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Klohs v. Wells Fargo Bank, N.A.

United States District Court, D. Hawai'i

October 4, 2012

Ronald Alan KLOHS and Donna Lee McGarrity, Plaintiffs,
v.
WELLS FARGO BANK, N.A., Defendant.

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[Copyrighted Material Omitted]

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Sandra D. Lynch, Honolulu, HI, for Plaintiffs.

Audrey Malia Yap, Honolulu, HI, for Defendant.

ORDER GRANTING DEFENDANT WELLS FARGO BANK, N.A.'S MOTION TO DISMISS

J. MICHAEL SEABRIGHT, District Judge.

I. INTRODUCTION

This action arises from a March 19, 2009 mortgage transaction in which Plaintiffs Ronald Alan Klohs and Donna Lee McGarrity (" Plaintiffs" ) borrowed $450,000 from Defendant Well Fargo Bank, N.A., (" Wells Fargo" ), secured by a promissory note and mortgage on real property located at 340 Ilimano Street, Kailua, Hawaii 96734 (the " subject property" ). After the transaction closed, Wells Fargo allegedly sold the Note and Mortgage to the Federal Home Loan Mortgage Corporation (" Freddie Mac" ), which in turn transferred the Note and Mortgage to a Freddie Mac Mortgage Participation Certificates Trust (the " 2009 Freddie Mac Trust" ). Wells Fargo, however, retained the servicing rights, and has acted as loan servicer since that sale and transfer. The Complaint alleges that, at some unspecified time later, the 2009 Freddie Mac Trust was terminated, and that therefore Wells Fargo's servicing rights also terminated. Because Wells Fargo has continued to service the loan, Plaintiffs claim Wells Fargo violated the Fair Debt Collection Practices Act (" FDCPA" ), 15 U.S.C. § 1692 et seq. ; committed fraud; and violated other state laws.

Before the court is Wells Fargo's Motion to Dismiss. Based on the following, the court concludes that the Complaint fails to state a claim upon which relief can be granted and GRANTS the Motion, with leave to amend as to certain Counts.

II. BACKGROUND

A. Factual Background

On March 19, 2009, Plaintiffs borrowed $450,000 from Wells Fargo, secured by a Mortgage on the subject property. Doc. No. 1, Compl. ¶ 1; Doc. No. 1-1, Compl. Ex. A. The Mortgage identifies Wells Fargo as the lender. Doc. No. 1-1, Compl. Ex. B.[1] Among other provisions, the Mortgage

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notified Plaintiffs that " [t]he Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to Borrower." Id. at 14, ¶ 20. The Note indicates that the borrowers " will pay principal and interest by making a payment every month ... beginning on May 1, 2009." Doc. No. 1-1, Compl. Ex. A at 2. The maturity date of the Note is April 1, 2039, and the Note provides that borrowers " will make [their] monthly payments at Wells Fargo Bank, N.A., P.O. Box 11701, Newark, NJ 07101-4701 or at a different place if required by the Note Holder." Id.

According to the Complaint, immediately after Plaintiffs signed the Note and Mortgage, Wells Fargo sold them both to Freddie Mac. Doc. No. 1, Compl. ¶ 14. Thereafter, " Freddie Mac, as is its established business practice, securitized the Note and the Mortgage by transferring them to a ‘ Freddie Mac Mortgage Participation Certificates' trust ..., a mortgage-backed-security pool of mortgages." Id. Wells Fargo, however, retained the servicing rights. Id. " [D]uring the existence of the Freddie Mac 2009 Trust, Freddie Mac (as trustee for the trust) owned the Note and the Mortgage." Id.

Plaintiffs further allege that " upon information and belief, the Freddie Mac 2009 Trust was later terminated [and] [w]hen the Freddie Mac 2009 Trust was terminated, Wells Fargo's servicing rights to the Note and the Mortgage terminated as well." Id. ¶ 14. There are no facts pled as to the meaning or timing of the " termination" of the Trust, e.g., whether or when it expired, merged, was purchased, or simply dissolved by its own terms. But Plaintiffs allege that " [a]s of May 16, 2012, there is no recorded or other evidence that the Freddie Mac 2009 Trust ever sold the Note or the Mortgage to any other entity, including but not limited to Wells Fargo." Id. ¶ 18. As a result,

Once the Freddie Mac 2009 Trust was terminated, Wells Fargo, and any and all of its subsidiaries, parents, or successors, lost authority to act under the Freddie Mac 2009 Trust, and under the Note or the Mortgage. This would include acts such as collecting mortgage payments, assigning Notes or Mortgages, and deciding to foreclose.

Id. ¶ 16. Despite allegedly " having lost authority to act under the Freddie Mac 2009 Trust," Wells Fargo continued to act as the loan servicer:

Since the Freddie Mac 2009 Trust was terminated and dissolved, Defendant Wells Fargo— without having any interest in the Note or the Mortgage, without having purchased either the Note or the Mortgage, without any servicing rights, and without privity of contract with the mortgage [-] has held itself out as servicer of the Note and the Mortgage and without authority has sent wrongful bills to [Plaintiffs]. Relying on Wells Fargo's false representations, [Plaintiffs] paid many wrongful mortgage bills.

Id. ¶ 17. The Complaint does not allege that the loan is in default, nor that any foreclosure proceeding are ongoing or threatened.

B. Procedural Background

On May 18, 2012, Plaintiffs initiated this action, asserting seven causes of action in their Complaint's five counts: (1) Violation of the FDCPA; (2) Quiet Title; (3) Fraud, Attempted Conversion, and Unjust Enrichment; (4) Violation of Hawaii Unfair Competition and Practices Statute— Hawaii Revised Statutes (" HRS" ) § 480-2; and (5) Violation of Hawaii Collection Agencies Statute— HRS chapter 443B. Federal subject-matter jurisdiction is based both on 28 U.S.C. § 1331 (federal question— the FDCPA) and on 28 U.S.C. § 1332 (diversity of citizenship).

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In lieu of an Answer, Wells Fargo filed its Motion to Dismiss on July 16, 2012. Doc. No. 9. Plaintiffs filed their Opposition on September 10, 2012, Doc. No. 18, and Wells Fargo filed its Reply on September 17, 2012. Doc. No. 20. The court heard the Motion on October 1, 2012.

III. STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss a claim for " failure to state a claim upon which relief can be granted[.]"

" 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.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)); see also Weber v. Dep't of Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir.2008). This tenet— that the court must accept as true all of the allegations contained in the complaint— " is inapplicable to legal conclusions." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Accordingly, " [t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955); see also Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir.2011) (" [A]llegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively." ).

Rather, " [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." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). In other words, " the factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation." Starr, 652 F.3d at 1216. Factual allegations that only permit the court to ...


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