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Barker v. Bank of America, N.A.

United States District Court, D. Montana, Billings Division

August 12, 2019




         Plaintiffs James L. Barker and Jeanne A. Barker (“Plaintiffs”) originally filed this action in Montana's Sixth Judicial District Court on December 7, 2016. Defendant CIT Bank, N.A. removed this case to federal court on February 16, 2017. (Doc. 1.) On February 24, 2017, Plaintiffs filed an amended complaint. Thereafter, on May 1, 2017, CIT filed a motion to dismiss for failure to state a claim. (Doc. 11.) This Court recommended that the motion be granted without prejudice and with leave to amend. (Doc. 24.) The Honorable Susan P. Watters ordered CIT's motion be granted, but ordered that Plaintiffs' Counts I and IV be dismissed with prejudice, and Plaintiffs' Counts II, III, V-X be dismissed without prejudice. (Doc. 30.)

         Plaintiffs have now filed their Second Amended Complaint against Bank of America, [1] OneWest Bank and CIT Bank, N.A., (collectively “CIT”[2]), First American Title Company of Montana, Inc., Trustee, and Charles Peterson, Trustee, [3] arising from an attempted foreclosure and loan modification. Plaintiffs allege claims of fraud (Count II), violation of the Fair Debt Collection Practices Act (Count III), negligence (Count V), violation of the Montana Unfair Trade Practices and Consumer Protection Act (Count VI), constructive fraud (Count VII), negligent misrepresentation (Count VIII), and deceit (Count IX). Plaintiffs also request injunctive relief (Count XI). (Doc. 36.)

         Presently before the Court are CIT's Motion to Dissolve Injunction (Doc. 43) and Motion to Dismiss (Doc. 46), which have been referred to the undersigned under 28 U.S.C. § 636(b)(1)(B). The motions are fully briefed and ripe for the Court's review. (Docs. 44, 51, 57, 47, 56, 58.)

         Having considered the parties' submissions, the Court RECOMMENDS CIT's Motion to Dismiss and Motion to Dissolve Injunction be GRANTED.

         I. BACKGROUND

         Plaintiffs are the owners of real property located in Park County, Montana. (Doc. 36 at ¶ 1.) On October 11, 2000, Plaintiffs executed a Trust Indenture, securing a $360, 000 loan, in which they named First American Title Insurance Company of Montana as Trustee for the benefit of Bank of America, N.A. Id. at ¶ 2.

         On May 28, 2010, the Federal Deposit Insurance Company (“FDIC”) executed an Affidavit of Lost Assignment (“ALA”), stating that FDIC was the owner and holder of Plaintiffs' mortgage, as receiver for IndyMac Federal Bank, FSB. Id. at ¶¶ 19- 20. The ALA stated that IndyMac Bank was the owner and holder of the mortgage as a result of the sale and assignment of the mortgage from Bank of America, but the assignment had been lost or destroyed before it could be placed of record. Id. at ¶ 21. The ALA was recorded with the Park County Clerk and Recorder on June 21, 2010. Id. at ¶ 19.

         Plaintiffs allege the ALA is fraudulent because Bank of America could not have assigned its interest in the Trust Indenture to IndyMac Bank, FSB. Id. at ¶ 24. Plaintiffs allege they were in bankruptcy at the time of the alleged assignment, and their mortgage was subject to an automatic stay. Id. at ¶ 24. Thus, Plaintiffs allege, Bank of America would have been prevented from assigning their mortgage. Id.

         Plaintiffs allege the ALA was executed to enable the owner of the mortgage to benefit from a shared loss agreement with the FDIC. Id. at ¶ 25. If covered by the shared loss agreement, Plaintiffs allege the owner of the mortgage stood to benefit in excess of their initial investment in the property by foreclosing on the home subject to the agreement. Id. at ¶ 14.

         On October 12, 2010, IndyMac Bank, FSB appointed Defendant Charles Peterson (“Peterson”) as Successor Trustee. Id. at ¶ 27. Again, however, Plaintiffs allege there is no record IndyMac Bank, FSB held a beneficial interest in the Trust Indenture, and therefore it did not have authority to appoint a successor trustee. Id. at ¶ 27.

         In 2009, Plaintiffs fell behind on their loan payments. (Doc. 36 at ¶ 16.) On October 12, 2010 and November 10, 2010, Peterson filed two independent Notices of Trustee's Sales. Id. at ¶ 28, 31. Both sales were later cancelled. Id.

         On October 18, 2012, First American Title Company of Montana (“First American”) was appointed as Successor Trustee. Id. at ¶ 32. On October 22, 2012, January 3, 2013, and July 20, 2016, First American filed three independent Notices of Trustee's Sales. Id. The first two foreclosure sales were later cancelled; the Park County District Court enjoined the third foreclosure on April 4, 2017.[4] Id.

         Plaintiffs allege that beginning in 2009, they initiated communications with Bank of America concerning a possible loan modification. (Doc. 36 at ¶ 37.) Plaintiffs allege they were frustrated with the process and with their communications with Bank of America. Id. at ¶¶ 38-43. They allege that multiple loan modification applications were denied. Plaintiffs allege that one denial letter, dated August 31, 2013, identified “IndyMac” as the “investor” who had not approved the modification. Id. at ¶ 26.

         Nevertheless, after the beneficiary interest was transferred to One West, One West granted Plaintiffs a loan modification. The signed loan modification agreement was recorded on October 22, 2015 with the Park County Clerk and Recorder.[5] (Doc. 44-1.)

         II. ANALYSIS

         The Court will initially address CIT's motion to dismiss, followed by CIT's motion to dissolve the state court issued stay of foreclosure.

         A. Motion to Dismiss - Failure to State a Claim

         “Dismissal under Rule 12(b)(6) is proper when the complaint either (1) lacks a cognizable legal theory or (2) fails to allege sufficient facts to support a cognizable legal theory.” Zixiang Li v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013) (quoting Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008)). The Court's standard of review under Rule 12(b)(6) is informed by Rule 8(a)(2), which requires that a pleading contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 677-678 (2009) (quoting Fed. R. Civ. P 8(a)).

         To survive a motion to dismiss under Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678. “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.

         A plausibility determination is context specific, and courts must draw on judicial experience and common sense in evaluating a complaint. Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 2014).

         CIT argues Plaintiffs have failed to allege sufficient facts to support any of their claims. Additionally, CIT contends Plaintiffs' claims are all barred by the statutes of limitations. Therefore, CIT maintains all claims against it should be dismissed with prejudice.

         Plaintiffs maintain that the allegations of their Second Amended Complaint are sufficient to state a claim for each cause of action set forth in the complaint. Plaintiffs also argue that their claims are not time-barred, and therefore contend that CIT's motion to dismiss should be denied.

         1. Counts II and VII - Fraud and Constructive Fraud

         Plaintiffs assert claims for fraud and constructive fraud in Counts II and VII of their complaint. CIT contends Plaintiffs fail to meet the heightened pleading standard of particularity required for alleging fraud-based claims.

         Fraud must be pled with particularity. Federal Rule of Civil Procedure 9(b) provides, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). “[T]he circumstances constituting the alleged fraud must ‘be specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong.'” Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (quoting Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)). To satisfy the requirements of Rule 9(b), a plaintiff who claims fraud must state the “who, what, when, where, and how” of the fraud. Davidson v. Kimberly-Clark Corp., 889 F.3d 956, 964 (9th Cir. 2018); See also, Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997) “[A] plaintiff must set forth more than the neutral facts necessary to identify the transaction. The plaintiff must set forth what is false or misleading about a statement, and why it is false.” Id. (quoting In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994)) (emphasis in original).

         Federal courts look to state law to see whether the elements of fraud have been pled sufficiently. Kearns, 567 F.3d at 1126. A party must plead the following nine elements with particularity in order to properly state a fraud claim in Montana:

(1) a representation; (2) falsity of representation; (3) materiality of that representation; (4) speaker's knowledge of falsity of representation or ignorance of its truth; (5) the speaker's intent that it should be relied on; (6) the hearer is ignorant of the falsity of the representation; (7) the hearer relies on the representation; (8) the hearer has a right to rely on the representation; and, (9) consequent and proximate injury was caused by reliance on the representation.

First Nat'l Bank in Havre v. Nelson, 741 P.2d 420, 421 (Mont. 1987).

         Here, Plaintiffs have not alleged fraud with sufficient particularity because they have not pled facts tending to show their detrimental reliance on CIT's alleged misrepresentation. Plaintiffs state the alleged misrepresentation was CIT's claim that Bank of America assigned Plaintiffs' mortgage to IndyMac Bank prior to FDIC being appointed receiver of IndyMac. Plaintiffs allege this representation is false because IndyMac could not have been assigned their mortgage to FDIC because an automatic stay was placed on their mortgage during that time. Plaintiffs contend that because of CIT's actions, they were threatened by notices of trustee sales, endured emotional distress from believing their home would be foreclosed, and spent significant time filing for home loan modifications.

         Plaintiffs fail to allege, however, that their claimed injuries are a result of their reliance on the alleged misrepresentation. They fail to assert that, “but for their reliance on the alleged [misrepresentation], they would have timely cured their default and avoided foreclosure.” Anderson v. ReconTrust Co., N.A., 407 P.3d 692, 699 (Mont. 2017). In fact, Plaintiffs have represented that they were not even aware of the ALA and the alleged misrepresentation until the fall of 2016, when reviewing records at the Clerk and Recorders office. (Doc. 56 at 21.) Obviously, Plaintiffs could not have previously relied upon an unknown representation. Without facts supporting the inference that the alleged misrepresentation caused detrimental reliance, the allegations in the Second Amended Complaint fall short, even without consideration of the particularity required by Rule 9(b). The Court therefore recommends Count II be dismissed.

         To establish constructive fraud, a plaintiff must prove all elements of actual fraud except for the speaker's intent that it should be relied upon. Hartfield v. Billings, 805 P.3d 1293, 1296 (Mont. 1990). For the same reasons discussed above, the Court also finds that Plaintiffs' allegations are not sufficient to state a claim of constructive fraud.

         There are conflicting statements in cases in this circuit as to whether 9(b)'s heightened pleading standard applies to claims of constructive fraud. Compare Sonoma Foods, Inc. v. Sonoma Cheese Factory, LLC, 634 F.Supp.2d 1009, 1021(N.D. Cal. 2007) (“facts supporting a claim for constructive fraud must be alleged with particularity under Rule 9(b)”), with 1849 Condominiums Assoc., Inc. v. Bruner, 2010 WL 2557711. *3 (E.D. Cal. June 21, 2010) (“courts do not apply [the] heightened pleading standard to constructive fraud claims”). Regardless, the factual allegations of Plaintiffs' complaint are not sufficient to state a plausible claim for relief even without application of 9(b)'s heightened pleading standard.

         In Count VII, Plaintiffs again allege CIT's actions constitute constructive fraud because it represented to the Plaintiffs that their mortgage was assigned to and held by IndyMac prior to FDIC being appointed its receiver. (Doc. 36 at ¶¶ 71-81.) Again, however, Plaintiffs fail to allege any facts to infer they relied on the alleged misrepresentation to their detriment. Although they allege they suffered injuries, Plaintiffs have not set forth any facts to plausibly show those injuries resulted from their reliance on the misrepresentation. As such, the Court recommends Count VII be dismissed.

         2. Count ...

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