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construing Alabama law as providing that, where MERS holds the right to a mortgage as nominee and subsequently assigns the mortgage to an assignee, "MERS' assignment gave the assignee the right to foreclose on the borrower," even though MERS never held the note
Summary of this case from Levins v. Deutsche Bank Trust Co. Ams.Opinion
Civil Action No. 3:11cv313-WHA (WO).
August 25, 2011
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
This case is before the court on a Motion to Dismiss (Doc. #25), filed by Plaintiff/Counterclaim Defendant Freddie Mac, together with Defendant/Counterclaim Plaintiffs' Response thereto (Doc. #48).
In December, 2010, Plaintiff/Counterclaim Defendant Federal Home Loan Mortgage Corporation ("Freddie Mac") sued Homer and Letha Brooks ("Brooks"), as well as fictitious defendants, in the Circuit Court of Chambers County, Alabama. Brooks answered Freddie Mac's Complaint and also brought counterclaims against Freddie Mac; PNC; McCalla Raymer, LLC; MERS; MERSCORP; Prommis Solutions; and Prommis Solutions Holding Corporation. On April 22, 2011, Freddie Mac timely removed the state court case to this court pursuant to 12 U.S.C. § 1452(f), and this court denied Brooks' Motion to Remand.
Because Homer Brooks is deceased, this court will refer to Homer and Leetha Brooks in the singular as "Brooks."
McCalla Raymer, LLC was dismissed by Stipulation on May 12, 2011 (Doc. #42). The court granted Motions to Dismiss of PNC (Doc. #34) and MERS and MERSCORP (Doc. #46) by order entered on August 22, 2011 (Doc. #53). Prommis Solutions and Prommis Solutions Holding Corporation remain as Counterclaim Defendants.
For reasons to be discussed, the Motion to Dismiss is due to be GRANTED.
II. MOTION TO DISMISS STANDARD
The court accepts the nonmovant's allegations as true, Hishon v. King Spalding, 467 U.S. 69, 73 (1984), and construes the pleading in the nonmovant's favor, Duke v. Cleland, 5 F.3d 1399, 1402 (11th Cir. 1993). In analyzing the sufficiency of pleading, the court is guided by a two-prong approach: one, the court is not bound to accept conclusory statements of the elements of a cause of action and, two, where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to entitlement to relief. See Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949-50 (2009). "[A nonmovant'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." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted). To survive a motion to dismiss, a pleading need not contain "detailed factual allegations," but instead the pleading must contain "only enough facts to state a claim to relief that is plausible on its face." Id. at 570. The factual allegations "must be enough to raise a right to relief above the speculative level." Id. at 555.
Ordinarily, in considering a motion to dismiss, the court does not consider matters presented outside the pleadings. However, "[i]n ruling upon a motion to dismiss, the district court may consider an extrinsic document if it is (1) central to the [nonmovant's] claim, and (2) its authenticity is not challenged." SFM Holdings, Ltd. v. Banc of Am. Sec., LLC, 600 F.3d 1334, 1337 (11th Cir. 2010) (citations omitted).
III. FACTS
On May 6, 2005, Brooks received a mortgage loan on her home from Charterbank. In exchange, Brooks executed a promissory note in favor of Charterbank, and also executed a mortgage instrument. The mortgage instrument defined the "Borrower" or "Mortgagor" as Brooks, and the "Lender" as Charterbank. The mortgage instrument defined the "Mortgagee" as follows:
MERS is a separate corporation that is acting solely as nominee for Lender and Lender's successors and assigns. MERS is the mortgagee under this Security Instrument.
Doc. #25-1 at 4 (emphasis added). The mortgage instrument further explained:
This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrowers's covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower irrevocably mortgages, grants and conveys to MERS (solely as nominee for Lender and Lender's successors and assigns) and to the successors and assigns of MERS, with power of sale, [Brooks' home]. . . .
Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.
Doc. #25-1 at 6 (emphasis added). The mortgage instrument also stated that the property could be publicly auctioned under a power of sale upon Brooks' default.
On April 13, 2010, MERS assigned the mortgage and promissory note to PNC. The assignment stated:
FOR VALUE RECEIVED, [MERS], does hereby transfer, assign, set over and convey unto [PNC], its successors, transferees, and assigns forever, all right, title and interest of [MERS] in and to that certain Mortgage executed by [Brooks], to [MERS] AS NOMINEE FOR CHARTERBANK dated the 6th day of May 2005, and filed for record . . . covering property described in said mortgage, together with the note and indebtedness secured by the Mortgage, and all interest of the undersigned in and to the property described in said Mortgage.
Doc. #46-2 at 2 (emphasis added).
In mid-2010, Brooks defaulted on her mortgage. See Doc. #46-3. As a result, PNC foreclosed on Brooks' property through a non-judicial foreclosure sale, conducted on August 20, 2010. At the sale, Freddie Mac was the highest bidder, and accordingly, PNC sold its interest in Brooks' property to Freddie Mac. Freddie Mac subsequently sought to take possession of Brooks' property, and Brooks refused to allow Freddie Mac to do so. Freddie Mac then brought an action to eject Brooks from the property, and in response, Brooks brought the counterclaims at issue here.
Ala. Code §§ 35-10-11 to -16 sets forth the requirements for conducting a non-judicial foreclosure sale with respect to a mortgage executed in 1989 or later. Brooks does not contend that the sale itself was conducted in an improper manner, rather, Brooks argues that there was no right to conduct a foreclosure in the first place.
IV. DISCUSSION
Brooks has made the following counterclaims against Freddie Mac: (1) negligence or wantonness; (2) action to quiet title to real property; (3) trespass; (4) wrongful foreclosure; and (5) negligent or wanton hiring, supervision, training or retention. Each of these counterclaims is due to be dismissed.1. Negligence or Wantonness and Negligent or Wanton Hiring, Supervision, Training or Retention Counterclaims
Brooks' negligence or wantonness and negligent or wanton hiring, supervision, training or retention counterclaims are due to be dismissed.
First, Brooks has not pled sufficient facts to state a counterclaim for negligence or wantonness. This court cannot discern what specific duty Brooks claims that Freddie Mac owed to Brooks, how Freddie Mac breached that duty, or how Freddie Mac's conduct was the cause in fact and proximate cause of Brooks' injuries. Because Brooks' pleading makes no non-conclusory allegations that this court can discern regarding negligence or wantonness, that counterclaim is due to be dismissed.
Second, the court is completely at a loss as to what facts Brooks relies on in her negligent or wanton hiring, supervision, training, or retention counterclaim, because she has not alleged any such facts. Thus, this claim is due to be dismissed.
2. Quiet Title, Wrongful Foreclosure, and Trespass Counterclaims
Brooks' quiet title, wrongful foreclosure, and trespass counterclaims are premised on the allegation that the foreclosure on Brooks' property was improper. Therefore, if the foreclosure on Brooks' property was proper, these claims fail.
Brooks argues that a party who holds a mortgage but is not the holder of the underlying promissory note cannot foreclose on the mortgage, and therefore, "MERS" could not foreclose on the mortgage because it lacked any interest in the underlying promissory note. The court rejects Brooks' argument.
As a preliminary note, Brooks' argument that MERS improperly foreclosed is irrelevant, because MERS did not foreclose on Brooks' property. Rather, PNC did so.
The court notes that Brooks' response brief is extraordinarily confusing. For example, Brooks writes that "MERS places great weight . . ." (Doc. #48 at 8) and "MERS argues. . . ." (Doc. #48 at 12) with respect to arguments made by Freddie Mac, not MERS, despite the fact that Brooks notes at the beginning of her brief that she is responding to Freddie Mac's Motion to Dismiss (Doc. #48 at 1). Brooks also argues, at various points in her brief, that either Freddie Mac or MERS foreclosed on her property, when in fact PNC was the foreclosing party. Sadly, at no point in Brooks' response brief did she state that PNC foreclosed on her property, when PNC was the actual foreclosing party.
Nevertheless, even if Brooks directed her argument at the actions of PNC, the actual foreclosing party, she would not prevail. In Crum v. LaSalle Bank, 55 So. 3d 266 (Ala. Civ. App. 2009), the Court of Civil Appeals of Alabama rejected a case with materially identical facts as the one at bar. In Crum, a borrower executed a promissory note in favor of a lender, and also executed a mortgage instrument, which named MERS as the mortgagee of the property. Id. at 267. The mortgage instrument stated, in pertinent part:
MERS is a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns. MERS is the mortgagee under this Security Instrument. . . .
This Security Instrument secures to Lender: (I) the repayment of the [l]oan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower's covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower irrevocably mortgages, grants and conveys to MERS (solely as nominee for Lender and Lender's successors and assigns) and to the successors and assigns of MERS, with power of sale, the. . . . property. . . .
Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the [p]roperty; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.Id. at 267-68 (emphasis and alterations in original). The mortgage instrument further explained that the property could be publicly auctioned under a power of sale upon the borrower's default. Id.
Approximately a year after the original mortgage and promissory note were executed, MERS, as the lender's nominee, assigned the note in favor of an assignee, who later foreclosed on the borrower. Id. The assignment document stated:
[MERS] hereby assigns unto [the assignee] the . . . Security Deed having an original principal sum of $112,800.00 [plus] interest, secured thereby, [t]ogether with all moneys now owing or that may hereafter become due or owing in respect thereof, and the full benefit of all the powers and of all the covenants and provisos therein contained, and [MERS] hereby grants and conveys unto the . . . [a]ssignee [its] beneficial interest under the Security Deed.
To have and to hold the said Mortgage and Note, and also the said property unto the . . . [a]ssignee forever, subject to the terms contained in said Mortgage and Note."Id. (emphasis and alterations in original).
To summarize, in Crum, MERS held the right to the mortgage as nominee, and could perform "any act on the lender's behalf as to the property, including selling the note and the mortgage to a third party." MERS subsequently exercised its power, and assigned the mortgage and the right to the promissory note to the assignee, which then conducted a non-judicial foreclosure sale.
The Alabama Court of Civil Appeals reasoned that MERS' assignment gave the assignee the right to foreclose on the borrower. Id. at 269. It reasoned that, under Ala. Code § 35-10-12, "with respect to mortgages executed in 1989 or later, a power to sell lands given in any mortgage 'is part of the security' and may be exercised 'by any person, or the personal representative of any person who, by assignment or otherwise, becomes entitled to the money thus secured.'" Id. (quoting Ala. Code § 35-10-12) (emphasis in original). Thus, when MERS assigned the mortgage and the right to the promissory note to the assignee, the assignee became entitled to the money thus secured, and therefore, gained the power to sell lands given in the mortgage. See id. at 269-70.
In this case, the relevant documents and facts are materially identical to those in Crum. In both cases: (1) a lender lent to a borrower; (2) the borrower executed a promissory note in favor of the lender, signed a mortgage naming MERS the mortgagee, and the mortgage instrument included a right of sale; (3) MERS assigned the right to the note and mortgage to an assignee; and (4) the assignee foreclosed at a non-judicial foreclosure sale. Additionally, the mortgage instrument in this case uses virtually identical language as the mortgage instrument in Crum. While the language slightly differs between the assignment instruments in each case, the language difference is insignificant because both instruments exercise MERS' rights under the mortgage to assign both the mortgage and the note to the assignee.
Additionally, the Southern District of Alabama addressed, and rejected, the argument Brooks makes in this case, and, in doing so, cited Crum approvingly. Mortensen v. Mortgage Elec. Registration Sys., No. 09-0787-WS-N, Doc. #78 (S.D. Ala. Dec. 23, 2010) (Steele, J.). In Mortensen, the plaintiff argued that because the "note and the mortgage were initially held by two different defendants. . . . this 'split' makes 'a foreclosure unenforceable' and means that 'the note becomes, as a practical matter, unsecured.'" Id. at 10. The court rejected this argument, explaining that it "overlook[ed] evidence that both the note and the mortgage are today held by [the foreclosing party]." Id. at 11. The court cited to Crum in support, noting that the Crum court rejected the "splitting" argument advanced by the plaintiff. Id. at 11-12.
This opinion is not available on Westlaw or Lexis, but is listed as the "companion opinion" to Mortensen v. Mortgage Elec. Registration Sys., No. 09-0787-WS-N, 2010 WL 5376332, at *1 n. 1 (S.D. Ala. Dec. 23, 2010) ("Via separate Order entered on this date, the undersigned has denied plaintiff's cross-motion for summary judgment. These two rulings are properly viewed as companion Orders, and should be read together.").
Brooks makes no response at all to Mortensen. With respect to Crum, Brooks merely says that Crum "ignores the law that a mortgage cannot be enforced without ownership of the underlying note." Doc. #48 at 7. In other words, Brooks makes no attempt to distinguish Crum, but simply says that Crum is wrong.
Brooks' argument is problematic when made before this court, due to the fact that this is a federal court sitting in diversity. When sitting in diversity, federal courts must apply state substantive law. Bravo v. United States, 577 F.3d 1324, 1325 (11th Cir. 2009). Thus, if a state supreme court has ruled on an issue of state substantive law, this court must "apply it rather than to prescribe a different rule, however superior it may appear from the viewpoint of 'general law' and however much the state rule may have departed from prior decisions of the federal courts." Id. (quoting West v. Am. Tel. Tel. Co., 311 U.S. 223, 237 (1940)). Additionally, "'federal courts are bound by decisions of a state's intermediate appellate courts unless there is persuasive evidence that the highest state court would rule otherwise.'" Id. (quoting King v. Order of United Commercial Travelers of Am., 333 U.S. 153, 158 (1948)).
In other words, under the Erie doctrine, this court is bound by Crum, a decision made by an intermediate appellate court, unless there is "persuasive evidence that the highest state court would rule otherwise." Brooks has not presented such persuasive evidence. While Brooks has made an argument that Ala. Code § 35-10-1 textually prohibits a foreclosure after splitting the note from the mortgage, that statute does not apply to this case, because Brooks' mortgage was executed after December 31, 1988. The statute that actually applies to this case, and which Crum interpreted, is Ala. Code § 35-10-12, which applies to mortgages executed in 1989 or later. See Ala. Code § 35-10-16. Similarly, the cases that Brooks cites in support of her splitting argument all predate Ala. Code § 35-10-12, or are from other jurisdictions. Finally, Brooks' argument regarding Section 5.4(b) of the Third Restatement of Property is unpersuasive, as Crum analyzed that section and found that it supported the ability to foreclose under the facts presented. Crum, 55 So. 3d at 269; see also Mortensen, supra at 12 ("[T]he Crum court found the mortgage enforceable even though the note and mortgage had originally been split, and even after examining the very section of the Restatement on which Mortensen relies.").
Brooks also makes a judicial estoppel argument. Brooks claims that MERS took an inconsistent position on the splitting-the-note theory in prior litigation. This argument is meritless. Under judicial estoppel, " a party is precluded from 'asserting a claim in a legal proceeding that is inconsistent with a claim taken by that party in a previous proceeding.'" Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1285 (11th Cir. 2002) (quoting 18 James Wm. Moore et al., Moore's Federal Practice § 134.30 at 134-62 (3d ed. 2000)) (emphasis added). The main problem with Brooks' argument is that Brooks is stating that "MERS" is making the arguments at issue, when in fact Freddie Mac is the party whose arguments Brooks is attacking. Thus, because Brooks is pointing to a prior position taken by MERS, not Freddie Mac, the doctrine of judicial estoppel is inapplicable.
In sum, the foreclosure was proper, and therefore, under the facts and theories presented, the quiet title, wrongful foreclosure, and trespass counterclaims are due to be dismissed.
This court does not find that, in every case, a proper foreclosure precludes these types of claims.
V. CONCLUSION
For the reasons discussed, it is hereby ORDERED that Freddie Mac's Motion to Dismiss (Doc. #25) is GRANTED, and all counterclaims against it are DISMISSED with prejudice. A copy of this checklist is available at the website for the USCA, 11th Circuit at www.ca11.uscourts.gov Effective on April 9, 2006, the new fee to file an appeal will increase from $255.00 to $455.00. CIVIL APPEALS JURISDICTION CHECKLIST1. Appealable Orders : Appeals from final orders pursuant to 28 U.S.C. § 1291: 28 U.S.C. § 158Pitney Bowes, Inc. v. Mestre 701 F.2d 1365 1368 28 U.S.C. § 636 In cases involving multiple parties or multiple claims, 54Williams v. Bishop 732 F.2d 885 885-86 Budinich v. Becton Dickinson Co. 108 S.Ct. 1717 1721-22 100 L.Ed.2d 178LaChance v. Duffy's Draft House, Inc. 146 F.3d 832 837 Appeals pursuant to 28 U.S.C. § 1292(a): Appeals pursuant to 28 U.S.C. § 1292(b) and Fed.R.App.P. 5 28 U.S.C. § 1292 Appeals pursuant to judicially created exceptions to the finality rule: Cohen v. Beneficial Indus. Loan Corp. 337 U.S. 541 546 69 S.Ct. 1221 1225-26 93 L.Ed. 1528Atlantic Fed. Sav. Loan Ass'n v. Blythe Eastman Paine Webber, Inc. Gillespie v. United States Steel Corp. 379 U.S. 148 157 85 S.Ct. 308 312 13 L.Ed.2d 199 2. Time for Filing Rinaldo v. Corbett 256 F.3d 1276 1278 4 Fed.R.App.P. 4(a)(1): 3 THE NOTICE MUST BE RECEIVED AND FILED IN THE DISTRICT COURT NO LATER THAN THE LAST DAY OF THE APPEAL PERIOD — no additional days are provided for mailing. Fed.R.App.P. 4(a)(3): Fed.R.App.P. 4(a)(4): Fed.R.App.P. 4(a)(5) and 4(a)(6): Fed.R.App.P. 4(c): 28 U.S.C. § 1746 3. Format of the notice of appeal : See also 3pro se 4. Effect of a notice of appeal : 4
Courts of Appeals have jurisdiction conferred and strictly limited by statute: (a) Only final orders and judgments of district courts, or final orders of bankruptcy courts which have been appealed to and fully resolved by a district court under , generally are appealable. A final decision is one that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." , , (11th Cir. 1983). A magistrate judge's report and recommendation is not final and appealable until judgment thereon is entered by a district court judge. (c). (b) a judgment as to fewer than all parties or all claims is not a final, appealable decision unless the district court has certified the judgment for immediate review under Fed.R.Civ.P. (b). , , (11th Cir. 1984). A judgment which resolves all issues except matters, such as attorneys' fees and costs, that are collateral to the merits, is immediately appealable. , 486 U.S. 196, 201, , , (1988); , , (11th Cir. 1998). (c) Appeals are permitted from orders "granting, continuing, modifying, refusing or dissolving injunctions or refusing to dissolve or modify injunctions . . ." and from "[i]nterlocutory decrees . . . determining the rights and liabilities of parties to admiralty cases in which appeals from final decrees are allowed." Interlocutory appeals from orders denying temporary restraining orders are not permitted. (d) : The certification specified in (b) must be obtained before a petition for permission to appeal is filed in the Court of Appeals. The district court's denial of a motion for certification is not itself appealable. (e) Limited exceptions are discussed in cases including, but not limited to: , , , , , (1949); , 890 F.2d 371, 376 (11th Cir. 1989); , , , , , (1964). Rev.: 4/04 : The timely filing of a notice of appeal is mandatory and jurisdictional. , , (11th Cir. 2001). In civil cases, Fed.R.App.P. (a) and (c) set the following time limits: (a) A notice of appeal in compliance with the requirements set forth in Fed.R.App.P. must be filed in the district court within 30 days after the entry of the order or judgment appealed from. However, if the United States or an officer or agency thereof is a party, the notice of appeal must be filed in the district court within 60 days after such entry. Special filing provisions for inmates are discussed below. (b) "If one party timely files a notice of appeal, any other party may file a notice of appeal within 14 days after the date when the first notice was filed, or within the time otherwise prescribed by this Rule 4(a), whichever period ends later." (c) If any party makes a timely motion in the district court under the Federal Rules of Civil Procedure of a type specified in this rule, the time for appeal for all parties runs from the date of entry of the order disposing of the last such timely filed motion. (d) Under certain limited circumstances, the district court may extend the time to file a notice of appeal. Under Rule 4(a)(5), the time may be extended if a motion for an extension is filed within 30 days after expiration of the time otherwise provided to file a notice of appeal, upon a showing of excusable neglect or good cause. Under Rule 4(a)(6), the time may be extended if the district court finds upon motion that a party did not timely receive notice of the entry of the judgment or order, and that no party would be prejudiced by an extension. (e) If an inmate confined to an institution files a notice of appeal in either a civil case or a criminal case, the notice of appeal is timely if it is deposited in the institution's internal mail system on or before the last day for filing. Timely filing may be shown by a declaration in compliance with or a notarized statement, either of which must set forth the date of deposit and state that first-class postage has been prepaid. Form 1, Appendix of Forms to the Federal Rules of Appellate Procedure, is a suitable format. Fed.R.App.P. (c). A notice of appeal must be signed by the appellant. A district court loses jurisdiction (authority) to act after the filing of a timely notice of appeal, except for actions in aid of appellate jurisdiction or to rule on a timely motion of the type specified in Fed.R.App.P. (a)(4).