Opinion
Civil Action No. 5:20-CV-44 (BAILEY)
2020-07-29
Linda SEALS, on her own behalf, and as spouse and next friend of Wayne Seals, Plaintiffs, v. CARRINGTON MORTGAGE SERVICES, LLC, and Federal National Mortgage Association, Defendants.
Gary M. Smith, Mountain State Justice, Inc., Morgantown, WV, for Plaintiffs. Christopher Anthony Dawson, Reisenfeld & Associates, Cincinnati, OH, for Defendants.
Gary M. Smith, Mountain State Justice, Inc., Morgantown, WV, for Plaintiffs.
Christopher Anthony Dawson, Reisenfeld & Associates, Cincinnati, OH, for Defendants.
ORDER GRANTING MOTION TO DISMISS
JOHN PRESTON BAILEY, UNITED STATES DISTRICT JUDGE
On this day, the above-styled matter came before this Court for consideration of defendant Federal National Mortgage Association's ("Fannie Mae") Motion to Dismiss [Doc. 7], filed March 10, 2020. On April 7, 2020, plaintiffs filed a Memorandum in Opposition [Doc. 14] in response to the motion. Fannie Mae then filed its Reply in Support of its Motion to Dismiss [Doc. 19] on April 24, 2020. Having been fully briefed, this matter is ripe for decision. For the reasons set forth below, the Motion will be granted.
BACKGROUND
Plaintiffs filed their Complaint [Doc. 1-2] in the Circuit Court of Ohio County, West Virginia on January 24, 2020. Thereafter, the matter was timely and properly removed to the United States District Court for the Northern District of West Virginia. See [Doc. 1]. In their Complaint, plaintiffs assert that they obtained a mortgage loan from Nationwide Advantage Company ("Nationwide"), defendant Carrington Mortgage Services, LLC's ("Carrington") assignor, in the amount of $84,000.00 ("the loan") on June 2, 2004. See [Doc. 1-2]. The Complaint references the deed of trust for the loan in passim. [Id.]. Further, the Complaint alleges that Carrington was the servicer of the loan as a collection agent for the loan's holder, Fannie Mae, at all times after March 1, 2019. [Id.]. Plaintiffs contend that Fannie Mae is liable for the acts and omissions of Carrington as performed or committed in the course of Carrington's servicing and collection efforts. [Id.] On November 7, 2019, a foreclosure sale was held, pursuant to the deed of trust, wherein the substitute trustee, Pill and Pill, PLLC, sought to sell the real property securing the loan. [Id.].
Plaintiffs assert various claims in their Complaint. Count I alleges that Carrington and defendant Fannie Mae violated plaintiffs' right to due process under the Fifth Amendment to the United States Constitution by denying plaintiffs' personal service and an opportunity to be heard prior to conducting the November 7, 2019, foreclosure sale. [Id.].
Count II asserts that plaintiffs were charged impermissible fees at the time the loan was closed in June 2004 in violation of West Virginia Code § 31-17-8(c) and § 46A-3-109. [Id.]. Additionally, plaintiffs assert that Nationwide was not authorized to close loans in West Virginia during the relevant times in violation of § 31-17-2 of the West Virginia Residential Mortgage Lender, Broker, and Servicer Act ("the RMLBSA"). [Id.].
In Count III, plaintiffs request this Court to declare the loan void, in total, under West Virginia Code § 31-17-17, arguing that the loan was made in willful violation of the applicable Code section. [Id.].
Count IV alleges that both the loan and deed of trust should be considered illegal contracts and declared void as against public policy under the doctrine of illegality. [Id.].
Fannie Mae's Motion to Dismiss [Doc. 7] asserts that each of the aforementioned counts should be dismissed as a matter of law. Specifically, Fannie Mae joined in Carrington's Motion to Dismiss [Doc. 5], which was previously granted by this Court in its July 14, 2020, Order dismissing plaintiffs' Complaint as to Carrington [Doc. 24]. In addition to incorporating the arguments contained in Carrington's Motion to Dismiss [Doc. 5], Fannie Mae asserts that it is not a government actor subject to Fifth Amendment constraints [Doc. 7].
LEGAL STANDARD
A motion to dismiss filed under Rule 12(b)(6) tests the legal sufficiency of a complaint or pleading. Giarratano v. Johnson , 521 F.3d 298, 302 (4th Cir. 2008). Rule 8 of the Federal Rules of Civil Procedure requires that a pleading contain a "short and plain statement of the claim showing that the pleader is entitled to relief." As the Supreme Court of the United States informed in Ashcroft v. Iqbal , 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), that standard does not require " ‘detailed factual allegations’ but ‘it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.’ " Id. at 678, 129 S.Ct. 1937 (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).
"[A] plaintiff's obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. Merely reciting the elements of a cause of action and supporting them with conclusory statements is not enough. Iqbal , 556 U.S. at 677–79, 129 S.Ct. 1937.
"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 678, 129 S.Ct. 1937. To achieve facial plausibility, the plaintiff must plead facts that allow the court to draw the reasonable inference that the defendant is liable, and those facts must be more than merely consistent with the defendant's liability to raise a claim from merely possible to plausible. Id.
In determining whether a plausible claim exists, the court must undertake a context-specific inquiry, "[b]ut where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged–but it has not ‘show[n]’–‘that the pleader is entitled to relief.’ " Id. at 679, 129 S.Ct. 1937 (quoting Fed. R. Civ. P. 8(a)(2) ). A complaint must contain enough facts to "nudge [...] [a] claim across the line from conceivable to plausible." Twombly , 550 U.S. at 570, 127 S.Ct. 1955.
This Court is well aware that "[M]atters outside of the pleadings are generally not considered in ruling on a Rule 12 Motion." Williams v. Branker , 462 F. App'x 348, 352 (4th Cir. 2012). "Ordinarily, a court may not consider any documents that are outside of the Complaint, or not expressly incorporated therein, unless the motion is converted into one for summary judgment." Witthohn v. Fed. Ins. Co. , 164 F. App'x 395, 396 (4th Cir. 2006). However, the Court may rely on extrinsic evidence if the documents are central to a plaintiff's claim or are sufficiently referred to in the complaint. Id. at 396-97.
DISCUSSION
Fannie Mae is a publicly-traded corporation chartered by Congress to stabilize the secondary mortgage market and to promote access to mortgage credit. 12 U.S.C. § 4501. In July 2008, Congress passed the Housing and Economic Recovery Act of 2008 ("HERA"), codified as 12 U.S.C. § 4511 et seq. , which established the Federal Housing Finance Agency ("FHFA"). FHFA is an independent federal agency with regulatory and oversight authority over Fannie Mae and Freddie Mac. In September 2008, FHFA placed Fannie Mae and Freddie Mac (together, "the Enterprises") into conservatorships "for the purpose of reorganizing, rehabilitating, or winding up [their] affairs." 12 U.S.C. § 4617(a)(2).
In its capacity as Conservator, FHFA succeeded to "all rights, titles, powers, and privileges" of the Enterprises and their respective stockholders, boards of directors, and officers. See 12 U.S.C. § 4617(b)(2)(A)(1). As such, FHFA assumed the power to oversee Fannie Mae's operations. Id.
With the aforementioned standard and background in mind, this Court finds that each count of plaintiffs' Complaint alleged against Fannie Mae must be dismissed as a matter of law.
I. Count I should be dismissed as a matter of law.
Count I of the Complaint challenges the constitutionality of a non-judicial foreclosure sale under West Virginia law. See [Doc. 1-2]. More specifically, plaintiffs assert that "[a]n owner of record's interest in continued ownership and occupation of real estate held is a property interest protected by the Due Process Clause of the Fifth Amendment to the United States Constitution[,]" and that the sale of the subject property "occurred in the absence of adequate, meaningful prior notice of sale to the plaintiffs [...] in violation of due process, state law, and the notice requirements of the Deed of Trust." [Doc. 1-2 at ¶¶ 31–35]. In its Motion to Dismiss [Doc. 7], Fannie Mae argues that plaintiffs' reliance on the Due Process Clause is misplaced because Fannie Mae is not a government actor subject to Fifth Amendment constraints. [Id.].
A. Due Process Considerations
Plaintiffs contend that Fannie Mae violated their Fifth Amendment due process rights as a result of the subject foreclosure. [Doc. 1-2 at ¶¶ 30–31]. Even when considering the allegations in the light most favorable to plaintiffs, this claim fails as a matter of law because Fannie Mae is not a government actor.
"[T]he Due Process Clause protect[s] individuals only from governmental, not private, action." Benson v. Commc'ns Workers of Am. , 81 F.3d 148 (4th Cir. 1996) (internal citations omitted). As identified by Fannie Mae, Lebron v. National Railroad Passenger Corporation , 513 U.S. 374, 115 S.Ct. 961, 130 L.Ed.2d 902 (1995) provides controlling authority on this issue. More specifically, Lebron requires permanent government control for an otherwise-private corporation, like Fannie Mae, to be deemed a government actor. Where "the Government creates a corporation by special law, for the furtherance of governmental objectives, and retains for itself permanent authority to appoint a majority of the directors of that corporation, the corporation is part of the Government for purposes of the First Amendment." Lebron , 513 U.S. at 399, 115 S.Ct. 961. Here, Fannie Mae is not a government actor because FHFA controls Fannie Mae, and said control is neither permanent nor governmental.
Further, although no court appears to have determined whether pre-conservatorship Fannie Mae was a governmental actor under Lebron , this Court is persuaded by the arguments asserted by Fannie Mae on that issue. For example, Fannie Mae cites an opinion in which the Ninth Circuit Court of Appeals held that similarly situated, pre-conservatorship Freddie Mac, was not a governmental actor for purposes of a constitutional claim. Am. Bankers Mortg. Corp. v. Federal Home Loan Mortg. Corp. , 75 F.3d 1401, 1406-09 (9th Cir. 1996). Therein, the Ninth Circuit concluded that "upon an application of Lebron principles, [...] Freddie Mac is not a government agency subject to the Fifth Amendment Due Process Clause." Id. at 1409.
This Court also finds persuasive the cases cited by Fannie Mae involving the pre-conservatorship status of Fannie Mae that were decided prior to Lebron , which similarly hold that Fannie Mae is not a government actor for purposes of constitutional claims. See Roberts v. Cameron-Brown Co. , 556 F.2d 356, 359 (5th Cir. 1977) (rejecting due process claim brought by a borrower against pre-conservatorship Fannie Mae for commencing a non-judicial foreclosure); Northrip v. Fannie Mae , 527 F.2d 23, 32 (6th Cir. 1975) (rejecting claim that pre-conservatorship Fannie Mae was a federal actor subject to the Due Process Clause of the Fifth Amendment).
As identified by Fannie Mae, its conservatorship under FHFA did not transform the entity into a government actor. The Fourth Circuit, in applying Lebron to similarly situated Freddie Mac, held that "though Freddie Mac undeniably has a public purpose, the government does not exert control over Freddie Mac such that it loses its private-party status." Meridian Invs., Inc. v. Freddie Mac , 855 F.3d 573, 579 (4th Cir. 2017).
Similarly, the Ninth Circuit has applied the Lebron constitutional framework holding that "the Federal Housing Finance Agency's conservatorship [does not] transform Fannie Mae and Freddie Mac into federal instrumentalities" subject to the False Claims Act. U.S. ex rel. Adams v. Aurora Loan Servs., Inc. , 813 F.3d 1259, 1261 (9th Cir. 2016). Citing both the Fourth and Ninth Circuits, the D.C. Circuit applied the same reasoning and held that the FHFA conservatorship "does not transform Fannie Mae into a government actor" in the context of a First Amendment Bivens claim. Herron v. Fannie Mae , 861 F.3d 160, 169 (D.C. Cir. 2017) ("[A]s conservator, the FHFA succeeded to ‘all rights, titles, powers and privileges’ of Fannie Mae. 12 U.S.C. § 4617(b)(2)(A)(1). This language evinces Congress's intention to have the FHFA step into Fannie Mae's private shoes.").
In their Memorandum in Opposition [Doc. 14], plaintiffs cite to one district court decision holding that Fannie Mae and Freddie Mac are subject to Fifth Amendment requirements. That decision, Sisti v. Federal Housing Finance Agency, 324 F.Supp.3d 273 (D. R.l. 2018), appears to have been contained in an interlocutory district court order in which the court declined to certify appeal under 28 U.S.C. § 1292(b). Id. Therein, the Sisti Court concluded that FHFA's conservatorship over Fannie Mae and Freddie Mac resulted in permanent government control over the entities because it does not have a specific end date. Id. at 281.
However, the Sisti rationale was recently rejected by the Fourth Circuit in Kerpen v. Metro. Washington Airports Auth. , 907 F.3d 152 (4th Cir. 2018). Therein, the Court informed that "[i]n [ Lebron ] , the Supreme Court explained that entities that are both created and controlled by the federal government may be considered federal entities that are subject to the limitations of the Constitution..... Temporary control–as when the federal government steps in as a conservator–is not sufficient." Id. at 158-59 (citing Lebron , 513 U.S. at 398, 115 S.Ct. 961 ).
This Court is similarly unpersuaded by plaintiffs' contention that United States Treasury investments in Fannie Mae somehow alter Fannie Mae's status for constitutional purposes. As identified in Lebron , even if government financial support were to result in the government retaining a controlling interest in a corporation for an indefinite period, that support is insufficient to convert the corporation into a government actor. Lebron , 513 U.S. at 399, 115 S.Ct. 961.
An analysis of applicable West Virginia law also warrants dismissal of Count I of plaintiff's Complaint, even when reviewing the Complaint's allegations in light most favorable to plaintiffs. Upon the default of a borrower, West Virginia Code § 38-1-3 allows a trustee, under a deed of trust mortgage, to "sell the property conveyed by deed [...] at public auction [after] having first given notice of such sale as prescribed in the following section - § 38-1-4." See W.Va. Code § 38-1-3. West Virginia Code § 38-1-4 requires a trustee to provide a notice of the foreclosure sale in the following manner:
Unless property is to be sold under a deed of trust executed and delivered prior to the first day of July, one thousand nine hundred eighty, which contains a provision waiving the requirement of published notice, the trustee shall publish a notice of a trustee's sale
as a Class II legal advertisement in compliance with the provisions of article three [§§ 59-3-1 et seq. ], chapter fifty-nine of this code, and the publication area for such publication shall be the county where the property is located: Provided, that any notice of sale published since the first day of July, one thousand nine hundred eighty, and prior to the effective date of this section, shall be deemed to have met the requirements of the section if such were published as Class II legal advertisements, in compliance with the provisions of article three, chapter fifty-nine of this code, in that by the enactment of the acts of the Legislature, regular session, one thousand nine hundred eighty, the Legislature intended that all notice of sales pursuant to trust deeds were to have been published as Class II legal advertisements. Except as expressly provided in this section, no trust deed shall waive the requirements of publication of notice required by this section.
In all cases, a copy of such notice shall be served on the grantor in such trust deed, or his agent or personal representative, by certified mail, return receipt requested, directed to the address shown by the grantors on the deed of trust or such other address given to the beneficiary of said trust deed or said beneficiary's agent or assignee in writing by the said grantor subsequent to the execution and delivery of the trust deed and notice shall be deemed complete when such notice is mailed to the aforesaid address, notwithstanding the fact that such mail may be returned as refused or undeliverable and shall be served by certified mail, at least twenty days prior to the sale, upon any subordinate lienholder who has previously notified the primary lienholder by certified mail of the existence of a subordinate lien. Every trust deed shall state the address to which such notice shall be mailed.
Despite the aforementioned statutory framework relating to notice in foreclosure sales, plaintiffs assert that, under the Fifth Amendment, they were entitled to "adequate notice and a meaningful opportunity for hearing before depriving [them] of constitutionally protected property rights. See [Doc. 1-2 at ¶ 30].
Notably, the Supreme Court of Appeals of West Virginia has long adopted the view that W.Va. Code § 38-1-1 et seq. does not involve government action. Dennison v. Jack , 172 W.Va. 147, 304 S.E.2d 300 (1983). Therein, the Court held the provisions of W.Va. Code § 38-1-1 et seq. "constitute a codification of non-judicial foreclosure procedure under trust deeds." Moreover, the Court held that such a "statutory scheme does not violate [...] due process of law." Dennison , 172 W.Va. at 155, 304 S.E.2d at 308.
In Dennison , two borrowers, Dennison and the Gorbys, brought two actions, which were ultimately consolidated, challenging the validity of two separate non-judicial foreclosure sales. In challenging the sales, one borrower, Dennison, argued that during the time frame when notice was mailed to her, she was incompetent and, therefore, could not have "received" the required notice. Id. at 149, 304 S.E.2d at 302. The other borrowers, the Gorbys, argued that they never actually "received" the notice of sale. Id. at 150, 304 S.E.2d at 303. Specifically, the borrowers argued that they should have been entitled to (1) written personal service of the sale regardless of the waiver provisions in the deed of trust; and (2) a summary judicial proceeding or hearing to present defenses. Id. at 153, 304 S.E.2d at 306.
In upholding the validity of both foreclosure sales, the Court acknowledged that West Virginia Code § 38-1-4 follows the mailbox rule – meaning the relevant trustee, under the deed of trust, has satisfied his/her statutory obligation to provide a borrower with the notice of sale once the required notices are deposited in the mail. Id. ; see also W.Va. Code § 38-1-4.
Here, plaintiffs argue that both W.Va. Code § 38-1-4 and the deed of trust required that they should have actually received notice of any foreclosure sale. See [Doc. 15]. In support of their argument, plaintiffs rely on Mason v. Smith , 233 W.Va. 673, 760 S.E.2d 487 (2014). However, Mason is notably distinguishable from the case at bar. In Mason , purchasers at a tax sale , not a foreclosure sale under W.Va. Code § 38-1-4, acquired legal title to a parcel of real property, pursuant to W.Va. Code § 11A-3-1 et seq ., following the failure of the record owners to satisfy ad valorem real property tax obligations. Mason , 233 W.Va. at 676, 760 S.E.2d at 490. There, the lower court set aside the deed because the record owners did not actually receive notice of their right to redeem the parcel before the issuance of the tax deed. Id. at 677, 760 S.E.2d at 491.
Notably, however, the statute in Mason specifically required receipt of the notice while the non-judicial foreclosure statute, W.Va. Code § 38-1-4, supra , states that notice is effective "when such notice is mailed to the aforesaid address." W.Va. Code § 38-1-4. As such, this Court is not persuaded by plaintiffs argument that W.Va. Code § 38-1-4 required actual receipt of notice. Additionally, plaintiffs contend that the deed of trust requires "actual receipt" of the notice in order for any foreclosure sale to be effective. See [Doc. 1-2 at ¶ 35]. However, a review of Section 15 of the deed of trust illustrates that receipt is not required when sent to the borrower. See [Doc. 5-1]. Specifically, Section 15 provides, in relevant part, as follows:
Typically, this Court would not consider documentation outside the pleadings when evaluating the propriety of a Rule 12(b)(6) motion. However, as here, when the document referenced is "integral to the complaint and authentic" it may be considered without converting the pending motion to a motion for summary judgment pursuant to Rule 56. See Occupy Columbia v. Haley , 738 F.3d 107, 116 (4th Cir. 2013) ; see also Goines v. Valley Cmty. Servs. Bd. , 822 F.3d 159, 165-66 (4th Cir. 2016).
15. All notices given by Borrower or Lender in connection with this Security Instrument must be in writing. Any notice to Borrower in connection with this Security Agreement shall be deemed to have been given to Borrower when mailed by first class mail or when actually delivered to Borrower's notice address if sent by other means.
[ Id.] (emphasis added). Based on the plain reading of the deed of trust, Section 15 was not intended to make "receipt" a requirement when sending notice to the borrower. Instead, actual delivery is only required by the deed of trust when a notice is sent to the borrower by means other than first class mail. [ Id.]. This finding is consistent with the holdings in Dennison , supra , and the language contained in W.Va. Code § 38-1-4.
Here, even accepting the allegations contained in plaintiffs' Complaint as true, this Court finds that plaintiffs' assertions concerning proper notice are contrary to the specific notice requirements in W.Va. Code § 38-1-4 and the specific language set forth in the deed of trust.
In both their Complaint [Doc. 1-2] and Memorandum in Opposition [Doc. 14], plaintiffs assert that the aforementioned lack of actual notice constituted a violation of due process under the Fifth Amendment to the United States Constitution. Even in construing the pleadings in a light most favorable to plaintiffs, this Court is unpersuaded. As identified above, the Supreme Court of Appeals of West Virginia has previously declared that W.Va. Code § 38-1-4 does not involve government action. Dennison , 172 W.Va. at 147, 304 S.E.2d at 300. Further, the Dennison court concluded that these non-judicial foreclosures do not violate due process of law. Id. at 155, 304 S.E.2d at 308. The Court finds that the actions by Fannie Mae, a non-government actor, do not constitute a due process violation. Accordingly, Count I should be dismissed, with prejudice, as a matter of law as to Fannie Mae.
II. Counts II - IV should be dismissed as a matter of law.
Counts II - IV are similarly situated insofar as each count relates to the subject June 2004 loan at issue. However, this Court previously found in its Order Granting Motion to Dismiss [Doc. 24] that these claims are barred under the applicable statute of limitations. Having incorporated that analysis herein, this Court finds that Counts II - IV should be dismissed as to Fannie Mae.
CONCLUSION
Accordingly, defendant Fannie Mae's Motion to Dismiss [Doc. 7] is hereby GRANTED. As such, Counts I, II, III, and IV of plaintiffs Complaint [Doc. 1-2] are hereby DISMISSED as to defendant Fannie Mae. Having previously dismissed defendant Carrington Mortgage Services, LLC, the Clerk is directed to STRIKE this matter from the active docket of the Court, and enter judgment in favor of defendants.
It is so ORDERED.