Berhe v. Federal National Mortgage Association et al

Filing 11

ORDER Granting in part and Denying in part 5 Defendants' Motion to Dismiss, with leave to amend in part. Signed by Chief Judge Robert C. Jones on 07/09/2013. (Copies have been distributed pursuant to the NEF - AC)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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MEHERET G. BERHE,
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Plaintiff,
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vs.
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FEDERAL NATIONAL MORTGAGE
ASSOCIATION et al.,

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Defendants.

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2:13-cv-00552-RCJ-PAL
ORDER

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This is a residential foreclosure avoidance case involving one property. Defendants have

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moved to dismiss. For the reasons given herein, the Court grants the motion in part, with leave

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to amend in part.

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I.

FACTS AND PROCEDURAL HISTORY

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Plaintiff Meheret G. Berhe gave lender Northern Pacific Mortgage Co. a $274,000

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promissory note to purchase or refinance real property at 9107 Black Maple Ave., Las Vegas, NV

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89148 (the “Property”), secured by a deed of trust (the “DOT”) against the Property. (See DOT

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1–3, Aug. 25, 2005, ECF No. 5-1). Fidelity National Title was the trustee on the DOT, and

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Mortgage Electronic Registration Systems, Inc. (“MERS”) was the lender’s “nominee” and the

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beneficiary of the DOT. (See id. 2). MERS later assigned both the note and DOT to Bank of

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America, N.A., (see Assignment, Sept. 24, 2011, ECF No. 5-2), which it was empowered to do in

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its dual capacity as the lender’s nominee and beneficiary of the DOT, and which assignment

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cured any split between the note and security that existed under the terms of the DOT itself, see

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Edelstein v. Bank of N.Y. Mellon, 286 P.3d 249, 258–60 (Nev. 2012). Bank of America then

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assigned both the note and DOT—only the assignment of one instrument was necessary at this

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point, because Bank of America owned both instruments such that one instrument would follow

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the other as a matter of law, see id. at 257–58 (citing Restatement (Third) of Property: Mortgages

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§ 5.4(a)–(b))—to Defendant Federal National Mortgage Association (“Fannie Mae”).

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(See Assignment, Sept. 11, 2012, ECF No. 5-3). Seterus, Inc. then purported, as attorney-in-fact

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for Fannie Mae, to substitute Defendant Quality Loan Service Corp. (“QLS”) as trustee on the

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DOT. (See Substitution, Oct. 25, 2012, ECF No. 5-4). QLS then filed a Notice of Default (the

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“NOD”), along with the required Affidavit of Compliance (the “AC”), which appears to be

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complete. (See NOD and AC, Dec. 3, 2012, ECF No. 5-5). The Director of the Nevada

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Foreclosure Mediation Program (“FMP”) issued an FMP Certificate indicating the Property was

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not eligible for mediation, which indicates Plaintiff was either not an owner-occupier, had

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surrendered the Property, or was in bankruptcy. (See FMP Certificate, Feb. 11, 2013, ECF No. 5-

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6). QLS scheduled a trustee’s sale for April 2, 2013. (See Notice of Sale, Mar. 7, 2013, ECF No.

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5-7).

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Plaintiff sued Fannie Mae and QLS in this Court on four causes of action that the Court

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will characterize as follows: (1) quiet title based upon statutorily defective foreclosure under

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section 107.080; (2) declaratory relief as to alleged securities violations; (3) a qui tam action

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based upon anti-trust violations by MERS; (3) mortgage fraud under section 207.470.

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Defendants have moved to dismiss.

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II.

LEGAL STANDARDS

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Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the

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claim showing that the pleader is entitled to relief” in order to “give the defendant fair notice of
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what the . . . claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47

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(1957). Federal Rule of Civil Procedure 12(b)(6) mandates that a court dismiss a cause of action

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that fails to state a claim upon which relief can be granted. A motion to dismiss under Rule

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12(b)(6) tests the complaint’s sufficiency. See N. Star Int’l v. Ariz. Corp. Comm’n, 720

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F.2d 578, 581 (9th Cir. 1983). When considering a motion to dismiss under Rule 12(b)(6) for

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failure to state a claim, dismissal is appropriate only when the complaint does not give the

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defendant fair notice of a legally cognizable claim and the grounds on which it rests. See Bell

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Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering whether the complaint is

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sufficient to state a claim, the court will take all material allegations as true and construe them in

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the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th

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Cir. 1986). The court, however, is not required to accept as true allegations that are merely

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conclusory, unwarranted deductions of fact, or unreasonable inferences. See Sprewell v. Golden

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State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). A formulaic recitation of a cause of action

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with conclusory allegations is not sufficient; a plaintiff must plead facts pertaining to his own

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case making a violation plausible, not just possible. Ashcroft v. Iqbal, 556 U.S. 662, 677–79

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(2009) (citing Twombly, 550 U.S. at 556) (“A claim has facial plausibility when the plaintiff

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pleads factual content that allows the court to draw the reasonable inference that the defendant is

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liable for the misconduct alleged.”). In other words, under the modern interpretation of Rule

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8(a), a plaintiff must not only specify a cognizable legal theory (Conley review), but also must

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plead the facts of his own case so that the court can determine whether the plaintiff has any

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plausible basis for relief under the legal theory he has specified, assuming the facts are as he

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alleges (Twombly-Iqbal review).

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“Generally, a district court may not consider any material beyond the pleadings in ruling

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on a Rule 12(b)(6) motion. However, material which is properly submitted as part of the

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complaint may be considered on a motion to dismiss.” Hal Roach Studios, Inc. v. Richard Feiner
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& Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990) (citation omitted). Similarly, “documents

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whose contents are alleged in a complaint and whose authenticity no party questions, but which

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are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6)

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motion to dismiss” without converting the motion to dismiss into a motion for summary

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judgment. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). Moreover, under Federal Rule

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of Evidence 201, a court may take judicial notice of “matters of public record.” Mack v. S. Bay

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Beer Distribs., Inc., 798 F.2d 1279, 1282 (9th Cir. 1986). Otherwise, if the district court

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considers materials outside of the pleadings, the motion to dismiss is converted into a motion for

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summary judgment. See Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir.

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2001).

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III.

ANALYSIS

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The Court grants the motion as to all claims except the first claim for quiet title based

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upon statutorily defective foreclosure. There is no wrongful foreclosure claim, because there

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appears to be no dispute that Plaintiff is in default. As to the statutory requirements, the

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foreclosure appears to have been proper, except for a single defect: the Substitution of QLS as

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trustee was executed by an entity (non-party Seterus, Inc.) purporting to be an agent of the

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beneficiary (Fannie Mae), but there is no evidence that it was in fact an agent of Fannie Mae

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apart from Seterus’s own claim of agency on the Substitution. Where this is the case, the Court

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has required defendants to provide evidence of the agency at the summary judgment stage.

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The second and third claims for declaratory relief concerning securities violations and

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anti-trust violations are mostly unintelligible. To the extent they are intelligible, they consist of

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generalized grievances against the mortgage industry. Plaintiff may attempt to amend these

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claims to intelligibly plead a viable cause of action. As to the fourth claim, Plaintiff may not

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privately prosecute the criminal mortgage fraud statutes. The fourth claim is dismissed without

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leave to amend.
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CONCLUSION
IT IS HEREBY ORDERED that the Motion to Dismiss (ECF No. 5) is GRANTED IN
PART and DENIED IN PART, with leave to amend in part.

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IT IS SO ORDERED.

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Dated this 9th day of July, 2013.
Dated this 19th day of June, 2013.

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_____________________________________
ROBERT C. JONES
United States District Judge

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