Gleason et al v. Deutsche Bank National Trust Company, as Trustee for Morgan Stanley ABS Capital I Inc., Trust 2006-HE3
Filing
25
MEMORANDUM OPINION AND ORDER granting in part and denying in part 4 Motion to Dismiss/General; granting 13 Motion for Partial Summary Judgment (Written Opinion). Signed by Judge Ann D. Montgomery on 7/26/2013. (GS)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Patrick R. Gleason and
Susan A. Gleason,
Plaintiffs,
MEMORANDUM OPINION
AND ORDER
Civil No. 13-704 ADM/FLN
v.
Deutsche Bank National
Trust Company, as Trustee
for Morgan Stanley ABS
Capital I Inc., Trust 2006-HE3,
Defendant.
______________________________________________________________________________
Jonathan L.R. Drewes, Esq., and Michael J. Wang, Esq., Drewes Law, PLLC, Minneapolis, MN,
on behalf of Plaintiffs.
Charles F. Webber, Esq., D. Charles Macdonald, Esq., and Elizabeth A. Walker, Esq., Faegre
Baker Daniels LLP, Minneapolis, MN, on behalf of Defendant.
______________________________________________________________________________
I. INTRODUCTION
On May 20, 2013, the undersigned United States District Judge heard oral argument on
Defendant Deutsche Bank National Trust Company’s (“the Trust”) Motion to Dismiss [Docket
No. 4] and Plaintiffs Patrick R. Gleason and Susan A. Gleason’s (“the Gleasons”) Motion for
Partial Summary Judgment [Docket No. 13]. For the reasons stated below, the Trust’s motion to
dismiss is denied in part and granted in part. The Gleasons’ motion for partial summary
judgment is granted.
II. BACKGROUND
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The facts of this case are undisputed. The Gleasons own a home in Champlin,
Minnesota. Def.’s App. [Docket No. 7] 2-3. In an agreement dated January 13, 2006, the
Gleasons granted Mortgage Electronic Registration Systems, Inc. (“MERS”) a mortgagee’s
interest in their Champlin property. Id. at 3, 12. That agreement was recorded with the
Hennepin County Registrar of Titles on February 23, 2006. Id. at 1. MERS assigned its interest
in the Champlin property to the Trust in an instrument dated July 14, 2009, and recorded with
the Hennepin County Registrar of Titles on August 5, 2009. Id. at 16-18.
The Gleasons defaulted on their mortgage and the Trust initiated proceedings to foreclose
on the Champlin property. Id. at 24. The Trust began foreclosure by advertisement proceedings.
A sheriff’s sale was originally scheduled for June 8, 2012. Id. The Trust postponed the sheriff’s
sale to July 9, 2012, and then to August 10, 2012. Id. at 25-26. The Gleasons then exercised
their option under Minn. Stat. § 580.07, subd. 2(a)(1), to postpone the sheriff’s sale for five
months. Id. at 23. Five months from August 10, 2012 was January 10, 2013. The Champlin
property was sold one day later at a sheriff’s sale on January 11, 2013. Id. at 29-30.
III. DISCUSSION
A. Standards of Review
Rule 12 of the Federal Rules of Civil Procedure states 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). The court construes the pleadings 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).
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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).
Under Rule 56 of the Federal Rules of Civil Procedure, “[t]he court shall grant summary
judgment if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). On a motion for
summary judgment, the court views the evidence in the light most favorable to the nonmoving
party. Ludwig v. Anderson, 54 F.3d 465, 470 (8th Cir. 1995).
B. State Law
On questions of state law, a federal court is bound by the rulings of that state’s highest
court. Progressive N. Ins. Co. v. McDonough, 608 F.3d 388, 390 (8th Cir. 2010). But if a state
court has not ruled on a particular question, a federal court must determine how the state’s
highest court would rule, considering similar state-court decisions, appropriate dicta, and other
reliable information. Id.; see Myers v. Lutsen Mountains Corp., 587 F.3d 891, 896 (8th Cir.
2009).
In applying the state’s foreclosure by advertisement statute, Minnesota Statute, Chapter
580, the Minnesota Supreme Court looks to the plain language of the statute. Ruiz v. 1st Fid.
Loan Servicing, LLC, 829 N.W.2d 53, 57 (Minn. 2013) (construing Minn. Stat. § 580.02(3)).
When the plain language is unambiguous, the Minnesota Supreme Court has given effect to the
“letter of the law.” Id. In addition, the courts “construe a statute ‘as a whole so as to harmonize
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and give effect to all its parts, and where possible, no word, phrase, or sentence will be held
superfluous, void, or insignificant.’” Jackson v. Mortg. Elec. Registration Sys., Inc., 770
N.W.2d 487, 496 (Minn. 2009) (quoting In re UnitedHealth Group, Inc., 754 N.W.2d 544, 563
(Minn. 2008)).
Minnesota state courts have required strict compliance with the Minnesota legislature’s
foreclosure by advertisement requirements. In 2009, the Minnesota Supreme Court discussed
the purpose of Minn. Stat. Ch. 580:
Foreclosure by advertisement was developed as a non-judicial form
of foreclosure designed to avoid the delay and expense of judicial
proceedings. Because foreclosure by advertisement is a purely
statutory creation, the statutes are strictly construed. We require a
foreclosing party to show exact compliance with the terms of the
statutes. If the foreclosing party fails to strictly comply with the
statutory requirements, the foreclosure proceeding is void.
Jackson, 770 N.W.2d at 494 (internal quotations and citations omitted). The Minnesota Supreme
Court recently reaffirmed this approach to foreclosure by advertisement requirements when it
held that Minn. Stat. § 580.02 requires strict compliance. Ruiz, 829 N.W.2d at 58. These
decisions reflect a 150-year history in Minnesota of holding foreclosing parties to strict
compliance for foreclosures by advertisement. As the court explained as far back as 1860, the
law must be followed scrupulously when the legislature is allowing a foreclosing party to take
“the remedy in his own hands, by an ex parte proceeding . . . .” Spencer v. Annan, 4 Minn. 542,
544 (1860) (finding a sale void when the notice overstated the amount due on the mortgage,
discouraging competition at the foreclosure sale); see also Moore v. Carlson, 112 Minn. 433, 434
(1910) (“One who avails himself of [foreclosure by advertisement statutes] must show an exact
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and literal compliance with its terms; otherwise he is bound to profess without authority of
law.”).
C. Postponement of Sale Under Minn. Stat. § 580.07
Section 580.07 regulates the postponement of sale in cases where a mortgage is being
foreclosed by advertisement. Minn. Stat. § 580.07 (2012). The statute is divided into two main
subdivisons. Id. Subdivision 1 applies to the mortgagee. Id. § 580.07, subd. 1. It states in part
that “[t]he sale may be postponed, from time to time, by the party conducting the foreclosure.”
Id. If the mortgagee postpones the sale, the mortgagee must notify the occupant and publish
notice in a newspaper. Id. Subdivision 2 applies to the mortgagor. Id. § 580.07, subd. 2. If the
property being foreclosed is at least partially classified as a homestead and contains one to four
dwelling units, subdivision 2 allows the mortgagor to postpone the sale:
to the first date that is not a Saturday, Sunday, or legal holiday and is:
(1) five months after the originally scheduled date of sale if the
original redemption period was six months . . . or (2) 11 months after
the originally scheduled date of sale if the original redemption period
was 12 months.
Id. If the mortgagor postpones the sale, the statute requires the mortgagor to execute and record
an affidavit to that effect. Id.
The issue in this case arises from an additional day being added to end of the mortgagor’s
postponement. The Champlin property was scheduled to be sold on August 10, 2012, when the
Gleasons exercised their option to postpone it. Def.’s App. at 23-26. Five months from August
10, 2012, was January 10, 2013, a Thursday. The Gleasons argue that strict compliance with
Section 580.07 required the sale to take place that day. Pl.’s Mem. Opp. Dismissal [Docket No.
16] 7-8. They emphasize that the statute requires the postponement to end the first day that is
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five months after the original sale date and not a weekend or holiday. Id. Further, they argue
that delaying the sale beyond the date indicated by the statute’s five month provision deprives
potential buyers of notice of the sale. Id. at 9; Pl.’s Mem. Supp. Summ. J. [Docket No. 15] 1011. Since there is no publication requirement connected with the mortgagor’s postponement,
potential buyers must rely on the previously published date and the exact five month addition
specified in the statute to determine when the sale will occur. Pl.’s Mem. Supp. Summ. J. at 1011.
The Trust does not deny that the statute allows the Gleasons to postpone the sale until
January 10 and no later. The Trust argues that even under strict compliance, it was not required
to hold the sale on January 10 because the statute’s delay provision pertains only to the end date
of the mortgagor’s postponement, not the date when the mortgagee holds the sale. Def.’s Mem.
Supp. Dismissal [Docket No. 4] 5-6. The Trust contends that the five month provision in
subdivision 2 of the statute addresses the rights and responsibilities of the mortgagor, not the
mortgagee. Id. Accordingly, the Trust was entitled to hold the sale any day beginning on
January 10 and following. Id. If potential buyers wanted to know the date of the sale, they could
contact the foreclosing law firm or the sheriff handling the sale. Def.’s Reply Supp. Dismissal
[Docket No. 19] 3.
The Court concludes that strict compliance with Section 580.07 requires the Trust to hold
the sale on the date dictated by subdivision 2’s time requirement. The two subdivisions of the
statute outline the rules under which the parties can unilaterally postpone the sale. Subdivision 1
allows the mortgagee to postpone the sale “from time to time” as it sees fit. Subdivision 2 is a
recent reform that allows the mortgagor to effectively shift the time under the redemption period
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from after the sale to before the sale. Frank S. Alexander, et al., Legislative Responses to the
Foreclosure Crisis in Nonjudicial Foreclosure States, 31 Rev. Banking & Fin. L. 341, 398
(2011). The time provisions of subdivision 2 are unambiguous. When the Gleasons invoked
subdivision 2, they postponed the sale to January 10—no sooner and no later. On January 10,
responsibility for postponement shifted back to the Trust. It could have decided to hold the sale
on the prescribed day. Or, it could have postponed the sale yet again by following the notice
procedures set forth in subdivision 1. Because the Trust postponed the sale to January 11 and
did not satisfy the notice and publication requirements of subdivision 1, the sale was invalid.
Contrary to the Trust’s argument, this outcome does not impose “duties and obligations
[on] the foreclosing party where the statute does not set them forth.” Def.’s Mem. Supp.
Dismissal at 8. Rather, this outcome reflects a strict application of the plain language of Section
580.07. The statute, as a whole, governs all postponements of the mortgage foreclosure sale.
The Trust is correct that it is not subject to the requirements of subdivision 2. But, the Gleasons’
invocation of subdivision 2 did not relieve the Trust of its duties under subdivision 1. The
Gleasons postponed the sheriff’s sale from August 10, 2012 to January 10, 2013. When the
Trust moved the sale from January 10 to January 11, this further postponement by the mortgagee
required publication and notice under subdivision 1.
The Trust’s argument that the Gleasons are not entitled to relief because they have not
alleged any prejudice or harm is unpersuasive. First, the presence or absence of harm is
irrelevant in cases where strict compliance is required. The Minnesota Supreme Court stated in
Peaslee v. Ridgway that “[t]he question whether such defects are of a prejudicial character is not
considered important.” 84 N.W. 1024, 1025 (Minn. 1901); see Ruiz, 829 N.W.2d at 58 (citing
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Aldinger v. Close, 161 Minn. 404, 406 (1925)); see also Clifford v. Tomlinson, 64 N.W. 381,
382 (Minn. 1895) (“To hold that a difference of two days in date renders the foreclosure invalid
may seem somewhat technical, but we have no discretion to exercise, as the requirements of the
statute are absolute.”).
Second, postponing the sale without following the procedure prescribed by the statute
may have caused harm. The Minnesota Supreme Court has recognized that any failure to strictly
comply with foreclosure by advertisement procedures would cast doubt on the validity of the
foreclosure and “would necessarily deter bidders and stifle competition at the sale.” Backus v.
Burke, 51 N.W. 284, 285 (Minn. 1892). In this case, postponing the sale from January 10 to
January 11 not only violated strict compliance but also created notice issues for potential buyers.
Subdivision 1 requires the mortgagee to publish notice in the newspaper each time it postpones
the sale. Subdivision 2 has no publication requirement, but its precise five month provision
allows interested parties to determine the new sale date based on the previously published date.
When the Trust postponed the sale from January 10 to January 11, it did not publish a notice and
interested parties had no way of knowing the new sale date unless they contacted the foreclosing
law firm or the sheriff handling the sale. This lack of public notice may have undermined
competition at the sale. A low sale price harms the Gleasons because, as mortgagors, they may
be liable for a deficiency or entitled to a surplus. See Thorp v. Merrill, 21 Minn. 336, 338
(1875).
Finally, the Trust argues that Farm Credit Bank v. Kohnen, 494 N.W.2d 44, 46 (Minn.
Ct. App. 1992), and Holmes v. Crummett, 13 N.W. 924, 924 (Minn. 1882), dictate a different
approach to Chapter 580 cases. But, as this Court previously discussed in Sari v. Wells Fargo
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Bank, N.A., No. 12-1780, 2012 U.S. Dist. LEXIS 145615, at *6-8 (D. Minn. Oct. 10, 2012),
Holmes and Farm Credit are both distinguishable cases dealing with notice to tenants, whose
interests were described as inferior to that of the owners.1 As discussed above, the rules of
statutory construction require reading the plain language of the statute as written and enacted by
the Minnesota legislature. It is clear that the legislature designed Section 580.07 to require strict
compliance.
D. Slander of Title
The Gleasons further claim that the Trust slandered title to the Champlin property when it
recorded the sheriff’s certificate for the January 11 sale. Not. of Removal [Docket No. 1] Ex. 1
(“Complaint”) 4-6. Slander of title occurs when: (1) a false statement concerning the real
property owned by the plaintiff; (2) is published to others; (3) maliciously; and (4) causes the
plaintiff pecuniary loss in the form of special damages. Paidar v. Hughes, 615 N.W.2d 276, 27980 (Minn. 2000). The Trust argues that the Gleasons have not alleged any facts showing that the
Trust recorded the sheriff’s certificate with malice. Def.’s Mem. Supp. Dismissal at 9. In
response, the Gleasons argue that their allegation is sufficient. The Gleasons allege that upon
information and belief, the Trust “knew or should have known that the sheriff’s sale was held on
the wrong date.” Pl.’s Mem. Opp. Dismissal at 12.
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The United States Court of Appeals for the Eighth Circuit recently ruled in a 2-1 split
opinion that a foreclosed party cannot rely on Minn. Stat. § 580.032, subd. 3, because the statute
is “most sensibly read to protect the interest of third parties who own a ‘redeemable
interest’”—such as junior creditors—not the interests of the owners who have been notified in
another manner. Badrawi v. Wells Fargo Home Mortg., Inc., No. 12-2656, 2013 U.S. App.
LEXIS 13300, at *8-9 (8th Cir. June 28, 2013). Unlike § 580.032, subd. 3, § 580.07 has a
broader application, which includes the interests of the homeowners.
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The Court concludes that the Gleasons’ allegation is conclusory. They have not alleged
sufficient facts to support a plausible inference that the Trust filed the sheriff’s certificate with
malice. Even if the Trust knew there was a problem with the sale, that would not necessarily
mean the Trust acted with malice when it filed the sheriff’s certificate. Paidar, 615 N.W.2d at
280 (“The filing of an instrument known to be inoperative is a false statement that, if done
maliciously, constitutes slander of title.”) (emphasis added). In slander of title cases, courts have
defined malice as “reckless disregard for the truth,” Dunbar v. Wells Fargo Bank, N.A., 709 F.3d
1254, 1258 (8th Cir. 2013), and “groundless disparagement of the plaintiff’s title or property,”
Quevli Farms, Inc. v. Union Sav. Bank & Trust Co., 226 N.W. 191, 192 (Minn. 1929). The
challenge to the sale of the Champlin property involved a very technical application of law.
None of the allegations or evidence before the Court suggests that the Trust recklessly or
groundlessly disregarded legal authority when it filed the sheriff’s certificate.
E. Quiet Title
Because the Court concludes that the January 11 sale of the Champlin property was
invalid, the Gleason’s quiet title claim is moot. As the Trust concedes, the effect of granting the
Gleasons’ motion for partial summary judgment will be the recission of the foreclosure sale and
the reinstatement of the mortgage. Def.’s Reply Supp. Dismissal 6.
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IV. CONCLUSION
Based upon the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1.
Plaintiffs’ Motion for Partial Summary Judgment [Docket No. 13], as to Count 1,
is GRANTED.
2.
Defendant’s Motion to Dismiss [Docket No. 4] is GRANTED in part, as to Count
2, Slander of Title claim, and DENIED in part, as to Count 1.
3.
Plaintiffs’ Count 3, Quiet Title claim, is DISMISSED AS MOOT.
LET JUDGMENT BE ENTERED ACCORDINGLY.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: July 26, 2013
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