DuBe et al v. Federal National Mortgage Association et al

Filing 16

MEMORANDUM OPINION AND ORDER denying 3 Plaintiff's Motion for TRO (Written Opinion). Signed by Judge Ann D. Montgomery on 04/02/2013. (TLU)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Robert M. DuBe and Cynthia J. DuBe,
Plaintiffs,
MEMORANDUM OPINION
AND ORDER
Civil No. 13-628 ADM/TNL

v.
Federal National Mortgage Association;
Mortgage Electronic Registration System,
Inc.; MERSCORP, Inc.; EverBank; and
also all other persons unknown claiming
any right, title, estate, interest, or lien in the
real estate described in the complaint
herein,
Defendants.

William Bernard Butler, Esq., Butler Liberty Law, LLC, Minneapolis, MN, on behalf of
Plaintiffs.
Michael A. Rosow, Esq., and Aimee D. Dayhoff, Esq., Winthrop & Weinstine, P.A.,
Minneapolis, MN, on behalf of Defendants.

I. INTRODUCTION
On March 26, 2013, the undersigned United States District Judge heard oral argument on
Plaintiffs Robert M. and Cynthia J. DuBes’ (the “DuBes”) Motion for Temporary Restraining
Order (“TRO”) [Docket No. 3]. For the reasons set forth below, the motion is denied.
II. BACKGROUND
In 1994, the DuBes acquired a house at 1231 West 15th Street, Hastings, MN 55033 (the
“Property”). The DuBes acquired a mortgage on the property on December 28, 2005. The
DuBes defaulted on their mortgage.
The DuBes allege various ways in which Federal National Mortgage Association
(“Fannie Mae”), Mortgage Electronic Registration System, Inc. (“MERS”), MERSCORP, Inc.,

and EverBank (“EverBank”) (collectively, the “Defendants”) lacked the authority to conduct a
valid foreclosure by advertisement.
On May 25, 2011, MERS assigned the DuBes’ mortgage to EverBank. Compl. [Docket
No. 1] ¶ 10 . Plaintiffs claim, upon information and belief, Fannie Mae acquired an “interest” in
the mortgage sometime prior to commencement of the foreclosure by advertisement in this case.
Id. ¶ 12. Although unclear in the Complaint, it appears Plaintiffs construe this acquisition of an
interest as an unrecorded assignment of all rights and interest in the mortgage. Id. ¶ 21. On May
31, 2011, attorneys for EverBank executed a Power of Attorney instrument, empowering the
attorneys to proceed with foreclosure on the Property. Id. ¶¶ 20-21. EverBank proceeded with
foreclosure by advertisement. On June 15, 2011, EverBank gave notice of a Sheriff’s sale for
the Property and conducted the sale on August 4, 2011. Id. ¶ 25. EverBank purchased the
Property with a bid of $419,648. Id. On August 25, 2011, EverBank conveyed the Property to
Fannie Mae. Id. ¶ 26. On March 19, 2012, Fannie Mae filed a complaint to evict the DuBes
from the Property in Dakota County court. Butler Aff. [Docket No. 5] Ex. 6.
The DuBes have been involved in extensive litigation concerning their home. In July
2011, the DuBes joined over 30 other plaintiffs challenging the validity of their foreclosures.
Peterson v. CitiMortgage, Inc., No. 11-2385 SRN-JJG, 2012 U.S. Dist. LEXIS 75150 (D. Minn.
May 30, 2012) (noting that Plaintiffs’ counsel persists in bringing claims that have been
repeatedly rejected, that he engages in brazen delay tactics, and that the Peterson case is a
particularly egregious example; Judge Susan Richard Nelson dismissed with prejudice all 21
Counts for failure to state a claim), aff’d, 704 F.3d 548 (8th Cir. January 28, 2013). During
consideration of Peterson and its appeal, the DuBes remained in possession of the Property.
Fannie Mae’s eviction complaint was delayed by Dakota County pending the outcome of
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Peterson. On March 13, 2013, after the Eighth Circuit affirmed Judge Nelson’s dismissal with
prejudice, Dakota County Judge Michael J. Mayer lifted the stay on eviction and issued a Writ of
Recovery of Premises. Butler Aff. Ex. 6.
The DuBes filed the present action first in Dakota County on March 5, 2013; Defendants
removed the case to federal court on March 18, 2013. Notice of Removal [Docket No. 1]. As in
Peterson, the Defendants named here are Fannie Mae, MERS, MERSCORP, and EverBank. The
DuBes request a TRO to again delay their eviction, pending resolution of their new lawsuit.
In filing for a TRO, the DuBes did not inform the court of the previous litigation in which
they were involved with the same named Defendants. Defendants contend the DuBes should not
get a “second bite at the apple” and urge the court to dismiss the case on the basis of claim
preclusion. At oral argument, Plaintiffs’ counsel, who had not briefed the preclusion issue,
responded that the DuBes only sued EverBank in the previous case, not Fannie Mae, and that the
DuBes did not and could not discover Fannie Mae’s interest in the mortgage until an unspecified
time after the Peterson case was decided. Plaintiffs’ counsel also argued that the Rule 12(b)(6)
dismissal of Peterson for failure to state a claim is not sufficient to preclude claims brought in
this case.
III. DISCUSSION
A motion to dismiss is not before the court. Only the TRO will be addressed at this
stage.
A. Dataphase Factors
Courts weigh four factors in determining whether to grant injunctive relief: (1) the threat
of irreparable harm to the moving party if an injunction is not granted; (2) the harm suffered by
the moving party if injunctive relief is denied as compared to the effect on the non-moving party
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if the relief is granted; (3) the probability that the moving party will succeed on the merits; and
(4) the public interest. Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981);
See also Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 22 (2008). The fundamental
question “is whether the balance of equities so favors the movant that justice requires the court
to intervene to preserve the status quo until the merits are determined.” Id. The movant “bears
the burden of establishing the necessity of this equitable remedy.” Gen. Motors Corp. v. Harry
Brown’s, LLC, 563 F.3d 312, 316 (8th Cir. 2009); see also Oglala Sioux Tribe v. C & W Enters.,
Inc., 542 F.3d 224, 233 (8th Cir. 2008) (ceasing a Dataphase analysis after finding no likelihood
of success on the merits). Injunctive relief is an extraordinary remedy. See Calvin Klein
Cosmetics Corp. v. Lenox Labs., Inc., 815 F.2d 500, 503 (8th Cir. 1987).
B. Likelihood of Success on the Merits
The DuBes are not likely to succeed on the merits. First, Dakota County Court has
considered the issue of eviction since at least March 19, 2012, when Fannie Mae filed for a writ
of recovery. The Dakota County Court stayed the writ of eviction pending the disposition of
Peterson and when that case concluded, the Court lifted the stay and granted the writ. On the
limited record before it, this Court is reluctant to second guess the state court’s determination
that a stay of proceedings is no longer necessary.
Second, the DuBes’ Complaint is unclear about the facts and theory of its case. The
Complaint vaguely alleges Fannie Mae took an unrecorded assignment of mortgage. Compl. ¶
12. The Complaint does not allege when Fannie Mae took an interest, nor does it provide facts
about the nature of that interest. Attached to the Complaint, the DuBes include a one page
printout, time stamped at the bottom, March 21, 2013 and stamped at the top as “MERS
ServicerID - Investor.” In the middle of what appears to be a search results page, EverBank is
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listed as a servicer of the loan and Fannie Mae is listed as an investor. This record search is
otherwise unexplained and the Complaint and motion do not provide sufficient information to
make more than the obvious conclusions, that EverBank was a servicer and Fannie Mae was an
investor. The search page tells nothing about the nature of Fannie Mae’s investment and the
page shows nothing about ownership and title of the mortgage. From this search page, the
DuBes allege that Fannie Mae’s interest deprived EverBank of the authority to proceed with
foreclosure by advertisement. If this Complaint faced a motion to dismiss, it would likely be
dismissed for failure to state a claim.
Third, claim preclusion is a large hurdle to showing likelihood of success on the merits in
this case. The Eighth Circuit has provided a four-prong test to determine when res judicata bars
relitigation of a claim: “(1) the first suit must result in a final judgment on the merits; (2) the first
suit must be based on proper jurisdiction; (3) both suits must involve the same nucleus of
operative fact; and (4) both suits must involve the same parties or their privies.” Kolb v. Scherer
Bros. Fin. Servs. Co., 6 F.3d 542, 544 (8th Cir. 1993).
The DuBes argued at the hearing that this action is not barred by the doctrine of claim
preclusion because, under H. Christiansen & Sons, Inc. v. City of Duluth, 31 N.W.2d 277 (Minn.
1948) and Minnesota common law, a dismissal for failure to state a claim does not constitute a
final judgment on the merits. This argument fails for two reasons. First, the DuBes’ claims in
Peterson were not dismissed under Minnesota failure to state a claim standard, but rather were
dismissed pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure. A Rule 12 (b)(6)
dismissal is a “judgment on the merits” for res judicata purposes unless the plaintiff is granted
leave to amend his complaint or the dismissal is reversed on appeal. United States v. Maull, 855
F.2d 514, 517, n.3 (8th Cir. 1988) (citing both, Federated Dep’t Stores v. Moitie, 452 U.S. 394,
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399 n.3 (1981); and, Carter v. Money Tree Co., 532 F.2d 113, 115 (1976)). Second, the
Minnesota Supreme Court in H. Christiansen does not stand for the proposition Plaintiffs claim.
In H. Christiansen the trial court sustained a defendant’s demurrer, but granted plaintiffs 30 days
within which to file an amended complaint. 31 N.W.2d at 278. No amended complaint was
filed. Id. Instead, after the 30 days, plaintiff filed a voluntary dismissal without prejudice,
which the trial court granted. Id. Later, plaintiff “commenced another action in state court again
seeking recovery from defendant for the same damages.” Id. The Court in H. Christiansen
ordered the trial court to enter a final judgment of dismissal on the merits because after the
expiration of the 30 days, the trial judgment based on demurrer was final and the trial court did
not have the authority to dismiss the case without prejudice. Id. at 280.
The DuBes have now twice filed a quiet title action seeking to declare the foreclosure
sale of their mortgaged Property null and void. The first three prongs of the Kolb test are easily
disposed. In Peterson, Judge Nelson granted Defendants’ Rule 12(b)(6) motion to dismiss for
failure to state a claim and dismissed the case with prejudice. Since a Rule 12(b)(6) dismissal
with prejudice is a ruling on the merits, the first prong of the Kolb test is satisfied. Next, both
Peterson and this case are based on proper jurisdiction. Federal question jurisdiction is proper as
to claims against Fannie Mae under 12 U.S.C. § 1452(f), and supplemental jurisdiction exists
over Plaintiffs’ state-law claims against the remaining Defendants under 28 U.S.C. § 1367(a).
Thirdly, both suits involve the same nucleus of operative facts, that is, both suits challenge the
validity of Defendants’ foreclosure by advertisement proceedings and the authority to conduct a
valid sheriff’s sale.
The final prong requires a determination of whether both cases involve the same parties
or their privies. The DuBes’ counsel argued at the hearing that the DuBes’ claims against Fannie
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Mae are not precluded because the DuBes did not sue Fannie Mae in the first action. Stating that
the DuBes did not sue Fannie Mae, even though Fannie Mae was a named party in Peterson, is
dubious. The Peterson Complaint alleges that “Defendant EverBank, including its predecessors,
successors and assigns, falsely claim a mortgagee’s interest in the DuBe Property.” Michael A.
Rosow Decl. [Docket No. 8] Ex. 3 (“Peterson Compl.”) ¶ 80. In addition, most of the Peterson
Compl. “Counts” allege all Defendants violated the law against all Plaintiffs. See Peterson
Compl. starting at ¶ 86. It is unclear how Fannie Mae, even as an unrecorded assignee, would
not be included in the DuBes’ allegations.
The DuBes also claimed at oral argument that, during Peterson, they did not and could
not know Fannie Mae had an interest in their mortgage because as an unrecorded assignment of
mortgage from EverBank to Fannie Mae, they could not discover Fannie Mae’s interest. This
argument is even more flimsy. The Complaint provides no factual basis for claiming that Fannie
Mae received an unrecorded assignment of mortgage from EverBank prior to foreclosure by
advertisement. And as noted above, the DuBes have not explained enough about the search to
answer key questions of when, what, why or how the one record search makes the unrecorded
assignment of mortgage case. Based on the record before the Court, it is impossible to tell why
this record search, if helpful, could not have been conducted prior to Peterson.
At the TRO stage, the Court need only decide if these arguments are likely. It is unlikely
the DuBes will be able to avoid claim preclusion having had the opportunity in Peterson to
challenge the validity of their foreclosure. This likelihood-of-success-on-the-merits factor
strongly favors the Defendants.
C. Threat of Irreparable Harm
“If denying an injunction results in eviction, then the irreparable harm element is likely
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met.” Saygnarath v. BNC Mortg., Inc., No. 06-3465, 2007 WL 1141495, at *2 (D. Minn. Apr.
17, 2007) (citing Higbee v. Starr, 698 F.2d 945, 947 (8th Cir. 1983)). But, a showing of
speculative harm is insufficient to meet the burden of showing irreparable harm. Saygnarath,
2007 WL 1141495, at *2.
The DuBes assert that they will be irreparably harmed if they are evicted from the
Property because it is the DuBes’ “personal, primary and sole residence.” Mem. Supp. TRO
[Docket No. 4] 8. They also assert that securing new housing, particularly in Minnesota’s cold
March weather will be difficult. Finally, once the writ is executed, the DuBes argue they will
have to vacate the Property within 24 hours.
As noted above, the DuBes have defaulted on their mortgage. Default is not disputed.
The only issue at this point is whether EverBank and Fannie Mae took appropriate steps to
foreclose the Property by advertisement. Efforts to modify the DuBes’ mortgage agreement
failed. The only issue was and is when and how foreclosure shall proceed. The DuBes’ have
been on notice since March 2012 that eviction is probable. They received a reprieve from the
Dakota County court pending the disposition of Peterson. On January 28, 2013, the Eighth
Circuit affirmed the District Court’s ruling granting Defendants’ motions to dismiss.
Recognizing the Eighth Circuit’s ruling as a final disposition of the DuBes’ case, Judge Mayer
granted Fannie Mae the writ of recovery on March 13, 2013.
If Plaintiffs ultimately prevail in this case, their remedy will be damages and possession
of the property. Right and title of the property will not be decided. Even if the Court again
delayed the eviction pending resolution of the DuBes’ possibly new allegations, the DuBes will
still have defaulted on their mortgage. They will not have the right and title to the Property
unless (1) the DuBes reinstate the mortgage, paying the amount constituting the default at the
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time the mortgage foreclosure proceedings were initiated, together with all costs of foreclosure
that have been incurred to the date of reinstatement, plus attorney’s fees, Minn. Stat. § 580.30; or
(2) redeem from the Sheriff’s sale, paying to either the person who purchased the property at the
sale or the Sheriff the sum of money for which the mortgaged premises were sold, with interest
from the sale date at the rate provided in the mortgage, plus other costs recoverable by statute,
Minn. Stat. § 580.25. There is no way to know from the record if the DuBes are willing or able
to pay for the redemption or reinstatement of the Property. Over two years of litigation and
nonpayment suggests not. Defendants would presumably restart the foreclosure process and
ensure its proper execution. Even if the DuBes prevail, they would likely only remain on the
Property during the new foreclosure proceeding, delaying the time at which they need to find
new housing, but not ultimately allowing them to keep the Property.
Foreclosure by advertisement is simply the means of enforcing the terms of the DuBes’
mortgage contract. Violation of the procedures does not ultimately determine right and title to
the property. Nonetheless, the Court recognizes the adverse effects that flow from eviction and
finds that this Dataphase factor tips slightly in favor of the DuBes.
D. Balance of Harms
Issuance of injunction would deprive Fannie Mae and EverBank of its legal right to
foreclose on the Property and the income they could gain in so doing. Lost time of possession
has also been considerable. Beginning in July 2011, Defendants could not take possession of the
Property during the pendency of Peterson. On the other hand, failure to issue an injunction will
result in the serious harm of eviction. However, mitigating the harm of eviction, the DuBes have
been on notice at least since Fannie Mae’s March 2012 complaint in Dakota County that eviction
is a possibility. The balance of harms does not favor either the DuBes or the Defendants.
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E. Public Interest
Weighty public interests exist on both sides of the ledger. See Gomez v. Marketplace
Home Mortg. LLC, No. 12-153, 2012 U.S. Dist. LEXIS 59704, at *11-12 (D. Minn. Apr. 30,
2012). The public has an interest in the effective and efficient disposition of contract disputes.
“On the other hand, the public interests in preventing unnecessary foreclosures and maintaining
home ownership are at least equally strong.” Id. In the context of this case, the Court suspects
that granting injunctive relief would encourage borrowers to file multiple suits in an effort to
unjustifiably delay foreclosure. This factor favors Defendants.
F. Balance of Equities
The balance of equities does not so favor the DuBes as to justify the Court’s
extraordinary intervention. In this case the DuBes have very little likelihood of success on the
merits and analysis of the remaining factors does not tip the balance strongly in their favor.
Therefore, injunctive relief is inappropriate.
IV. CONCLUSION
Based upon all the files, records, and proceedings herein, IT IS HEREBY ORDERED
that: Plaintiff DuBes’ Motion for Temporary Restraining Order [Docket No. 3] is DENIED.

BY THE COURT:

s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: April 2, 2013.

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