Knight et al v. First American Title Insurance Company et al
ORDER granting in part and denying in part 30 Motion for Partial Summary Judgment. Signed by Judge Dana L. Christensen on 6/8/2016. (ASG, )
JUN 0 8 2016
l:I S District Court
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
LAURA KNIGHT and MARK
WELLS FARGO BANK, N.A., and
HSBC BANK USA, N.A.,
Before the Court is Defendants Wells Fargo Bank, N.A.'s ("Wells Fargo")
and HSBC Bank USA, N.A.'s ("HSBC") motion for judgment on the pleadings.
For the reasons stated below, the Court grants the motion in part and denies it in
For purposes of Defendants' motion for judgment on the pleadings, "all
material allegations in [the Amended Complaint] must be taken as true and viewed
in the light most favorable to the [Knights]," as the non-moving party. Goldstein
v. City ofLong Beach, 715 F.3d 750. 753 (9th Cir. 2013).
This case presents a familiar set of facts arising in the wake of the financial
crisis of 2008 and 2009, and involves allegations of mishandling and illegal
practices with regard to servicing, modifying, and attempting to foreclose upon a
home loan. On January 26, 2007, Plaintiffs Laura and Mark Knight ("the
Knights") executed a deed of trust pursuant to the Montana Small Tract Financing
Act ("MSTFA"), Montana Code Annotated§ 71-1-301 et seq. The deed of trust
named Homel23 Corporation ("Home123") as the lender; First American Title
Insurance Company ("First American Title") as the trustee; and Mortgage
Electronic Registration Systems, Inc. ("MERS") as the beneficiary "solely as
nominee for [Home123 and its] successors and assigns." (Doc. 1-5 at 1-2.) The
deed of trust secured a $603,000 home loan from Home123 to the Knights for the
purchase of residential real estate at 1800 Monta Vista Court in Missoula,
Montana ("the Missoula property").
In early April 2007, New Century Mortgage Corporation ("New Century"),
of which Home123 was a subsidiary, filed for Chapter 11 bankruptcy. New
Century and Home 123 contracted with MERS to track mortgages and trust
indentures which the companies originated. Not long after filing for bankruptcy,
New Century and Home123 rejected the contract with MERS on March 19, 2008,
and MERS accepted the rejection effective March 31, 2008. Nevertheless, MERS
transferred Home 123 's beneficial interest in the Knights' deed of trust to HSBC
by assignment on April 4, 2008. The Knights allege, in Count I of their Amended
Complaint, that this assignment was invalid because MERS no longer had the
authority to transfer any interest in their property at the time it purportedly did so.
New Century originally serviced the Knights' loan, but in June 2007, the
Knights received notice that American Servicing Company ("ASC"), a subsidiary
of Wells Fargo, would service the loan going forward. Then, in November 2007,
Mark Knight lost his job and the Knights began to experience financial
difficulties. They remained current on their loan through 2007, but in early 2008
the Knights sought a loan modification. They allege ASC advised that a loan
modification would only be available to them if they were ninety days or more
delinquent in their payments, and that they skipped payments at ASC' s direction.
The Knights began sending loan modification application materials to ASC in
March 2008. Meanwhile, in April 2008, Wells Fargo noticed a trustee's sale of
the Missoula property for August 15, 2008, and claimed that HSBC held a
beneficial interest in the home. This began a cycle, persisting through to the time
the Knights filed this lawsuit, of the Knights contacting Defendants, sending
materials and attempting to secure a loan modification, receiving either no word
on or a rejection of their application, and then receiving notification of a pending
A number of important events occurred while this cycle repeated itself for
nearly eight years. First, on April 6, 2009, the Knights filed for bankruptcy under
Chapter 7 of the Bankruptcy Code. Due to the Knights' pending loan modification
application, Wells Fargo moved for and received a lifting of the bankruptcy stay in
order to continue servicing the Knights' loan. The Knights received a discharge
from bankruptcy on August 18, 2009. Second, after suspecting for several years
that "they had [not] been properly considered for a loan modification" and that
ASC and Wells Fargo were not "making a good faith attempt to come up with a
sustainable mortgage payment for them" (Doc. 24 at 21), in January 2011 "the
Knights began hearing reports about Wells Fargo's legal troubles and allegations
of fraudulent practices in respect to foreclosures and borrowers." (Id. at 24.)
Third, in response to a written complaint filed by the Knights with the Montana
Office of Consumer Protection, ASC indicated that the beneficial interest in the
Knights' deed of trust was transferred to Ocwen Loan Servicing, LLC on April 4,
2007, approximately one year prior to the assignment challenged in Count I of the
Knights' Amended Complaint. Finally, in February 2014, the Knights filed for
Chapter 13 bankruptcy in this district. The Knights dismissed their bankruptcy
petition ten months later.
The Knights filed this lawsuit on May 12, 2015. In their original Verified
Complaint, the Knights sought, among other things, a preliminary injunction
enjoining First American Title from conducting what was the last noticed trustee's
sale in this case, scheduled to occur on June 15, 2015. The Knights served the
Verified Complaint on each of the defendants between May 13 and May 21, 2015.
Wells Fargo filed its Answer on June 3, 2015, and First American Title filed its
Answer on June 8, 2015. With the sale of their home imminent, and because
neither of the answering defendants addressed the requested injunctive relief, the
Court issued a temporary restraining order halting the June 15th sale and set a
briefing schedule on the preliminary injunction. Before briefing commenced, the
parties stipulated to dissolving the temporary restraining order, with Defendants
assuring the Knights and the Court that no further trustee's sale would be
scheduled while this case remains pending.
The Court conducted a preliminary pretrial conference in this case on
September 24, 2015. Two months later, the parties filed their amended pleadings.
The Knights' Amended Complaint contains the following claims for relief: Count
I (Declaratory Judgment); Count II(A) (Negligence and Negligent
Misrepresentation-Loan Servicing and Foreclosure); Count II(B) (Negligence
and Negligent Misrepresentation-Attempting to Foreclose or Service without
Legal Authority); Count III(A) (Montana Consumer Protection Act ("MCPA") 1
-Loan Servicing and Foreclosure); Count IIl(B) (MCPA-Deceptive and Unfair
Practices with Respect to Ownership and Servicing of the Property); Count IV
(Constructive Trust); and Count V (Exemplary Damages). Shortly after
Defendants filed their Amended Answer, the Knights moved to dismiss First
American Title without prejudice, and the Court granted the motion on December
24, 2015. Defendants filed the instant motion for judgment on the pleadings on
February 9, 2016. This matter goes to trial before ajury on November 14, 2016.
Rule 12(c) of the Federal Rules of Civil Procedure provides that "after the
pleadings are closed-but early enough not to delay trial-a party may move for
judgment on the pleadings." Courts review motions under Rule 12(c) in the same
manner as motions to dismiss under Rule 12(b)(6). See Lyon v. Chase Bank USA,
NA., 656 F.3d 877, 883 (9th Cir. 2011) (a "pre-answer dismissal for failure to
state a claim under Rule 12(b)(6) is functionally identical to a post-answer
dismissal under Rule 12(c)") (citations omitted); Pit River Tribe v. Bureau ofLand
Mgmt., 793 F.3d 1147, 1155 (9th Cir. 2015) ("Analysis under Rule 12(c) is
1. Mont. Code Ann. § 30-14-101 et seq.
substantially identical to analysis under Rule 12(b)(6) because, under both rules, a
court must determine whether the facts alleged in the complaint, taken as true,
entitle the plaintiff to a legal remedy") (citations omitted). "A judgment on the
pleadings is properly granted when, taking all the allegations in the pleadings as
true, a party is entitled to judgment as a matter of law." Lyon, 656 F .3d at 883
When a motion to dismiss is based on the running of the statute of
limitations, the motion may be granted only "if the assertions of the complaint,
read with the required liberality, would not permit the plaintiff to prove that the
statute was tolled." Supermail Cargo, Inc. v. United States, 68 F.3d 1204, 1206
(9th Cir. 1995) (quoting Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir.
1980)). Such a motion may be granted only when "the running of the statute is
apparent on the face of the complaint." Jablon, 614 F.2d at 682. If the
applicability of equitable tolling depends on factual questions not clearly resolved
in the pleadings, a motion to dismiss based on the running of the statue must be
denied. Supermail Cargo, Inc., 68 F.3d at 1207.
Defendants move for judgment on the pleadings on three grounds. First,
Defendants contend that the Knights are judicially estopped from pursuing their
claims because they failed to disclose them in their schedules the first time they
filed for bankruptcy, under Chapter 7, in April 2009. Second, Defendants argue
that the Knights lack standing to challenge the transfer of the beneficial interest in
their deed of trust from beneficiary-nominee MERS to HSBC-the transfer that
forms the heart of Count I of the Knights' Amended Complaint. Third,
Defendants assert that each of the Knights' claims are time-barred.
Defendants urge the Court to dismiss this case because the Knights failed in
2009 to alert the bankruptcy court to the existence of the claims underlying this
lawsuit, which the Knights ultimately filed six years later. Defendants contend
that, viewing the Amended Complaint and a limited set of materials beyond the
pleadings, 2 it is clear that the Knights were aware of the potential for this litigation
as far back as 2008, and therefore were statutorily bound to list the lawsuit as an
asset in their bankruptcy schedules. The Knights concede that they did not list the
lawsuit as an asset in 2009 and that judicial estoppel may "bar some claims prior
to that date if [they] knew about those claim,s and yet omitted them from their
schedules." (Doc. 35 at 10.) However, the Knights argue that the majority of
2. While the Court has reviewed these materials, which include a transcript from a
proceeding associated with the Knights' 2014 Chapter 13 bankruptcy filing, the Court's ruling on
the judicial estoppel issue is made irrespective of those materials.
Defendants' conduct at issue in their claims post-dates their Chapter 7 bankruptcy
discharge, making it impossible to disclose the existence of what was then a nonexistent lawsuit. The Court agrees with the Knights, and will deny Defendants'
motion on this ground.
Judicial estoppel is a discretionary equitable doctrine designed to "protect
the integrity of the judicial process by prohibiting parties from deliberately
changing positions according to the exigencies of the moment." Ah Quin v. Cnty.
ofKauai Dep't ofTransp., 733 F.3d 267, 270 (9th Cir. 2013) (citing New
Hampshire v. Maine, 532 U.S. 742, 749-750 (2001)). Courts deciding whether to
apply judicial estoppel typically consider the following: (1) whether "a party's
later position [is] 'clearly inconsistent' with its earlier position;" (2) "whether the
party has succeeded in persuading a court to accept that party's earlier position, so
that judicial acceptance of an inconsistent position in a later proceeding would
create the perception that either the first or the second court was misled;" and (3)
"whether the party seeking to assert an inconsistent position would derive an
unfair advantage or impose an unfair detriment on the opposing party if not
estopped." Id. (citing New Hampshire, 532 U.S. at 750-751 ). However, "it may
be appropriate to resist application of judicial estoppel when a party's prior
position was based on inadvertence or mistake." Id. at 271 (citing New
Hampshire, 532 U.S. at 753).
It is well-established that "[i]n the bankruptcy context, ... [i]f a plaintiff-
debtor omits a pending (or soon-to-be-filed) lawsuit from the bankruptcy
schedules and obtains a discharge (or plan confirmation), judicial estoppel bars the
action." Id. at 271 (citations omitted). "The reason is that the plaintiff-debtor
represented in the bankruptcy case that no claim existed, so he or she is estopped
from representing in the lawsuit that a claim does exist." Id. (emphasis in
original). In assessing whether a plaintiff-debtor "mistakenly" or "inadvertently"
failed to disclose claims, courts should apply "the ordinary understanding of those
terms" to the facts surrounding the omission from the bankruptcy schedules.
Dzakula v. McHugh, 746 F.3d 399, 401 (9th Cir. 2013).
The timing and circumstances of this case in relation to the Knights' 2009
bankruptcy filing make application of the doctrine of judicial estoppel
inappropriate here. While the Knights' Amended Complaint contains factual
allegations pre-dating their April 2009 bankruptcy schedules and August 2009
discharge order, the Court cannot conclude as a matter of law that enough had
transpired to make a potential lawsuit against Defendants apparent to the Knights
in 2009. Indeed, much of the case law regarding judicial estoppel in the
bankruptcy context presents a much closer question in a temporal sense. See e.g.,
Hay v. First Interstate Bank ofKalispell, N.A., 978 F .2d 555 (9th Cir. 1992)
(plaintiff-debtor concluded that he had been legally wronged prior to his
bankruptcy case closing, and filed suit nine months after discharge); Hamilton v.
State Farm Fire & Cas. Co., 270 F.3d 778 (9th Cir. 2001) (plaintiff-debtor filed
for bankruptcy several months after hiring lawyers to pursue an insurance claim
against the defendant, and included the purported insurance loss on his bankruptcy
schedules without including the corresponding claim as an asset). It is undisputed
that the Knights encountered trouble making their monthly home loan payments
and made contact with Defendants to that end prior to filing for bankruptcy.
However, viewing the allegations in the Amended Complaint in their totality and
taking them as true, the Knights did not recognize that their experiences rose to the
level of a cause of action until sometime in 2011, nearly two years after the
bankruptcy court closed their case. At the time they completed their bankruptcy
schedules, the Knights had nothing concrete to disclose. Moreover, to the extent
there even was an omission, it was certainly inadvertent and mistaken simply
because it was unknown. Judicial estoppel therefore does not bar the present
Next, Defendants contend that the Knights lack standing with respect to
Count I of the Amended Complaint, the declaratory claim wherein the Knights
challenge whether Wells Fargo and HSBC hold a beneficial interest in the
Missoula property. 3 Defendants argue that the Knights were strangers to the
contract assigning the beneficial interest in the Knights' deed of trust from MERS
to HSBC, and therefore cannot seek declaratory relief invalidating the assignment.
Of course, the Knights can proceed with Count I if they can demonstrate "a
concrete and particularized injury that is fairly traceable to the challenged conduct,
and is likely to be redressed by a favorable judicial decision." Consumer Fin.
Prat. Bureau v. Gordon,_ F.3d _, 2016 WL 1459205 at *3 (9th Cir. Apr. 14,
2016) (citing Hollingsworth v. Perry, 133 S. Ct. 2652, 2661 (2013)). At this stage
of the litigation-and in light of the fact that the Knights were the original
grantors of the beneficial interest created under the MS TFA and purportedly
assigned from MERS to HSBC-the Court concludes that the Knights have
standing to proceed with Count I of their Amended Complaint. Indeed, the
Montana Supreme Court has at least tacitly concluded the same with regard to
other plaintiffs in the Knights' position. See Pilgeram v. Greenpoint Mor~g.
3. To the extent Defendants challenge Count I of the Knights' Amended Complaint on
the merits with the instant motion-which it appears they do, based upon many of the out-ofdistrict case citations in Section II of their brief-the Court will deny the motion and take up
merits-based arguments regarding Count I at summary judgment.
Funding, Inc., 313 P.3d 839 (Mont. 2013) (finding that MERS was not a
"beneficiary" under the STFA, and ~hus could not assign a beneficial interest in
the plaintiff-appellant's deed of trust). Again, the validity of the assignment is a
merits question best left for another day.
Statutes of limitations
Finally, Defendants urge the Court to grant their motion for judgment on the
pleadings as to Counts II(A), II(B), III(A), III(B), and IV of the Amended
Complaint based on expiration of the applicable statutes of limitations. The
Knights do not dispute that the conduct underlying each of these counts dates back
to the "beginning of their ordeal" with Defendants, i.e. approximately 2008. (Doc.
35 at 30.) The Knights filed their initial Complaint in this matter in May, 2015,
approximately seven years later. Instead, the Knights contend that their claims are
"preserved" under either a continuing tort or discovery rule theory. The Court
disagrees, and will dismiss these counts with prejudice accordingly.
The operative statutes of limitations are not in dispute. The Knights' claims
for negligence and negligent misrepresentation are subject to a three-year statute
of limitations. Mont. Code Ann.§ 27-2-204(1); Walstadv. Nw. Banko/Great
Falls, 783 P.2d 1325, 1328 (Mont. 1989). Their claims under the MCPA are
subject to a two-year statute of limitations. Osterman v. Sears, Roebuck & Co., 80
P.3d 435, 441 (2003). Their constructive fraud claim is subject to a two-year
statute of limitations. Mont. Code Ann. § 27-2-203. Accordingly, the Knights'
tort claims are subject to, at most, a three-year limitations period. Because they
filed this action on May 12, 2015, their claims are subject to dismissal if: (1) they
accrued before May 12, 2012, and (2) it is beyond doubt that equitable tolling is
inapplicable. Mont. Code Ann.§ 27-2-102; Supermail Cargo, Inc., 68 F.3d at
Under Montana law, the limitations period on a cause of action begins to
run "when all elements of the claim or cause exist or have occurred." Mont. Code
Ann.§ 27-2-102(1)(a). "[T]he fact that a party does not know that he or she has a
claim, whether because he or she is unaware of the facts or unaware of his or her
legal rights, is usually not sufficient to delay the beginning of the limitations
period." Christian v. At/. Richfield Co., 358 P.3d 131, 152 (Mont. 2015) (citing
Mont. Code Ann.§ 27-2- 102(2)).
There are, however, two well-known exceptions to this rule. First, Montana
recognizes the continuing tort theory. "A continuing tort is one that is not capable
of being captured by a definition of time and place of injury because it is an active,
progressive[,] continuing occurrence ... taking place at all times." Christian, 358
P .3d at 140 (citations omitted). "The continuing tort exception may be applied to
injuries that are ongoing or in some way recurring," and requires a reviewing court
"to consider whether a [tort] is temporary or permanent in character." Id. "A
permanent [tort] is one where the situation has stabilized and the permanent
damage is reasonably certain." Id. (citations omitted). With a permanent tort or
injury, the limitations period begins to run from the completion of the tort itself,
i.e. from the time the situation has stabilized. Id. A temporary tort is "terminable"
and "abatable," and "its repetition or continuance gives rise to a new cause of
action [for which] recovery may be had for damages accruing within the statutory
period next preceding the commencement of the action." Id. at 141.
"[R]easonable abatability defines whether a tort is permanent or temporary."
Christian, 358 P.3d at 141. While continuing tort theory most often applies to
trespass and nuisance claims, it can apply to toll the limitations period of other tort
causes of action "ifthe injury is of a nature that may be considered continuing."
Id. at 150.
Second, Montana's discovery rule provides that "[t]he period of limitation
does not begin on any claim or cause of action for an injury to person or property
until the facts constituting the claim have been discovered or, in the exercise of
due diligence, should have been discovered by the injured party if: (a) the facts
constituting the claim are by their nature concealed or self-concealing; or (b)
before, during, or after the act causing the injury, the defendant has taken action
which prevents the injured party from discovering the injury or its cause."
§ 27-2-102(3). "[T]he nondisclosure of information," as well "[a]n injury that is
not apparent to the layperson because of its complexity, and which can ultimately
only be discovered by professional analysis," are circumstances which may
constitute self-concealing facts and injuries. Christian, 358 P.3d at 153.
"[W]hether the facts constituting the claim were concealed or self-concealing,
whether the defendant acted to prevent discovery of those facts, or whether the
plaintiff exercised due diligence" are questions of fact. Id. (citing Johnston v.
Centennial Log Homes & Furnishings, Inc., 305 P.3d 781, 790 (Mont. 2013)).
Based on the allegations in the Knights' Amended Complaint, the Court
finds that their tort claims accrued in 2011. The Knights affirmatively state that
after approximately three years of working with ASC and Wells Fargo with
respect to restructuring their home loan through HSBC, the Knights became aware
of Wells Fargo's "legal troubles and allegations of fraudulent practices in respect
to foreclosures and borrowers." (Doc. 24 at 24.) There can be no doubt that,
given the course of dealing painstakingly described in the Knights' Amended
Complaint, all of the elements of Counts II(A), II(B), III(A), III(B), and IV existed
or had occurred as of early 2011. The Court recognizes that the Knights allege
various examples of Defendants' tortious conduct occurring after January 2011.
However, the Court discerns no substantive difference between Defendants'
actions before and after that date, meaning that no independent claims arose after
January 2011 and within the applicable statutes of limitations. The conduct
underlying the Knights' tort claims began well before 2011, and continued well
past that date in substantially the same manner.
Moreover, neither the discovery rule nor continuing tort theory toll the
applicable statutes of limitations. The above representation from the Knights'
Amended Complaint confirms that as of January 2011, they had been "given
notice or information that would prompt a reasonable person to conduct further
inquiry" into their causes of action against Defendants. Christian, 358 P.3d at 153
(citing Mobley v. Hall, 657 P.2d 604, 607 (1983)).' Because they were given such
notice, yet failed to file this lawsuit until 2015, the discovery rule does not toll the
limitations periods applicable to their claims.
Nor can the Court reasonably adopt the Knights' contention that
Defendants' actions were "abatable" and therefore constituted a continuing tort.
The Knights claim that, because Defendants ultimately offered them a loan
modification in 2013, Defendants could have abated the injury at their discretion
by simply modifying the Knights' loan earlier in time. However, Defendants'
purported tortious conduct and the sorts of injuries to property most often at issue
in continuing tort cases are readily and critically distinguishable. In all of the
trespass and nuisance cases discussed in Christian, there is some type of
objectively-identifiable, injurious environmental condition. See 358 P.3d
140-149. The question of liability in such cases boils down less to what the injury
is, and more to its ultimate extent and to who is responsible for causing it. In this
case, on the other hand, the question of liability hinges on whether the Knights
even suffered a legally-remediable harm in the first place. In those cases where
conduct is deemed "abatable," the tortfeasor is generally aware that an injury has
occurred. To say that the Knights' injuries and Defendants' actions were
"abatable" would presume the tortiousness of Defendants' conduct, and would
presume that any defendant could identify when they had knowingly or
unknowingly committed a tort. Were the Court to conclude that a tort is
continuing because a defendant can always choose to stop acting in the manner
which a plaintiff alleges is tortious, the continuing tort exception would see a vast
expansion and would subvert the purpose of statutes of limitations. The Court
therefore concludes that Defendants' actions do not constitute continuing torts,
and that the statutes of limitations applicable to the Knights' claims are not tolled
on this theory.
Neither judicial estoppel nor standing outright preclude the Knights' claims
in this case. However, given what had occurred between the Knights and
Defendants between 2007 and 2011, and what the Knights learned about
Defendants' alleged tortious conduct at the end of that period, the statutes of
limitations began to run on the Knights' tort claims in approximately January
2011. Consequently, those claims are time-barred pursuant to Montana statute.
Moreover, because the Knights' tort claims will be dismissed, their exemplary
damages claim, Count V, must also be dismissed.
Accordingly, IT IS ORDERED that Defendants' motion for judgment on the
pleadings (Doc. 28) is GRANTED IN PART. The motion is GRANTED with
respect to Counts II(A), II(B), III(A), III(B), IV, and V, which are hereby
DISMISSED WITH PREJUDICE. Defendants' motion is DENIED in all other
~il-t day of June, 2016.
Dana L. Christensen, Chief Judge
United States District Court
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