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Peter B. Nottage, Jr., and Jennifer A. Nottage v. the Bank of New York Mellon

October 25, 2012

PETER B. NOTTAGE, JR., AND JENNIFER A. NOTTAGE, PLAINTIFFS,
v.
THE BANK OF NEW YORK MELLON, A NEW YORK CORPORATION, AS TRUSTEE FOR THE CERTIFICATEHOLDERS CWMBS, INC., CHL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-21; ET AL., DEFENDANTS.



The opinion of the court was delivered by: J. Michael Seabright United States District Judge

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS COMPLAINT

I. INTRODUCTION

On May 25, 2012, Plaintiffs Peter and Jennifer Nottage ("Plaintiffs") filed this action in the First Circuit Court of the State of Hawaii alleging state law claims against Defendants The Bank of New York Mellon, a New York Corporation, as Trustee for the Certificateholders CWMBS, Inc., CHL Mortgage Pass-through Certificates, Series 2006-21 ("BONY"); Countrywide Home Loans, Inc. ("CHL"); Bank of America, N.A. ("BANA"); and Mortgage Electronic Registration Systems, Inc. ("MERS") (collectively "Defendants") stemming from a non-judicial foreclosure of Plaintiffs' home located at 76-863 North Pakalakala Place, Kailua-Kona, Hawaii 96740 (the "subject property"). On July 25, 2012, Defendants removed the action to this court.

Currently before the court is Defendants' Motion to Dismiss, in which they argue that the Complaint fails to state a claim upon which relief can be granted. Based upon the following, the court GRANTS in part and DENIES in part Defendants' Motion to Dismiss, with leave for Plaintiffs to file a First Amended Complaint as to certain claims.

II. BACKGROUND

A. Factual Background

As alleged in the Complaint, on September 15, 2005, Plaintiffs entered into a loan transaction with CHL for $1,437,000 secured by the subject property. Doc. No. 1-2, Compl. ¶ 11; id. Ex. 2. The mortgage describes that MERS "is a separate corporation that is acting solely as a nominee for [CHL] and [CHL's] successors and assigns. MERS is the mortgagee under this Security Instrument." Id. Ex. 2 at 2.*fn1 At some time not known to Plaintiffs, BANA became the servicer of the loan. Id. ¶ 13.

In 2008, Plaintiffs began experiencing severe economic hardship and were unable to pay their mortgage loan. Id. ¶¶ 12, 14. As a result, in January 2010, Plaintiffs sought a loan modification with BANA and complied with BANA's requests for documentation supporting economic hardship. Id. ¶ 14. The Complaint asserts that BANA provided conflicting information regarding the modification request -- in February 2010, BANA sent Plaintiffs a letter stating that it could not fulfill a modification request, but a few weeks later BANA sent Plaintiffs another letter stating that it was reviewing their modification request.

Id. ¶ 16. The Complaint further asserts that during the modification process, "Plaintiffs relied upon representations made by [BANA] representatives that they were trying to help Plaintiffs keep their home and that no payments needed to be made in the meantime while [BANA] was processing their modification request." Id. ¶ 17. On April 5, 2010, Plaintiffs were notified that BANA rejected their modification request. Id. ¶ 19.

In the meantime, on March 4, 2010, Plaintiffs received a Notice Under Fair Debt Collections letter from BONY, who was as far as Plaintiffs knew a stranger to the mortgage loan. Id. ¶ 18. With that said, however, on April 22, 2010 an Assignment of Mortgage was recorded in the State of Hawaii Bureau of Conveyances assigning the mortgage from MERS, as nominee for CHL, to BONY. Id. ¶ 23; id. Ex. 7. The Complaint asserts that the assignment to BONY is a "fraud" and/or nullity because (1) CHL did not exist at the time of the assignment to BONY, id. ¶ 25; (2) MERS had no authority to assign the mortgage note, id.

¶¶ 26-27; (3) BONY could not accept the mortgage loan where the trust closed on December 28, 2006, id. ¶¶ 31-35; and (4) the assignment was "robosigned" by Rhoena Rice as Vice President of MERS, as nominee for CHL, even though she has previously signed documents claiming authority from several other corporations. Id. ¶¶ 36-38.

On April 22, 2010, Plaintiffs received a Notice of Mortgagee's Intent to Foreclose Under Power of Sale. Id. ¶ 20; id. Ex. 4. Over one year later, on April 26, 2011, BONY recorded with the State of Hawaii Bureau of Conveyances a Mortgagee's Affidavit of Foreclosure Under Power of Sale, stating that BONY had conducted a non-judicial foreclosure on the subject property on April 13, 2011.

Id. ¶ 21; id. Ex. 5. On July 6, 2011, a Limited Warranty Deed was recorded transferring the subject property from BONY to Lanikai Hui, LLC. Id. ¶ 21; id.

Ex. 6.

The Complaint asserts that the foreclosure was a nullity because BONY was not properly assigned the mortgage loan, failed to provide any evidence demonstrating that it had possession of the Note, id. ¶¶ 29, 40, and "failed to conduct its alleged non-judicial foreclosure in compliance with [Hawaii Revised Statutes ("HRS") §] 667-5. Id. ¶ 41.

B. Procedural Background

On May 25, 2012, Plaintiffs filed their Complaint alleging seven state law claims titled (1) wrongful foreclosure; (2) breach of contract and implied covenant of good faith and fair dealing; (3) UDAP [unfair and deceptive trade practices]; (4) fraud; (5) negligent misrepresentation; (6) intentional and negligent infliction of emotional distress [IIED/NIED]; and (7) promissory estoppel. On July 25, 2012, Defendants removed the action to this court.

On August 1, 2012, Defendants filed their Motion to Dismiss. Plaintiffs filed an Opposition on October 1, 2012, and Defendants filed a Reply on October 5, 2012. A hearing was held on October 22, 2012.

III. STANDARDS OF REVIEW

A. Rule 12(b)(6)

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 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (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. 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); 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 (citing Twombly, 550 U.S.at 556). 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 infer "the mere possibility of misconduct" do not show that the pleader is entitled to relief as required by Rule 8. Iqbal, 556 U.S. at 679.

B. Rule 8

A complaint must also meet the requirements of Federal Rule of Civil Procedure 8, mandating that a complaint include a "short and plain statement of the claim," Fed. R. Civ. P. 8(a)(2), and that "each allegation must be simple, concise, and direct." Fed. R. Civ. P. 8(d)(1). A complaint that is so confusing that its "true substance, if any, is well disguised" may be dismissed sua sponte for failure to satisfy Rule 8. Hearns v. San Bernardino Police Dep't, 530 F.3d 1124, 1131 (9th Cir. 2008) (quoting Gillibeau v. City of Richmond, 417 F.2d 426, 431 (9th Cir. 1969)); see also McHenry v. Renne, 84 F.3d 1172, 1180 (9th Cir. 1996) ("Something labeled a complaint but written . . ., prolix in evidentiary detail, yet without simplicity, conciseness and clarity as to whom plaintiffs are suing for what wrongs, fails to perform the essential functions of a complaint.").

Put differently, a district court may dismiss a complaint for failure to comply with Rule 8 where the complaint fails to provide defendants with fair notice of the wrongs they have allegedly committed. See McHenry, 84 F.3d at 1178-80 (affirming dismissal of complaint where "one cannot determine from the complaint who is being sued, for what relief, and on what theory, with enough detail to guide discovery"); cf. Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1105 n.4 (9th Cir. 2008) (finding dismissal under Rule 8 was in error where "the complaint provide[d] fair notice of the wrongs allegedly committed by defendants and [did] not qualify as overly verbose, confusing, or rambling"). Rule 8 requires more than "the-defendant-unlawfully-harmed-me accusation[s]" and "[a] pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do." Iqbal, 129 S. Ct. at 1949 (citations and quotations omitted).

C. Rule 9(b)

Federal Rule of Civil Procedure 9(b) requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." "Rule 9(b) requires particularized allegations of the circumstances constituting fraud." In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547-48 (9th Cir. 1994) (en banc), superseded on other grounds by 15 U.S.C. § 78u-4.

In their pleadings, Plaintiffs must include the time, place, and nature of the alleged fraud; "mere conclusory allegations of fraud are insufficient" to satisfy this requirement. Id. (citation and quotation signals omitted). However, "[m]alice, intent, knowledge, and other condition of mind of a person may be averred generally." Fed. R. Civ. P. 9(b); see also In re GlenFed, Inc. Sec. Litig, 42 F.3d at 1547 ("We conclude that plaintiffs may aver scienter . . . simply by saying that scienter existed."); Walling v. Beverly Enter., 476 F.2d 393, 397 (9th Cir. 1973) (Rule 9(b) "only requires the identification of the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations." (citations omitted)). A motion to dismiss for failure to plead with particularity is the functional equivalent of a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003).

IV. DISCUSSION

Defendants argue that the Complaint fails to state a claim upon which relief can be granted. The court addresses each Count of the Complaint in turn.

A. Wrongful Foreclosure (Count 1)

The Complaint asserts that BONY's foreclosure violated Hawaii's foreclosure statute, HRS § 667-5*fn2 because BONY was not "a proper mortgagee, successor assignee, or holder [of the Note]." Doc. No. 1-2, Compl. ¶ 43. The Complaint posits that BONY was not a proper mortgagee because (1) its assignment of the mortgage loan was fraudulent where CHL did not exist at the time of the assignment, id. ¶ 44; (2) it was not authorized to accept assets after the trust closed, id.; (3) the assignment was "robosigned" by Rhoena Rice as Vice President of MERS, as nominee for CHL, even though she has previously signed documents claiming authority from several other corporations, id. ...


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