Anderson et al v. Lehman Brothers Bank FSB et al
Filing
20
MEMORANDUM DECISION granting 4 Motion to Dismiss; granting 7 Motion to Dismiss for Failure to State a Claim; denying 12 Motion to Remand. Signed by Judge Ted Stewart on 11/16/2011. (tls)
IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
WAYNE AND KIMBERLY ANDERSON
Plaintiffs,
MEMORANDUM DECISION AND
ORDER ON PENDING MOTIONS
v.
LEHMAN BROTHERS BANK, FSB,
AURORA LOAN SERVICES, LLC, JAMES
H. WOODALL, TRUSTEE, MORTGAGE
ELECTRONIC REGISTRATION SYSTEMS,
Case No. 2:11-CV-584 TS
Judge Ted Stewart
Defendants.
This matter is before the Court on Plaintiffs Wayne and Kimberly Anderson’s
(“Plaintiffs”) Motion for Remand.1 Also before the Court is Defendant James H. Woodall’s
(“Woodall”) Motion to Dismiss2 and Defendants Lehman Brothers Bank, FSB (“Lehman”),
Aurora Loan Services (“Aurora”), and Mortgage Electronic Registration Systems’ (“MERS”)
(collectively, the “Lehman Defendants”) Motion to Dismiss.3 For the reasons set forth below,
the Court will deny Plaintiffs’ Motion for Remand and grant Woodall’s Motion to Dismiss and
the Lehman Defendants’ Motion to Dismiss.
1
Docket No. 12.
2
Docket No. 4.
3
Docket No. 7.
I. STANDARD OF REVIEW
In considering a motion to dismiss under Rule 12(b)(6), all well-pleaded factual
allegations, as distinguished from conclusory allegations, are accepted as true and viewed in the
light most favorable to plaintiffs as the nonmoving party.4 Plaintiffs must provide “enough facts
to state a claim to relief that is plausible on its face.”5 All well-pleaded factual allegations in the
complaint are accepted as true and viewed in the light most favorable to the nonmoving party.6
But, the court “need not accept . . . conclusory allegations without supporting factual
averments.”7 “The court’s function on a Rule 12(b)(6) motion is not to weigh potential evidence
that the parties might present at trial, but to assess whether the plaintiff’s complaint alone is
legally sufficient to state a claim for which relief may be granted.”8 The Supreme Court has
explained that a plaintiff must “nudge[ ][his] claims across the line from conceivable to
plausible” to survive a motion to dismiss.9
Thus, the mere metaphysical possibility that some plaintiff could prove some set
of facts in support of the pleaded claims is insufficient; the complaint must give
the court reason to believe that this plaintiff has a reasonable likelihood of
mustering factual support for these claims.10
4
Ruiz v. McDonnell, 299 F.3d 1173, 1181 (10th Cir. 2002).
5
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007).
6
GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir.
1997).
7
S. Disposal, Inc., v. Tex. Waste, 161 F.3d 1259, 1262 (10th Cir. 1998); Hall v. Bellmon,
935 F.2d 1106, 1110 (10th Cir. 1991).
8
Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991).
9
Twombly, 550 U.S. at 547.
10
The Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007)
(emphasis in original).
2
The Supreme Court recently provided greater explanation of the standard set out in
Twombly in Ashcroft v. Iqbal.11 In Iqbal, the Court reiterated that while Fed.R.Civ.P. 8 does not
require detailed factual allegations, it nonetheless requires “more than unadorned, the-defendantunlawfully harmed-me accusation[s].”12 “A pleading that offers ‘labels and conclusions’ or ‘a
formulaic recitation of the elements of a cause of action will not do.’”13 “Nor does a complaint
suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”14
The Court in Iqbal stated:
Two working principles underlie our decision in Twombly. First, the tenet
that a court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions. Threadbare recitals of the elements of a cause
of action, supported by mere conclusory statements, do not suffice. Rule 8 marks
a notable and generous departure from the hyper-technical, code-pleading regime
of a prior era, but it does not unlock the doors of discovery for a plaintiff armed
with nothing more than conclusions. Second, only a complaint that states a
plausible claim for relief survives a motion to dismiss. Determining whether a
complaint states a plausible claim for relief will . . . be a context-specific task that
requires the reviewing court to draw on its judicial experience and common sense.
But where the well-pleaded facts do not permit the court to infer more than the
mere possibility of misconduct, the complaint has alleged—but it has not
show[n]—that the pleader is entitled to relief.
In keeping with these principles a court considering a motion to dismiss
can choose to begin by identifying pleadings that, because they are no more than
conclusions, are not entitled to the assumption of truth. While legal conclusions
can provide the framework of a complaint, they must be supported by factual
allegations. When there are well-pleaded factual allegations, a court should
11
129 S.Ct. 1937 (2009).
12
Id. at 1949.
13
Id. (quoting Twombly, 550 U.S. at 555).
14
Id. (quoting Twombly, 550 U.S. at 557).
3
assume their veracity and then determine whether they plausibly give rise to an
entitlement to relief.15
In considering the adequacy of a plaintiff’s allegations in a complaint subject to a motion
to dismiss, a district court not only considers the complaint, but also “documents incorporated
into the complaint by reference, and matters of which a court may take judicial notice.”16 Thus,
“notwithstanding the usual rule that a court should consider no evidence beyond the pleadings on
a Rule 12(b)(6) motion to dismiss, ‘[a] district court may consider documents referred to in the
complaint if the documents are central to the plaintiff’s claim and the parties do not dispute the
documents’ authenticity.’”17
II. BACKGROUND
On July 31, 2006, Plaintiffs executed a Deed of Trust to secure payment of a promissory
note with a principal amount of $845,000.00.18 The loan was secured by a Deed of Trust
recorded against real property located in Washington, Utah.19 The Deed of Trust identifies
Plaintiffs as “Borrower,” Lehman Brother Bank, FSB as “Lender,” Southern Utah Title as
“Trustee,” and Mortgage Electronic Registration Systems, Inc. as “nominee for Lender and
15
Id. at 1949-50 (internal quotation marks and citations omitted).
16
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (citing 5B
WRIGHT & MILLER § 1357 (3d ed. 2004 and Supp. 2007)).
17
Alvarado v. KOBTV, LLC, 493 F.3d 1210, 1215 (10th Cir. 2007) (quoting Jacobsen v.
Deseret Book Co., 287 F.3d 936, 941 (10th Cir. 2002)).
18
Docket No. 2-1, Ex. C.
19
Id.
4
Lender’s successors and assigns” and as “the beneficiary under this Security Instrument.”20 The
Deed of Trust states:
Borrower understands and agrees that MERS holds only legal title to the interests
granted by Borrower in this Security Instrument, but, if necessary to comply with
law or custom, MERS (as nominee for Lender and Lender’s successors and
assigns) has the right: to exercise any or all of those interests, including, but not
limited to, the right to foreclose and sell the Property; and to take any action
required of Lender.21
On January 25, 2010, MERS recorded a “Substitution of Trustee” appointing Woodall as
the successor trustee under the Deed of Trust. Woodall then recorded a Notice of Default
indicating that Plaintiffs were in default on their obligations under the Deed of Trust. On
November 4, 2010, MERS recorded a “Corporate Assignment of Deed of Trust” assigning
Lehman Brother Bank, FSB’s interest in the Deed of Trust to Aurora.
Plaintiffs filed suit against Defendants on June 6, 2011, in the Fifth Judicial District Court
in and for Washington County, State of Utah. Plaintiffs’ Complaint asserts two causes of action:
quiet title and declaratory judgment pursuant to Utah Code Ann. § 57-1-23.5 and the Uniform
Commercial Code. On March 22, 2011, Defendants gave notice of removal to this Court.
Shortly thereafter, Woodall and Lehman Defendants each filed a Motion to Dismiss.
On July 27, 2011, Plaintiffs filed a Notice of Voluntary Dismissal of their quiet title
cause of action and the declaratory cause of action to the extent the claim is based on the “show
me the note theory.”22 Plaintiffs also filed a Motion for Remand.23 As described in the Notice of
20
Id. at 10-11.
21
Id. at 12.
22
Docket No. 11.
23
Docket No. 12.
5
Voluntary Dismissal, all defendants with the exception of Woodall (solely in his capacity as
trustee of the Deed of Trust) have been dismissed. Plaintiffs’ only remaining claim involves
Utah Code Ann. § 57-1-23.5.
Woodall filed an objection to Plaintiffs’ Notice of Voluntary Dismissal arguing that this
Court has supplemental jurisdiction to adjudicate the claims against Woodall. The Lehman
Defendants assert that Lehman and Aurora are still part of the action because the Complaint
names them as “unauthorized persons” under Utah Code Ann. § 57-1-23.5.
III. DISCUSSION
A.
REMAND
Plaintiffs assert that jurisdiction before this Court is improper because Woodall, as last
remaining defendant, is a Utah citizen and moves the Court to remand this case to state court.
Defendants assert that jurisdiction is proper before this Court because Woodall is only a nominal
party and was fraudulently named as a defendant to avoid diversity jurisdiction.
“Generally, because federal courts are courts of limited jurisdiction, there is a
presumption against the existence of federal jurisdiction.”24 Defendants, as the parties invoking
the jurisdiction of the Court “ha[ve] the burden of pleading and proving the existence of
jurisdiction.”25 Defendants may remove any civil action brought in a state court of which the
district courts of the United States have original jurisdiction.26 Federal courts have diversity
jurisdiction over all civil actions where the amount in controversy exceeds $75,000 and the
24
Purdy v. Starko, 2010 WL 3069850, at *2 (D. Utah Aug. 4, 2010) (citing City of
Lawton, Okla. v. Chapman, 257 F.2d 601 (10th Cir. 1958)).
25
Wilshire Oil. Co. of Tex.v. Riffe, 409 F.2d 1277, 1282 (10th Cir. 1969).
26
28 U.S.C. § 1441(a).
6
action is between citizens of different states.27 “It has long been the rule that to satisfy the
diversity of citizenship requirement of 28 U.S.C. § 1332(a)(1) the plaintiffs and defendants must
be completely diverse: No plaintiff can be a citizen of the same state as any defendant.”28
As Plaintiffs assert, Woodall is a citizen of the State of Utah. Defendants argue,
however, that Woodall is a nominal party and was fraudulently joined to prevent removal and,
therefore, the case was properly removed.
In Navarro Savings Association v. Lee, the United States Supreme Court held that “the
‘citizens’ upon whose diversity a plaintiff grounds jurisdiction must be real and substantial
parties to the controversy.”29 For this reason, “a federal court must disregard nominal or formal
parties and rest jurisdiction only upon the citizenship of real parties to the controversy.”30 Courts
have found that “a trustee under a deed of trust is merely a formal party, because he is ‘little
more than an agent, albeit for both parties, and the writing prescribes his duties.’”31
“Fraudulent joinder is a judicially created doctrine that provides an exception to the
requirement of complete diversity.”32 The doctrine of fraudulent joinder provides that “joinder
27
28 U.S.C. § 1332.
28
Salt Lake Tribune Pub. Co., LLC v. AT&T Corp., 320 F.3d 1081, 1095-96 (10th Cir.
2003) (citing Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373-74 (1978)).
29
Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 460 (1980) (citing McNutt, for Use of Leggett
v. Bland, 43 U.S. 9, 15 (1844)).
30
Id.
31
Jeanes-Kemp, LLC v. Johnson Controls, Inc., 2010 WL 502698, at *1 (S.D. Miss. Feb.
5, 2010) (quoting Wansley v. First Nat’l Bank of Vicksburg, 566 So. 2d 1218, 1223 (Miss.
1990)).
32
Purdy, 2010 WL 3069850, at *2 (quoting Kan. State Univ. v. Prince, 673 F. Supp. 2d
1297, 1294 (D. Kan. 2009)).
7
of a resident defendant against whom no cause of action is pled, or against whom there is in fact
no cause of action, will not defeat removal.”33 The Tenth Circuit considered the doctrine of
fraudulent joinder in the case of Montano v. Allstate Indemnity.34 The court held that:
The case law places a heavy burden on the party asserting fraudulent joinder. A
representative example states: To prove their allegation of fraudulent joinder [the
removing parties] must demonstrate that there is no possibility that [plaintiff]
would be able to establish a cause of action against the joined party in state court.
In evaluating fraudulent joinder claims, we must initially resolve all disputed
questions of fact and all ambiguities in the controlling law in favor of the nonremoving party. We are then to determine whether that party has any possibility
of recovery against the party whose joinder is questioned.35
Thus, to prove fraudulent joinder, Defendants must demonstrate that Plaintiffs are unable
to prove a valid cause of action against Woodall. The question of whether Plaintiffs could
establish a claim against Woodall in state court is resolved by reference to Utah law.
Plaintiffs allege only one cause of action against Woodall. Plaintiffs assert that Woodall
“is not qualified as trustee because he can perform none of the duties detailed in § 57-121(1)(a)(i), U.C.A.”36 It appears that Plaintiffs argue that Woodall’s substitution by MERS as
trustee was an unlawful substitution under the Deed of Trust and Utah foreclosure law and, thus,
Woodall had no authority to record the notice of default.
This Court has considered this same claim previously in Burnett v. Mortgage Electronic
Registration Systems.37 The plaintiff in that case also brought a declaratory judgment claim
33
Roe v. Gen. Life Ins. Co. & Phillips Petroleum Co., 712 F.2d 450, 452 (10th Cir. 1983)
(citing Dodd v. Fawcett Publ’ns, Inc., 329 F.2d 82, 85 (10th Cir. 1964)).
34
211 F.3d 1278 (10th Cir. 2000) (unpublished).
35
Id. at *1 (quoting Hart v. Bayer Corp., 199 F.3d 239, 246 (5th Cir. 2000)).
36
Docket No. 2-1, at 4.
8
based on Utah law and “premised on the assumption that MERS was without authority to initiate
foreclosure proceedings and to appoint Woodall successor trustee.”38 In Burnett, the Court held
that “the language in the Deed of Trust clearly grants MERS the authority to exercise the full
ambit of authority possessed by the Lender” and dismissed plaintiff’s request for declaratory
judgment. Here, Plaintiffs’ Deed of Trust contains the same language as the deed of trust in
Burnett.39 Thus, the Court finds, based on this precedent, that MERS had authority to appoint
Woodall as a successor trustee under the Deed of Trust.
Because Woodall was properly appointed as a successor trustee, Plaintiffs cannot
maintain a cause of action against Woodall and the Court finds that he was fraudulently joined as
a defendant. Moreover, in accordance with other courts that have considered this same issue, the
Court finds that Woodall, as a trustee joined as a party merely because he occupies the position
pursuant to a deed of trust, is a nominal party.40 Therefore, complete diversity existing, the
Court will deny Plaintiffs’ Motion to Remand.
B.
WOODALL’S MOTION TO DISMISS
Woodall moves this Court, pursuant to Fed.R.Civ.P. 12(b)(6), to dismiss Plaintiffs’ claim
for failure to state a claim upon which relief can be granted. As previously discussed, Plaintiffs’
sole allegation against Woodall is that he is not qualified as a trustee.
37
2009 WL 3582294, at *5 (D. Utah Oct. 27, 2009).
38
Id.
39
See id. at 1; see also Docket No. 2-1, Ex. C, at 12.
40
See Morgan v. Chase Home Fin., LLC, 306 Fed. App’x 49, 52-53 (5th Cir. 2008);
Cantor v. Wachovia Mortg., FSB, 641 F. Supp. 2d 602, 609-11 (N.D. Tex. 2009); AOM Grp.,
LLC v. Wells Fargo Bank, NA, 2010 WL 3342010, at *2 (D. Ariz. Aug. 25, 2010); Wygal v.
Litton Loan Servicing, LP, 2009 WL 2524701, at *5 (S.D. W.Va. Aug. 18, 2009).
9
Plaintiffs rely on a recently enacted statute, Utah Code Ann. § 57-1-23.5, as the basis for
their claims against Woodall. This statute was enacted in 2011. Woodall argues that the statute
cannot be retroactively applied to the circumstances in this case because they occurred prior to
the enaction of the statute. Further, Woodall argues that he is qualified to act as trustee.
According to Utah law, statutes do not apply retrospectively unless the statutory language
explicitly provides for retroactive application.41 Here, there is no provision within the statute
that provides for retroactive application. Therefore, this section cannot be retroactively applied
to Woodall.
Additionally, Plaintiffs argue that a determination of the promissory note holder is
necessary under Utah Code Ann. § 57-1-23.5 because an “unauthorized person” is a person not
able to deliver written communications to the lender pursuant to § 57-1-21. Plaintiffs allegation
is purely conclusory. Further, Plaintiff’s reliance on ReconTrust’s alleged lack of qualification
as a trustee is unavailing because this Court has already found that Woodall is a valid trustee.
Therefore, the Court grants Woodall’s Motion to Dismiss.
C.
LEHMAN DEFENDANTS’ MOTION TO DISMISS
Lehman Defendants move this Court to dismiss Plaintiffs’ cause of action for failure to
state a cause of action against Defendants. Plaintiffs recognize that the “split-the-note” theory is
not a cognizable claim in this Court or Utah state court due to the recent Utah Court of Appeals
41
See Utah Code Ann. § 68-3-3; Evans & Sutherland Computer Corp. v. Utah State Tax
Comm’m, 953 P.2d 435, 437 (Utah 1997) (finding that a legislative enactment which alters the
substantive law cannot be read to operate retrospectively unless the legislature has clearly
expressed that intention.)
10
decision.42 Therefore, Plaintiffs voluntarily dismissed their quiet title and declaratory judgment
action based on the “show-me-the note” theory.
Even after Plaintiffs’ voluntary dismissal, Lehman Defendants argue that they are still a
part of this action because Plaintiffs purport to name them as “unauthorized persons” under Utah
Code Ann. § 57-1-23.5. Plaintiffs have not specifically responded to Lehman Defendants
assertions that they are still parties to the action. Further, Plaintiffs fail to provide any facts as to
why Lehman Defendants are “unauthorized persons” under the statute. Defendants Aurora and
Lehman are not, and have not, acted as a trustee with a power of sale for the Plaintiffs’ property.
As discussed above, the statute cannot be retroactively applied to the circumstances in
this case because they occurred prior to the enactment of the statute. Moreover, the Court is
highly skeptical the statute would apply to these Defendants. Therefore, Plaintiffs’ Complaint
fails to state a claim upon which relief can be granted.
D.
LIS PENDENS
Plaintiffs filed a lis pendens in connection with this action. A court should order a
release of lis pendens if it “finds that [plaintiff] has not established by a preponderance of the
evidence the probable validity of the real property claim that is the subject of the notice.”43 The
Court has concluded that Plaintiffs’ claim in this case fails. Accordingly, Plaintiffs have no basis
for a lis pendens, and any such lis pendens filed in connection with this action shall be released.
42
Commonwealth Prop. Advocates, LLC, v. MERS, et al, 2011 UT App 232, 2011 WL
2714429 (Utah Ct. App. 2011).
43
Utah Code Ann. § 78B–6–1304(2)(b).
11
IV. CONCLUSION
It is therefore ORDERED that Plaintiffs’ Motion to Remand (Docket No. 12) is
DENIED. It is further ORDERED that Woodall’s Motion to Dismiss (Docket No. 4) and the
Lehman Defendants’ Motion to Dismiss (Docket No. 7) are GRANTED. Plaintiffs are ordered
to release the lis pendens filed in connection with this case. The clerk of Court is directed to
close this case forthwith.
DATED November 16, 2011.
BY THE COURT:
_____________________________________
TED STEWART
United States District Judge
12
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