Opinion
Case No. 3:18-cv-01045-YY
12-03-2018
STEPHEN CUTLER, Plaintiff, v. U.S. BANK NATIONAL ASSOCIATION, Defendant.
FINDINGS AND RECOMMENDATIONS :
Plaintiff Stephen Cutler has brought an action against defendant U.S. Bank National Association ("US Bank") alleging claims of wrongful foreclosure (Claim One), breach of contract (Claim Two), and declaratory relief to quiet title (Claim Three). Compl., ECF #1-1. The claims arise out of the non-judicial foreclosure of plaintiff's residence located at 5304 SE Steele Street, Portland, Oregon ("the property"), due to his alleged default on a line of credit secured by the property. This court has diversity jurisdiction pursuant to 28 U.S.C. § 1332(a)(1).
The complaint was originally filed in Multnomah County Circuit Court, and removed to this court on June 15, 2018. Compl., ECF #1-1.
Plaintiff is a citizen of Oregon and US Bank is a citizen of Ohio. See Notice of Removal 2-3, ECF #1.
US Bank has filed a motion to dismiss pursuant to FRCP 12(b)(6). ECF #5. For the reasons discussed below, the motion should be GRANTED IN PART and DENIED IN PART in that: (1) with respect to plaintiff's claim for wrongful foreclosure (Claim One), the motion should be granted and the claim should be dismissed with prejudice; (2) with respect to plaintiff's claim for breach of contract (Claim Two), the motion should be denied; and (3) with respect to plaintiff's claim for declaratory relief to quiet title (Claim Three), the motion should be granted and the claim should be dismissed, but without prejudice and with leave to replead.
ALLEGED FACTS
The Complaint alleges the following facts:
On February 10, 2005, plaintiff executed a Trust Deed for a home equity line of credit with a maximum limit of $37,390, using his residence at 5304 SE Steele Street ("the property") to secure the loan. Compl. ¶¶ 1, 3, ECF #1-1. Sometime thereafter, plaintiff temporarily lost his employment and stopped making payments. Id. ¶¶ 4-5.
On or about June 28, 2017, Clear Recon Corp. ("Clear Recon") executed a Notice of Default and Election to Sell ("Notice of Default") and accompanying Trustee's Notice of Sale ("Notice of Sale"). Id. ¶ 4. These documents alleged that plaintiff was in arrears on his payment and in default of the Trust Deed. Id. They further gave notice that the property would be auctioned at a trustee sale on November 9, 2017, with Clear Recon as the trustee, unless the entire amount then "due" was paid to US Bank. Id.
Plaintiff became employed again, and saved most of his earnings over the next few months to make a lump sum payment prior to the auction date. Id. ¶ 5. On November 3, 2017, six days prior to the trustee sale, plaintiff personally tendered a cashier's check in the amount of $13,189.70 to US Bank, and a US Bank representative "unequivocally, and without objection, reservation, or further instruction or request of any kind, accepted the reinstatement payment on behalf of US Bank and provided [him] with an 'official receipt[.]'" Id. Without further communication or notice to plaintiff, and "despite all contrary assurances," US Bank either wrongfully instructed Clear Recon to proceed with the trustee sale or failed to instruct Clear Recon to cancel the auction, and on November 9, 2017, the property was sold to the highest bidder, Breckenridge Property Fund 2016, LLC ("Breckenridge"). Id. ¶ 6.
Plaintiff further contends that after US Bank originated the loan and Trust Deed, the loan was purchased on the secondary loan market, transferred multiple times, and ultimately attempted to be securitized. Id. ¶ 7. As such, plaintiff asserts that US Bank has long since sold and assigned all interests it may have had in the note and Trust Deed. Id. Plaintiff further contends that none of these assignments were recorded in Multnomah County property records, and similarly no valid appointment of successor trustee was ever recorded. Id. at ¶ 8. Thus, plaintiff alleges that US Bank was not the current beneficiary, and Clear Recon was not a trustee with any power to sell the property at auction or otherwise. Id.
FINDINGS
US Bank has filed a motion to dismiss pursuant to FRCP 12(b)(6) for "failure to state a claim upon which relief can be granted." ECF #5. It contends that plaintiff's wrongful foreclosure claim fails because Oregon does not recognize such a tort; his breach of contract claim fails because evidence shows that plaintiff did not fully perform under the terms of the Trust Deed and did not cure the default; and his claim for declaratory relief to quiet title fails because he has not tendered the full amount owed under the loan and has not named Breckenridge, which is the current owner of the property and a necessary party.
I. Judicial Notice
As a preliminary matter, this court considers US Bank's Request for Judicial Notice. ECF #5-1. In resolving a Rule 12(b)(6) motion, review is generally limited to the contents of the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.), op. am. on den. of reh'g, 275 F.3d 1187 (9th Cir. 2001). However, the Ninth Circuit has identified two exceptions to this general rule: (1) "a court may consider material which is properly submitted as part of the complaint," and "[i]f the documents are not physically attached to the complaint, they may be considered if the documents' authenticity . . . is not contested and the plaintiffs' complaint necessarily relies on them"; and (2) "under Fed. R. Evid. 201, a court may take judicial notice of matters of public record," but "a court may not take judicial notice of a fact that is subject to reasonable dispute." Allshouse v. Caliber Home Loans, Inc., No. CV1401287DMGJCX, 2014 WL 12594210, at *2 (C.D. Cal. Oct. 29, 2014) (quoting Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001) (internal quotations and citations omitted)).
FRE 201(2) provides: "The court may judicially notice a fact that is not subject to reasonable dispute because it . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned."
US Bank asks the court to take judicial notice of five documents: (1) Trust Deed; (2) Appointment of Successor Trustee; (3) Notice of Default; (4) Notice of Sale; and (5) Trustee's Deed. ECF #5-1, Exs. A-D. "Courts routinely take judicial notice of assignments of deed of trust and similar recorded documents." Allshouse, 2014 WL 12594210, at *3 (citing Rosal v. First Federal Bank of California, 671 F. Supp. 2d 1120-21 (N.D. Cal. 2009) (deed of trust); Paulhus v. Fay Servicing, LLC, No. 2:14-736 WBS AC, 2014 WL 3845051, at *1, n.2 (E.D. Cal. Aug. 6, 2014) (deed of trust, assignment of deed of trust, notice of default, rescission of default, and substitution of trustee); Valasquez v. Mortgage Electronic Registration Systems, Inc., No. C 08-3818 PJH, 2008 WL 4938162, at *2-3 (N.D. Cal. Nov. 17, 2008) (same)); see also Lavine v. Aames Funding Corp., No. 3:16-CV-01489-MO, 2017 WL 944216, at *3 (D. Or. Mar. 9, 2017) (taking judicial notice of Adjustable Rate Balloon Note, recorded Deed of Trust, Assignments of the Deed of Trust, and court documents from the state foreclosure proceeding). Plaintiff does not contest the authenticity of the documents, and relies on some of them in the complaint. Compl. ¶¶ 4-5, ECF #1-1.
US Bank also offers Exhibit 2, which is a copy of plaintiff's October 10, 2017 mortgage statement. Plaintiff does not contest the authenticity of this exhibit, and also relies on it in his complaint. ECF #5-2. Specifically, plaintiff alleges that he "personally tendered" to US Bank a cashier's check in the amount of $13,189.70, which he asserts is the "exact figure US Bank had indicated to him was due and owing, provided he make the payment on or before November 10, 2017." Compl. ¶ 5, ECF #1-1. Clearly, in making this statement, plaintiff was referring to the October 10, 2017 mortgage statement, which states that the "total amount due" is $13,189.70 and indicates a "cutoff" date of November 10, 2017. ECF #5-6, Ex. 2, at 1-3.
Plaintiff's only objection to Exhibit 2 is that when US Bank recently provided a copy of the mortgage statement to him, it was labeled a "confidential settlement communication." FRE 408 governs the admissibility of compromise offers and negotiations, and provides:
Evidence of the following is not admissible—on behalf of any party— either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction:
(1) furnishing, promising, or offering—or accepting, promising to accept, or offering to accept—a valuable consideration in compromising or attempting to compromise the claim; and
(2) conduct or a statement made during compromise negotiations about the claim—except when offered in a criminal case and when the negotiations related to a claim by a public office in the exercise of its regulatory, investigative, or enforcement authority.
The mortgage statement does not fall within the parameters of FRE 408—it is not a promise or an attempt to compromise a claim. Moreover, the document was originally sent by US Bank to plaintiff in October 2017. The fact that it was thereafter referred to in confidential settlement negotiations does not render it confidential.
II. Relevant Law Regarding Rule 12(b)(6)
The purpose of a motion to dismiss for failure to state a claim under Rule 12(b)(6) "is to test the legal sufficiency of the complaint." N. Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). "A complaint may be dismissed as a matter of law for one of two reasons: (1) lack of a cognizable legal theory or (2) insufficient facts under a cognizable legal claim." Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).
To state a claim for relief, a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief[.]" FRCP 8(a)(2). This standard "does not require 'detailed factual allegations,'" but does demand "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Id. (quoting Twombly, 550 U.S. at 555). "A district court should grant a motion to dismiss if plaintiffs have not pled 'enough facts to state a claim to relief that is plausible on its face.'" Williams ex rel. Tabiu v. Gerber Products Co., 523 F.3d 934, 938 (9th Cir. 2008) (quoting Twombly, 550 U.S. at 570).
The court must accept allegations of material fact as true and construe those allegations in the light most favorable to the non-moving party. Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). "Generally, a plaintiff's burden at the pleading stage is relatively light." Ctr. for Biological Diversity v. Envtl. Prot. Agency, 316 F. Supp. 3d 1156, 1163 (N.D. Cal. 2018). "[T]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 249 (9th Cir. 1997) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). Dismissal of a claim under Rule 12(b)(6) is appropriate only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957).
III. Wrongful Foreclosure (Claim One)
In his first claim for relief, plaintiff alleges a claim for wrongful foreclosure. However, wrongful foreclosure is not an actionable tort under Oregon law. See Horner v. Plaza Home Mortg., Inc., No. 3:16-cv-00605-SI, 2016 WL 3574551, at *3 (D. Or. July 1, 2016) ("Oregon Courts do not recognize a tort claim for wrongful foreclosure."); Elizabeth Retail Prop. LLC v. KeyBank Nat. Ass'n, 83 F. Supp. 3d 972, 991 (D. Or. 2015); Meza-Lopez v. Deutsche Bank Nat. Trust Co., No. 3:11-cv-00891-HU, 2012 WL 1081454, at *8 (D. Or. Feb. 13, 2012), F. & R. adopted, 2012 WL 1079823, at *1 (D. Or. Mar. 30, 2012).
One case in this district has allowed a wrongful foreclosure claim to survive a motion to dismiss. Rinehart v. OneWest Bank, FSB, No. 10-6331-AA, 2011 WL 1311839, at *3 (D. Or. Apr. 1, 2011). However, in that case, the discussion of the claim was "brief," made "no mention of the validity of the claim, or of its sounding in tort," and did not analyze Harper v. Interstate Brewing Co., 168 Or. 26 (1942), the most relevant Oregon Supreme Court decision. Rapacki v. Chase Home Finance LLC, 797 F. Supp. 2d 1085, 1090-91 (D. Or. 2011). In Harper, the court recognized the need for a cause of action for tortious behavior beyond a breach of contract but stopped short of defining a tort of wrongful foreclosure.
Other than Rinehart, this court has been unable to find any other source for a wrongful foreclosure tort in Oregon law, and instead finds the court's reasoning and holding in Rapacki and subsequent district court opinions persuasive. Accordingly, the first claim for relief—wrongful foreclosure—should be dismissed with prejudice for failure to state a valid claim for relief.
IV. Breach of Contract (Second Claim)
In his second claim, plaintiff asserts that US Bank breached the contractual provisions of the Trust Deed. Specifically, he contends that US Bank "unequivocally, and without objection, reservation or further instruction or request of any kind, accepted the reinstatement payment" of $13,189.70, but thereafter sold the property at a foreclosure auction, "despite all contrary assurances." Compl. ¶¶ 5, 6, ECF #1-1. Plaintiff asserts that US Bank's actions constituted "a material breach of both the express contractual terms" and the implied covenant of good faith and fair dealing. Id. ¶ 17. Alternatively, plaintiff claims that US Bank's acceptance of his payment of $13,189.70 constituted a modification of the parties' agreement. Id. ¶ 18. Plaintiff also alleges that by accepting the payment, US Bank waived the right to sell the property and is equitably estopped from proceeding with the sale. Id.
US Bank contends that the documents it has submitted in support its motion to dismiss preclude plaintiff's breach of contract claim because they show he failed make all of his loan payments and paid the wrong reinstatement amount, thereby failing to cure the default. However, when this court construes the complaint and documents in the light most favorable to plaintiff, as it must, plaintiff has plausibly alleged a breach of contract claim.
A. Material Breach
The elements for breach of contract under Oregon law are (1) the existence of a contract; (2) the relevant terms of the contract; (3) the plaintiff's full performance and lack of breach; and (4) the defendant's breach resulting in damage to the plaintiff. Olmstead v. ReconTrust Co., N.A., No. 3:11-cv-964-HA, 2012 WL 442225, at *3 (D. Or. Feb. 9, 2012) (citing Slover v. Or. State Bd. of Clinical Social Workers, 144 Or. App. 565, 570 (1996)).
Here, plaintiff signed the Trust Deed, in which he "agree[d] that all payments under the secured debt will be paid when due" and "in accordance with the terms" of the document. ECF #5-2, ¶ 5. Under the terms of the Trust Deed, plaintiff is "in default" if he "fails to make payment when due," and US Bank "may accelerate the Secured Debt and foreclose this Security Instrument in a manner provided by law if [plaintiff] is in default." Id. ¶¶ 14, 15. The Trust Deed provides that, "[a]t the option of [US Bank], all or any part of the agreed fees and charges, accrued interest and principal shall become immediately due and payable" after notice is given as required by law. Id. ¶ 15. The Trust Deed recognizes that federal and state law may "require [US Bank] to provide [plaintiff] with notice of the right to cure or other notices and may establish time schedules for foreclosure actions." Id.
In Oregon, ORS 86.771 sets forth the requirements for a notice of sale. Among other requirements, the notice must "[s]tate the sum owing on the obligation that the trust deed secures." ORS 86.771(5).
ORS 86.756 also requires the notice of sale to state:
The amount you would have had to pay as of __________ (date) to bring your mortgage loan current was $__________. The amount you must now pay to bring your loan current may have increased since that date.At oral argument, US Bank's attorney represented that such a notice was provided to plaintiff; however, it is not included in the record.
By law, your lender has to provide you with details about the amount you owe, if you ask. You may call __________ (telephone number) to find out the exact amount you must pay to bring your mortgage loan current and to get other details about the amount you owe.
Additionally, Oregon law "provides a mechanism by which the grantor can, at any time prior to five days before the date set for sale, cure the default and dismiss the proceedings. In that case, the trust deed is reinstated and has the same force as if no acceleration had occurred." Staffordshire Investments, Inc. v. Cal-W. Reconveyance Corp., 209 Or. App. 528, 542, 149 P.3d 150, 158 (2006). Pursuant to ORS 86.778(1), "[i]f the default consists of a failure to pay, when due, sums secured by the trust deed, the default may be cured by paying the entire amount due at the time of cure under the terms of the obligation, other than such portion as would not then be due had no default occurred." "[I]n addition to paying the sums or tendering the performance necessary to cure the default, the person effecting the cure shall pay to the beneficiary all costs and expenses actually incurred in enforcing the obligation and trust deed, together with trustee's and attorney fees," in the amount of "$1,000 for both trustee's fees and attorney fees, or the amount actually charged by the trustee and attorney, whichever is less[.]" ORS 86.778(1). This is commonly referred to as the reinstatement amount. In sum, if the reinstatement amount is paid prior to five days before the sale, it will stop the foreclosure; thereafter, the entire payoff amount must be paid for the sale to be canceled. Oregon's foreclosure statutes "reflect the legislature's intent to protect the grantor against the unauthorized loss of its property and to give the grantor sufficient opportunity to cure the default." Staffordshire, 209 Or. App. at 542.
It is undisputed that plaintiff failed to keep up on his loan payments. Compl. ¶¶ 4-5, ECF #1-1. US Bank exercised its option under the Trust Deed to accelerate and foreclose by issuing a Notice of Default and Notice of Sale to plaintiff on June 28, 2017. ECF #5-4, Ex. C. The notices contained both a "Total Required to Reinstate" amount of $10,788.25 and a "Total Required to Payoff amount of $26,530.75. Id. at 2, 6. Several months later, on October 10, 2107, US Bank sent plaintiff a mortgage statement, which stated that the "Total Amount Due" was $13,189.70. ECF #5-6, Ex. 2.
US Bank contends these documents show that plaintiff failed to cure the default because, although he paid the "Total Amount Due" on the mortgage statement, he did not pay the lesser of $1,000 or actual trustee's and attorney's fees pursuant to ORS 86.778(1). Mot. to Dismiss 6, ECF #5. US Bank relies on language on the mortgage statement, which states that the "Total Amount Due is not a Payoff or Reinstatement amount," and "For an up-to-date reinstatement quote call 855-698-7627." ECF #5-6, Ex. 2, at 1, 4. The mortgage statement also states that "[f]ailure to bring your loan current may result in fees and foreclosure[.]" Id. at 4.
However, when all of the documents are viewed in the light most favorable to plaintiff, they support his breach of contract claim, i.e., that he reasonably construed and paid the reinstatement amount that US Bank had requested, yet it nevertheless foreclosed on his home. Most significantly, the "Total Required to Reinstate" amount provided on the notices is computed in exactly the same way as the "Total Amount Due" on the mortgage statement. The "Total Required to Reinstate" amount is a compilation of all of plaintiff's delinquent payments and, importantly, contains no mention of trustee's or attorney's fees. Similarly, the "Total Amount Due" on the October 10, 2017 mortgage statement—which is the sum plaintiff tendered to US Bank on November 3, 2017—is a compilation of all of plaintiff's delinquent payments to date.
As required by ORS 86.771(8), the notices advised plaintiff of the right under ORS 86.778 to have the proceeding dismissed and the trust deed reinstated by paying the entire amount then due, together with costs, trustee's fees and attorney fees, at any time that is not later than five days before the date last set for the sale. ECF #5-4, Ex. C, at 6. However, unlike the "Total Required to Reinstate" amount, this boilerplate language is not bolded or highlighted. Moreover, while US Bank is entitled to fees under ORS 86.778, it has the "option" under the Trust Deed of demanding "all or any part of the agreed fees and charges, accrued interest and principal" to "become immediately due and payable." ECF #5-2, ¶ 15 (emphasis added). Otherwise stated, the Trust Deed allows US Bank to seek a sum smaller than that permitted by ORS 86.778, and one could argue from looking at the "Total Required to Reinstate" amount, which does not include trustee's or attorney's fees, that US Bank did just that.
In sum, when viewed in the light most favorable to plaintiff, the "Total Required to Reinstate" amount reflects that US Bank was seeking a reinstatement amount totaling plaintiff's missed payments, but not the fees allowed under ORS 86.778. Indeed, consistent with that interpretation, plaintiff tendered $13,189.70 six days before the sale. Therefore, this court cannot conclude that "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim" for breach of contract. Conley, 355 U.S. at 45-46.
B. Duty of Good Faith and Fair Dealing
Plaintiff also contends that US Bank's actions breached the implied duty of good faith and fair dealing. "[T]he law imposes a duty of good faith and fair dealing in the performance of every contract." Sheets v. Knight, 308 Or. 220, 233 (1989), abrogated on other grounds by McGanty v. Staudenraus, 321 Or. 532 (1995) (citing RESTATEMENT (SECOND) CONTRACTS § 205 (1981) ("Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.")). "[T]here is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract; in other words, in every contract there exists an implied covenant of good faith and fair dealing." 5 WILLISTON, CONTRACTS 159, § 670 (3d ed. 1961).
The doctrine is designed "to facilitate performance and enforcement in a manner that is consistent with the terms of the contract and that effectuates the reasonable contractual expectations of the parties." Whistler v. Hyder, 129 Or. App. 344, 348 (1994); see also Klamath Off—Project Water Users, Inc. v. Pacificorp, 237 Or. App. 434, 445 (2010) (common law implied duty of good faith and fair dealing serves to effectuate the objectively reasonable expectations of the parties); Eggiman v. Mid-Century Ins. Co., 134 Or. App. 381, 386 (1995) ("[S]o long as it is not inconsistent with the express terms of a contract, the duty of good faith and fair dealing is a contractual term that is implied by law into every contract.") (internal quotation omitted). It "cannot contradict an express contractual term, nor does it provide a remedy for an unpleasantly motivated act that is permitted expressly by the contract." Stevens v. Foren, 154 Or. App. 52, 58 (1998). However, the duty "does not operate in a vacuum[;]" rather it "focuses on the agreed common purpose and the justified expectations of the parties, both of which are intimately related to the parties' manifestation of their purposes and expectations in the express provisions of the contract." Or. Univ. Sys. v. Or. Pub. Emp. Un, 185 Or. App. 506, 515-16 (2002). Its purpose is to "prohibit improper behavior in the performance and enforcement of contracts." Best v. U.S. Nat. Bank of Oregon, 303 Or. 557, 563 (1987).
"The phrase 'good faith' is used in a variety of contexts, and its meaning varies somewhat with the context." Best, 303 Or. at 563 (quoting RESTATEMENT (SECOND) OF CONTRACTS § 205, comment a (1979)). "Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving 'bad faith' because they violate community standards of decency, fairness or reasonableness." Id.
Here, plaintiff alleges that on November 3, 2017, six days before the trustee sale, he tendered a cashier's check to US Bank for $13,189.70—the exact amount he claims US Bank indicated to him was due and owing—and that the "US Bank representative unequivocally, and without objection, reservation or further instruction or request of any kind, accepted the reinstatement payment on behalf of US Bank and provided Plaintiff with an 'official receipt' noting the date, amount and the mortgage number to which the payment was applied." Compl. ¶ 5, ECF #1-1. Then, "without any further communication or notice to Plaintiff, despite Plaintiff's good faith performance and $13,189.70 reinstatement payment, despite US Bank's unequivocal acceptance of the same, and despite all contrary assurances, U.S. Bank wrongfully either instructed its alleged successor trustee, i.e., Clear Recon, to proceed with the purported auction of Plaintiff's home on November 9, 2017, or, alternatively, wrongfully failed to instruct Clear Recon not to proceed with the purported auction." Id. ¶ 6.
As discussed above, when the notices are viewed in the light most favorable to the plaintiff, they indicate that the "Total Required to Reinstate" was the sum total of the delinquent payments. Plaintiff contends while he paid US Bank that amount, US Bank acted in bad faith by misleading him about the reinstatement amount that was due, accepting his $13,189.70 payment without saying anything further was needed, and then foreclosing on his home. Plaintiff has adequately pleaded a breach of the implied duty of good faith and fair dealing; implicit in plaintiff's allegations is that US Bank violated community standards of decency, fairness, and reasonableness, and injured his right to receive the fruits of the contract. Best, 303 Or. at 563; 5 WILLISTON, CONTRACTS 159, § 670 (3d ed. 1961). "While Defendant emphasizes repeatedly that it has merely invoked its written, contractual rights, that alone does not demonstrate the absence of a breach of the duty of good faith and fair dealing." Elizabeth, 83 F. Supp. 3d at 990 (citing Elliott v. Tektronix, Inc., 102 Or. App. 388, 396 (1990) ("The jury's finding that defendants did not breach the contract does not necessarily resolve the implied duty claim, because a party may violate its duty of good faith and fair dealing without also breaching the express provisions of a contract.") (citations omitted).
C. Modification
Plaintiff alternatively alleges that when US Bank accepted his $13,189.70 payment and provided him with an "official receipt," "the parties' conduct and exchange constituted a modification of the parties' alleged agreement[.]" Compl. ¶ 18, ECF #1-1. Under Oregon law, it is "well-established that conduct can manifest acceptance of an offer or acquiescence in a modification." Adair Homes, Inc. v. Jarrell, 59 Or. App. 80, 85 (1982).
US Bank's sole argument is that any modification is invalid because it was not in writing, in violation of the statute of frauds. However, in Oregon, the statute of frauds does not apply to the modification of agreements to extend credit when they are secured solely by residential property that is the primary residence of the debtor. ORS 41.580(1)(h)(B). The Complaint alleges that plaintiff resides at the property that was used as collateral for the home equity line of credit. Compl. ¶ 1, ECF #1-1. It is reasonable to infer from the Complaint that the property is plaintiff's primary residence. Accordingly, this situation falls within an exception to the statute of frauds, and any modification to the terms did not have to be in writing. Id.; see also Rapacki v. Chase Home Fin. LLC, No. 3:11-CV-185-HZ, 2012 WL 1340119, at *8 (D. Or. Apr. 17, 2012) (noting that "subsection (1)(h) can be more broadly applied, for example to a home equity line of credit").
ORS 41.580(1)(h)(B) provides in pertinent part:
(1) In the following cases the agreement is void unless it, or some note or memorandum thereof, expressing the consideration, is in writing and subscribed by the party to be charged . . . :(emphasis added.)
* * *
(h) An agreement, promise or commitment to lend money, to otherwise extend credit, to forbear with respect to the repayment of any debt payable in money, to modify or amend the terms under which the person has lent money or otherwise extended credit, to release any guarantor or cosigner or to make any other financial accommodation pertaining to an existing debt or other extension of credit. This paragraph does not apply:
* * *
(B) To a loan of money or extension of credit to a natural person . . . which is secured solely by residential property consisting of one to four dwelling units, one of which is the primary residence of the debtor.
D. Waiver
Plaintiff also alleges that acceptance of his payment constitutes a waiver. "A party to a written contract may waive a provision of that contract by conduct or by oral representation." Bennett v. Farmers Ins. Co. of Oregon, 332 Or. 138, 156 (2001) (citing Moore v. Mutual of Enumclaw Ins. Co., 317 Or. 235, 241 (1993)).
US Bank contends there can be no waiver because the Trust Deed contains a provision against waiver. ECF #5-2, ¶ 15. However, under Oregon law, the "nonwaiver provision of the contract can itself be waived by the conduct" of the parties. Fisher v. Tiffin, 275 Or. 437, 441 (1976); see also Soltis v. Liles, 275 Or. 537, 543 (1976) ("In this jurisdiction, as well as in most others, such non-waiver provisions are ineffective and do not prevent the promisor from waiving the conditions of the contract through his conduct."). Therefore, the mere fact that the Trust Deed contains a non-waiver provision does not preclude plaintiff's claim.
US Bank makes no specific challenge to plaintiff's allegation of equitable estoppel; therefore, that issue is not addressed in these Findings and Recommendations.
Because plaintiff has alleged a plausible claim of breach of contract, US Bank's motion to dismiss this claim should be denied.
V. Declaratory Relief Quieting Title (Claim Three)
US Bank contends that plaintiff's third claim for declaratory relief quieting title should be dismissed because plaintiff has failed to allege that he tendered the full amount owed under the loan. Indeed, for a quiet title action to withstand a Rule 12(b)(6) motion, the complaint must allege "facts sufficient to show that [the plaintiff] tendered or could have tendered the full amount of the debt[.]" Schneidereit v. Tr. of Scott & Brian, Inc., 693 F. App'x 733, 734 (9th Cir. 2017) (cited pursuant to Ninth Circuit Rule 36-3); see also Oliver v. Delta Financial Liquidating Trust, 2012 WL 3704954, at *5 (D. Or. Aug. 27, 2012) (same) (citing Rigor v. Freemont Inv. & Loan, 2012 WL 913631, *1 (D. Or. Feb. 13), adopted by 2012 WL 913566 (D. Or. Mar. 16, 2010); Yares v. Bear Stearns Residential Mortg. Corp., No. CV 10-2575-PHX-JAT, 2011 WL 2531090, at *6 (D. Ariz. June 24, 2011) (holding that to prevail in quiet title action, plaintiff must indicate in complaint that she "is ready, willing and able to tender the full amount owed on the loan"). Here, the complaint is deficient in that it fails to allege that plaintiff has tendered or could tender the full amount of the debt.
US Bank also contends that the claim for declaratory relief should be dismissed because plaintiff has failed to name Breckenridge, a necessary party. This motion more appropriately falls under Rule 12(b)(7), rather than Rule 12(b)(6). Nevertheless, US Bank's argument has merit.
"When a claim for declaratory relief is removed from state court, the Declaratory Judgment Act applies." Eastman v. Allstate Ins. Co., No. 14CV0703-WQH-NLS, 2014 WL 5355036, at *6 (S.D. Cal. Oct. 20, 2014) (citing CRV Imperial-Worthington, LP v. Gemini Ins. Co., 770 F. Supp. 2d 1070, 1072 (S.D. Cal.2011) ("When a claim for declaratory relief is in federal court based on diversity of citizenship, the 'question whether to exercise federal jurisdiction to resolve the controversy bec[omes] a procedural question of federal law.'") (citation omitted); VIA Tech., Inc. v. SONICBlue Claims LLC, No. C. 09-2109, 2010 WL 2486022, at *3 (N.D. Cal. June 16, 2010) ("[W]here a suit removed to federal court seeks declaratory relief, the fact that it was initially a state proceeding seeking declaratory relief under an equivalent state act is irrelevant, and the court must conduct its analysis under the Declaratory Judgment Act."). The Declaratory Judgment Act provides in relevant part that "[i]n a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a). "'[T]he operation of the Declaratory Judgment Act is procedural only.'" Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950).
Under the Erie doctrine, federal courts sitting in diversity apply state substantive law and federal procedural law." Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 427 (1996).
"[D]istrict courts possess discretion in determining whether and when to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites." Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995). "[W]hether necessary parties have been joined" is a factor this court considers in exercising its discretion. Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 495 (1942)). "A federal court should be less inclined to hear a case if necessary parties are missing from the federal forum, because that leads to piecemeal litigation and duplication of effort in state and federal courts." Sherwin-Williams Co. v. Holmes Cty., 343 F.3d 383, 391 (5th Cir. 2003).
Several other factors are relevant to the court's exercise of discretion under the Declaratory Judgments Act. See TIG Ins. Co. v. Dillard's Inc., 132 F. Supp. 2d 1277, 1280 (D. Nev. 2001) (citing Brillhart, 316 U.S. at 494-95). However, those factors are not applicable to this motion and therefore are not discussed.
A necessary party is defined by FRCP 19(a)(1) to include:
A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person's absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may:
(i) as a practical matter impair or impede the person's ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.
Here, Breckenridge purchased the property at the foreclosure auction. As such, Breckenridge has an interest relating to the property, and granting declaratory judgment in plaintiff's favor may impair or impede Breckenridge's ability to protect that interest. If this court grants declaratory judgment in favor of plaintiff without Breckenridge being a party to this suit, it could necessitate additional litigation to resolve Breckenridge's interest relating to the property. See, e.g., D'Ambrosio v. Sterling Sav. Bank, No. 3:12-CV-01826-BR, 2013 WL 2902715, at *4 (D. Or. June 13, 2013) ("The Court, therefore, concludes . . . Plaintiff's failure to join an affected party deprives this Court of jurisdiction to address the declarations sought by Plaintiff.").
Plaintiff contends that it is unnecessary to join Breckenridge as a party because Breckenridge is not in actual possession of the property. Plaintiff also represents that he "has been able to mitigate his damages by reaching an interim, provisional agreement with [Breckenridge] to create a window of opportunity for the Defendant to remedy the damages caused by its unlawful and wrongful actions." Response 11, ECF #11 (citing Compl. ¶ 14). Whether that is true or not, plaintiff does not explain how, as the highest bidder at the auction, Breckenridge does not have an interest relating to the property.
It appears that joining Breckenridge as a party will not destroy diversity. Counsel for US Bank has represented to the court that all of the members of Breckenridge, an LLC, are citizens of California. See Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006) ("For purposes of diversity jurisdiction, an LLC is a citizen of every state of which its owners/members are citizens.").
RECOMMENDATIONS
US Bank's Request for Judicial Notice (ECF #5-1) should be GRANTED. Its motion to dismiss (ECF #5) should be GRANTED IN PART and DENIED IN PART in that: (1) with respect to plaintiff's claim for wrongful foreclosure (Claim One), the motion should be granted and the claim should be dismissed with prejudice; (2) with respect to plaintiff's claim for breach of contract (Claim Two), the motion should be denied; and (3) with respect to plaintiff's claim for declaratory relief to quiet title (Claim Three), the motion should be granted and the claim should be dismissed, but without prejudice and with leave to replead.
SCHEDULING ORDER
These Findings and Recommendations will be referred to a district judge. Objections, if any, are due Monday, December 17, 2018. If no objections are filed, then the Findings and Recommendations will go under advisement on that date.
If objections are filed, then a response is due within 14 days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendations will go under advisement.
NOTICE
These Findings and Recommendations are not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any Notice of Appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of a judgment.
DATED December 3, 2018.
/s/ Youlee Yim You
Youlee Yim You
United States Magistrate Judge