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Christopher Joseph, Individually and On v. Bank of America N.A.

December 7, 2012


The opinion of the court was delivered by: Richard F. Cebull United States District Judge


Plaintiff Christopher Joseph filed this putative class-action in state court, claiming that Defendants Bank of America, N.A.*fn1 and ReconTrust Company, N.A. did not follow Montana's foreclosure laws when they conducted a non-judicial foreclosure of his home. Defendants removed the case to this Court, invoking diversity jurisdiction under the Class Action Fairness Act of 2005. Joseph claims Defendants violated Montana law by foreclosing on his home in their own names when they did not possess a beneficial interest in the property. Doc. 1-2 at ¶¶ 8-13. He further claims that Defendants: (1) "routinely claim[ ] to possess ownership rights in Montana properties when, in truth and fact, [they] possess[ ] no more than servicing rights[,]" id. at ¶ 20; and (2) "created or used documents essential to a valid trustee's sale that were improperly executed, notarized or sworn to[,]" id. at ¶¶ 15-16, 21.

United States Magistrate Judge Carolyn Ostby has entered Findings and Recommendation (doc. 40) as to Defendants Rule 12(b)(6) motion to dismiss Counts I-III of Joseph's class action Complaint. Doc. 7. Judge Ostby recommends the motion be granted for failure to state legally cognizable claims and that Count IV, the remaining Montana Consumer Protection Act claim, be remanded to state court.

Upon service of a magistrate judge's findings and recommendation, a party has 14 days to file written objections. 28 U.S.C. § 636(b)(1). Joseph filed timely objections on May 3, 2012 (doc. 41), to which Defendants responded on May 21, 2012 (doc. 42). Accordingly, the Court must make a de novo determination of those portions of the Findings and Recommendations to which objection is made. 28 U.S.C. § 636(b)(1). As the parties are familiar with the underlying facts and circumstances and they are thoroughly stated in the Findings and Recommendations, they are repeated here only as necessary.


Count I of the Complaint, pleaded as a putative class action, seeks a declaratory judgment that Defendants lacked the legal right to foreclose Plaintiffs' property and that the resulting sale was invalid because Defendants could not lawfully assign the right to foreclose. Plaintiffs' essential argument is that MERS could not act as a nominee beneficiary under the Deed of Trust because the parties could not contract around the meaning of "beneficiary" under the Small Tract Financing Act ("STFA").

Judge Ostby concludes in the F&R that while the STFA does not permit MERS to be the beneficiary in a trust indenture as the lender's nominee, the STFA also does not prohibit MERS from acting as the agent of the lender. Doc. 40, pp. 23-37. In ruling that basic agency law applies to the STFA, Judge Ostby followed Judge Molloy, who adopted Judge Lynch's findings and recommendations in Diehl v. ReconTrust Co., N.A., 2010 WL 2178513 (D.Mont. May 27, 2010), adopting F&R at, 2010 WL 2175894 (D.Mont. April 22, 2010). Diehl recognized that while the Montana Supreme Court has not addressed the precise issue, it has approved of the use of agents to conduct non-judicial foreclosure sales in similar circumstances. 2010 WL 2178513, * 2. Specifically, Diehl holds that Montana law permits a party to designate an agent to do most acts for which the party is responsible, "unless a contrary intention clearly appears," Mont.Code Ann. § 28--10--105(2), and no contrary intention clearly appears in the STFA. Id.; see also Heffner v. Bank of America, 2012 U.S. Dist. LEXIS 64668, at * 11-12

(D.Mont. May 8, 2012) (citing Judge Ostby's F&R in this case to hold that a similar Deed of Trust properly authorized MERS to act as Bank of America's agent). Following Diehl, Judge Ostby ruled that MERS could act as the nominee/agent of Countrywide Home Loans, Inc.'s, the lender, assign the beneficial interest in the deed to Bank of America Home Loan Services (BOAHLS), who then lawfully appointed ReconTrust as the successor trustee. Accordingly, Judge Ostby concluded Defendants did not lack authority to conduct the non-judicial foreclosure and recommends dismissal of Joseph's claim for declaratory judgment.

In his objections, Joseph does not strenuously object to Judge Ostby's conclusion, but rather argues this Court should certify the issue of whether MERS can be a "beneficiary" under Montana law to the Montana Supreme Court.

But certification is discretionary, Riordan v. State Farm Mut. Auto. Ins. Co., 589 F.3d 999, 1009 (9th Cir. 1999), and Judge Ostby correctly relied on well- reasoned Montana cases applying the general agency statute, Montana Code § 28--10--105(2). Moreover, certification is unnecessary where a statute controls. Mont.R.App.P. 15(c)(3). After a de novo review, the Court concludes Judge Ostby correctly applied the Knucklehead decision and Mont. Code Ann. § 28--10--105(2) in concluding that MERS properly acted as the beneficiary's agent under the Deed of Trust. The Court further concludes that Judge Ostby correctly determined MERS does not meet the STFA's definition of "beneficiary." Accordingly, the Findings and Recommendations are correct as to Count I of the Complaint and are adopted in their entirety. Count I seeking a declaratory judgment will be dismissed.


Count II of the Complaint, also pleaded as a putative class action, alleges that Defendants, in their capacity as mortgage lenders or mortgage loan servicers, breached duties imposed by Montana law by (a) foreclosing on or trying to foreclose on properties when they had rights to service the loans and no ownership interest, (b) failing to follow statutory procedures for trustee sales, and (c) creating or using documents that were improperly executed in order to conceal the fact that they had no authority to order to institute a trustee sale. The F&R recommends dismissal of this claim for lack of a legal duty owed to Joseph. Doc. 37, pp. 37-39.

Specifically, the F&R cites Richland Nat'l Bank & Trust v. Swenson, 816 P.2d 1045, 1050 (Mont. 1991) for the proposition that under Montana law, except for an exception that does not apply here, the relationship between a bank and its customer is that of debtor and creditor and does not give rise to fiduciary duties. But Joseph does not and has not alleged a breach of fiduciary duty. Rather, Joseph alleges a negligence claim that Defendants breached their statutory duties, primarily those arising under the STFA, as well as the common law duty of reasonable care.

Richland Nat'l Bank also involved a negligence claim alleging the bank negligently structured the loan. That claim, however, was dismissed because there was no authority for the proposition "that a negligence action may be based upon a repayment term of a lawful contract bargained between two parties. Absent the existence of a fiduciary duty, the law does not support such a claim." 816 P.2d at 1050. At first this statement seems to support the F&R's conclusion that Joseph may not maintain a negligence claim, but the negligence claim at issue here is not based upon the repayment term, but upon Defendants alleged failure to follow the statutory requirements for trustee sales. It makes sense that a negligence ...

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