Castle v. Mortg. Elec. Registration Sys. Inc.

• Decision Date: 16 August 2011
• Docket Number: Case No. EDCV 11-00538 VAP (DTBx)
• Parties: GERALD M. CASTLE, JR.; AND MICHELLE J. CASTLE, Plaintiffs, v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; WELLS FARGO BANK, NA; FANNIE MAE; AND DOES 1-100, INCLUSIVE, Defendants.
• Court: U.S. District Court — Central District of California

GERALD M. CASTLE, JR.; AND MICHELLE J. CASTLE, Plaintiffs,

v.MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; WELLS FARGO BANK,NA; FANNIE MAE; AND DOES 1-100, INCLUSIVE, Defendants.

Case No. EDCV 11-00538 VAP (DTBx)

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Dated: August 16, 2011

[Motion filed on July 14, 2011]

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

Plaintiffs, Gerald M. Castle, Jr. and Michelle J. Castle(collectively, "Plaintiffs"), filed this action in the Superior Court of California for the County of San Bernardino alleging that DefendantsMortgage Electronic Registration Systems, Inc.("MERS"), Wells Fargo Bank, NA("Wells Fargo"), and Fannie Mae ("Fannie Mae")(collectively, "Defendants") wrongfully foreclosed on their residence in San Bernardino, California.(SeeDoc. No. 1(Not. of Removal), Ex.A (Compl.).)Defendantsremoved the action to this Court on the basis of diversity jurisdiction.(SeeNot. of Removalat 2-3(citing28 U.S.C. §§ 1332,1441).)Plaintiffs subsequently filed a first amended complaint ("FAC").(Doc. No. 8.)Defendants then filed a motion to dismissPlaintiffs' FAC ("Motion"), pursuant to Federal Rule of Civil Procedure 12(b)(6).(Doc. No. 21.)The Court finds the Motion is appropriate for resolution without a hearing and accordingly VACATES the hearing set for August 15, 2011, at 2:00 p.m.SeeFed. R. Civ. P. 78, L.R. 7-15.Having considered the papers filed in support of, and in opposition to, the Motion, the Court GRANTS the Motion for the reasons below.

I.BACKGROUND

A.Factual Summary

By grant deed, Plaintiffs acquired the residence located at 5907 N. Honeysuckle Lane, San Bernardino, California 92407 (the "Property") on September 25, 2005.(FAC. ¶ 8.)Plaintiffs signed a promissory note in the amount of $245,000.00, which was secured by a Deed of Trust recorded against the Property on November 15, 2005.(FAC ¶ 9, Ex. B.)The Deed of Trust identifies Alliance Title Co. as the "trustee" and MERS as both the "nominee" of the lender as well as the "beneficiary under this Security Instrument."(Id.)The Deed of Trust provides that MERS has the right to foreclose on the Property:"Borrower understands and agrees that . . . MERS (as nominee for Lender and Lender's successors and assigns) has the right . . . to foreclose and sell the Property . . . ."(Id. at 3(emphasis added).)

Plaintiffs defaulted on their mortgage payments, and Wells Fargo, care of Cal-Western Reconveyance Corporation("Cal-Western"), recorded a "Notice of Default and Election to Sell under Deed of Trust"("NOD") on March 15, 2010.(FAC, Ex. C.)The NOD states that MERS, as beneficiary of the Deed of Trust, "does hereby elect to cause the trust property to be sold to satisfy the obligations secured thereby."(Id. at 2.)On May 14, 2010, Cal-Western substituted for Alliance as the trustee.(FAC, Ex. D.)On June 16, 2010, Cal-Western recorded a "Notice of Trustee's Sale."(FAC, Ex. F.)Fannie Mae purchased the Property on July 6, 2010, at the Trustee's Sale.(FAC, Ex. Hat 1-2.)On July 27, 2010, Wells Fargo assigned the Trust Deed to Fannie Mae.(FAC, Ex. G (Trustee's Deed Upon Sale).)

Plaintiffs failed to vacate the premises following the foreclosure.Accordingly, on November 29, 2010, Fannie Mae filed an unlawful detainer action ("Unlawful Detainer Action") against Plaintiffs in the Superior Court for the County of San Bernardino.(FAC ¶¶ 19-20;Ex. Iat 1-2(Writ of Possession); Defs.'Suppl.RJN, Ex.A (Unlawful Detainer Compl.).)On February 25, 2011, the Superior Court entered default judgment in Fannie Mae's favor and ordered Plaintiffs to relinquish possession of the Property.(Id.; Defs.' Suppl.RJN, Ex. B (Judgment);FAC, Ex. Iat 1-2(Writ of Possession).)On March 10, 2011, Fannie Mae obtained a Writ of Possession for the Property.(FAC ¶ 20, Ex. I at 1-2.)On March 30, 2011, the Superior Court issued a "Notice to Vacate," which stated, "By virtue of the Writ of Execution for Possession/Real Property (eviction), issued out of the above court, you are hereby ordered to vacate the premises described on the writ."(FAC, Ex. Iat 3(Notice to Vacate).)

B.Procedural History

On March 28, 2011, approximately one month after the Superior Court issued judgment in Fannie Mae's favor, Plaintiffs filed the instant action against Defendants in state court, alleging that the foreclosure and trustee's sale were procedurally improper.According to Plaintiffs, Cal-Western's substitution of trustee was invalid because it was recorded two months after the NOD.(FAC ¶ 20.)Thus, at the time Cal-Western initiated the foreclosure, it was not the Trustee.(FAC 11.)Moreover, Plaintiffs allege Ohio Savings "had already been closed by the FDIC,"(id.) and Wells Fargo was not a beneficiary in the chain of title (id.¶ 12).Plaintiffsassert four claims: (1) wrongful foreclosure; (2) wrongful eviction; (3) quiet title; and (4) unfair business practices.(See generally FAC.)

On April 5, 2011, Defendants removed the action to this Court on the basis of diversity jurisdiction.(Not. of Removalat 2-3.)On May 22, 2011, Defendants filed a motion to dismiss(Doc. No. 6), and Plaintiffs responded by filing the FAC on June 2, 2011(Doc. No. 8).The Court accordingly denied Defendants' motion to dismiss as moot.(Doc. No. 13.)

On July 14, 2011, Defendants filed the instant Motion (Doc. No. 21) and a request for judicial notice("Defs.'RJN")(Doc. No. 22).Defendants move to dismiss the FAC on the grounds that Plaintiffs' claims are barred by res judicata.Alternatively, Defendants argue Plaintiffs fail to state claims for relief under Federal Rule of Civil Procedure 12(b)(6).Plaintiffs filed an opposition ("Opposition") to the Motion on July 27, 2011.¹(Doc.No. 23.)Defendants filed a reply ("Reply")(Doc. No. 24) and a supplemental request for judicial notice("Defs.'Suppl.RJN")(Doc. No. 25) on August 2, 2011.

II.LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6)(hereafter "Rule 12(b)(6)") allows a party to bring a motion to dismiss for failure to state a claim upon which relief can be granted.As a general matter, the Federal Rules require only that a plaintiff provide "'a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests."Conley v. Gibson, 355 U.S. 41, 47(1957)(quotingFed. R. Civ. P. 8(a)(2));Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555(2007).In addition, the Court must accept all material allegations in the complaint as true and construe them in the light most favorable to the nonmoving party.SeeDoe v. United States, 419 F.3d 1058, 1062(9th Cir.2005);ARC Ecology v. U.S. Dep't of Air Force, 411 F.3d 1092, 1096(9th Cir.2005).

"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do."Bell Atl., 550 U.S. at 555(citations omitted).Rather, the allegations in the complaint "must be enough to raise a right to relief above the speculative level."Id.

In other words, the allegations must be plausible on the face of the complaint.SeeAshcroft v. Iqbal, 556 U.S. ____, 129 S. Ct. 1937, 1949(2009)."The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.Where a complaint pleads facts that are 'merely consistent with'a defendant's liability, it stops short of the line between possibility and plausibility of 'entitlement to relief.'"Id.(citations and internal quotations omitted).

Although the scope of review is limited to the contents of the complaint, the Court also may consider exhibits submitted with the complaint, Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19(9th Cir.1990), and "take judicial notice of matters ofpublic record outside the pleadings,"Mir v. Little Co. of Mary Hosp., 844 F.2d 646, 649(9th Cir.1988).

If a court concludes dismissal is appropriate, leave to amend "shall be freely given when justice so requires."Fed. R. Civ. P. 15(a).The Ninth Circuit has held that "'[t]his policy is to be applied with extreme liberality.'"Eminence Capital, L.L.C. v. Aspeon, Inc., 316 F.3d 1048, 1051(9th Cir.2003)(quotingOwens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 712(9th Cir.2001)).Leave to amend should only be denied on a showing of bad faith, undue delay, prejudice to the opposing party, or futility of the amendment.Royal Ins. Co. of Am. v. Sw. Marine, 194 F.3d 1009, 1016(9th Cir.1999).

III.DISCUSSION

A.Preclusion

Under 28 U.S.C. § 1738, federal courts are required to give full faith and credit to state court judgments.SeeSan Remo Hotel, L.P. v. City & Cnty. of San Francisco, 545 U.S. 323, 336(2005).That is, state court judgments have the same preclusive effect in federal court as they would have in the state's own court.Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81(1984)("It is now settled that a federal court must give to a state-court judgment the samepreclusive effect as would be given that judgment under the law of the State in which the judgment was rendered.");Brodheim v. Cry, 584 F.3d 1262, 1268(9th Cir.2009)."The fact that a plaintiff requests a different type of relief, or even presents a different legal theory, does not negate or lessen the binding effect of the previous state court judgment."Moore v. City of Costa Mesa, 678 F. Supp. 1448, 1450(C.D. Cal.1987).

A defendant may raise the affirmative defense of preclusion by way of a motion to dismiss under Rule 12(b)(6).SeeScott v. Kuhlmann, 746 F.2d 1377, 1378(9th Cir.1984).The doctrine of res judicata "is a rule of fundamental and substantial justice, of policy and of private peace, which should...