Turner v. Wells Fargo Bank NA (In re Turner)

• Decision Date: 19 April 2017
• Docket Number: No. 15-60046,15-60046
• Parties: IN RE Rosanna Mac TURNER, Debtor, David G. Turner; Rosanna Mac Turner, Appellants, v. Wells Fargo Bank NA; Citigroup Global Markets Realty Corp.; U.S. Bank, as Trustee for the Citigroup Mortgage Loan Trust Inc., Mortgage Pass-Through Certificates, Series 2005-4; Citimortgage Inc., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

859 F.3d 1145

IN RE Rosanna Mac TURNER, Debtor,

David G. Turner; Rosanna Mac Turner, Appellants,

v.Wells Fargo Bank NA; Citigroup Global Markets Realty Corp.; U.S. Bank, as Trustee for the Citigroup Mortgage Loan Trust Inc., Mortgage Pass-Through Certificates, Series 2005-4; Citimortgage Inc., Appellees.

No. 15-60046

United States Court of Appeals, Ninth Circuit.

Submitted April 19, 2017^* San Francisco, California

Michael Yesk, Pleasant Hill, California, for Appellants.

Bernard J. Kornberg, Mark D. Lonergan, and Jan T. Chilton, Severson & Werson, San Francisco, California, for Appellees.

Before: Richard A. Paez and Sandra S. Ikuta, Circuit Judges, and Susan R. Bolton,^** District Judge.

OPINION

BOLTON, District Judge:

This appeal arises from the judgment of the Bankruptcy Appellate Panel ("BAP") affirming the bankruptcy court's order granting Appellees'¹ motion to dismiss Rosanna Mac Turner's and David Turner's ("Appellants" or "Turners") Adversary Complaint without leave to amend.

The Turners are the borrowers and Trustors on a Deed of Trust ("DOT") for residential property in Livermore, California. The DOT was recorded on May 16, 2005 naming Fidelity National Title Insurance Company as Trustee and Appellee Wells Fargo, N.A. ("Wells Fargo") as both Lender and Beneficiary. On or around August 2005, Wells Fargo sold the DOT along with the Turners' promissory note to Citigroup Global Markets Realty Corp. ("Citigroup"). Citigroup deposited them into a mortgage-backed security trust (the "CMLTI Trust"), which was securitized pursuant to a Pooling and Servicing Agreement ("PSA") and named Appellee U.S. Bank, N.A. ("U.S. Bank") as Trustee. The CMLTI Trust, a tax-exempt real estate mortgage investment conduit trust, required the transfer of all assets to the trust within ninety days of the Trust Pool's August 29, 2005 start date, but the DOT was not transferred by Wells Fargo to Citigroup until May 12, 2011 and by Citigroup to U.S. Bank as Trustee for the CMLTI Trust until September 19, 2012.

NBS Default Services ("NBS") recorded a Notice of Default on the property on February 10, 2012 as Trustee or Agent for the Beneficiary. Citigroup recorded a Substitution of Trustee naming NBS as Trustee on May 2, 2012.² On May 16, 2012, NBS recorded a Notice of Trustee's Sale.

The Turners filed for bankruptcy on June 4, 2012. When the Turners did not pay Wells Fargo as required by their approved bankruptcy plan, U.S. Bank sought and was granted relief from the automatic stay to proceed with foreclosure. The Turners then filed this adversary proceeding. The Turners allege that the transfer of the DOT to the CMLTI Trust is void and is a breach of the PSA because it was not effectuated within the ninety-day period established by the PSA. In addition, they assert breach of the DOT and violations of California law.

I.

We have jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(d)(1), which provides appellate jurisdiction over the final decisions and judgments of the BAP. We review decisions of the BAP de novo. Aalfs v. Wirum (In reStraightline Invs., Inc.) , 525 F.3d 870, 876 (9th Cir. 2008). We review the bankruptcy court's decision to dismiss Appellants' complaint for failure to state a claim de novo. Cervantes v. Countrywide Home Loans, Inc. , 656 F.3d 1034, 1040 (9th Cir. 2011). We also review the bankruptcy court's decision to deny the Turners leave to amend their complaint for abuse of discretion, but consider de novo whether the complaint is susceptible to amendment. Thinket Ink Info. Res., Inc. v. Sun Microsystems, Inc. , 368 F.3d 1053, 1061 (9th Cir. 2004). Two questions are presented on appeal:³ (1) whether the bankruptcy court correctly concluded that the Turners' Adversary Complaint failed to state a claim and (2) whether the bankruptcy court erred in denying the Turners leave to amend.⁴

For the reasons discussed below, we affirm.

II.

A.

First, we consider whether the bankruptcy court correctly determined that the Turners failed to state a claim. As the Turners have alleged multiple claims, we have grouped them as follows: (1) Wrongful Foreclosure, (2) Breach of Express Agreement and the Implied Covenant of Good Faith and Fair Dealing Under the PSA, (3) Breach of Express Agreement and the Implied Covenant of Good Faith and Fair Dealing under the DOT, (4) Violation of California Civil Code § 2923.5(" Section 2923.5"), and (5) Violation of California's Business and Professions Code § 17200 (the "Unfair Competition Law" or "UCL"). We address each in turn.

1.

"[A] home loan borrower has standing to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was not merely voidable but void." Yvanova v. New Century Mortg. Corp. , 62 Cal.4th 919, 199 Cal.Rptr.3d 66, 365 P.3d 845, 861 (2016). "Unlike a voidable transaction, a void one cannot be ratified or validated by the parties to it even if they so desire." Id. , 199 Cal.Rptr.3d 66, 365 P.3d at 856.

Here, the Turners argue that the DOT assignments are void and not voidable. They primarily rely on the California Court of Appeal's decision in Glaski v. Bank of America , 218 Cal.App.4th 1079, 160 Cal.Rptr.3d 449 (2013), in which it interpreted New York law. The Second Circuit and New York state courts, however, have rejected Glaski 's interpretation of New York law. See Wells Fargo Bank, N.A. v. Erobobo , 127 A.D.3d 1176, 9 N.Y.S.3d 312 (2015) (reversing the trial court decision relied upon by Glaski ); Rajamin v. Deutsche Bank Nat'l Trust Co. , 757 F.3d 79, 88–89 (2d Cir. 2014). Following these decisions, three California Courts of Appeal have held that "such an assignment is merely voidable." Saterbak v. JPMorgan Chase Bank, N.A. , 245 Cal.App.4th 808, 199 Cal.Rptr.3d 790, 796 (2016), reh'g denied (Apr. 11, 2016), review denied (July 13, 2016) (internal quotation marks omitted) ("[T]he weight of New York authority is contrary to plaintiffs' contention that any failure to comply with the terms of the [pooling and servicing agreements] rendered defendants' acquisition of plaintiffs' loans and mortgages void as a matter of trust law;" "an unauthorized act by the trustee is not void but merely voidable by the beneficiary.") (second alternation in original) (quoting Rajamin , 757 F.3d at 88–89 ); accord Mendoza v. JPMorgan Chase Bank, N.A. , 6 Cal.App.5th 802, 212 Cal.Rptr.3d 1, 8–9 (2016) ; Yhudai v. Impac Funding Corp. , 1 Cal.App.5th 1252, 205 Cal.Rptr.3d 680, 684–85 (2016). The Turners' argument to the contrary is unavailing: the fact that the assignments of the DOT were made well after the ninety-day timeframe, merely rendered the transfer voidable, not void. As a result, the district court properly dismissed the Turners' wrongful foreclosure claim for failure to state a claim.

2.

The Turners, again relying on Glaski , argue that they are third-party beneficiaries of the PSA and therefore properly alleged a claim for breach of contract or breach of the implied covenant of good faith and fair dealing under the PSA. But, as numerous California appellate courts have held, borrowers, like the Turners, are not third-parties beneficiaries of the PSA. See, e.g. , Jenkins v. JP Morgan Chase Bank, N.A. , 216 Cal.App.4th 497, 156 Cal.Rptr.3d 912, 927 (2013) ("As an unrelated third party to the alleged securitization, and any other subsequent transfers of the beneficial interest under the promissory note, [the borrower] lacks standing to enforce any agreements, including the investment trust's pooling and servicing agreement, relating to such transactions."), disapproved of on other grounds by Yvanova , 199 Cal.Rptr.3d 66, 365 P.3d at 854–55 ; see also Moran v. GMAC Mortg., LLC , No. 5:13-CV-04981-LHK, 2014 WL 3853833, at *5 (N.D. Cal. Aug. 5, 2014) (collecting cases stating that the viewpoint expressed in Glaski that a borrower is a third-party beneficiary of a pooling and service agreement is in the minority and numerous other California appellate courts have declined to follow it, even where the trust at issue was organized under New York law). As a result, the district correctly ruled that the Turners failed to state a claim for either breach of the express agreement or the related breach of the implied covenant of good faith and fair dealing under the PSA.

3.

The Turners next argue that Wells Fargo breached the express terms of the DOT because it did not execute the Notice of Default, and that NBS could not record the Notice of Default because the Notice was issued three months before NBS was substituted as Trustee. This argument, however, lacks merit. Wells Fargo was not required by the express terms of the DOT to execute the Notice of Default, but rather, it can cause the Trustee to execute a written notice of default. Here, a substitution of trustee was recorded naming NBS as Trustee. Therefore, NBS had the authority to issue the Notice of Default. Cal. Civ. Code § 2934a(d) ("Once recorded, the substitution shall constitute conclusive evidence of the authority of the substituted trustee or his or her agents to act pursuant to this section.").

Relatedly, the Turners argue that Wells Fargo breached the implied covenant of good faith and fair dealing in the DOT by obscuring the identity of the true holder of the beneficial interest making it impossible for them to know to whom to make their mortgage payments. This claim fails because the Turners have not alleged that their payments were not accurately credited, that they sustained any damages, or that they were not in default. Having failed to identify any prejudice, the district court properly dismissed their claims.

4.

The Turners argue that Citigroup and NBS violated Section 2923.5. A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent may not record a notice of default until either thirty days after initial contact with the borrower or thirty days after satisfying the due diligence requirements. Cal. Civ. Code § 2923.5(a...