorney to Foreclose Mortgage (“March POA”) with
Wright County. Compl. Ex. 3. Liebo executed the document as attorney-in-fact for Chase
Home Finance. Chase Home Finance had, several years before, executed a Limited Power of
Attorney in favor of Usset, authorizing Usset to execute documents necessary for the foreclosure
of loans. This included, among other things, executing notices of pendency. See Weingarden
Aff. Ex. F. The Limited Power of Attorney was recorded on November 12, 2008. Id.
On or about May 18, 2011, Usset executed a second Notice of Pendency of Proceeding
and Power of Attorney to Foreclose Mortgage (“May POA”), and again recorded the document
with the Wright County Recorder’s Office. Compl. Ex. 6. On July 19, 2011, JPMorgan Chase
Bank, N.A. (“Chase”), the successor to Chase Home Finance by merger, purchased the Property
at a Sheriff’s foreclosure sale. Id. at Ex. 7. On November 20, 2012, Chase conveyed the
Property to Defendant Federal National Mortgage Association (“Fannie Mae”). Id. at Ex. 8.
Plaintiffs have previously filed a lawsuit in connection with the foreclosure of this
Property. On or about February 17, 2012, Plaintiffs joined a group of other property owners in
filing suit against Chase, Chase Home Finance, MERS, MERSCORP, and Fannie Mae. See
Ashfield Decl. [Docket No. 11] Ex. A. In that action, the plaintiffs alleged four claims against
all of the defendants, for: (1) a quiet title judgment; (2) a declaratory judgment determining the
“terms of the trust agreements” governing the trusts into which the plaintiffs alleged their
mortgages were placed; (3) a declaratory judgment determining the rights of the parties with
respect to the loans and mortgages at issue; and (4) slander of title. Id.
The defendants in the prior lawsuit removed the action, originally filed in Ramsey
County District Court, to federal court on March 7, 2012. On August 23, 2012, Judge Doty
granted the defendants’ motion to dismiss the complaint with prejudice. Novak v. JP Morgan
Chase Bank, N.A., No. 12-589 (D. Minn. Aug. 23, 2012) (judgment entered on Aug. 24, 2012).
On or about February 12, 2013, Plaintiffs filed this action in Wright County District
Court, which Defendants removed to federal court on February 27, 2013. This second federal
action of Plaintiffs was assigned to this Court.
A. Motion to Dismiss Standard
Rule 12 of the Federal Rules of Civil Procedure (the “Rules”) provides that a party may
move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.
R. Civ. P. 12(b)(6). In considering a motion to dismiss, the pleadings are construed in the light
most favorable to the nonmoving party, and the facts alleged in the complaint must be taken as
true. Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994) (citation omitted). Although the court
may not consider matters outside the pleadings at this stage, “documents necessarily embraced
by the complaint are not matters outside the pleading.” Ashanti v. City of Golden Valley, 666
F.3d 1148, 1151 (8th Cir. 2012) (quotation omitted).
Rule 12, working in combination with Rule 8, requires the plaintiff’s factual allegations
to “raise a right to relief above the speculative level,” and push claims “across the line from
conceivable to plausible.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). In other
words, the complaint must establish more than a “sheer possibility that a defendant has acted
unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Also, the plaintiff may not rest on
“unsupported conclusions, unwarranted inferences and sweeping legal conclusions cast in the
form of factual allegations.” Wiles v. Capitol Indem. Corp., 280 F.3d 868, 870 (8th Cir. 2002).
B. Failure to State a Claim
1. Quiet Title
For their first claim, Plaintiffs seek a judgment determining Defendants’ adverse interests
in the Property. Plaintiffs allege Liebo and his firm Usset did not have the legal authority to
execute documents on behalf of MERS and Chase Home Finance, and that as a result,
Defendants’ efforts to foreclose on the Property were invalid. See, e.g., Compl. ¶¶ 11, 13, 24-26,
29. Plaintiffs also allege Integrity originated Plaintiffs’ mortgage for delivery to Fannie Mae,
and that Fannie Mae acquired an unrecorded interest in the Property prior to Usset’s initiation of
the foreclosure by sale process. See id. at ¶¶15-21, 27. In support of this allegation, Plaintiffs
allege Fannie Mae’s Seller/Servicer Guides require a lender who intends to deliver a MERSregistered loan to Fannie Mae to assign an ownership interest to Fannie Mae. Id. at ¶¶ 18-19.
Plaintiffs also specifically allege Defendants have the burden of proof in establishing their
interests in the Property. Id. at ¶¶ 40-42.
Plaintiffs’ quiet title claim must be dismissed. As an initial matter, the Eighth Circuit
Court of Appeals rejected similarly-alleged quiet title claims in Karnatcheva v. JPMorgan Chase
Bank, N.A., 704 F.3d 545, 548 (8th Cir. 2013). There, the appellate court held that while
Minnesota state pleading rules may set a lower threshold for alleging a quiet title claim, the state
pleading rules were not the same as the state substantive rules for determining the success of a
quiet title claim. Id. Thus, federal pleading rules—namely, Rules 8 and 12(b)(6)—properly
applied to the quiet title claim. See id. The court held the plaintiffs in Karnatcheva had failed to
offer anything beyond “labels and conclusions, based on speculation” in support of their quiet
title claim, and the district court had properly dismissed it. Id.
In this case, Plaintiffs make similarly speculative, conclusory allegations in support of
their quiet title claim. Plaintiffs allege Liebo and Usset lacked authority to execute various
foreclosure documents on behalf of MERS and Chase Home Finance, but fail to offer anything
beyond self-serving conclusions as to why this could plausibly be the case. Similarly, Plaintiffs
make a cognitive leap between Integrity originating Plaintiffs’ loan and Integrity assigning an
unrecorded interest in this loan to Fannie Mae. Plaintiffs have pled no specific facts indicating
this assignment. See Cheng Lee v. Fed. Nat. Mortg. Ass’n, No. 13-180, 2013 WL 2631904, at
*2 (D. Minn. June 12, 2013). Instead, Plaintiffs brush aside this critical gap in logic and focus
on Fannie Mae’s larger business practices. Simply quoting a Fannie Mae policy document does
not plausibly establish how Fannie Mae obtained an unrecorded interest in the Property in this
case. Plaintiffs’ allegations do not rise above speculation.
Plaintiffs attempt to avoid this conclusion by arguing Karnatcheva was wrongly decided.
Plaintiffs argue Minnesota quiet title actions place the burden of proof on defendants, and the
pleading standards of the Rules impermissibly alter that balance. This argument simply recasts
previously rejected arguments regarding the application of federal procedural rules to state quiet
title claims. As the Eighth Circuit has repeatedly held in cases such as this one, “Minnesota’s
substantive quiet title law and the federal pleading standards may operate happily side-by-side.”
Vang v. PNC Mortg., Inc., No. 12-2501, 2013 WL 2228756, at *3 (8th Cir. May 22, 2013).
Thus, where a plaintiff’s allegations are based only on speculation and self-serving conclusions,
the quiet title claim will not succeed. See, e.g., id.; Blaylock v. Wells Fargo Bank, N.A., 502 F.
App’x 623-24 (8th Cir. 2013); Jerde v. JPMorgan Chase Bank, N.A., 502 F. App’x 616, 617 (8th
Cir. 2013); Dunbar v. Wells Fargo Bank, N.A., 709 F.3d 1254, 1257 (8th Cir. 2013); and Iverson
v. Wells Fargo Bank, N.A., 502 F. App’x 624, 625-26 (8th Cir. 2013). Plaintiffs have failed to
state a claim at the motion to dismiss stage.
Finally, Defendants have introduced public, facially-valid documents demonstrating
their authority to proceed with the foreclosure. See Weingarden Decl. Exs. D, F. Both parties
have also introduced documents that appear to be validly recorded, and which document
Defendants’ chain of title. See id. at Exs. A-C, E, G-I. These documents, embraced by the
pleadings and publicly-available, further warrant dismissal because they demonstrate the
unsupported nature of Plaintiffs’ claims.
2. Declaratory Judgment
Plaintiffs also seek a declaratory judgment under Minn. Stat. § 555.02 voiding MERS’
assignment of mortgage to Chase Home Finance, and also voiding the March and May POA’s.
Compl. ¶¶ 46-47. Similar to their quiet title claim, Plaintiffs again rely on the same lack-oflegal-title allegations for their declaratory judgment claim. Consequently, the declaratory
judgment claim must fail for the same reasons. Plaintiffs rely on nothing more than speculative,
self-serving conclusions about Usset’s authority to execute documents in connection with
foreclosure and about Fannie Mae’s unrecorded interest in the Property. The speculative nature
of these allegations, combined with facially-valid public documents demonstrating otherwise,
3. Deceit or Collusion
Plaintiffs also allege three claims specifically against Usset, the first of which is for
violations of Minn. Stat. §§ 481.07 and 481.071. These sections allow a party to recover
damages due to an attorney’s intentional misrepresentations in a judicial proceeding. However,
“it is long-settled that these sections do not provide a substantive cause of action but ‘merely
provide the penalty for a successful cause of action with respect to the offending attorney
conduct.’” Forseth v. Bank of Am., N.A., No. 13-38, 2013 WL 2297036, at *7 (D. Minn. May
24, 2013) (quoting Beardmore v. Am. Summit Fin. Holdings, LLC, No. 01-948, 2001 WL
1586785, at *8 (D. Minn. Dec. 10, 2001)). Sections 481.07 and 481.071 do not apply unless
buttressed by a properly-pleaded claim of fraud. See id. Thus, Plaintiffs’ claim for damages
under §§ 481.07 and 481.071 cannot survive because in this case, Plaintiffs have not alleged
fraud. See id. (citation omitted). In addition, Defendants persuasively argue that this claim
functionally rephrases the “lack of authority” arguments discussed above. As a result, even if §§
481.07 and 481.071 could support an independent cause of action, it would be dismissed in this
case for relying on speculative assumptions.
4. Negligence Per Se
Plaintiffs next allege negligence per se against Usset. Plaintiffs claim Usset violated
Minn. Stat. § 580.05 by proceeding with the foreclosure sale without first properly executing and
recording the necessary assignments, notices, and powers of attorney, and for also failing to
determine whether Chase Home Finance had the standing to foreclose. Compl. ¶¶ 59-62. In a
negligence per se claim, a statutory standard of care replaces the ordinary reasonable person
standard of care, “such that a violation of a statute . . . is conclusive evidence of duty and
breach.” Gradjelick v. Hance, 646 N.W.2d 225, 231 n.3 (Minn. 2002).
This claim also fails. An “attorney acting within the scope of his employment as an
attorney is immune from liability to third persons for actions arising out of that professional
relationship.” Karnatcheva v. JPMorgan Chase Bank, N.A., 871 F. Supp. 2d 834, 839 (D. Minn.
2012) (quoting McDonald v. Stewart, 182 N.W.2d 437, 440 (1970)), aff’d, 704 F.3d 545.
Similarly, “attorneys are generally not liable to the client’s adversary, absent evidence of an
affirmative misrepresentation,” and Plaintiffs have not alleged an affirmative misrepresentation
in this case. See Karnatcheva, 871 F. Supp. 2d at 839 (citation omitted). Finally, there is no
indication in the statutes or case law that violations of Minn. Stat. §§ 580.02 and 580.05 may
establish negligence per se. See McGlory v. CitiMortgage, Inc., No. 12-3145, 2013 WL
2934986, at *2-3 (D. Minn. June 14, 2013); Forseth, 2013 WL 2297036, at *7; and Pope v. Fed.
Home Loan Mortg. Corp., No. 12-3094, 2013 WL 2251001, at *4 (D. Minn. May 22, 2013).
5. Slander of Title
Plaintiffs also allege a claim for slander of title against Usset. To succeed on a slander of
title claim, a plaintiff must show that: (1) “there was a false statement concerning the real
property owned by the plaintiff;” (2) “the statement was published to others;” (3) “the false
statement was published maliciously;” and (4) “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). Here, Plaintiffs allege Usset drafted and
recorded the assignments of mortgage and powers of attorney documents knowing they were
false and further knowing Usset lacked authority to do so. Compl. ¶¶ 64-68.
As with the preceding claims, Plaintiffs’ slander of title claim must also be dismissed.
First, as noted above, it appears from the publicly-available documents that Defendants did, in
fact, properly record the assignments of mortgage and the March and May POA’s.
Second, Plaintiffs fail to plead that Usset acted with malice under the third element of the
claim. See Dunbar, 709 F.3d at 1257-58. Instead, Plaintiffs allege Usset received “constructive
notice” that Chase had engaged in “unsafe and unsound” foreclosure practices by virtue of
Chase’s entry into a Consent Order, which was accepted by the Comptroller of the Currency.
Compl. ¶ 31, Ex. 9. This Consent Order addresses certain of Chase’s practices, including: (1)
having persons execute affidavits without proper knowledge; (2) failing to properly notarize
documents; (3) commencing foreclosure proceedings “without always ensuring” proper
endorsement or assignation of mortgages; and (4) failing to properly oversee outside counsel.
Compl. ¶ 31, Ex. 9. Plaintiffs do not allege the first two of these items occurred here, the
Complaint and publicly-filed documents fail to support the third, and Plaintiffs make no specific
allegations regarding the fourth. As a result, Plaintiffs have failed to demonstrate how even the
potential knowledge of Chase’s Consent Order caused Usset to act with malice.
Third, as discussed in section III.B.4, addressing neligence per se, because Plaintiffs have
failed to allege that “Usset made any affirmative misrepresentation involving the foreclosure
proceedings, Usset is immune from liability for actions it took with respect to the foreclosure
proceedings.” Karnatcheva, 871 F. Supp. 2d at 843.
C. Claim Preclusion
The doctrine of claim preclusion also requires dismissal of the Complaint. Claim
preclusion, also known as res judicata, precludes a party from re-litigating claims that were or
could have been raised in previous litigation. Lundquist v. Rice Mem’l Hosp., 238 F.3d 975,
977 (8th Cir. 2001). In determining whether claim preclusion bars a claim, the court considers
whether: “(1) the earlier claim involved the same set of factual circumstances; (2) the earlier
claim involved the same parties or their privies; (3) there was a final judgment on the merits;
[and] (4) the estopped party had a full and fair opportunity to litigate the matter.” Minch Family
LLP v. Buffalo-Red River Watershed Dist., 628 F.3d 960, 966 (8th Cir. 2010) (citing Hauschildt
v. Beckingham, 686 N.W.2d 829, 840 (Minn. 2004) (edit in original)). Plaintiffs challenge the
last three elements.
Regarding the second element, Plaintiffs argue that although most of the Defendants in
this case were named in the prior case, Usset was not. However, Usset acted as an agent for at
least two of the defendants in the prior action, and Plaintiffs now pursue liability against Usset
based on the same causes for which they sought liability against Usset’s clients. Usset also had
and continues to have aligned interests with the remaining defendants in these lawsuits. As such,
Usset was sufficiently related to the first action to be considered in privity with Defendants. See
Cnty of Boyd v. US Ecology, Inc., 48 F.3d 359, 361-62 (8th Cir. 1995).
Regarding the third element, Plaintiffs argue a dismissal with prejudice is not a judgment
on the merits. But, numerous courts in this district have held the dismissal of a complaint with
prejudice is a judgment on the merits.1 See, e.g., Hintz v. JPMorgan Chase Bank, N.A., 686 F.3d
505, 510 (8th Cir. 2012).
Finally, regarding the fourth element, Plaintiffs argue they were deprived of a “full and
fair” opportunity to litigate because their previous complaint was held to Rule 8 and 12 pleading
standards. The fourth element of claim preclusion is satisfied unless there were “significant
procedural limitations in the prior proceedings,” the party did not have the incentive to fully
litigate, or “effective litigation was limited by the nature or relationship of the parties.” State v.
Joseph, 636 N.W.2d 322, 328 (Minn. 2001) (quotations omitted). In Plaintiffs’ prior case, the
Federal Rules of Civil Procedure were not “significant procedural limitations,” nor was there any
indication that the Rules, or indeed anything else, prevented Plaintiffs from arguing their case.
In addition, state courts respect the preclusive effect of federal court decisions, and vice versa.
See 18B Federal Practice & Procedure § 4468-69 (2d ed.). If Plaintiffs had reached a decision
on the merits in state court, that decision would still have preclusive effect here.
As this Court has previously held, Plaintiffs’ cited decision, H. Christiansen & Sons v.
City of Duluth, 31 N.W.2d 277 (Minn. 1948), does not support Plaintiffs’ position. See DuBe v.
Fed. Nat’l Mortg. Ass’n, No. 13-628, 2013 WL 1345514, at *3 (D. Minn. Apr. 2, 2013).
Because claim preclusion further warrants dismissal with prejudice in this case, it is not
necessary to address issue preclusion.
D. Dismissal with Prejudice
As a final matter, Plaintiffs argue that if the Court determines they have failed to state a
claim, the Court should grant Defendants’ motion to dismiss without prejudice. A complaint
filed under the comparatively more-lenient state pleading standards should not, Plaintiffs argue,
be dismissed with prejudice under the more-demanding federal standards outlined above.
Plaintiffs will not be given leave to amend the Complaint. Although leave to amend
“shall be freely given when justice so requires,” plaintiffs “do not have an absolute or automatic
right to amend.” United States ex rel. Lee v. Fairview Health Sys., 413 F.3d 748, 749 (8th Cir.
2005) (quoting Fed. R. Civ. P. 15). For the second time, Plaintiffs have alleged claims with
nothing beyond unsupported allegations and conclusions. Thus, even under state pleading
standards, dismissal with prejudice would be appropriate. See, e.g., Bahr v. Capella Univ., 788
N.W.2d 76, 80 (Minn. 2010) (citing Twombly, 550 U.S. at 555)). In addition, Plaintiffs have not
indicated, in their memorandum or at oral argument, how amending the Complaint would cure
its deficiencies. See Fairview Health, 413 F.3d at 749-50. For these reasons and the reasons
discussed by Defendants in their memoranda, granting Plaintiffs leave to amend the Complaint
would not serve the interests of justice.
Based upon the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that Defendants’ Motion to Dismiss [Docket No. 7] is GRANTED. All
claims in the Complaint [Docket No. 1-2] are DISMISSED WITH PREJUDICE.
LET JUDGMENT BE ENTERED ACCORDINGLY.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: June 25, 2013.
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?