Roybal et al v. Countrywide Home Loans, Inc. et al, No. 2:2010cv00750 - Document 33 (D. Nev. 2010)

Court Description: ORDER Granting in part and denying in part 13 Motion to Dismiss; Denying as Moot 15 Counter-Motion for Summary Judgment; Denying as Moot 31 Motion for Hearing re 13 Motion to Dismiss. Signed by Judge Edward C. Reed, Jr on 12/9/10. (Copies have been distributed pursuant to the NEF - MMM)
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Roybal et al v. Countrywide Home Loans, Inc. et al Doc. 33 1 2 3 4 UNITED STATES DISTRICT COURT DISTRICT OF NEVADA 5 6 7 STEPHEN ROYBAL, an individual; and COLLEEN ROYBAL, an individual; 8 Plaintiffs, 9 vs. 10 COUNTRYWIDE HOME LOANS, INC., a 11 Foreign Corporation; BANK OF AMERICA HOME LOAN SERVICING, LP, a 12 Foreign Corporation; LAWYERS TITLE OF NEVADA INC., a Nevada 13 Corporation; RECONTRUST COMPANY, N.A., a Foreign Corporation; 14 MORTGAGE ELECTRONIC REGISTRATIONS SYSTEMS, INC., a Foreign 15 Corporation; and JOHN DOES 1 through 5; 16 Defendants. 17 ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) 2:10-CV-750-ECR-PAL Order 18 Plaintiffs in this case are the owners of a home in Las Vegas, 19 Nevada. Defendants are Countrywide Home Loans, Inc. 20 (“Countrywide”), Bank of America Home Loan Servicing, Recontrust 21 Company (“Recontrust”) and Mortgage Electronic Registration Systems, 22 Inc. (“MERS”). 23 Now pending are Defendants’ motion to dismiss (#13), 24 Plaintiffs’ counter-motion for partial summary judgment (#15) and 25 Defendants’ motion for a hearing regarding Defendants’ motion to 26 dismiss (#31). The motions are ripe, and we now rule on them. 27 28 1 2 I. Factual and Procedural Background The facts as alleged in the complaint are as follows: on August 3 24, 2004, Plaintiffs entered into a promissory note (“the First 4 Note”) secured by the property located at 3018 Panache Street in Las 5 Vegas, Nevada. On May 12, 2006, Plaintiffs obtained a second loan 6 on the property, from Countrywide. On June 6, 2009, Recontrust 7 recorded a Notice of Default and Election to Sell (“NOD”) with 8 respect to the First Note. On or about September 9, 2009, 9 Recontrust Company recorded a Notice of Trustee’s Sale (“NOS”). 10 Nevertheless, the trustee’s sale never took place. 11 On or around November 15, 2009, Plaintiffs received a call 12 regarding their second loan. The caller purported to be acting on 13 behalf of Countryside and sought information relating to the second 14 note and second deed of trust, and asked if someone had worked with 15 Plaintiffs on obtaining a loan modification. When Plaintiffs 16 further questioned the caller, she claimed to be representing an 17 insurance company that received a loss claim from Countrywide 18 regarding Plaintiffs’ second loan. 19 On April 13, 2010, Plaintiffs filed a lawsuit in state court. 20 On May 20, 2010, Defendants removed (#1) the lawsuit to our court, 21 invoking our diversity jurisdiction. On May 27, 2010, Defendants 22 filed a request for judicial notice (#12) and a motion to dismiss 23 (#13). Plaintiffs opposed (#17) the motion to dismiss and, 24 Defendants replied (#27). 25 On June 7, 2010, Plaintiffs filed a counter-motion (#15) for 26 summary judgment seeking to quiet title against Defendant Lawyers 27 Title of Nevada Inc. (“LTN”) and to prevent LTN from foreclosing on 28 2 1 Plaintiffs’ home.1 LTN did not oppose the motion. Pursuant to our 2 Order (#29) approving a stipulation (#28) of the parties, LTN is no 3 longer a defendant in this case. 4 5 6 II. Motion to Dismiss Standard A motion to dismiss under Fed. R. Civ. P. 12(b)(6) will only be 7 granted if the complaint fails to “state a claim to relief that is 8 plausible on its face.” 9 570 (2007). Bell Atl. Corp. v. Twombly, 550 U.S. 544, On a motion to dismiss, “we presum[e] that general 10 allegations embrace those specific facts that are necessary to 11 support the claim.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 12 561 (1992) (quoting Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 889 13 (1990)) (alteration in original). Moreover, “[a]ll allegations of 14 material fact in the complaint are taken as true and construed in 15 the light most favorable to the non-moving party.” In re Stac 16 Elecs. Sec. Litig., 89 F.3d 1399, 1403 (9th Cir. 1996) (citation 17 omitted). 18 Although courts generally assume the facts alleged are true, 19 courts do not “assume the truth of legal conclusions merely because 20 they are cast in the form of factual allegations.” 21 Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). W. Mining Accordingly, 22 “[c]onclusory allegations and unwarranted inferences are 23 insufficient to defeat a motion to dismiss.” In re Stac Elecs., 89 24 F.3d at 1403 (citation omitted). 25 26 1 27 Plaintiffs’ counter-motion was filed in response to LTN’s motion for summary judgment, filed May 21, 2010 in state court. 28 3 1 Review on a motion pursuant to Fed. R. Civ. P. 12(b)(6) is 2 normally limited to the complaint itself. 3 250 F.3d 668, 688 (9th Cir. 2001). See Lee v. City of L.A., If the district court relies on 4 materials outside the pleadings in making its ruling, it must treat 5 the motion to dismiss as one for summary judgment and give the non6 moving party an opportunity to respond. Fed. R. Civ. P. 12(d); 7 see United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). “A 8 court may, however, consider certain materials — documents attached 9 to the complaint, documents incorporated by reference in the 10 complaint, or matters of judicial notice — without converting the 11 motion to dismiss into a motion for summary judgment.” Ritchie, 342 12 F.3d at 908. 13 If documents are physically attached to the complaint, then a 14 court may consider them if their “authenticity is not contested” and 15 “the plaintiff’s complaint necessarily relies on them.” Lee, 250 16 F.3d at 688 (citation, internal quotations, and ellipsis omitted). 17 A court may also treat certain documents as incorporated by 18 reference into the plaintiff’s complaint if the complaint “refers 19 extensively to the document or the document forms the basis of the 20 plaintiff’s claim.” Ritchie, 342 F.3d at 908. Finally, if 21 adjudicative facts or matters of public record meet the requirements 22 of Fed. R. Evid. 201, a court may judicially notice them in deciding 23 a motion to dismiss. Id. at 909; see Fed. R. Evid. 201(b) (“A 24 judicially noticed fact must be one not subject to reasonable 25 dispute in that it is either (1) generally known within the 26 territorial jurisdiction of the trial court or (2) capable of 27 28 4 1 accurate and ready determination by resort to sources whose accuracy 2 cannot reasonably be questioned.”). 3 4 III. Discussion 5 A. Quiet Title 6 The first claim in Plaintiffs’ Complaint is quiet title. A 7 quiet title action is the proper method by which to adjudicate 8 disputed ownership of real property rights. 9 197 P.3d 1044, 1046 n.1 (Nev. 2008). See Howell v. Ricci, Though not properly a cause of 10 action, an action to quiet title is an equitable proceeding in which 11 a party seeks to settle a dispute over ownership of property or to 12 remove a cloud upon his title to the property. 13 362 P.2d 724 (Nev. 1961). MacDonald v. Krause, Although this has not been explicitly 14 addressed by the Nevada Supreme Court, a widely accepted rule in 15 such actions is that the party must tender the undisputed amount due 16 and owing to challenge the validity of a sale or title to the 17 property. See, e.g., Abdallah v. United Savings Bank, 43 Cal. App. 18 4th 1101, 1109 (1996). In essence, under the tender rule, he who 19 seeks equity must do equity. 20 (1873). See McQuiddy v. Ware, 87 U.S. 14, 19 Indeed, the issue of tender was a factor considered by the 21 Nevada Supreme Court when it ruled in favor of a party challenging a 22 sale on their property due to past due taxes. Provenzano v. Clark 23 County, 319 P.2d 855, 857 (Nev. 1957) (“Plaintiff's action was to 24 quiet title to the property involved, accompanied by a tender to pay 25 all taxes.”). 26 With respect to the issue of tender, Plaintiffs allege that 27 “Countrywide and BOA, on information and belief, have been paid for 28 5 1 their Second Note and Second Trust Deed through an insurance claim.” 2 (Compl. § 41 (#1).) Plaintiffs also allege that by “bundling the 3 First Note and selling it [Defendants] have been paid for the 4 underlying obligation.” (Id. § 38.) These allegations are not only 5 conclusory and lacking in factual support, they are also not 6 tantamount to an allegation that Plaintiffs have tendered the amount 7 owed on their mortgages. Plaintiffs’ first claim will therefore be 8 dismissed. 9 B. Contractual Breach of the Implied Covenant of Good Faith and 10 Fair Dealing 11 Plaintiffs’ second claim is for breach of the implied covenant 12 of good faith and fair dealing. In every contract, there is an 13 implied covenant of good faith and fair dealing: “When one party 14 performs a contract in a manner that is unfaithful to the purpose of 15 the contract and the justified expectations of the other party are 16 thus denied, damages may be awarded against the party who does not 17 act in good faith.” Hilton Hotels Corp. v. Butch Lewis Prods., 18 Inc., 808 P.2d 919, 923 (Nev. 1991). A breach of the covenant 19 occurs “[w]here the terms of a contract are literally complied with 20 but one party to the contract deliberately contravenes the intention 21 and spirit of the contract . . . .” 22 Id. at 922-23. In this case, Plaintiffs do not allege facts that would 23 establish that the manner in which Defendants complied with the 24 contracts at issue — the promissory notes and deeds of trust — 25 contravened the intention or spirit of the contracts. Plaintiffs 26 allege that Defendants failed to provide adequate notice when 27 initiating foreclosure proceedings, failed to adequately negotiate a 28 6 1 loan modification and failed to inform Plaintiffs about the 2 insurance claim. The manner in which Defendants conducted 3 themselves with respect to modification of Plaintiffs’ loans and 4 foreclosure on Plaintiffs’ house is irrelevant to the issue of 5 whether or not Defendants deliberately contravened the intention and 6 spirit of the initial loan contracts. Moreover, Plaintiffs allege 7 no facts regarding the specific nature of the referenced insurance 8 claim. Therefore, it is impossible to evaluate the import of this 9 alleged insurance claim with respect to this claim for relief. 10 Thus, Plaintiffs’ claim for breach of the implied covenant of good 11 faith and fair dealing will be dismissed. 12 C. Declaratory Relief: Lacks Standing to Foreclose on First 13 Deed of Trust 14 Plaintiff’s third claim seeks declaratory relief under Nev. 15 Rev. Stat. § 30.040 that “MERS and any of its agents, successors or 16 assigns lacks standing to foreclose on the Property because they 17 have no rights under the First Note.” (Compl. ¶ 62 (#1-4).) Nev 18 Rev. Stat § 30.040 provides as follows: 19 20 21 22 Any person interested under a deed, written contract or other writings constituting a contract, or whose rights, status or other legal relations are affected by a statute, municipal ordinance, contract or franchise, may have determined any question of construction or validity arising under the instrument, statute, ordinance, contract or franchise and obtain a declaration of rights, status or other legal relations thereunder. 23 24 NEV REV . STAT § 30.040. 25 Plaintiffs’ position with respect to MERS’s inability to 26 foreclose is grounded in two theories: First, Plaintiffs claim that 27 although MERS is listed under the First Deed of Trust as the 28 7 1 mortgagee and nominee for the lender, MERS is not “listed anywhere 2 on the First Note or even referred to in the First Note.” 3 57 (#1-4).) (Compl. ¶ Thus, unless MERS can “produce evidence of a legal 4 right under the First Note, they cannot foreclose on the First Trust 5 Deed.” (Id. ¶ 59.) Second, Plaintiff claims that “the Lender has 6 already been paid on the First Note, when the First Note was bundled 7 with other notes and sold as mortgage-backed securities.” 8 60.) 9 (Id. ¶ We will examine each contention in turn. Under Plaintiff’s deed of trust, MERS is designated as the 10 nominee for the original lender, Republic Mortgage, LLC. 11 A at 2 (#12-1).) (RJN, Ex. MERS is also designated as the beneficiary “solely 12 as nominee for Lender and Lender’s successors and assigns” 13 2 (#12-1).) (Id. at As many courts have noted, however, “calling MERS a 14 ‘beneficiary’ is both incorrect and unnecessary.” Weingartner v. 15 Chase Home Finance, LLC, --- F. Supp. 2d ----, No. 2:09-cv-02255, 16 2010 WL 1006708 at *2 (D. Nev. 2010). It is unnecessary because, in 17 Nevada, the beneficiary is not the only entity that can record the 18 notice of breach and election to sell. 19 107.080(2)(b). NEV . REV . STAT . § The trustee or “other person authorized to make the 20 sale under the terms of the trust deed” may make the sale. 21 107.080(4). Id. § There is therefore no need for any “beneficiary” to 22 make the sale. 23 MERS, as the nominee of the lender, has authority to act on 24 behalf of the holder of the promissory note as to administration of 25 the deed of trust, which includes the authority for substitution of 26 trustees. Id. Moreover, there is a near consensus among district 27 courts in this circuit that while MERS does not have standing to 28 8 1 foreclose as a beneficiary, because it is not one, it does have 2 standing as an agent of the beneficiary where it is the nominee of 3 the lender, who is the true beneficiary. Weingartner, --- F. Supp. 4 2d ----, 2010 WL 1006708 at *2; See also Pantoja v. Countrywide Home 5 Loans, Inc., 640 F. Supp. 2d 1177, 1190 (N.D. Cal. 2009); Lane v. 6 Vitek Real Estate Industries Group, --- F. Supp. 2d ----, No. 7 2:10-335, 2010 WL 1956707 (E.D. Cal. 2010). 8 A possible defect in foreclosure remains “when a note has been 9 negotiated, and there is no evidence that the foreclosing trustee is 10 the nominee of the current holder or that the foreclosing trustee 11 was substituted by a nominee of the current holder.” 12 --- F. Supp. 2d ----, 2010 WL 1006708 at *2. 13 however, is not based on such a defect. Weingartner, Plaintiffs’ theory, Indeed, Plaintiffs do not 14 contend that Recontrust was not properly substituted as trustee by 15 MERS. Rather, Plaintiffs’ theory appears to be based on the 16 circumstance that MERS is listed on the security instrument, but not 17 on the promissory note itself. We have not discovered, nor have 18 Plaintiffs provided, any authority indicating that the scope of 19 MERS’ agency must be apparent on the face of the promissory note. 20 Indeed, such a circumstance would be anomalous at best. 21 trust is a security instrument. A deed of It follows the promissory note and 22 generally functions as an agency contract as between MERS and the 23 lender. 24 See id. at 3. Plaintiffs’ theory thus fails. Plaintiff’s second theory — that “the Lender has already been 25 paid on the First Note, when the First Note was bundled with other 26 notes and sold as mortgage-backed securities” (Compl. ¶ 60 (#1-4)) — 27 likewise fails. 28 Plaintiffs do not allege facts supporting their 9 1 claim that their promissory notes were bundled with other notes and 2 sold as mortgage-backed securities, and they fail to explain how 3 that activity would lead to the conclusion that their particular 4 loan was paid off. Plaintiffs’ third claim will therefore be 5 dismissed. 6 D. Declaratory Relief 7 Plaintiffs’ fourth claim also seeks declaratory relief 8 Nev. Rev. Stat. § 30.040. under Specifically, Plaintiffs seek declaratory 9 relief that: (1) the “Trust Deeds are worthless pieces of paper”; 10 (2) the “obligation under the First Note has been satisfied by its 11 sale as a mortgage-backed security”; (3) the “obligations under the 12 Second Note has been satisfied by the collection of the insurance 13 proceeds by Countrywide”; and (4) “no Defendant has authority to 14 foreclose because of failure to provide adequate notice under NRS § 15 107.080, NRS § 107.085 and NRS § 107.086.” 16 (Compl. ¶ 66 (#1-4).) Plaintiff has not provided, nor have we discovered, any legal 17 or factual support in favor of the first three proposition. There 18 does, however, appear to be factual and legal support in favor of 19 the fourth to the extent the notice defect is premised on a 20 violation of Nev. Rev. Stat. 107.085(3)(b).2 Indeed, it appears 21 that the NOS may have been deficient with respect to form.3 22 REV. STAT. § 107.085(3)(b); (NOS, Ex. F (#12-1).) NEV . Therefore, we will 23 24 2 25 26 Plaintiffs allege no facts in support of a violation of Nev. Rev. Stat. § 107.080 or Nev. Rev. Stat § 107.086. 3 27 Plaintiffs also allege that the NOD does not comply with Nev. Rev. Stat. § 107.085(3)(b). Section 107.085, however, applies only to notices of sale. 28 10 1 deny Defendants’ motion to dismiss with respect to this claim to the 2 extent the claim is premised on deficiencies in the NOS. 3 E. Injunctive Relief 4 Plaintiffs’ fifth claim requests injunctive relief enjoining 5 Defendants’ foreclosure. As discussed above, the NOS does not 6 appear to comport with Nevada’s statutory requirements. Therefore, 7 we will deny Defendants’ motion to dismiss with respect to 8 Plaintiffs’ request for injunctive relief to the extent the 9 injunctive relief is premised on deficiencies in the NOS. 10 F. Counter-Motion 11 Plaintiffs’ counter-motion for summary judgment (#15) seeks to 12 quiet title against LTN and asks for declaratory relief that LTN 13 can’t foreclose on Plaintiffs’ property. The motion (#15) is moot 14 in light of our order (#29) granting the parties’ stipulation of 15 dismissal of LTN, and will be denied on that basis. 16 17 IV. Leave to Amend 18 Under Rule 15(a) leave to amend is to be “freely given when 19 justice so requires.” In general, amendment should be allowed with 20 “extreme liberality.” Owens v. Kaiser Found. Health Plan, Inc., 244 21 F.3d 708, 712 (9th Cir. 2001) (quoting Morongo Band of Mission 22 Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990)). If factors 23 such as undue delay, bad faith, dilatory motive, undue prejudice or 24 futility of amendment are present, leave to amend may properly be 25 denied in the district court’s discretion. Eminence Capital, LLC v. 26 Aspeon, Inc., 316 F.3d 1048, 1051-52 (9th Cir. 2003). 27 28 11 1 In light of the liberal spirit of Rule 15(a), Plaintiffs will 2 be given leave to amend the claims dismissed by this Order. If the 3 amended complaint is similarly deficient, however, we may be forced 4 to conclude that further leave to amend would be futile. Moreover, 5 if Plaintiffs choose not to amend the complaint this lawsuit will 6 continue with respect to the claims not dismissed by this Order. 7 8 9 V. Conclusion Plaintiffs’ first claim for quiet title fails because 10 Plaintiffs do not allege that they have tendered the amount owed on 11 their mortgages. Plaintiffs’ second claim for breach of the 12 implied covenant of good faith and fair dealing likewise does not 13 survive the present motion to dismiss because Plaintiffs allege no 14 facts in support of the claim. Plaintiffs’ third claim for 15 declaratory relief does not pass muster; it is based on two 16 untenable theories. Plaintiffs’ fourth claim for declaratory relief 17 survives the present motion to dismiss to the extent the claim is 18 premised on deficiencies in the NOS. The record supports he 19 proposition that the NOS did not conform to Nevada’s statutory 20 requirements. Finally, Plaintiffs’ fifth claim, which requests 21 injunctive relief enjoining Defendants from foreclosing on their 22 property, survives the pending motion to dismiss to the extent it is 23 based on the aforementioned deficiencies in the NOS. Plaintiffs 24 will be given leave to amend their complaint. 25 26 IT IS, THEREFORE, HEREBY ORDERED THAT Defendants’ motion to 27 dismiss (#13) is GRANTED in part and DENIED in part on the following 28 12 1 basis: The motion is granted with respect to Plaintiffs’ first, 2 second and third claims. With respect to Plaintiffs’ fourth and 3 fifth claims, the motion is denied only to the extent Plaintiffs’ 4 claim is based on deficiencies in the notice of sale. The motion is 5 granted in all other respects. 6 7 IT IS FURTHER ORDERED THAT Plaintiffs’ counter-motion for 8 partial summary judgment (#15) is DENIED as moot. 9 10 IT IS FURTHER ORDERED THAT Defendants’ “motion for Hearing re 11 13 motion to Dismiss” (#31) is DENIED as moot. 12 13 14 DATED: December 9, 2010. 15 ____________________________ UNITED STATES DISTRICT JUDGE 16 17 18 19 20 21 22 23 24 25 26 27 28 13