Paatalo v. First American Title Company of Montana, Inc. et al
FINDINGS AND RECOMMENDATIONS re 56 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by The Mackoff/Kellogg Law Firm-Charles J. Peterson, Jason J. Henderson; ORDER DENYING 57 Paatalo's Motion and Request for Judicial Notice and 71 Motion for Extension of Time to File Notice of Appeal. Signed by Judge Sam E Haddon on 5/14/2014. (Hard copy mailed to W. Paatalo.) (JDH, ) Modified on 5/15/2014 to modify to written opinion (JDH, ).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
WILLIAM J. PAATALO,
FIRST AMERICAN TITLE
COMPANY OF MONTANA, INC.,
ORDER and FINDINGS AND
On March 20, 2014, this Court issued Findings and
Recommendations addressing various motions to dismiss and motions
for summary judgment. See Findings and Recommendations of U.S.
Magistrate Judge (ECF 55)1. Judge Haddon adopted this Court’s
recommendations in full, resulting in the dismissal of all claims against
J.P. Morgan Chase Bank, N.A. (“Chase”), U.S. Bank, N.A. (“U.S. Bank”)
as Trustee for WaMu Mortgage Pass-Through Certificate Series 2007OA3 Trust (“2007-OA3 Trust”), First American Title Company of
“ECF” refers to the document as numbered in the Court’s
Electronic Case Files. See The Bluebook, A Uniform System of Citation,
Montana, Inc. (“First American”), Dalia Martinez (“Martinez”),
Stillwater Abstract Company d/b/a Stillwater Abstract & Title Co. Inc.
(“Stillwater”), and Shelly Noe (“Noe”). See Order Adopting F&R (ECF
62). Accordingly, the only defendants remaining in the case are the
Mackoff Kellogg Law Firm – Charles J. Peterson (“Mackoff Kellogg”)
and Jason J. Henderson (“Henderson”).
Now pending is Mackoff Kellogg’s and Henderson’s joint motion to
dismiss for failure to state a claim. ECF 56. Also pending are Paatalo’s
Motion and Request for Judicial Notice (ECF 57) and Motion for
Extension to File Notice of Appeal (ECF 71). Having considered the
parties’ arguments and submissions, the Court rules as follows.
In the Court’s March 20, 2014 Findings and Recommendations,
the Court reviewed the background facts pertinent to the pending
motions. See ECF 55 at 2-8. The Court will not repeat those facts here
except as necessary to explain this ruling.
III. PARTIES’ ARGUMENTS
Mackoff Kellogg and Henderson argue that all of Paatalo’s claims
against them fail to state a claim upon which relief may be granted.
They first argue that the breach of contract and breach of the implied
covenant claims fail because it is clear that neither Mackoff Kellogg nor
Henderson breached the Settlement Agreement. ECF 56-1 at 6. They
argue that the Settlement Agreement only bound Paatalo and Mackoff
Kellogg, and any action taken by a party not subject to the agreement
cannot constitute a breach. Id. at 6-7.
Second, Defendants argue that the fraud, constructive fraud, and
negligent misrepresentation claims fail because Paatalo has not met
the pleading requirements of such claims. Additionally, Mackoff
Kellogg argues that it did not make a representation that it had the
capacity to bind any other Defendant. Id. at 8. They argue that
Mackoff Kellogg used the name “Mackoff Kellogg Law Firm – Charles
J. Peterson as successor Trustee to WAMU Mortgage Pass-Through
Certificate Series 2007-OA3 Trust” in the Settlement Agreement
because that was the precise name of the entity that Paatalo named in
his Complaint in Paatalo I (CV 10-119-BLG-RFC-CSO). Mackoff
Kellogg argues that it never acted as trustee of the 2007-OA3 Trust,
but instead used the name above to avoid confusion and ensure that the
proper entity was dismissed from Paatalo I pursuant to the Settlement
Agreement. Id. at 10. Defendants further argue that they owed no
duty to Paatalo that could form a basis for constructive fraud or
negligent misrepresentation claims. Id. at 12-13.
Third, Defendants argue that the FDCPA claim fails because
Mackoff Kellogg was not acting as trustee of Paatalo’s Deed of Trust at
the time of the foreclosure proceedings, and therefore it did not take
any action as trustee to enforce the debt Paatalo owed on the Note. Id.
at 15. Defendants also argue that any involvement in collection efforts
by them as legal counsel for others was not improper because the
Settlement Agreement did not absolve Paatalo of his obligation under
the Note. Id.
Respecting the breach of contract and breach of the implied
covenant claims, Paatalo continues to maintain that the Settlement
Agreement with Mackoff Kellogg bound all other Defendants in the
prior action, and therefore any attempt to foreclose on his home
constitutes a breach of that contract. ECF 66 at 6-10. Respecting the
fraud, constructive fraud, and negligent misrepresentation claims,
Paatalo contends that Mackoff Kellogg intentionally misrepresented
that it was the trustee of the 2007-OA3 Trust, the beneficiary of his
Deed of Trust, and that he justifiably relied on this representation to
his detriment. Id. at 10-12. Finally, respecting the FDCPA claim,
Paatalo argues that Mackoff Kellogg and Henderson acted as legal
counsel for both First American and U.S. Bank, and therefore may be
held liable for their actions in attempting to collect a debt that Paatalo
contends no longer existed. Id. at 13-14.
A cause of action may be dismissed under Rule 12(b)(6) either
when it asserts a legal theory that is not cognizable as a matter of law,
or if it fails to allege sufficient facts to support an otherwise cognizable
legal claim. SmileCare Dental Group v. Delta Dental Plan of
California, Inc., 88 F.3d 780, 783 (9th Cir. 1996). In addressing a Rule
12(b)(6) challenge, the Court accepts all factual allegations in the
complaint as true (Hospital Bldg. Co. v. Trustees of the Rex Hospital,
425 U.S. 738, 740 (1976)), and construes the pleading in the light most
favorable to the nonmoving party. Tanner v. Heise, 879 F.2d 572, 576
(9th Cir. 1989). The Court is not, however, required to accept as true
allegations that contradict exhibits attached to the complaint or
allegations that are merely conclusory, unwarranted deductions of fact,
or unreasonable inferences. Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d
992, 998 (9th Cir. 2010).
The Court’s standard of review under Rule 12(b)(6) is informed by
Rule 8(a)(2) which requires that a pleading contain “a short and plain
statement of the claim showing that the pleader is entitled to relief[.]”
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (quoting Rule 8). To survive a
motion to dismiss under Rule 12(b)(6), “a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief
that is plausible on its face.’” Ashcroft, 129 S.Ct. at 1949. “A claim has
facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id.
As a general rule “a district court may not consider any material
beyond the pleadings in ruling on a Rule 12(b)(6) motion.” Lee v. City of
Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) (citation omitted). The
Court may, however, consider “material which is properly submitted as
part of the complaint[,]” or take judicial notice of “matters of public
record” without converting a motion to dismiss to a motion for
summary judgment. Id., 250 F.3d at 688–89. Specifically, the Court
may take judicial notice of other court proceedings. Duckett v. Godinez,
67 F.3d 734, 741 (9th Cir. 1995), and Emrich v. Touche Ross & Co., 846
F.2d 1190, 1198 (9th Cir. 1988); see also Burbank– Glendale– Pasadena
Airport Authority v. City of Burbank, 136 F.3d 1360, 1364 (9th Cir.
1998) (allowing judicial notice of pleadings in other cases).
Paatalo’s claims against Mackoff Kellogg and Henderson are:
Count 1 – Breach of Contract;
Count 2 – Breach of the Implied Covenant of Good Faith and Fair
Count 3 – Actual Fraud;
Count 4 – Constructive Fraud;
Count 5 – Negligent Misrepresentation; and
Count 7 – Violation of the Fair Debt Collection Practices Act
See Amend. Cmplt (ECF 1-1 at 13-25). The Court considers each in
Breach of Contract, Breach of Implied Covenant
Paatalo’s claims for Breach of Contract and Breach of the Implied
Covenant of Good Faith and Fair Dealing against Mackoff Kellogg and
Henderson fail as a matter of law. First, the claims fail against
Henderson because Henderson was not a party to the contract, and
therefore may not be held liable for breach. See Gruender v. Rosell,
2010 WL 2079759 (D. Ariz. 2010) (“It would be a novel holding for the
[C]ourt to rule that a breach of contract action can be maintained
against a person who is not a party to the contract being sued upon”)
(citation omitted); see also Credit Gen. Ins. Co. v. Midwest Indemnity
Corp., 916 F.Supp. 766, 772 (N.D. Ill. 1996).
Mackoff Kellogg and Paatalo were the parties to the Settlement
Agreement. The purpose of the Agreement was to “detail the terms of
the settlement reached by the parties.” ECF 1-1 at 67. The
“Settlement Terms” section of the Agreement provided that: (1)
Mackoff Kellogg agreed to pay $6,000 to Paatalo; (2) Paatalo agreed to
release “all claims” against Mackoff Kellogg; and (3) Paatalo agreed to
dismiss Mackoff Kellogg with prejudice from the then-pending Paatalo
I lawsuit. Id. The Agreement also contains a “Mutual Release of All
Claims”, wherein the parties agreed to “release, discharge, waive and
covenant not to sue upon any and all claims, causes of action, and
liabilities, asserted or unasserted, alleged or which could have been
alleged in the above proceedings.” Id. at 67-68.
Paatalo does not contend that Mackoff Kellogg failed to pay him
the $6,000 as provided in the Agreement, but instead argues that
Mackoff Kellogg breached the mutual release of claims clause by
participating in the foreclosure of his home. This breach-of-contract
Subsequent to Mackoff Kellogg’s dismissal from Paatalo I, and
prior to any further foreclosure action on Paatalo’s property, First
American Title Company of Montana, Inc. was substituted as trustee of
the Deed of Trust. See Substitution of Trustee (ECF 1-1 at 79). First
American, not Mackoff Kellogg, filed the Notice of Trustee’s Sale that
led to the sale of Paatalo’s property. To the extent Paatalo argues that
Mackoff Kellogg may be held liable for the foreclosure actions taken by
other Defendants, his claims fail. This issue has already been litigated
by these parties and resolved by this Court, and is therefore barred.
In Paatalo I, this Court held that the Settlement Agreement
bound only Mackoff Kellogg and Paatalo. See Paatalo I Order (ECF 112) at 32. In this action, the Court has determined that Paatalo’s
renewed attempts to enforce the Settlement Agreement against the
other Defendants is therefore barred by res judicata. See F&R (ECF
55); Order Adopting F&R (ECF 62). The same authority and analysis
applies with equal force here.
“Under the doctrine of res judicata, ‘[a] final judgment on the
merits of an action precludes the parties or their privies from
relitigating issues that were or could have been raised in that action’
even if that judgment ‘may have been wrong or rested on a legal
principle subsequently overruled in another case.’” Paulo v. Holder,
669 F.3d 911, 917 (9th Cir. 2011) (quoting Federated Dep’t Stores, Inc.
v. Moitie, 452 U.S. 394, 398 (1981)). “[A] party is precluded from
relitigating an issue if four requirements are met: (1) there was a full
and fair opportunity to litigate the issue in the previous action; (2) the
issue was actually litigated; (3) there was final judgment on the merits;
and (4) the person against whom collateral estoppel is asserted was a
party to or in privity with a party in the previous action.” Wolfson v.
Brammer, 616 F.3d 1045, 1064 (9th Cir. 2010). All four elements of res
judicata apply to preclude Paatalo from relitigating this issue.
Paatalo’s claims for breach of contract and breach of the implied
covenant of good faith and fair dealing against Mackoff Kellogg and
Henderson fail as a matter of law, and should be dismissed. Paatalo’s
bare requests in his brief for leave to amend these claims should be
denied for failure to cite authority or factual circumstances warranting
leave to amend. There is no reason to believe that Paatalo’s claims
could be saved by amendment.
Fraud, Constructive Fraud, Negligent
Fraud claims are subject to a heightened pleading standard. “In
alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). The
Federal Rule 9(b)’s particularity requirement applies to state-law
causes of action. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103
(9th Cir. 2003). Federal courts examine state law to determine
whether the elements of fraud have been pled sufficiently to state a
cause of action, but apply Rule 9(b)’s requirement that the
circumstances of the fraud be stated with particularity. See id. This
requirement applies not only to claims of fraud but also other claims
“grounded in fraud.” Id. at 1104; see also Sacramento E.D.M., Inc. v.
Hynes Aviation Indus., Inc., 965 F. Supp. 2d 1141, 1152 (E.D. Cal.
2013) (constructive fraud subject to Rule 9(b)), Olenicoff v. UBS AG,
2009 WL 481281 (C.D. Cal. 2009) (negligent misrepresentation claim
subject to Rule 9(b)); Stickrath v. Globaistar, Inc., 527 F.Supp.2d 992,
998 (N.C. Cal. 2007) (non-fraudulent conduct allegations subject to
heightened pleading requirements of Rule 9(b) when the allegations are
based on a “unified course of fraudulent conduct”)..
“Rule 9(b) demands that the circumstances constituting the
alleged fraud be specific enough to give defendants notice of the
particular misconduct ... so that they can defend against the charge and
not just deny that they have done anything wrong.” Kearns v. Ford
Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (citation and quotation
marks omitted). The Rule serves three purposes: “(1) to provide
defendants with adequate notice to allow them to defend the charge
and deter plaintiffs from the filing of complaints as a pretext for the
discovery of unknown wrongs; (2) to protect those whose reputation
would be harmed as a result of being subject to fraud charges; and (3)
to prohibit plaintiffs from unilaterally imposing upon the court, the
parties and society enormous social and economic costs absent some
factual basis.” Kearns, 567 F.3d at 1125 (internal quotations omitted).
To meet Rule 9(b)’s particularity standard, Paatalo’s complaint
must “identify the who, what, when, where, and how of the misconduct
charged, as well as what is false or misleading about the purportedly
fraudulent statement, and why it is false.” Salameh v. Tarsadia Hotel,
726 F.3d 1124, 1133 (9th Cir. 2013) (citation omitted).
Despite the higher degree of notice required when alleging fraud,
Rule 9 does not abrogate the Rule 8 notice pleading standard – the two
rules must be read together. See Novak v. Anaconda Sch. Dist., Sch.
Dist. No. 10, Deer Lodge Cnty., 2011 WL 2489760 at *8 (D. Mont. 2011),
report and recommendation adopted, 2011 WL 2472570 (D. Mont. 2011)
(citing U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 185-86 (5th Cir.
2009)). And, under Rule 12(b)(6), Defendants retain the burden of
proving that Paatalo has failed to state his fraud claims. Id.
A federal court looks to state law to see whether the elements of
fraud have been pled sufficiently. Kearns, 567 F.3d at 1125. Under
Montana law, Paatalo must particularly plead the following nine
elements to properly state a fraud claim: (1) a representation; (2) the
falsity of the representation; (3) its materiality; (4) Defendants’
knowledge of its falsity or ignorance of its truth; (5) Defendants’ intent
that it should be relied on; (6) Paatalo’s ignorance of the falsity of the
representation; (7) Paatalo’s reliance on the representation;
(8)Paatalo’s right to rely on the representation; and (9) consequent and
proximate injury caused by reliance on the representation. C. Haydon
Ltd. v. Montana Min. Properties, Inc., 864 P.2d 1253, 1256 (Mont.
For negligent misrepresentation, Paatalo must plead: (1)
Defendants made a representation as to a past or existing material
fact; (2) the representation was untrue; (3) regardless of actual belief,
Defendants made the representation without any reasonable ground for
believing it to be true; (4) the representation was made with the intent
to induce Paatalo to rely on it; (5) Paatalo was unaware of the falsity of
the representation, acted in reliance upon the truth of the
representation, and was justified in relying upon the representation;
and (6) Paatalo, as a result of his reliance, sustained damage. Harpole
v. Powell Cnty. Title Co., 309 P.3d 34, 38 (Mont. 2013).
Finally, for constructive fraud, Paatalo must plead “any breach of
duty that, without an actually fraudulent intent, gains an advantage to
the person in fault or anyone claiming under the person in fault by
misleading another person to that person’s prejudice or to the prejudice
of anyone claiming under that person[.]” MCA § 28-2-406(1). “The
presence of a legal duty is an essential element of a claim for
constructive fraud.” Harris v. St. Vincent Healthcare, 305 P.3d 852, 858
(Mont. 2013) (citation omitted). As to the legal duty owed, the Montana
Supreme Court has stated:
Whether or not a legal duty exists is a question of law for the
court’s determination. Although the legal duty which often exists
in constructive fraud cases is a fiduciary one, this Court has
previously held that Montana’s constructive fraud statute “does
not require that the plaintiff demonstrate a fiduciary relationship,
[but] merely requires the establishment of a duty.” Under certain
“special circumstances,” neither a confidential nor a fiduciary
relationship is necessary for a finding of constructive fraud. This
Court has held special circumstances may exist where one party
has acted to mislead the other in some way.
Mattingly v. First Bank of Lincoln, 947 P.2d 66, 72 (Mont. 1997)
(internal citations omitted).
On this Rule 12(b)(6) motion to dismiss, the Court is required to
take all material allegations in the complaint as true, and construe all
reasonable inferences in Paatalo’s favor. Rouse v. U.S. Dep’t of State,
567 F.3d 408, 414 (9th Cir. 2009). And, as Paatalo is proceeding pro se,
his pleadings are to be construed liberally. See Jackson v. Barnes, No.
09-55763 at 15 (9th Cir. April 15, 2014) (acknowledging that plaintiff
“must plead enough facts to state a claim to relief that is plausible on
its face[,]” but noting that “we continue to construe pro se filings
liberally when evaluating them under Iqbal[.]”) (citation and quotation
Taking Paatalo’s allegations as true, and bearing in mind both the
heightened standard for pleading allegations of fraud and the policy of
liberally construing pro se pleadings, the Court finds that Paatalo has
stated claims for fraud, constructive fraud, or negligent
For his fraud claim, Paatalo alleges that Defendants knowingly
made false representations that Mackoff Kellogg was the trustee for the
2007-OA3 Trust, ECF 1-1 at 17, ¶ 73, that Defendants made these false
representations to induce him to enter into the Settlement Agreement,
id. at 18, ¶ 76, that he relied on these false representations, had no way
to know they were false, and was entitled to rely on them, id. at 18, ¶¶
77-79, and that he was damaged as a result, id. at 19, ¶ 85. In his
general allegations, Paatalo alleges that Henderson, in executing the
Settlement Contract on behalf of Mackoff Kellogg, represented that he
had the power to bind the 2007-OA3 Trust. Id. at 6, ¶ 22. These
allegations identify the “who, what, where, when, and how” of the
misconduct charged to sufficiently state a claim for fraud, constructive
fraud, and negligent misrepresentation.
The Settlement Agreement itself identifies Mackoff Kellogg as
“Mackoff Kellogg Law Firm - Charles J. Peterson as Successor Trustee
to WAMU Mortgage Pass-Through Certificate Series 2007-OA3
Trust[.]” ECF 1-1 at 67. Mackoff Kellogg does not dispute that it
drafted the Settlement Agreement and acknowledges that it was not
the successor trustee to the WAMU Trust as represented. In its brief,
Mackoff Kellogg explains that it used that specific name because it
wanted to mirror the name Paatalo used in the Paatalo I complaint to
ensure it was properly dismissed from the prior lawsuit. But this
unsworn alternate explanation of Mackoff Kellogg’s motive does not
override the allegations in the complaint, which, under a motion to
dismiss, must be taken as true.
Paatalo’s claims for fraud, constructive fraud, and negligent
misrepresentation against Mackoff Kellogg and Henderson survive
dismissal under Rule 12(b)(6). Defendants’ motion to dismiss should be
denied as to these claims.
Violation of FDCPA
Paatalo’s claim for violation of the FDCPA against Mackoff
Kellogg and Henderson alleges simply that the Defendants “violated
the FDCPA by attempting to collect a debt that [Paatalo] did not owe.”
Id at 25. This claim fails as a matter of law.
As noted above, the issue of the enforceability of the Note and
Deed of Trust was resolved in Paatalo I. Recognizing that the
“fundamental premise of most of Paatalo’s claims is his contention that
Defendants had no legal right to initiate a non-judicial foreclosure[,]”
the Court in Paatalo I found both the Note and Deed of Trust
enforceable. ECF 11-2 at 12, 19. In reaching this finding, the Court
considered and rejected Paatalo’s numerous challenges to the Note’s
enforceability, including: (1) the validity of Paatalo’s signature, (2) the
split ownership of the Note and Deed of Trust, and (3) the validity of
the various assignments, purchase agreements, and pooling or
servicing agreements (finding that Paatalo lacked standing to challenge
these transactions). Id. at 15-19.
Because the Court previously determined that Paatalo’s debt was
due and owing, Paatalo may not maintain a cause of action claiming
that Defendants violated the FDCPA by proceeding to foreclose such
debt. These claims against Mackoff Kellogg and Henderson fail as a
matter of law.
PAATALO’S REQUEST FOR JUDICIAL NOTICE
Paatalo requests the Court take judicial notice of a press release
copied from the Internet (ECF 57-1) and an uncertified, unverified 14page document (ECF 57-2). The latter document does not itself reveal
its source or authorship.
The Court will deny Paatalo’s request for judicial notice at this
time because Paatalo does not explain how the materials qualify under
Fed.R.Evid. 201(b), or how these materials are pertinent to any issue
now before the Court.
VII. MOTION TO EXTENSION TO FILE NOTICE OF APPEAL
Paatalo has filed a two-sentence motion seeking a 30-day
extension of time to file a notice of appeal. He does not explain what he
intends to appeal.
Federal appellate courts generally have jurisdiction only over
appeals from “final decisions” of federal district courts. See 28 U.S.C. §
1291. Ordinarily, an order which terminates fewer than all claims, or
claims against fewer than all parties, does not constitute a “final” order
for purposes of appeal under 28 U.S.C. § 1291. There has been no final
decision entered in this case. For this reason, the motion, although
unopposed, will be denied.
Based on the foregoing, IT IS ORDERED that Paatalo’s Motion
and Request for Judicial Notice (ECF 57) and Motion for Extension of
Time to File Notice of Appeal (ECF 71) are DENIED.
Furthermore, IT IS RECOMMENDED that:
Mackoff Kellogg and Henderson’s Motion to Dismiss (ECF
56) be GRANTED as to Paatalo’s claims for Breach of Contract (Court
1), Breach of the Implied Covenant of Good Faith and Fair Dealing
(Court 2), and Violation of the FDCPA (Count 7), and such claims be
dismissed with prejudice; and
Mackoff Kellogg and Henderson’s Motion to Dismiss be
DENIED as to Paatalo’s claims for Fraud (Court 3), Constructive
Fraud (Count 4), and Negligent Misrepresentation (Count 5).
NOW, THEREFORE, IT IS ORDERED that the Clerk shall
serve a copy of these Findings and Recommendations of United States
Magistrate Judge upon the parties. The parties are advised that
pursuant to 28 U.S.C. § 636, any objections to the Findings
Recommendations must be filed with the Clerk of Court and copies
served on opposing counsel within fourteen (14) days after entry hereof,
or objection is waived.
DATED this 14th day of May, 2014.
/s/ Carolyn S. Ostby
United States Magistrate Judge
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?