Mickelson et al v. Chase Home Finance LLC et al

Filing 35

ORDER granting 18 Deft Chicago Title Insurance Company's Motion to Dismiss plaintiff's claim for breach of good faith, by Judge Marsha J. Pechman.(MD)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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TRAVIS MICKELSON, and DANIELLE
H. MICKELSON,

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CASE NO. C11-1445 MJP
ORDER GRANTING DEFENDANT
CHICAGO TITLE INSURANCE
COMPANY’S MOTION TO
DISMISS PLAINTIFFS’ CLAIM FOR
BREACH OF GOOD FAITH

Plaintiffs,
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v.
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CHASE HOME FINANCE LLC, et al.,
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Defendants.
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This matter comes before the Court on Defendant Chicago Title Insurance Company’s
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motion to dismiss. (Dkt. No. 18.) Having reviewed the motion, Plaintiffs’ opposition (Dkt. No.
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31), the reply (Dkt. No. 33), and all related papers, the Court GRANTS the motion.
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Background
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Plaintiffs Travis and Danielle Mickelson filed suit against the Defendants alleging
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various improper and illegal acts related to the foreclosure on their home in Island County.
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Plaintiffs obtained a loan from MHL Funding Corp on November 22, 2005, to purchase the
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home. (Amended Complaint (“AC”) ¶ 3.3.) The deed of trust securing the loan named
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ORDER GRANTING DEFENDANT CHICAGO
TITLE INSURANCE COMPANY’S MOTION TO
DISMISS PLAINTIFFS’ CLAIM FOR BREACH OF
GOOD FAITH- 1

1 Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary and Chicago Title
2 Insurance Company (“Chicago”) as the trustee. (Dkt. No. 29-1 at 7.) Roughly three years later
3 on September 19, 2008, Chase Home Finance LLC (“Chase”) recorded an assignment of the
4 deed of trust from MERS to Chase. (Dkt. No. 29-1 at 27.) The document is signed by Vonnie
5 McElligot as “Vice President” for MERS, though she is alleged and appears to be an employee
6 of Northwest Trustee Services, Inc. (“Northwest”). (Id.) The same day, Northwest recorded an
7 appointment of successor trustee on behalf of Chase, which appointed Northwest the successor
8 trustee. (Dkt. No. 29-1 at 29.) This document is signed by Jeff Stenman. (Id.) Northwest had
9 previously record a document entitled “Limited Power of Attorney” on October 28, 2005, which
10 gave several individuals, including Vonnie McElligott and Jeff Stenman authority to make
11 substitutions and appointments of trustees on behalf of Chase. (Dtk. No. 29-1 at 24.)
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Starting in the August of 2008, Plaintiffs fell behind on their mortgage payments and

13 were threatened with foreclosure by Chase and Northwest’s employee Vonnie McElligott. (AC ¶
14 3.23.) Although Plaintiffs tried to enter into a loan modification program, their home was
15 ultimately sold in a non-judicial foreclosure sale on March 25, 2011. (AC ¶¶ 3.25-3.28.) In their
16 sprawling amended complaint, Plaintiffs allege that the appointment of MERS as the beneficiary
17 to the first deed of trust was impermissible because MERS is not legally capable of being the
18 beneficiary. (AC ¶¶ 6.4-6.21.) Plaintiffs claim the assignment of the deed of trust to Chase was
19 invalid because MERS was not a proper beneficiary. (AC ¶ 6.22.) They also allege that
20 assignment to Chase was invalid because Vonnie McElligott is a “robo signer” and employee of
21 Northwest who “lacked authority, knowledge or training to perform the transaction” on behalf of
22 MERS. (AC ¶ 6.23.) Lastly, Plaintiffs conclude that Chicago was never properly replaced by
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ORDER GRANTING DEFENDANT CHICAGO
TITLE INSURANCE COMPANY’S MOTION TO
DISMISS PLAINTIFFS’ CLAIM FOR BREACH OF
GOOD FAITH- 2

1 Northwest as trustee because Chase lacked the authority to appoint a successor trustee. (AC ¶
2 6.25-6.31.) Plaintiffs thus allege Chicago remains the trustee to their deed of trust.
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Plaintiffs allege Chicago breached its duties of good faith as trustee under RCW

4 61.24.010(4). Plaintiffs claim Chicago failed to satisfy its duty to investigate whether the
5 successor trustee was properly appointed under the Deed of Trust Instrument and/or the Deed of
6 Trust Act. According to Plaintiffs’ complaint, had Chicago satisfied this duty it would have
7 known the successor trustee was not actually the trustee and stopped the foreclosure sale.
8 Plaintiffs allege that Chicago “knew or should have known of the incidence of homeowners
9 being foreclosed upon through used [sic] of robo-signed document [sic] and should have been
10 monitoring County records of those persons to whom they owed a duty of good faith.” (AC ¶
11 6.37 n.9.) Chicago’s failure to act as Plaintiffs suggest purportedly constituted an “unfair or
12 deceptive practice in trade or commerce within the meaning of Wash. Rev. Code § 19.76.020,
13 and/or constituted criminal profiteering within the meaning of Ch. 9A.82 Wash. Rev. Code.”
14 (AC ¶ 6.40.)
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Chicago filed its motion to dismiss the breach of good faith claim that was alleged

16 against it in Plaintiffs’ original complaint. Within twenty-one days of Chicago filing its motion,
17 Plaintiffs amended their complaint. (Compare Dkt. Nos. 18 with 29.) Both the original and
18 amended complaints assert claims against all Defendants, including Chicago, for violations of
19 the Consumer Protection Act (“CPA”) and Washington’s criminal profiteering act. Thus,
20 Chicago has not moved for dismissal of all claims against it, despite its request to be dismissed
21 entirely from the case.
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Analysis

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Standard

ORDER GRANTING DEFENDANT CHICAGO
TITLE INSURANCE COMPANY’S MOTION TO
DISMISS PLAINTIFFS’ CLAIM FOR BREACH OF
GOOD FAITH- 3

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On a motion to dismiss, the Court must accept the material allegations in the complaint as

2 true and construe them in the light most favorable to Plaintiff. NL Indus., Inc. v. Kaplan, 792
3 F.2d 896, 898 (9th Cir. 1986). A motion to dismiss filed pursuant to Rule 12(b)(6) tests the
4 sufficiency of the complaint. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). “To survive a
5 motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a
6 claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)
7 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 554, 570 (2007)). The plaintiff must provide
8 “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action
9 will not do.” Twombly, 550 U.S. at 555. Here, Plaintiffs fail to cite either Iqbal or Twombly
10 and instead invoke the “no set of facts” standard that no longer has application. (Dkt. No. 31 at
11 3.) The standard Plaintiffs urge is no longer valid law and will not be applied.
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Untimely Response

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Plaintiffs failed to file their response brief on time. They filed it two days late. Chicago

14 asks the Court to strike the brief in its entirety and deem this to be an admission that Chicago’s
15 position has merit. While the Court is sympathetic to Chicago’s position, it does not find it
16 proper to overlook the arguments Plaintiffs assert. The Court warns Plaintiffs that it will not
17 consider any future motion or responsive brief that is untimely filed unless Plaintiffs separately
18 show good cause for their failure to timely file their papers.
19 C.

Breach of Good Faith Claim

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Plaintiffs present an untenable claim that Chicago breached its duty of good faith. The

21 Court dismisses the claim.
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Chicago fails to challenge Plaintiffs’ allegations that Chicago is still the trustee on the

23 original deed of trust. This is a crucial component of all of the claims against Chicago because
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ORDER GRANTING DEFENDANT CHICAGO
TITLE INSURANCE COMPANY’S MOTION TO
DISMISS PLAINTIFFS’ CLAIM FOR BREACH OF
GOOD FAITH- 4

1 the only way Chicago is alleged to be liable is as a trustee. Here, Plaintiffs present a plausible
2 and uncontroverted theory that Chicago was not properly appointed by Chase because Chase was
3 not a proper successor beneficiary. Plaintiffs allege that the individual signing the paperwork
4 appointing Chase lacked the authority to do so. (AC ¶ 6.23.) The document appears to support
5 this allegation, as it is signed by Vonnie McElligot as “Vice President” of MERS, even though
6 she appears only to be an employee of Northwest, not MERS. Plaintiffs have thus presented a
7 plausible claim that Chase was not properly appointed as successor beneficiary and lacked
8 authority to replace Chicago as trustee with Northwest. It thus appears plausible that Chicago
9 was still the proper trustee at the time of the foreclosure sale and may have owed a duty of good
10 faith to Plaintiffs.
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Plaintiffs propose an untenable and expansive view of the duty of good faith of the

12 trustee to a deed of trust. Plaintiffs suggest the duty of good faith required Chicago to undertake
13 a separate investigation as to whether the signatures on the papers appointing Chase and
14 Northwest as successor beneficiary and trustee, respectively, were valid or forgeries. While
15 there is no binding authority discussing the scope of the statutory duty of good faith, Plaintiffs’
16 view is unreasonable. Plaintiffs argue that a proper starting point is the implied duty of good
17 faith in every contract, which obligates the parties to cooperate with each other so that each may
18 obtain the full benefit of performance. See Badgett v. Sec. State Bank, 116 Wn.2d 563, 569
19 (1991). This, however, does not support the imposing an affirmative duty of investigation on
20 Chicago. Plaintiffs also cite a case from this District where the Court found a possible breach of
21 the duty of good faith where the trustee performing the foreclosure sale was not properly
22 appointed as trustee. Bain v. OneWest Bank, F.S.B., No. C09-149-JCC, 2011 WL 917385, at *6
23 (W.D. Wash. Mar. 15, 2011). This case has little relevance, as Chicago is not alleged to have
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ORDER GRANTING DEFENDANT CHICAGO
TITLE INSURANCE COMPANY’S MOTION TO
DISMISS PLAINTIFFS’ CLAIM FOR BREACH OF
GOOD FAITH- 5

1 engaged in or caused the foreclosure proceedings. Plaintiffs also argue that a trustee breaches its
2 duty when it is indifferent or dismissive of its duty of good faith. (Dkt. No. 31 at 6 (citing
3 Edmonson v. Popchoi, 172 Wn.2d 272 (2011)).) The Court agrees that the trustee cannot be
4 indifferent to its duty. Yet, even if the Court construes the Deed of Trust Act in Plaintiffs’ favor
5 it is too great a stretch to impose a duty of investigation into possible fraud on the original
6 trustee. See Udall v. T.D. Escrow Servs., Inc., 159 Wn.2d 903, 915-16 (2007) (requiring the Act
7 to be construed in the borrower’s favor). A trustee surely has a duty to ensure that its
8 replacement is proper, but not to second guess otherwise valid assignment documents. As
9 related to this case, the Court finds that the duty of good faith extends only to ensuring that there
10 are no obvious or known defects in the documents replacing the trustee. Plaintiffs would have
11 every trustee conduct a secondary investigation into the papers filed by the beneficiary, which is
12 simply too great a demand.
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The allegations here do not show that Chicago breached a duty of good faith. First, there

14 is no reason to assume Chicago knew MERS was never a valid beneficiary, as that legal question
15 remains unresolved and pending before the State Supreme Court. Second, the documents
16 appointing Chase as successor beneficiary and Northwest as trustee appear to bear valid
17 signatures. Plaintiffs have failed to present cogent allegations as to why Chicago should have
18 done any further investigation. Plaintiffs cobble together only threadbare allegations that
19 Chicago knew that the assignment was invalid. Plaintiffs allege only generically that everyone
20 in the mortgage industry knew that there were “robo-signers” and that Chicago should have
21 known that McElligot was not a MERS employee. This is inadequate to state a plausible claim
22 for relief, as there is nothing more than conjecture to support Plaintiffs’ theory. See Twombly,
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ORDER GRANTING DEFENDANT CHICAGO
TITLE INSURANCE COMPANY’S MOTION TO
DISMISS PLAINTIFFS’ CLAIM FOR BREACH OF
GOOD FAITH- 6

1 550 U.S. at 570. The allegations are simply too vague and conclusory to support a claim against
2 Chicago. The Court therefore GRANTS Chicago’s motion and dismisses this claim.
3 D.

Waiver

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Chicago incorrectly argues that Plaintiffs waived their breach of good faith claim against

5 it by failing to enjoin the foreclosure. As the Deed of Trust Act makes clear, Plaintiffs may bring
6 claims against the trustee for failure to comply with the Deed of Trust Act even if they fail to
7 enjoin the foreclosure sale. RCW 64.24.127(1). Plaintiffs may still seek damages arising out of
8 the “[f]ailure of the trustee to materially comply with” the Deed of Trust Act. Id.
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CPA and Criminal Profiteering
Plaintiffs have asserted a CPA and a criminal profiteering claim against Chicago on

11 which Chicago has not moved for relief. The claims were alleged in the original complaint as to
12 all Defendants, including Chicago. The amended complaint makes more specific allegations that
13 Chicago violated the CPA and criminal profiteering by failing to restrain Northwest and the
14 foreclosure sale. Because Chicago failed to move to dismiss these claims, the Court does not
15 examine their validity and cannot dismiss Chicago in its entirety from this case.
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Conclusion

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The Court GRANTS Chicago’s motion and DISMISSES the breach of good faith claim

18 against Chicago. Plaintiffs have not shown that Chicago owed them the extensive duty of good
19 faith that Plaintiffs alleged exists. Because Chicago has not moved for dismissal of any other
20 claims against it, it is not dismissed from the case.
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ORDER GRANTING DEFENDANT CHICAGO
TITLE INSURANCE COMPANY’S MOTION TO
DISMISS PLAINTIFFS’ CLAIM FOR BREACH OF
GOOD FAITH- 7

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The clerk is ordered to provide copies of this order to all counsel.

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Dated this 14th day of November, 2011.

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A

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Marsha J. Pechman
United States District Judge

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ORDER GRANTING DEFENDANT CHICAGO
TITLE INSURANCE COMPANY’S MOTION TO
DISMISS PLAINTIFFS’ CLAIM FOR BREACH OF
GOOD FAITH- 8