Dernier et al v. U.S. Bank National Association et al

Filing 153

OPINION AND ORDER granting 147 Motion for Judgment on the Pleadings. The Third Amended Complaint is dismissed with prejudice and without leave to amend. Signed by Judge William K. Sessions III on 5/8/2018. (jam)

UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT
PETER DERNIER and NICOLE
DERNIER,
Plaintiffs,
v.
U.S. BANK NATIONAL
ASSOCIATION AS TRUSTEE FOR
CSMC MORTGAGE-BACKED PASSTHROUGH CERTIFICATES, SERIES
2006-3, MORTGAGE NETWORK,
INC., and ROBERT A. MCINNES,
Defendants.

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Case No.: 2:16-CV-230

OPINION AND ORDER
This case arises from Plaintiffs Peter and Nicole Dernier’s
attempt to identify the beneficial owner of the mortgage
promissory note for the loan on their home, following their
intentional failure to make payments on the note. Plaintiff’s
Third Amended Complaint (“TAC”) asserts claims against three
defendants. See ECF 111-5. The Court previously dismissed
Plaintiffs’ claims against Defendants Mortgage Network, Inc.
(“MNI”) and Robert A. McInnes (“McInnes”). See ECF 144. The
remaining defendant--U.S. Bank National Association, as Trustee
for CSMC Mortgage Backed Pass-Through Certificates, Series 20063 (“USB”)--now moves for judgment on the pleadings. See ECF 147.
For the reasons stated below, USB’s motion for judgment on the
pleadings is granted.
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FACTUAL BACKGROUND
The factual and procedural background of this case was
detailed in the Court’s order dismissing the claims against
Defendants MNI and McInnes. See ECF 144, p. 2-8. It will be
summarized again here.
Plaintiffs’ TAC alleges irregularities in the transfer of
both the note and the mortgage on their home. Plaintiffs claim
that these irregularities resulted in confusion concerning who
was authorized to modify the principle on their mortgage,
receive payments on their note and, eventually, to foreclose on
their property. After filing the original complaint in this
action seeking to evidence the beneficial owner of their
mortgage loan, Plaintiffs allege that they “uncovered a
fraudulent scheme perpetrated by the banking industry . . .
whereby they would exchange unendorsed promissory notes, hold
them and only assign them to a particular trust once in
default.” ECF 111-5, p. 2. According to Plaintiffs,
the trust in which their loan was eventually placed
was a dumping ground for defaulted loans as a means to
collect the trust’s pooling insurance money for the
benefit of the servicer of the trust and to allow the
servicers of the trust to foreclose on the defaulted
properties and keep the proceeds of any sales of the
foreclosed properties.
Id.
In relation to these allegations, Plaintiffs lay out the
following facts. First, Plaintiffs purchased a home in Weston,
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Vermont in 2005. Kittredge Mortgage Corporation (“Kittredge”)
loaned Plaintiffs $242,250 for the purchase, and Peter Dernier
executed a promissory note and a mortgage in favor of Kittredge
on October 7, 2005. Kittredge immediately assigned the
promissory note and mortgage to MNI. Later that fall, MNI
informed the Derniers that the servicing for their loan would be
transferred to Select Portfolio Servicing (“SPS”), and in April
2006, SPS notified them that it had “assigned, sold or
transferred the servicing” to America’s Servicing Company
(“ASC”). In the spring of 2007, Plaintiffs sought a modification
of the principal balance of their mortgage from ASC in response
to well-water contamination discovered on their property. ASC
allegedly informed Plaintiffs that they could only qualify for a
modification if the loan was in default, and Plaintiffs ceased
making loan payments at ASC’s direction. Once the loan was in
default, ASC informed Plaintiffs that the investor of the
promissory note needed to agree to the modification.
At Plaintiffs’ request, ASC produced a copy of the
promissory note containing a specific indorsement from MNI to
USB on February 26, 2009. Id. at 5. However, “the nature and
context of the purported signature on the indorsement . . .
immediately raised the suspicions of the Derniers.” Id. The note
that was produced purportedly bears two indorsements: one from
Kittredge to MNI, and one from MNI in blank, which bears a
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signature mark over a stamp and the name “Chad M. Goodwin,”
below. In April 2014, Plaintiffs obtained a signed, notarized
affidavit from Chad M. Goodwin, stating that he was an employee
of MNI from 2000 to 2013, and that the signature superimposed
over the stamp is not his own.
In addition, after the Derniers filed their initial suit,
attorney Josh Lobe, as counsel for USB, forwarded a letter to
Plaintiffs with a copy of the promissory note bearing an
indorsement from MNI to USB. Id. at 6. However, between late
2013 and early 2015, Plaintiffs received separate copies of the
original promissory note from SPS, ASC, and MNI, respectively,
none of which contained either the stamp or signature
indorsement in blank from MNI or the typewritten specific
indorsement to USB. Id. at 10. Thus, Plaintiffs allege that “USB
created the fraudulent documents as a means to show it is the
holder of the note,” Id. at 7, and that “MNI did not sell the
Derniers’ loan to . . . USB.” Id. at 8.
Attorney Lobe also forwarded an assignment of the mortgage
“from MERS as nominee for Kittredge to a trust with a similar
name as the Trust for which USB is a trustee in this matter,”
and claimed USB had authority to foreclose on the loan. Id. at
6. However, the date of the assignment of the mortgage which
allegedly provided USB with standing to foreclose (March 18,
2011) occurred after ASC forwarded its file to outside counsel
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to initiate foreclosure proceedings. Id. at 11. Moreover, the
trust named on this assignment of the mortgage differed from the
name of the trust on the note. In addition, Plaintiffs claim
that ASC did not have the assignment from MERS to USB when they
asked ASC for investor information on November 5, 2012. As such,
the Plaintiffs claim that “upon information and belief, the
March 18, 2011 Assignment of Mortgage was created and forged by
Attorney Lobe’s office.” Id. at 11. Finally, they allege that
“in August, 2013, ASC caused an assignment of mortgage from MERS
as nominee for MNI to be recorded in the Town of Weston Land
Records transferring the mortgage from MNI to USB,” even though
“the mortgage was not assigned directly by MNI to USB.” Id. at
12.
Plaintiffs allege that “USB did not pay value for the Note
and is therefore not a holder in due course of the Dernier
loan.” Id. at 13. Rather, the documents provided by USB as
evidence of a financial transaction underlying the transfer of
the note--identified as an “MNI Wire Transfer Receipt” and
documents related to a “Pooling and Servicing Agreement (PSA)”
for the trust (of which USB was presumably trustee)--do not
indicate that USB paid value for the note. The MNI Wire Transfer
Receipt “purportedly notes the Dernier loan as part of bulk sale
by MNI to an unidentified purchaser” and “shows payment from an
unidentified payee” dated December 5, 2005. Id. However, the
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specific indorsement from MNI lists a trust that “was not
established or filed with the SEC until March 1, 2006 at the
earliest.” Id. at 15. Furthermore, according to the complaint,
USB stated that it acquired the Dernier note from the depositor
named in the PSA, which is identified in the PSA as “Credit
Suisse First Boston Mortgage Securities Corp.” However, “the
Derniers’ Note does not bear any intervening indorsements
reflecting conveyance of the Note from the depositor or seller
listed on the PSA.” Id. at 14.
Finally, Plaintiffs assert that “on June 29, 2016,
[McInnes], on behalf of MNI, executed a Ratification and Consent
(“Ratification”) of the forged MNI stamp indorsement and forged
signature of Chad M. Goodwin and attached it to the version of
the Note with the specific indorsement from MNI to USB.” Id. at
15. However, Plaintiffs claim that in reality, “MNI did not
indorse or intend to indorse the Note to USB as Trustee when it
received payment from an unidentified payer in December 2005
because there was no such trust by that name at that time.” Id.
Nor was the note indorsed in blank at that time. Rather, they
allege that USB provided the note with the forged indorsement to
MNI, and that “USB requested the Ratification from MNI for the
purpose of satisfying the UCC requirement to become a holder of
the Note.” Id. at 16. Thus, neither the forged indorsement stamp

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from MNI nor the forged signature of Mr. Goodwin were applied by
another agent of MNI.
The last allegation in Plaintiffs’ complaint is that the
Derniers’ payments on their loan to ASC “were not deposited in a
specific account for the Trust which purportedly held their
Note,” leaving them with “no expectation that payments actually
were applied to the certificateholders of the trust and properly
credited.” Id. at 17. In addition, Plaintiffs allege that “ASC
had no right to seek collection from the Derniers for the Note
on behalf of USB.” Id. at 18. Furthermore, Plaintiffs assert
that USB’s negative reports about the Derniers to credit bureaus
were fraudulent.
In light of the foregoing assertions, the Derniers brought
claims for declaratory judgment seeking to quiet title on their
property and a discharge of their mortgage. They also brought
claims of unjust enrichment, common law fraud, mail fraud and
RICO violations, violations of the Fair Debt Collection
Practices Act and Fair Credit Reporting Act against USB.
Finally, they brought a count of conspiracy to commit fraud and
fraud against USB, MNI, and McInnes, alleging that these
Defendants “conspired to ratify a forged indorsement in order
for USB to claim ownership of the Note,” even though “USB knew
the endorsement on the Note was a forgery.” Id. at 21. They
assert that “the fraudulent Ratification has caused injury to
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Plaintiffs by allowing USB to claim it’s the holder of the Note
and seek collection on a debt for which it paid no value.” Id.
at 22.
Defendants McInnes and MNI moved to dismiss this last
count, arguing that (1) Plaintiffs failed to allege that MNI and
McInnes acted in concert with USB to use illegal means to obtain
an unlawful result, thereby precluding the conspiracy claim; and
(2) Plaintiffs’ fraud claim is defective because it does not
contain allegations supporting the required elements of reliance
and damages. On June 8, 2017, the Court dismissed this last
count against McInnes and MNI, holding that Plaintiffs failed to
adequately plead reasonable reliance or damages to sustain a
fraud claim and failed to plead unlawful acts to sustain
Plaintiffs’ conspiracy to commit fraud claim. See ECF 144.
On October 11, 2017, USB moved for judgment on the
pleadings, arguing that the Court should dismiss the TAC with
prejudice because the Ratification bars Plaintiffs’ claims and
because Plaintiffs otherwise fail to state a claim as a matter
of law. This Ratification, dated June 29, 2016 was executed by
McInnes on behalf of MNI and states:
Mortgage Network, Inc. . . . as the payee on the
[Note] . . . hereby ratifies and approves the
indorsement of the Note by Chad M. Goodwin, pipeline
manager for Mortgage Network, Inc. Mortgage Network,
Inc. was fully compensated for the transfer of the
Note and Mortgage Network, Inc. hereby waives and/or
releases any claims it may have on the Note.
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TAC, Ex. Q. USB explains that “[a]ll of the counts contained in
the TAC are premised upon the argument that MNI’s transfer of
the Note to U.S. Bank, as Trustee was ineffective.” USB contends
that since MNI has now ratified the allegedly forged signature
on the indorsement of the note to USB, the indorsement becomes
effective as of the date it was originally signed. USB argues
that under 9A V.S.A. § 3-403, the note is deemed to be validly
indorsed by MNI and therefore USB is authorized to enforce the
Note.
DISCUSSION
I.

Legal Standard
A motion for judgment on the pleadings pursuant to Rule

12(c) is subject to the same standard as a motion to dismiss for
failure to state a claim under Rule 12(b)(6). See Hayden v.
Paterson, 594 F.3d 150, 160 (2d Cir. 2010) (citing Fed. R. Civ.
P. 12(c)). To survive a Rule 12(b)(6) motion to dismiss for
failure to state a claim, “a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief
that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (internal quotation omitted). “A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. Thus,
“where the well-pleaded facts do not permit the court to infer
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more than the mere possibility of misconduct, the complaint has
alleged—but it has not shown—that the pleader is entitled to
relief.” Id. at 679.
In addition, Plaintiffs alleging fraud must satisfy the
pleading requirements set out in Fed. R. Civ. P. 9(b).
Specifically, Plaintiffs “must state with particularity the
circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of a person’s mind may be
alleged generally.” Fed. R. Civ. P. 9(b).
II.

Analysis
Plaintiffs’ TAC asserts seven counts against USB:

declaratory judgment (Count I), unjust enrichment (Count II),
common law fraud (Count III), mail fraud/RICO violation (Count
IV), violations of the Fair Debt Collection Practices Act (Count
V), violations of the Fair Credit Reporting Act (Count VI), and
conspiracy to commit fraud and fraud (Count VII). At the outset,
the Court recognizes that the situation with the note in this
case is quite convoluted. The Court, however, is unpersuaded by
Plaintiffs’ attempt to argue that no entity owns the note and
that their mortgage should therefore be completely discharged.
Plaintiffs clearly took out a mortgage to purchase their house.
According to the notes attached to the TAC, there are only two
possible owners of the note: MNI or USB. MNI has expressly
“ratifie[d] and approve[d] the indorsement” and has “waive[d]
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and/or release[d] any claim it may have on the Note.” TAC Ex. Q
at 2. There is no other entity besides USB asserting that it
owns the note. MNI’s ratification of the transfer of the note
from MNI to USB renders each of Plaintiff’s claims implausible.
Thus, USB’s motion for judgment on the pleadings is granted.
A.

Plaintiffs’ Claims Fail Due to the Ratification
1. Count I: Declaratory Judgment

Plaintiffs are seeking a declaratory judgment that no
entity is entitled to enforce the note and mortgage on their
house because there was an ineffective transfer of the note to
USB. In this first count, Plaintiffs assert that “Plaintiffs
obtained a loan from Kittredge and provided a mortgage on their
property as security for the loan”; “Kittredge subsequently sold
and assigned the rights to the Dernier loan to MNI”; “MNI was
fully compensated for the Dernier loan and no new entity has
come forward as the rightful owner of the loan”; and therefore
“Plaintiffs seek a quiet title on their property and discharge
of the Mortgage.” ECF 111-5, p. 18-19. Essentially, Plaintiffs
argue that the initial transfer of their Note from MNI to USB
was invalid due to the forged signature and that there has not
been an effective ratification of that invalid transfer.
Plaintiffs make two specific points in support of this
argument. First, Plaintiffs state that “there can be no
ratification where, at the time of the purported transaction
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being ratified, the alleged contract was impossible.” ECF 150,
p. 9. 1 Plaintiffs’ point here is that USB did not exist “at the
time of the purported transaction being ratified” because it
“did not exist until March 1, 2006.” Id. Second, Plaintiffs
argue that “[n]ot only does the impossibility of the transaction
render the attempted ratification to be ineffective, but in
addition, MNI purportedly transferred the note to another entity
– Credit Suisse – in 2005.” Id. at 9-10.
Both of these arguments fail. First, even if USB (which is
a trust) was not created until after the initial assignment,
Vermont’s UCC states that a negotiable instrument payable to a
“trust . . . is payable to the trustee.” 9A V.S.A. § 3110(c)(2)(i). U.S. Bank--which clearly existed at the time of
the assignment--could negotiate the note on behalf of USB (the
trust). Second, Plaintiffs are relying on a screenshot of MNI’s
internal database which reflects a transfer of the note to
Credit Suisse. Notably, Plaintiffs do not allege that the note
was ever indorsed to Credit Suisse, and none of the copies of
the note attached to the TAC contain an indorsement to Credit
Suisse. According to Vermont’s UCC, a negotiable instrument,
such as Plaintiffs’ note, is only owned by a payee of a special
indorsement or the holder of the note if indorsed in blank. See

1

In support of this argument, Plaintiffs cite a New York state
case from 1830 as well as two Third Circuit cases.
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9A V.S.A. §§ 3-205(a), (b). Plaintiff has not alleged that the
note was indorsed by Credit Suisse nor do any of the notes
attached to the TAC contain an indorsement to Credit Suisse.
Plaintiffs only allege that MNI’s internal database shows a
transfer to Credit Suisse. This screenshot of the internal
database is insufficient to show that the note was transferred
to Credit Suisse.
Vermont’s UCC permits a negotiable instrument signed by a
party “without actual, implied, or apparent authority” to be
effective if later ratified. See 9A V.S.A. §§ 1-201(b)(41), 3403. As detailed above, MNI explicitly ratified and approved the
indorsement of the note to USB. See TAC, EX. Q. MNI stated that
it was fully compensated for the note and waived any claims it
may have on the note. See id. Therefore, there has been an
effective ratification of the transfer of the note to USB.
Thus, Plaintiffs are not entitled to declaratory judgment
that no entity is entitled to enforce the note and attendant
mortgage.
2. Count II: Unjust Enrichment
In order to prove its unjust enrichment claim, Plaintiffs
must show that “(1) a benefit was conferred on defendant; (2)
defendant accepted the benefit; and (3) defendant retained the
benefit under such circumstances that it would be inequitable
for defendant not to compensate plaintiff for its value.” Ctr.
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v. Mad River Corp., 151 Vt. 408, 412, 561 A.2d 90, 93 (1989).
Based on the Ratification, USB is the holder of the note, and
Plaintiffs necessarily will fail to prove that it was
inequitable for USB to receive Plaintiffs’ payments that were
obligated by the note. Thus, Plaintiffs have failed to assert a
plausible claim of unjust enrichment.
3. Count III: Common Law Fraud
Plaintiffs must plausibly plead five elements for a fraud
claim: “(1) intentional misrepresentation of a material fact;
(2) that was known to be false when made; (3) that was not open
to the defrauded party’s knowledge; (4) that the defrauded party
act[ed] in reliance on that fact; and (5) is thereby harmed.
Felis v. Downs Rachlin Martin PLLC, 2015 VT 129, ¶ 13, 200 Vt.
465, 472, 133 A.3d 836, 842 (2015) (citation omitted).
Importantly, “[f]ailure to prove any one of the five elements
defeats the fraud claim.” Id. Due to the Ratification,
Plaintiffs are unable to plausibly claim that its reliance on
USB’s representation that it was the holder of the note caused
it any damages. Further, Plaintiffs cannot plausibly plead that
USB knowingly misrepresented a material fact. USB clearly
believes that it is the rightful holder of the note. Through the
Ratification, MNI reaffirmed its intent to transfer the note to
USB, and USB reaffirmed its understanding that it was the holder
of the note.
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Thus, Plaintiffs have failed to assert a plausible claim of
common law fraud.
4. Count IV: Mail Fraud/RICO Violation
Plaintiffs allege that “USB devised a scheme to
fraudulently convey the Note to the Trust and collect payments
from Plaintiffs”; “USB and its agents systematically used the
U.S. Mail for the purpose of providing fraudulent statements to
Plaintiffs to carry out their scheme”; and “[a]s a result of
USB’s scheme, Plaintiffs have been damaged by their paying USB
in excess of $65,000 for payment on the fraudulent statements
provided to them.” ECF 111-5, p. 20.
In order to plead a plausible RICO claim, Plaintiffs must
demonstrate that USB engaged in a “pattern of racketeering
activity.” See 18 U.S.C. § 1962. The Second Circuit has
explained that “[w]here an alleged RICO ‘enterprise primarily
conducts a legitimate business, there must be some evidence
. . . that the predicate acts’—which must be in furtherance of
fraud in order to constitute mail . . . fraud—‘were the regular
way of operating that business, or that the nature of the
predicate acts themselves implies a threat of continued criminal
activity.’” Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d
473, 487-89 (2d Cir. 2014) (quoting Cofacredit, S.A. v. Windsor
Plumbing Supply Co., 187 F.3d 229, 243 (2d Cir. 1999)).

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As discussed above, the transfer of the note to USB has
been effectively ratified by MNI. While there was a question of
the validity of the transfer based on the allegedly forged
signature, the transfer of the note to USB became effective due
to the Ratification. Thus, nothing USB has done with respect to
the Plaintiffs’ mortgage can now serve as a predicate act for
Plaintiffs’ alleged mail fraud/RICO violations. Therefore,
Plaintiffs have failed to assert a plausible mail fraud/RICO
violation.
5. Count V: Violations of the Fair Debt Collection
Practices Act
A “debt collector” is defined by the Fair Debt Collection
Practices Act (“FDCPA”) as any person who “regularly collects or
attempts to collect . . . debts owed or due . . . another. 15
U.S.C. §1692a(6) (emphasis added). Here, the Ratification
establishes that USB purchased a preexisting debt and then
attempted to collect on that debt. Since the FDCPA only applies
to an entity that attempts to collect on another entity’s debt,
the FDCPA is not applicable to USB here. See Henson v. Santander
Consumer USA Inc., 137 S. Ct. 1718, 1721–22 (2017). Thus,
Plaintiffs have failed to assert a plausible FDCPA claim.
6. Count VI: Violations of the Fair Credit Reporting
Act
Plaintiffs assert that USB violated the Fair Credit
Reporting Act (“FCRA”) by reporting negative information about
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Plaintiffs to national credit bureaus. Plaintiffs allege that
the reports were “false and fraudulent” since USB did not own
their note. The FCRA prohibits furnishers of consumer credit
data from providing “any information relating to a consumer to
any consumer reporting agency if the [furnisher] knows or has
reasonable cause to believe that the information is inaccurate.”
15 U.S.C. § 1681s-2(1)(A). As the Ratification establishes that
USB owned the note, it was within USB’s rights to report
Plaintiffs’ failure to make payments on the note. Further,
Plaintiffs admit in their TAC that they defaulted on their
mortgage loan--therefore, USB’s reporting of Plaintiffs failure
to make payments was accurate. See ECF 111-5, p. 4.
Thus, Plaintiffs have failed to assert a plausible FCRA
claim.
7. Count VII: Conspiracy to Commit Fraud and Fraud
In their TAC, Plaintiffs allege that USB, MNI, and McInnes
conspired to ratify the forged indorsement of the Note. The
Court has already dismissed Plaintiffs’ claims with respect to
MNI and McInnes. See ECF 144. In that order, the Court explained
that “Plaintiffs failed to demonstrate how they specifically
relied on the Ratification” and that “Plaintiffs fail to point
to any type of harm caused by their justifiable reliance which
suffices to give rise to a fraud claim under state law.” See ECF
144, p. 14 and 17. For the same reasons articulated in the
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Court’s prior order, Plaintiffs fraud claims against USB also
fail.
CONCLUSION
For the reasons stated above, USB’s motion for judgment on
the pleadings is granted. As Plaintiffs have already had
multiple opportunities to amend, the TAC is dismissed with
prejudice and without leave to amend.
DATED at Burlington, in the District of Vermont, this 8th
day of May, 2018.
/s/ William K. Sessions III
William K. Sessions III
District Court Judge

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