Tadros et al v. Wilmington Trust, National Association as Successor Trustee to Citibank, N.A. et al
Filing
48
OPINION AND ORDER: Wilmington's motion to dismiss 29 is GRANTED and plaintiffs' claims are DISMISSED. Plaintiffs' request for oral argument is denied as unnecessary. Signed on 5/15/2018 by Judge Ann L. Aiken. (ck)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION
ASHRAF N. TADROS and SHAUN M.
TADROS
Case No. 3:17-cv-01623-AA
OPINION AND ORDER
Plaintiffs,
v.
WILMINGTON TRUST, NATIONAL
ASSOCIATION AS SUCCESSOR TRUSTEE
TO CITIBANK, N.A.; MORTGAGE
ELECTRONIC REGISTRATION SYSTEMS,
INC.; BANK OF AMERICA NA;
SPECIALIZED LOAN SERVICING, LLC;
QUALITY LOAN SERVICING
CORPORATION OF WASHINGTON;
ROSE CITY VENTURES, INC.; and RAIN
CITY CAPITAL OF OREGON, LLC,
Defendants.
AIKEN, District Judge:
In this action, plaintiffs AsluafTadros and Shaun Tadros assert a variety of claims related
to the foreclosure of the loan secured by their residential property. Defendant Wilmington Trust,
National Association, as Successor Trustee to Citibank, N.A. as Trustee of Structured Asset
Mortgage Investments II Inc., Bear Stearns ARM Trust, Mortgage Pass-Through Ce1iificates,
Page 1 - OPINION AND ORDER
Series 2006-4("Wilmington"), 1 now moves to dismiss all plaintiffs' claims. For the reasons set
f01ih below, Wilmington's motion is granted and this action is dismissed. If plaintiffs wish to
file an amended complaint, they must file a motion requesting leave to do so within thitiy days of
the date of this opinion and order.
BACKGROUND
On August 17, 2006, plaintiffs took out a $570,000 loan from Countrywide Home Loans,
Inc. ("Countrywide"), to finance the purchase of real property located at 4671 SW Trail Road in
Tualatin, Oregon. Defendant Bank of America, N.A. ("Bank of America"), was Countrywide's
loan servicer. The loan was secured by a promissory note and deed of trust. The deed of trust
was recorded on August 25, 2006, in Clackamas County, Oregon. Clackamas County records
also contain two assignments of the beneficial interest in the deed of trust. The first assignment,
to Citibank, N .A. as Trustee for the Holders of the SAMI II Inc. Bear Stearns Trust, Mortgage
Pass-Through Certificates, Series 2006-4 ("Citibank"), was executed December 13, 2011 and
recorded December 19, 2011. The second assignment, to Wilmington, was executed May 23,
2017 and recorded June 5, 2017.
In June 2012, Ashraf Tadros filed for Chapter 13 bankruptcy. Bank of America filed a
proof of claim on behalf of Citibank, dated October 2012, listing a secured claim in the amount
of $630,443.27 and stating that plaintiffs had last made a payment on the loan in March 2011,
leading to a pre-petition default of $87,750.73. On December 18, 2013, defendant Specialized
Loan Servicing, LLC ("SLS"), the loan servicer for Wilmington, filed a transfer of claim in the
bankruptcy court stating that Citibank had assigned its beneficial interest in the promissory note
1
Plaintiffs used the shorter name "Wilmington Trust, National Association as Successor
Trustee to Citibank, N.A." when naming defendants in this lawsuit; I have used Wilmington's
foll name as specified in defendants' motions and supp01iing declarations.
Page 2 - OPINION AND ORDER
and deed of trust to Wilmington.2 The next day, SLS served Ashraf Tadros, his attorney, the
Chapter 13 Trustee, and the U.S. trustee with notice of the transfer of claim. That notice
specified that any objection to the transfer was to be filed within twenty-one days. No one
objected.
In June 2017, SLS, on behalf of Wilmington, filed a motion in the bankruptcy court
seeking relief from the automatic stay in order to foreclose on the deed of trust. Plaintiffs filed
no objection to that motion, and the bankruptcy court granted relief from stay on July 14, 2017.
On September 26, 2017, the bankruptcy court entered its order of discharge and closed the
bankruptcy case.
Two and a half weeks later, plaintiffs filed this lawsuit, alleging-apparently for the first
time-that Wilmington had no beneficial interest in the promissory note or deed of trust.
Plaintiffs asseiied various claims, including claims under the Internal Revenue Code and the Fair
Debt Collection Practices Act. In addition to money damages, plaintiffs sought to quiet title to
their property and requested a declaratory judgment as to who actually owned the note and deed
oftrnst.
In November 2017, defendant Quality Loan Servicing Corporation ("Quality") filed and
recorded a notice ofttustee's sale. Although the parties dispute whether they reached any f01m
of agreement, settlement discussions apparently took place up to the date of the foreclosure sale.
When those negotiations fell through, the prope1iy was sold at auction to defendant Rose City
Ventures, Inc. ("Rose City"), March 20, 2018.
Plaintiffs filed a motion for a temporary
restraining order and preliminary injunction on March 22, 2018, seeking to prevent Wilmington,
2
Plaintiffs contend that the bankruptcy comi filing was fraudulent because Wilmington
never had an enforceable, beneficial interest in the promissory note or deed of trust. It is
undisputed, however, that SLS filed the transfer of claim asserting that Wilmington had such an
interest.
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SLS, and Quality from transferring title to Rose City. I entered a temporary restraining order on
March 23, 2018. Following a hearing and full briefing, however, I dete1mined that plaintiffs had
failed to show serious questions going to the merits of their claim that Wilmington Trust lacked
authority to foreclose at the time of the sale. I therefore denied the motion for a preliminary
injunction.
On April 9, 2018, the first business day after the temporary restraining order
dissolved, the trustee's deed transfening the property to Rose City was recorded in Clackamas
County.
In its response to the motion for a preliminary injunction, Wilmington moved to dismiss
all plaintiffs' claims under Federal Rule of Civil Procedure 12(b)(6).
STANDARDS
When considering a motion to dismiss, a court construes a complaint in favor of the
plaintiff and takes all factual allegations as true. "[F]or a complaint to survive a motion to
dismiss, the non-conclusory 'factual content,' and reasonable inferences from that content, must
be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Serv., 572
F.3d 962, 969 (9th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). "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." Iqbal, 556 U.S. at
678. "Dismissal under Rule 12(b)(6) is proper only when the complaint either (1) lacks a
cognizable legal theory or (2) fails to allege sufficient facts to support a cognizable legal theory."
Zixiang Liv. Keny, 710 F.3d 995, 999 (9th Cir. 2013).
DISCUSSION
Before proceeding to the merits of the paliies' arguments, I first must address the effect
of my opinion and order denying plaintiffs' motion for a preliminary injunction, Tadros v.
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Wilmington Trust, Nat'! Ass'n, 2018 WL 1924464 (D. Or. Apr. 23, 2018). In that order, I made
factual findings about the evidence submitted by the parties. In its reply in support of the motion
to dismiss, Wilmington relies on several of those findings. But I have not taken those factual
findings into account in resolving this motion.
When a motion to dismiss is filed after a
preliminary injunction dispute, the court has two choices. One option is to ignore the evidence in
the preliminary injunction record (as well as any findings made on the basis of that evidence) and
constrain review to the complaint, documents incorporated into the complaint by reference, and
matters of which a comi may take judicial notice. See Tellabs, Inc. v. lv!akor Issues & Rights,
Ltd., 551 U.S. 308, 322 (2007) (summarizing the documents a cou1i generally may consider
when adjudicating a 12(b)(6) motion). Alternatively, the cou1i may-with notice to the pmiiesconsider the evidence in the preliminary injunction record, thereby converting the motion to
dismiss into a motion for summary judgment. See Fed. R. Civ. P. 12(d) ("If, on a motion under
Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the
court, the motion must be treated as one for summary judgment under Rule 56.").
Here, it is appropriate to take the first approach. Because "haste ... is often necessary"
in deciding whether to grant a preliminary injunction, such relief "is customarily granted [or
denied] on the basis of procedures that are less formal and evidence that is less complete then in
a trial on the merits[.]" Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981).
Critically,
discovery in this case is not yet complete and plaintiffs vigorously contend that Wilmington has
refused to turn over relevant evidence; thus, converting the motion to one for summary judgment
risks prejudicing plaintiffs, who do not have access to defendants' files. Accordingly, I have
considered only the following documents in making this decision: the Corrected Amended
Complaint; the deed of trust on the property, first recorded in Clackamas County on August 25,
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2006; the first assignment of that deed of trust, recorded in Clackamas County on December 19,
2011; the second assignment of that deed of trust, recorded in Clackamas County on June 5,
2017; and all filings in the bankruptcy proceeding In re Tadros, Case No. 12-34441-dwh13
(Bankr. D. Or.).
The deed of trust, two assignments, and bankruptcy court filings are all
appropriate subjects of judicial notice under Federal Rule of Evidence 201(b)(2). See Reyn 's
Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) ("We may take
judicial notice of court filings and other matters of public record."). In addition, the Conected
Amended Complaint incorporates and relies upon the deed of trust and the two assignments.
I.
Res Judicata Effect of the Bankruptcy Court's Orders
Defendants argue that all plaintiffs claims must be dismissed with prejudice under the
doctrine of res judicata. That doctrine, also known as claim preclusion, "bars all grounds for
recovery that could have been asserted, whether they were or not, in a prior suit between the
same parties on the same cause of action." Siegel v. Fed. Home Loan Mortg. Corp., 143 F.3d
525, 528-29 (9th Cir. 1998) (alterations normalized) (emphasis in original). Resjudicata applies
to matters decided in bankruptcy. Id. at 528. Courts consider four factors to dete1mine whether
the cause of action is the same in the current and prior suits:
(I) whether rights or interests established in the prior judgment would be
destroyed or impaired by the prosecution of the second action; (2) whether
substantially the same evidence is presented in the two actions; (3) whether the
two suits involve infringement of the same right; and (4) whether the two suits
arise out of the same transactional nucleus of fact.
Id. at 529.
In Siegel, the secured lender, Freddie Mac, filed two proofs of claim in the debtor's
bankruptcy proceeding. Id. at 528. The debtor did not object to those proofs of claim; instead,
he filed a separate civil suit challenging Freddie Mac's right to foreclose, asserting tort and
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contract claims. Freddie Mac moved for summary judgment in the civil suit, arguing that the
debtor's failure to timely object to its proofs of claim in the bankruptcy proceeding barred the
debtor's claims in the new lawsuit.
The court agreed with Freddie Mac because, under the four-factor test, the causes of
action in the bankruptcy proceeding and subsequent action were the same.
Application of the test indicates that the district comi c01Tectly concluded
that Siegel's claims were batTed by res judicata. Freddie Mac filed two proofs of
claim ... in Siegel's bankruptcy proceeding. No objection was filed to the claims
in the bankruptcy action. Siegel's present suit against Freddie Mac in contract
and tort states a variety of causes of action[,] all of which are premised on Freddie
Mac's ... violat[ion] of its duties under the notes and deeds of trust .... Clearly,
Freddie Mac's right to recover on its proofs of claim in the bankruptcy comi
could have been attacked on that basis. Just as clearly, its rights established in the
bankruptcy would be affected by resolution of the present action. Similarly, the
present suit and the proofs of claim stem from the same nucleus of facts, and
involve similar evidence, i.e., the loan documentation and the sunounding
circumstances. Again, the interests at stake in both actions involve Freddie Mac's
right to recovery under the loan agreements. As such, the district court conectly
concluded that res judicata bars Siegel's claims in the present action.
Id. (footnote omitted).
Defendants point to two bankruptcy court orders in suppo1i of their res judicata argument.
The first is the bankruptcy court's allowance of the transfer of claim from Citibank to
Wilmington in January 2014. When a claim is transferred in a bankruptcy proceeding, the
transferee must file notice of that transfer with the bankruptcy co1ni; any objections are due
within 21 days. Fed. R. Bankr. P. 3001(e)(2). Here, as explained above, in December 2013, SLS
filed a transfer of proof of claim, documenting Citibank's transfer of its beneficial interest in the
promissory note and deed of trust to Wilmington.
In the absence of any objection, the
bankruptcy court's allowance of that transfer of claim became a final judgment, to which
preclusive effect may attach. Siegel, 143 F.3d at 528.
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Plaintiffs concede that Ashrof Tadros's bankrnptcy counsel "did not properly bring a
timely objection to Wilmington's proof of claim[.]" Pls.' Resp. Opp. Def.'s Mot. Dismiss 5.
They attempt to get around that failure in two ways. First, they assert that it is "debatable"
whether Ashrof Tadros actually received notice of the proof of claim. Id. But the bankruptcy
court records show that Ashraf Tadros was served with the notice by U.S. mail and that his
bankruptcy attorney received notice electronically; an equivocal statement about actual receipt of
the notice is insufficient to overcome those records and give rise to a plausible inference that
Ashrof Tadros was deprived of proper notice.
Second, plaintiffs contend that Ashrof Tadros did not have a meaningful opportunity to
challenge Wilmington's status as a creditor through objecting to the transfer of claim because
"the transfer was made late in the bankruptcy process and Mr. Tadros could not consent to
something as obscure as a true right to enforce a DEED OF TRUST for purposes of res judicata,
that is truly ludicrous." Id. I am not convinced. Ashrof Tadros's bankruptcy counsel was, at a
minimum, constructively aware that failure to object to the transfer amounted to a forfeiture of
certain rights against Wilmington in subsequent proceedings. The fact that this case involves a
transfer of claim rather than the initial proofs of claim at issue in Siegel makes no difference
here. Like the debtor in Siegel, Ashrof Tadros contends that a secured lender lacked the right to
foreclose on his property. Also like the debtor in Siegel, Ashrof Tadros had the oppo1iunity to
challenge that lender's right to recover in the bankruptcy proceeding but failed to do so. Just as
in Siegel, the bankruptcy court's order and the subsequent lawsuit stem from the same nucleus of
fact and involve similar evidence: here, both center on the validity of assignment of the
beneficial interest in the promissory note and deed of trust. Finally, like in Siegel, accepting
plaintiffs' argument here that the secured lender lacks the right to foreclose would interfere with
Page 8 - OPINION AND ORDER
rights established in the bankruptcy court's final judgment allowing the transfer of claim. The
cause of action in the bankruptcy proceeding and in this case are the same and res judicata
applies.
The second relevant bankruptcy order is the order granting SLS, on behalf of
Wilmington, relief from the automatic stay for the purpose of foreclosing. Significantly, that
motion was for relief from both debtor stay (Ashraf Tadros) and codebtor stay (Shaun Tadros)
and was served on both plaintiffs. When neither plaintiff objected to the motion within the
relevant timeframe, the bankruptcy court granted the requested relief, clearing the way for
Wilmington to foreclose. Notice and a copy of that order were sent to both plaintiffs, neither of
whom requested relief from judgment. In sum, plaintiffs could have objected-but did not
object-to the motion for relief from stay on the grounds that Wilmington had no right to
foreclose on the prope1ty. Their failure to make that argument before the bankruptcy comt gives
the bankruptcy court's order granting relief from stay res judicata effect, barring plaintiffs from
challenging Wilmington's right to foreclose in this action. Cf In re Int'l Nutronics, 28 F.3d 965,
970 (9th Cir. 1994) ("[A] bankruptcy court's order confirming a sale has preclusive effects.").
Plaintiffs allege that the endorsement in blank on the promissory note in Wilmington's
possession is a forgery, placed there in 2017 for the express purpose of legitimatizing an illegal
transfer of beneficial interest in the note. The usual claim preclusion rules do not apply to
judgments obtained by fraud when the issue of the fraud was not presented to the cou11 in the
prior action. Knauer v. United States, 328 U.S. 654, 670 (1946). But the bankruptcy court
filings in this case show that the promissory note has borne the identical endorsement in blank at
least since December 2013, when the note was attached to the transfer of proof of claim. Of
course, forgery remains technically possible notwithstanding that filing-for example, the
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endorsement could have been forged prior to December 2013. But to survive a motion to
dismiss, plaintiffs must plausibly state a claim for relief. See Iqbal, 556 U.S. at 678. Put simply,
the "sheer possibility" of forgery-unsupp01ted by any specific factual allegations to lend
credence to that possibility-does not deprive the bankruptcy court's judgments of preclusive
effect in this action. Id.
Finally, plaintiffs cite Ah Quin v. County of Kauai Department of Transportation, 733
F.3d 267 (9th Cir. 2013), for the proposition that comts look to a debtor's subjective intent in
deciding what effect a bankrnptcy court's order should have in a subsequent proceeding. In that
case, the debtor told the bankruptcy court that she was not a party to any pending lawsuits,
despite the fact that she had filed a pre-petition employment discrimination action. Ah Quin, 733
F.3d at 269. Her former employer moved to dismiss the discrimination case on the ground of
judicial estoppel. Id. at 270. The Ninth Circuit held that there was a live issue of fact as to
whether the debtor's misrepresentation was intentional or inadvertent; it therefore declined to
apply the doctrine of judicial estoppel to dismiss her civil claim. Id. at 271. Plaintiffs contend
that, under Ah Quin, the doctrine of res judicata here is inapplicable because they wanted to
challenge Wilmington's interest in the promissory note and deed of trust back in 2013.
Ah Quin is not on point.
Leaving aside the fact that claim preclusion and judicial
estoppel are different doctrines, here, there is no allegation that plaintiffs attempted to challenge
the transfer of claim or motion for relief from stay, but failed to do so due to mistake or
inadvertence-for example, because they missed a deadline or checked the wrong box on a fonn.
Rather, plaintiffs suggest-without saying so outright-that they wanted to challenge
Wilmington's authority to foreclose from the beginning but were prevented from doing so by
AshrofTadros's bankruptcy lawyer. Plaintiffs cannot escape the consequences of a tactical call
Page 10 ~OPINION AND ORDER
made by their bankruptcy attorney because they have decided they disagree with that choice in
hindsight. Cf New York v. Hill, 528 U.S. 110, 115 (2000). To hold otherwise would undennine
the finality of all judicial proceedings by leaving in question the validity of every decision, big or
small, an attorney makes.
The res judicata effect of the bankruptcy comt's orders dooms most of plaintiffs' claims
in this action because it bars plaintiffs from making any claim that depends upon Wilmington's
lack of beneficial interest in the promissory note and deed of trust. That contention is essential to
plaintiffs' first claim for relief (declaratory judgment of improper transfer of title in violation of
26 U.S.C. § 8600), third claim for relief (violation of the Fair Debt Collection Practices Act),
fomth claim for relief (violation of Oregon's Unfair Trade Practices Act),3 sixth claim for relief
(quiet title), and seventh claim for relief (unjust enrichment).
Each of those claims is,
accordingly, dismissed with prejudice on the ground of claim preclusion.
II.
Remaining Claims
Plaintiffs' remaining claims each rest, in part, on the argument that Wilmington lacked a
beneficial interest in the promissory note on the date of the foreclosure sale. To the extent that is
the case, they are barred by claim preclusion. However, the remaining claims also rest on
additional, distinct factual allegations. As explained below, those distinct allegations are also
insufficient to state a claim for relief.
A.
Fraud/Conversion
The elements of common law fraud in Oregon are (1) a material misrepresentation that
was false; (2) knowledge of falsity; (3) intention to induce reliance; (4) justifiable reliance; and
3
This claim is identified as a "Consumer Protection Act" claim, but no law in Oregon
bears that name and the CotTected Amended Complaint appears to refer to California law when it
describes the elements of the claim. Because plaintiffs make passing reference to the section of
the Oregon statutes devoted to unfair trade practices, I have construed this claim as an Unfair
Trade Practices Act claim.
Page 11 - OPINION AND ORDER
(5) damages caused by the reliance. Strawn v. Farmers Ins. Co. of Or., 258 P.3d 1199, 1209 (Or.
2011). A claim for fraud must be pleaded "with pmiicularity" under the Federal Rules of Civil
Procedure. Fed. R. Civ. P. 9(b). Rule 9(b)'s particularity requirement demands that allegations
of fraud be "specific enough to give defendants notice of the particular misconduct," which
means that they "must be accompanied by the who, what, when, where, and how of the
misconduct charged." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003).
Plaintiffs allege that Wilmington violated Section 17A of the Exchange Act by filing late
and inaccurate transfer agent registration forms. Specifically, plaintiffs contend that Wilmington
filed a required fotm four months late, inaccurately listed the name of the entity performing
transfer agent services as "Wilmington Savings Fund Society, FSB" rather than as "Wilmington
Savings Fund Society, FSB D/B/A Christiana Trust," failed to file a required annual foim in
2010, and failed to identify the correct number of individual security-holder accounts for which
it maintained master files.
Plaintiffs' fraud claim fails for several reasons. First, filing a form late (or failing to file a
form) is not a false representation. Second, plaintiffs have not alleged that Wilmington knew
that it provided an inco!1'ect name on the form when it omitted Cluistiana Trust, knew that it was
listing an inco!1'ect number of accounts/master files, or intended to induce reliance on those
representations. Finally and most critically, plaintiffs have not pleaded a causal connection
between their reliance on the purported misrepresentations listed above and their damages. It
may be true that Wilmington sometimes does business under the name Christiana Trust, but it is
not plausible that confusion over that name harmed plaintiffs. In bankruptcy comi and in the
assignment of the deed of trust, the name listed is Wilmington; there is no reference in any
documentation or elsewhere in the complaint to Christiana Trust. Similarly, plaintiffs have not
Page 12 - OPINION AND ORDER
alleged how their reliance on Wilmington's failure to accurately list the number of accounts for
which it holds the master files caused them hatm. Plaintiffs' fraud claim must be dismissed.
B.
Breach of the Covenant of Good Faith and Fair Dealing
Every contract in Oregon contains an implied duty of good faith and fair dealing.
Swenson v. Legacy Health Sys., 9 P.3d 145, 149 (Or. Ct. App. 2000). The heart of each party's
good faith and fair dealing obligation is the duty "to perform the contract, including exercising
any discretion that the contract provides, in a way that will effectuate the objectively reasonable
contractual expectations of the parties." Pollock v. D.R. Horton, Inc.-Portland, 77 P.3d 1120,
1127 (Or. Ct. App. 2003).
Most of plaintiffs' allegations in support of this claim are batTed by claim preclusion
because they go to Wilmington's beneficial interest in the promissory note and right to foreclose.
However, plaintiffs also argue that Wilmington set up a system of investors, shareholders,
beneficiaries, and alleged owners that was so riddled with misinfonnation that it impeded
plaintiffs' ability to ever reach an effective loss mitigation agreement with the proper party in
interest. That allegation is insufficient to state a claim for relief. Per the allegations in the
complaint, Wilmington was the foreclosing entity. Plaintiffs do not allege that they negotiated
with or made mitigation payments to any entity other than Wilmington or SLS. Indeed, at the
preliminary injunction hearing, the parties noted that they had been in negotiations ll'ith one
another up to the time of the sale. Accordingly, it is unclear how the creation of an alleged sham
system of investors, shareholders, beneficiaries, and owners constituted a breach of
Wilmington's breach of good faith and fair dealing to plaintiffi. Plaintiffs' claim for breach of
the covenant of good faith and fair dealing is dismissed.
Page 13 - OPINION AND ORDER
C.
Violations of the Oregon Trust Deed Act
Plaintiffs' property was sold through a nonjudicial process. Under the Oregon Trust
Deed Act, a secured lender may avail itself of nonjudicial foreclosure only if the trust deed and
any assignments of that deed are recorded in the county in which the prope1ty is located. Or.
Rev. Stat. § 86.752(1). Plaintiffs argue that Wilmington (through SLS) lacked authority to
proceed with a nonjudicial foreclosure in this case because of various deficiencies in the
recorded assignments of the deed of trust. Specifically, plaintiffs note that defendant Mortgage
Electronic Registration Systems, Inc. ("MERS"), is listed as the grantor on both the assignment
to Citibank and the assignment to Wilmington.
Plaintiffs contend that the assignments are
invalid because, among other reasons, MERS was inactive on the dates those assignments were
recorded and MERS cannot have been the grantor for both assignments.
Plaintiffs are barred from challenging the foreclosure based on those purpo1ted
deficiencies because they had notice of the sale but did not seek a pre-auction injunction. The
OTDA provides that a trustee's sale "forecloses and terminates the interest in the property that
belongs to a person to which notice of the sale was given[.]" Or. Rev. Stat. § 86.797(1). It also
provides that, once a trustee's deed is recorded, recitations in that deed are prima facie evidence
of the truth of the matters set forth therein, and conclusive in favor of a purchaser for value in
good faith relying upon them. Id § 86.803. Together, those two provisions create an "explicit
'statutory presumption of finality"' following a trustee's sale. i\Iikityuk v. Nw. Tr. Servs., Inc.,
952 F. Supp. 2d 958, 966 (D. Or. 2013) (quoting Staffordshire lnvs., Inc. v. Cal-Western
Reconveyance Corp., 149 P.3d 150, 158 (Or. Ct. App. 2006)).
In Wood v. US. Bank NA., 831 F.3d 1159 (9th Cir. 2016), the court considered the effect
of the OTDA's finality provisions. The comt explained that, "[t]o give proper effect to the
Page 14- OPINION AND ORDER
carefully struck balance between protecting grantors' rights and providing a streamlined process
with finality, a post-sale challenge must be based on lack of notice or some other fundamental
flaw in the foreclosure proceedings, such as the sale being completed without the borrower
actually being in default." Wood, 831 F.3d at 1166. In Wood, the court held that that the OTDA
barred a post-sale challenge based on the trustee's sale notice listing of the wrong beneficiary.
That e!1'or, the court reasoned, was the sott of "technical defect" that has an insubstantial effect
on the grantor's rights and so does not justify upsetting the finality of the trustee's sale. Id.
Wood is not a perfect match for the facts in this case. Most significantly, the plaintiffs in
Wood waited four months to challenge the nonjudicial foreclosure sale. Id. at 1161. Here,
plaintiffs sought a temporary restraining order and filed an amended complaint asseiiing OTDA
claims just two days after the auction. Ultimately, however, that difference does not change the
outcome here. As the Wood comi explained, the OTDA, a response to the "inefficient" judicial
foreclosure process, "represents a well-coordinated statutory scheme to protect grantors from the
unauthorized foreclosure and wrongful sale of prope1iy, while at the same time providing
creditors with a quick and efficient remedy against a defaulting grantor." Id. at 1164 (quoting
Staffordshire, 149 P.3d at 157). The Wood court held that pe1mitting post-sale challenges to
nonjudicial foreclosure based on failure to comply with "each and every one of the OTDA's
technical requirements" would "cast aside th[e] balance" struck by the Oregon Legislature,
"stripping the incentive for lenders to accept trust deeds in place of mortgages and gutting the
purpose of the OTDA." Id. at 1164-65. The court thus drew a distinction between "fundamental
flaw[ s]" in the sale (such as lack of notice or absence of default) and technical deficiencies in the
foreclosure process (such as naming the incorrect beneficiary on the trustee's notice of sale). Id.
at 1166. Although the court mentioned the length of the plaintiffs' delay to underscore its
Page 15- OPINION AND ORDER
decision, the core holding of Wood is that technical violations of the OTDA do not justify a postsale challenge to a nonjudicial foreclosure.
Plaintiffs admit that they were in default at the time of the sale and that they received
notice of the sale. Their argument that Wilmington never acquired a beneficial interest in the
promissory note-which, if true, would constitute a fundamental flaw in the foreclosure
process-is batTed by claim preclusion. The purported deficiencies in the recorded assignments,
however, are technical violations that cannot be raised post-sale. Plaintiffs' OTDA claims are
therefore dismissed with prejudice.
III.
Leave to Amend
In their response brief, plaintiffs indicated that they plan to file an amended complaint.
Having reviewed the Corrected Amended Complaint and judicially-noticed documents carefully,
I am inclined to believe that amendment would be futile. Nevertheless, I will not, at this stage,
dismiss this action with prejudice. In particular, I note that the deficiencies in plaintiffs' claims
fraud and good faith/fair dealing claims are factual, not legal, so it remains possible that the
deficiencies could be cured by amendment. I will therefore give plaintiffs the oppmiunity to
establish that the claims can be saved.
Plaintiffs may file a motion for leave to file an amended complaint within thirty days of
the date of this opinion and order. A proposed amended complaint shall be attached to any such
motion. In drafting any amended complaint, plaintiffs must bear in mind my holding that they
are precluded from arguing that Wilmington lacked a beneficial interest in the note or authority
to foreclose at the time of the sale. Plaintiffs shall not serve defendants with any new discovery
orders or file any discovery motions (including the motions to compel referenced in plaintiffs'
response brief) until I rule on their motion to file an amended complaint. If plaintiffs do not file
Page 16 - OPINION AND ORDER
a motion for leave to file an amended complaint within thirty days or timely seek an extension of
time to file such a motion, this action will be dismissed with prejudice.
CONCLUSION
Wilmington's motion to dismiss (doc. 29) is GRANTED and plaintiffs' claims are
DISMISSED. Plaintiffs' request for oral argument is denied as unnecessary.
IT IS SO ORDERED.
Dated this /f;> ckf~fMay 2018.
Ann Aiken
United States District Judge
Page 17 - OPINION AND ORDER
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