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Mark and Vicky Russell v. Onewest Bank Fsb.; Pioneer Lender Trustee Services

October 20, 2011


The opinion of the court was delivered by: Honorable B. Lynn Winmill Chief U. S. District Judge



The Court has before it Defendants' Motion to Dismiss and Defendants' Motion to Strike Affidavits of Mark Russell and Scott Rose. (Dkts. 10, 28.) Having reviewed the Motions and Plaintiffs' responses, the Court has determined that the Motions are suitable for disposition without oral argument. For the reasons explained below, the Court will grant in part and deny in part the Motion to Strike. The Court will grant, in part, the Motion to Dismiss. With respect to one of Plaintiffs' state law based claims, the Court will reserve judgment pending the decision of the Idaho Supreme Court in a case likely to resolve the state law issue before the Court, Trotter v. Bank of New York Mellon, No. 38022-2010.


This case concerns the non-judicial foreclosure sale of an investment property in Meridian, Idaho, formerly owned by Plaintiffs Mark and Vicky Russell. Plaintiffs claim that the foreclosure on their property and loan modification proceedings prior to the foreclosure violated various provisions of state and federal law. For the purposes of this motion, "all of the [Plaintiffs'] allegations of material fact" are accepted as true. Rodriguez v. Panayiotou, 314 F.3d 979, 983 (9th Cir. 2002).

In 2007, Plaintiffs received a loan for $311,650 from IndyMac Bank, F.S.B. ("IndyMac"), which they used to construct a four condo unit on property they owned. (Compl. ¶ 11, Dkt. 1.) Plaintiffs signed a Promissory Note ("Note") to IndyMac, which was secured by a Deed of Trust on the property ("Deed"). The Deed designated Mortgage Electronic Registration Systems, Inc. ("MERS") as the beneficiary, and Transnation Title Insurance Company as the trustee. (Id. ¶ 14.)

The designated beneficiary, MERS, is an electronic registry database that tracks the transfer of the beneficial interest in residential loans. See Cervantes v. Countrywide Home Loans, __ F.3d __, 2011 WL 3911031 at *2 (9th Cir. Sept. 7, 2011). To facilitate transfer of interest in these loans without the burden of recording each transfer of the trust deed or promissory note, as required by state laws, MERS serves as "the nominal record holder of the deed." Id. Through MERS, Defendant Federal Home Loan Mortgage Corporation("Freddie Mac") purchased an interest in Plaintiffs' loan. Freddie Mac packaged Plaintiffs' loan into a larger pool of loans, and then into an unknown trust entity, which managed the pool and sold collateralized pieces of its holdings to investors, including slices of interest in Plaintiffs' loan. (Compl. ¶ 15.)

On July 11, 2008, IndyMac collapsed and was closed by the Office of Thrift Supervision. (Id. ¶ 3.)Substantially all of its assets were passed to a newly chartered federal bank, IndyMac Federal, F.S.B. ("IndyMac Federal"). The Federal Deposit Insurance Corporation ("FDIC") managed IndyMac Federal as conservator. (Id. ¶ 3.)

On August 4, 2010, IndyMac Federal signed a document appointing Defendant Pioneer Lender Trustee Services, LLC ("Pioneer") as the successor trustee. (Id. ¶ 31.) On August 5th, MERS assigned its interest as beneficiary to IndyMac Federal. (Id. ¶ 32.) Both documents were recorded in Ada County on August 8th. (Compl., Ex. 1, Dkt. 1-1 at 2; Ex. 2, Dkt. 1-2 at 2.) At some subsequent point, IndyMac Federal sold its interest in Plaintiffs' loan to Defendant OneWest Bank F.S.B. ("OneWest").

Meanwhile, Plaintiffs fell behind on their mortgage payments. On February 4, 2010, Regional Trustee Service Corporation ("RTS"), an agent of Pioneer, recorded a Notice of Default indicating that Plaintiffs owed $15,387.60 in back payments. (McFarland Aff., Ex. E, Dkt. 10-3 at 36.) Plaintiffs did not receive a copy of the Notice of Default. (Compl. ¶ 43.) On February 10th, Pioneer served Plaintiffs with a Notice of Sale, which scheduled Plaintiffs' property for a foreclosure sale on June 10, 2010. (Id.)

Plaintiffs entered negotiations with OneWest concerning loan modification and forbearance. (Id. ¶ 44.) OneWest represented to Plaintiffs that loan modification might be possible if they brought their payments current. This impelled Plaintiffs to make payments of approximately $20,000 during June, July, and August of 2010. (Id. ¶ 106.) During this time, Pioneer repeatedly pushed back the date of the foreclosure sale originally scheduled for June 10th. (Id. ¶ 45.)

Despite Plaintiffs' arrearage payments, on October 10th Pioneer conducted a foreclosure sale on Plaintiffs' property, and it was purchased by Freddie Mac. (Id. ¶ 116.) On April 15, 2011, the Trustee's Deed transferring title of the property to Freddie Mac was recorded in Ada County. (Id. ¶ 48.)

Subsequently, Plaintiffs filed the Complaint at issue here, alleging that Defendants lacked authority to foreclose, that the foreclosure sale violated various provisions of Idaho law, that Defendants' failure to modify their loan violated several federal policies, and that Defendants had committed several state law torts. Defendants now move to dismiss under Rule 12(b)(6).


Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While a complaint attacked by a Rule 12(b)(6) motion to dismiss "does not need detailed factual allegations," it must set forth "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Id. at 570. 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. at 556. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of 'entitlement to relief.' " Id. at 557.

In a more recent case, the Supreme Court identified two "working principles" that underlie the decision in Twombly. See Ashcroft v. Iqbal, __ U.S. __, 129 S. Ct. 1937, 1949 (2009). First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Id. "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." Id. at 1950.Second, only a complaint that states a plausible claim for relief survives a motion to dismiss. Id. "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." Id.

Providing too much in the complaint may also be fatal to a plaintiff. Dismissal may be appropriate when the plaintiff has included sufficient allegations disclosing some absolute defense or bar to recovery. See Weisbuch v. County of L.A., 119 F.3d 778, 783, n. 1 (9th Cir. 1997) (stating that "[i]f the pleadings establish facts compelling a decision one way, that is as good as if depositions and other . . . evidence on summary judgment establishes the identical facts").

A dismissal without leave to amend is improper unless it is beyond doubt that the complaint "could not be saved by any amendment." Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir. 2009) (issued two months after Iqbal).*fn1 The Ninth Circuit has held that "in dismissals for failure to state a claim, a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Cook, Perkiss and Liehe, Inc. v. Northern California Collection Service, Inc., 911 F.2d 242, 247 (9th Cir. 1990). The issue is not whether the plaintiff will prevail but whether he "is entitled to offer evidence to support the claims." Diaz v. Int'l Longshore and Warehouse Union, Local 13, 474 F.3d 1202, 1205 (9th Cir. 2007) (citations omitted).


1. Motion to Strike Plaintiffs' Exhibits

Defendants move the Court to strike exhibits provided in support of Plaintiffs' Response to the Motion to Dismiss.

Under Rule 12(b)(6), the Court may consider matters that are subject to judicial notice without transforming the motion to dismiss into a motion for summary judgment. Mullis v. United States Bank, 828 F.2d 1385, 1388 (9th Cir. 1987). The Court may take judicial notice "of the records of state agencies and other undisputed matters of public record." Disabled Rights Action Comm. v. Las Vegas Events, Inc., 375 F.3d 861, 866 n.1 (9th Cir. 2004). The Court may also examine documents of undisputed authenticity referred to in the complaint, although not attached thereto, without transforming the motion to dismiss into a motion for summary judgment. See Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).

Applying these standards, the Court will grant Defendants' Motion to Strike with regard to Exhibit 1, attached to the original Response to the Motion to Dismiss. (Dkt. 21-1.) The Court cannot take judicial notice of an individual's affidavit, nor is the affidavit incorporated by reference in the Complaint. The Court will also grant the Motion with respect to Exhibits 2, 3, 4, 5, and 10, attached to the amended Response to the Motion to Dismiss. (Dkt. 22-2, -3, -4, -5, -10.) The Court cannot take judicial notice of private correspondence between the parties. These documents cannot be incorporated by reference because Defendants reasonably dispute their authenticity or completeness. See Knievel, 393 F.3d at 1076. With respect to Exhibit 10, the Court need not take judicial notice of a federal law to consider it.

The Court will deny Defendants' Motion with respect to Exhibit 2 attached to the original Response. (Dkt. 21-2.) The letter, informing Plaintiffs of the sale of their property in foreclosure, is incorporated by reference in the Complaint (¶ 45) and its authenticity is not challenged by Defendants. See Cooper v. Pickett, 137 F.3d 616, 622 (9th Cir. 1997) (allowing consideration of document in these circumstances). The Court will also deny Defendants' Motion with respect to Exhibit 1, the Rescission of Notice of Default, attached to the second Response. (Dkt. 22-1.) Exhibit 1 is a publicly recorded document relevant to the time line of events alleged in the complaint. The Court can and does take judicial notice of the Rescission. See Disabled Rights Action Comm.,375 F.3d at 866 n.1 (allowing judicial notice of matters of public record).Finally, the Court will deny the Motion with respect to Exhibits 6 through 9, attached to the second Response. (Dkt. 22-6 to 22-9.) These documents, all contracts between federal entities and various banks, are made publicly available by the Federal Deposit Insurance Corporation via an official government website and qualify as public records subject to judicial notice. See, e.g., NRDC v. Kempthorne, 539 F. Supp. 2d 1155,1167(E.D. Cal. 2008) (holding that water contracts entered into by the Bureau of Land Management and made available via an official government website were proper subject of judicial notice).

The Court also notes that it can consider the various recorded exhibits submitted by Defendants at this stage, both because they are public records subject to judicial notice and because the documents are referenced in the Complaint and there is no question of their authenticity. Cervantes, 2011 WL 3911031 at *5 n.2.

2. Request for Declaratory Relief that the Trustee's Deed is Void

In the first cause of action, Plaintiffs seek a declaratory judgment that the Trustee's Deed is void. They plead a litany of theories, including that (1) securitization of the Note invalidated the foreclosure sale, (2) assignment of Pioneer as successor trustee was invalid, (3) Plaintiffs were not provided the notice of default required by Idaho law, (4) the foreclosure sale was improperly postponed, (5) Freddie Mac did not have authority to make a credit bid at the foreclosure sale, and finally (6) the Trustee's Deed and other documents state an incorrect description of the property. The Court addresses each of these claims in turn.

A. "Securitization" of the Promissory Note

Plaintiffs allege that during the time in which MERS was the beneficiary of the Deed, it transferred interest in the Note to unknown investors, making foreclosure by OneWest impossible. Plaintiffs allege that MERS transferred the Note to a pool of securities, scrambling ownership of the Note. Plaintiffs' conclude that this "securitization"of the Note made it impossible for OneWest to "produce the Note" and foreclose on Plaintiffs' property. (Compl. ¶ 17) They also argue that the transfer of beneficial interest in the loan through the MERS system is analogous to a transfer of the Note itself, which must be recorded to be valid under Idaho Code § 45-1505(1). Plaintiffs' arguments amount to two separate theories through which it may be entitled to relief: First, a party seeking to foreclose must be able to demonstrate a substantive right to do so before they can avail themselves of the procedures of the Idaho trust deed statute. Second, even if the party can establish a right to foreclose, ...

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