McNellis et al v. Mortgage Electronic Registration Systems Inc et al

Filing 29

ORDER granting 21 Defendants' Motion to Dismiss; This matter is dismissed with prejudice. Signed by Judge Ronald B. Leighton.(DN) Modified on 12/21/2011 (DN). (Copy mailed to plaintiffs.)

HONORABLE RONALD B. LEIGHTON

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT TACOMA

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JOSEPH E. McNELLIS and PAMELA A.
McNELLIS,

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Plaintiffs,

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No. 3:11-cv-05475 RBL

ORDER GRANTING DEFENDANTS’
MOTIONS TO DISMISS
[Dkt. #s 21 &22]

v.
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.,
NORTHWEST TRUSTEE SERVICES, INC.,
WELLS FARGO BANK, N.A.,
Defendants.

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INTRODUCTION

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THIS MATTER is before the Court on Defendants’ Motion to Dismiss under Rule

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12(b)(6), for failure to state a claim upon which relief can be granted. [Dkt. #21].
The case arises from Plaintiffs’ refinance of their Property. Plaintiffs defaulted on their

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mortgage, the lenders foreclosed. Plaintiffs assert a variety of claims against Defendants, based

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upon their contention that Note and Deed of Trust were invalid and the foreclosure was

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wrongful.

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For the reasons below, the Defendants’ Motion to Dismiss is GRANTED.
BACKGROUND
On September 10, 2008, Plaintiffs Joseph and Pamela McNellis refinanced their Property,

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borrowing money from Terrace Mortgage Company, in exchange for a promissory note. The

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Note was secured by a Deed of Trust which named Defendant Mortgage Electronic Registration

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Systems, Inc. (MERS) as nominee and beneficiary. On November 11, 2010, MERS assigned the

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Deed to Defendant Wells Fargo Bank by a recorded assignment of Deed of Trust. A copy of the

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Note attached to Plaintiffs’ Complaint shows that the Note is indorsed twice: first by Terrace to

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Wells Fargo, and second, indorsed in blank by Wells Fargo.
On November 15, 2011, Wells Fargo appointed Defendant Northwest Trustee Services,

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Inc. (NWTS) as successor trustee by a recorded appointment of successor trustee. Plaintiffs

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defaulted, and on December 22, 2010, NWTS recorded a notice of trustee’s sale.
Plaintiffs filed this action1 for money damages on June 2, 2011, asserting a variety of

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claims including wrongful foreclosure. Plaintiffs assert that their Note was incorrect and that

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default cannot be proven. Plaintiffs claim Defendants violated the Fair Debt Collection Practices

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Act, (FDCPA), Fair Credit Reporting Act (FCRA), and the Real Estate Settlement Procedures

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Act (RESPA). Plaintiffs also seek declaratory and injunctive relief.

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On July 1, 2011, Plaintiffs declared bankruptcy, which automatically stayed this action.

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Plaintiffs’ bankruptcy was dismissed without discharge on September 6, 2011 (see W.D. Wash.

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Bankr. Case No. 11-45388-BDL), and the stay was lifted.
Defendants MERS and Wells Fargo moved to Dismiss all claims [Dkt. #21], and

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Defendant Northwest Trustees joined the Motion [Dkt. #22].
DISCUSSION

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1. Standard for Dismissal

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Dismissal under Rule 12(b)(6) may be based on either the lack of a cognizable legal

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theory or absence of sufficient facts alleged under a cognizable legal theory. Balistreri v.

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Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff’s complaint must allege

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facts to state a claim for relief that is plausible on its face. See Ashcroft v. Iqbal, 129 S. Ct. 1937,

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1949 (2009). A claim has “facial plausibility” when the party seeking relief “pleads factual

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content that allows the court to draw the reasonable inference that the defendant is liable for the

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misconduct alleged.” Id. Although the Court must accept as true the Complaint’s well-pled facts,

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conclusory allegations of law and unwarranted inferences will not defeat an otherwise proper

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Plaintiffs sought to enjoin the foreclosure but that Motion was denied. See Dkt. #19
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[Rule 12(b)(6)] motion. Vasquez v. L. A. County, 487 F.3d 1246, 1249 (9th Cir. 2007); Sprewell

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v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). “[A] plaintiff’s obligation to

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provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions,

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and a formulaic recitation of the elements of a cause of action will not do. Factual allegations

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must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly,

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550 U.S. 544, 555 (2007) (citations and footnote omitted). This requires a plaintiff to plead

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“more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Iqbal, 129 S. Ct. at

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1949 (citing Twombly).

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Plaintiffs do not seek to amend their complaint, but the Defendants do seek dismissal

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with prejudice. Leave to amend shall be freely given when justice so requires. Fed. R. Civ. P.

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15(a). “If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject

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of relief, he ought to be afforded an opportunity to test his claim on the merits.” Foman v. Davis,

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371 U.S. 178, 182 (1962). On a 12(b)(6) motion, “a district court should grant leave to amend

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even if no request to amend the pleading was made, unless it determines that the pleading could

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not possibly be cured by the allegation of other facts.” Cook, Perkiss & Liehe v. N. Cal.

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Collection Serv., 911 F.2d 242, 247 (9th Cir. 1990).

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However, where the facts are not in dispute, and the sole issue is whether there is liability

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as a matter of substantive law, the court may deny leave to amend. Albrecht v. Lund, 845 F.2d

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193, 195-196 (9th Cir. 1988).

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2. “Incorrect Note” Claim

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The McNellises assert a cause of action for an “incorrect note.” They claim that the Note

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originally signed was “unregistered and non-negotiable.” [Complaint, Dkt. #1 at 10]. They argue

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that Terrace’s indorsement to Wells Fargo, and Wells Fargo’s indorsement in blank, void the

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Note. They argue that Terrace’s indorsement to Wells Fargo unilaterally changed the terms and

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conditions after Plaintiffs signed the Note. They assert that the Note is “discharged” and the

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Deed no longer “secures the Note.” [Dkt. #1 at 12]. Because Plaintiffs claim does not actually

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allege any unlawful conduct by Defendants, Plaintiffs’ claim fails.

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Washington law clearly provides that negotiable instruments may be indorsed. Under the

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Uniform Commercial Code, a bearer may indorse the instrument to another entity as a “special

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indorsement.” RCW 62A.3-205(a). Additionally, RCW 62A.3-205(b) covers indorsement in

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blank, whereby the Note is payable to the bearer. Under the Deed of Trust Act, a beneficiary is

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“the holder of the instrument . . . .” RCW 61.24.005(2). The UCC defines a holder as “the

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person in possession if the instrument is payable to bearer.” RCW 62A.1-201(20).

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The Note here was indorsed in blank and gave the bearer, Wells Fargo, the right to

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enforce it. The Deed of Trust Act also gives Wells Fargo, as beneficiary, the right to enforce the

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Deed securing it. The Defendants’ actions were lawful, and their rights secured by state law.

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The indorsements did not discharge the Note nor cause the Deed to cease securing the Note.

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Plaintiffs fail to state a claim.

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Defendants’ Motion to Dismiss Plaintiffs’ “incorrect note” action is GRANTED, and that
claim is DISMISSED with prejudice.

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3. “Erroneous Alleged Default” Claim

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The McNellises assert that no default has actually occurred, because Defendants were not

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the proper parties to declare default. Plaintiffs allege that Fannie Mae is the true beneficiary and

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therefore the correct party to declare default. They claim that because Fannie Mae has not

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declared default, no default exists. It is worth noting that Plaintiffs do not deny they have failed

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to make the required payments, and do not assert that they have.

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Plaintiffs claim the notice of default and notice of sale were inadequate, because they are

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not confident Wells Fargo actually owns the Note. Plaintiffs argue that the indorsements

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discussed above rendered the Note moot, somehow terminating Plaintiffs’ obligations to make

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payments on it.

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Plaintiffs’ argument regarding the indorsements is rejected above. Their obligations to

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continue paying on the Note remained. Their failure to make payments undercuts their argument

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that they are not in default.

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The McNellises’ claim that the incorrect party declared default is not supported by
factual allegations. Plaintiffs’ fail to assert any fact showing that Fannie Mae was the

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beneficiary of the Deed or that Fannie Mae held the Note itself. Rather, factual allegations point

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to Wells Fargo as the holder of the note and beneficiary of the Deed, as discussed in the

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preceding section. Plaintiffs do not believe Wells Fargo actually owned the Note. However, as

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this Court has previously concluded, a defendant’s “show me the note” argument is routinely

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held as lacking merit and insufficient to defeat a Rule 12 motion to dismiss. See Freeston v.

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Bishop, White & Marshal, P.S., 2010 WL 1186276 (W.D. Wash., Mar. 24, 2010) (quoting

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Diessner v. Mortg. Elec. Reg. Sys., 618 F.Supp.2d 1184, 1187 (D. Ariz. 2009) (collecting cases)).

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Defendants’ Motion to Dismiss Plaintiffs’ erroneous alleged default claim is GRANTED.

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4.

Fair Debt Collection Practices Act Claim

Plaintiffs claim violations of the FDCPA against Wells Fargo for failure to verify the

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McNellises’ debt within 30 days of a request to do so. Defendant Wells Fargo argues Plaintiffs

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fail to state a claim because the FDCPA does not apply to Wells Fargo. Wells Fargo argues it is

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a creditor, not a debt collector.

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A creditor under the FDCPA is a “person who uses any instrumentality of interstate

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commerce or the mails” to collect debts. 15 U.S.C. § 1692(a). It may also be a person “who

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regularly collects or attempts to collect . . . debts . . . owed or due another.” Id. It specifically

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does not cover “a consumer’s creditors.” Id. It is well-settled that the statute does not apply to a

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mortgage servicing company. Segle v. PNC Mtg., 2011 WL 1098936, *7 (W.D. Wash. Mar. 25,

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2011) (citing Lal v. Am. Home Servicing, Inc., 680 F.Supp.2d 1218, 1224 (E.D.Cal.2010)).

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Wells Fargo correctly points out that the indorsements on the Note demonstrate that

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Wells Fargo was a creditor, or a loan servicer, and not a debt collector subject to the Act.

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Additionally, the plaintiffs have not and cannot demonstrate that they were not in default. The

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FDCPA does not apply, and Plaintiffs have failed to state a claim under it. Defendants’ Motion

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to Dismiss Plaintiffs’ FDCPA claim is GRANTED, and Plaintiffs’ FDCPA claims is

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DISMISSED with prejudice.

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5. Fair Credit Reporting Act Claim

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Plaintiffs assert Wells Fargo violated the Fair Credit Reporting Act (FCRA) by

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“erroneously reporting the obligation of [Terrace Mortgage Company] as if it were the obligation

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of Plaintiff’s.” [Dkt. #1 at 15]. Plaintiffs offer no further allegation in their Complaint to

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support the FCRA claim. They provide no detail regarding which provisions of the FCRA apply

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or how they were violated. Defendants argue that by indorsing the Note to Wells Fargo, Terrace

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did not relieve the McNellises of their obligation. Furthermore, Defendants assert that the FCRA

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is largely applicable to credit reporting agencies, making it difficult to determine what exactly

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Plaintiffs claim against Wells Fargo.

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Plaintiffs do not plead with any particularity regarding the FCRA. It is not at all clear

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what statutory provisions plaintiffs even claim are at issue here. In any event, as discussed

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above, the indorsements made on the Note did not void Plaintiffs’ obligations. Therefore, the

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entire basis for this claim fails. Defendants’ Motion to Dismiss Plaintiffs’ FCRA claim is

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GRANTED, and that claim is DISMISSED with prejudice.

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6. Real Estate Settlement Procedures Act Claim

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Plaintiffs assert that Defendants Wells Fargo and NWTS violated the Real Estate

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Settlement Procedures Act (RESPA) by failing to adequately respond to a Qualified Written

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Request. The Complaint does not allege a written request, its date, the subject matter, or any

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other pertinent information. The McNellises fail to allege any fact regarding Defendants’

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response or its inadequacy. In short, the factual bases for Plaintiffs RESPA claim are merely

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conclusory statements insufficient to support a claim. See Iqbal, 129 S. Ct. at 1949 (citing

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Twombly). Defendants’ Motion to Dismiss Plaintiff’s RESPA claim is GRANTED, and that

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claim is DISMISSED with prejudice.

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7. Request for Declaratory Relief

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The McNellises seek a declaratory judgment that MERS’ “service as a beneficiary under

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the subject Deed of Trust has no basis in law or equity.” [Dkt. #1 at 17]. This Court recognizes

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as a threshold matter that no party in this suit claims that MERS is a beneficiary under the Deed.

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A controversy does not exist where there is no disputed claim. This Court discussed above the

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indorsements on the Note. The indorsements establish that Wells Fargo is the beneficiary. This

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issue is therefore moot.

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Additionally, this Court and the Ninth Circuit have both held that to argue MERS is not a

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proper beneficiary is insufficient to defeat a Rule 12 motion to dismiss. See, e.g., Vawter v.

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Quality Loan Serv. Corp. of Wash., 707 F.Supp.2d 1115, 1126 (W.D. Wash. 2010); see also

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Cervantes v. Countrwide Home Loans, Inc., 2011 WL 3911031, *5 (9th Cir. Sept. 7, 2011). For

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these reasons, Defendants’ Motion to Dismiss Plaintiff’s request for declaratory relief is

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GRANTED, and this claim is DISMISSED with prejudice.

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8. Request for Injunctive Relief

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Plaintiffs seek permanent injunctive relief restraining further foreclosure proceedings.

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This Court has previously denied temporary and preliminary injunctive relief in this case. [Order

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Denying Motions for TRO and Preliminary Injunction, Dkt. #19]. The McNellises’ request for

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injunctive relief relies upon the success of their substantive claims, which this Court has

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dismissed. Plaintiffs’ request for permanent injunctive relief is therefore denied. Defendants’

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Motion to Dismiss Plaintiffs’ request for injunctive relief is GRANTED, and this claim is

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DISMISSED with prejudice.
CONCLUSION

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Defendants’ Motion to Dismiss all claims is GRANTED. The facts are not in dispute,

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and the sole issue is whether there is liability as a matter of substantive law. The court therefore

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denies leave to amend, and the dismissal is with prejudice. Albrecht v. Lund, 845 F.2d 193, 195-

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196 (9th Cir. 1988).

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IT IS SO ORDERED.
Dated this 21st day of December, 2011.

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A
RONALD B. LEIGHTON
UNITED STATES DISTRICT JUDGE

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