Hillen v. Wilmington Savs. Fund Soc'y, FSB (In re Dennis)
| Decision Date | 21 May 2019 |
| Docket Number | Bankruptcy Case No. 18-00977-JMM,Adversary Proceeding No. 19-6002-JMM |
| Parties | In Re: James M. Dennis and Elizabeth Ann Dennis, Debtors. Noah G. Hillen, Plaintiff, v. Wilmington Savings Fund Society, FSB, d/b/a Christina Trust as Owner Trustee of the Residential Credit Opportunities Trust III, Defendant. |
| Court | U.S. Bankruptcy Court — District of Idaho |
Appearances:
Matthew T. Christensen, ANGSTMAN JOHNSON, PLLC, Boise, Idaho, Attorney for Plaintiff.
Lewis N. Stoddard, ALDRIDGE PITE, LLP, Boise, Idaho, Attorney for Defendant.
The case before the Court takes place at the intersection of a deed of trust, a deed in lieu of foreclosure, and a bankruptcy filing. In this case, the chapter 71 trustee, Noah G. Hillen ("Plaintiff"), filed an adversary complaint naming as defendant the Wilmington Savings Fund Society, FSB, d/b/a Christina Trust as Owner Trustee of the Residential Credit Opportunities Trust III ("Defendant"). Dkt. No. 1. The complaint employs §§ 544(a)(1)-(3), by which Plaintiff seeks avoidance of the deed of trust, a declaration that it is invalid or unsatisfied, and a declaration that the bankruptcy estate holds the property at issue free and clear of any interests created by the deed in lieu of foreclosure.
Defendant moves to dismiss the complaint under Civil Rule 12(b)(6) on the ground that it fails to state a claim upon which relief may be granted. Dkt. No. 7. Following briefing, the Court heard oral argument on the motion on April 3, 2019, and thereafter took the matter under advisement. The Court now issues the following decision incorporating its consideration of the complaint, briefing, exhibits, and oral argument presented, as well as the applicable law. This decision resolves the motion to dismiss. Fed. R. Bankr. P. 7052; 9014.
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The facts appear to be largely undisputed. On approximately August 17, 2007, debtors James M. Dennis and Elizabeth Ann Dennis ("Debtors") executed a promissory note in the principal amount of $168,202, payable to CitiFinancial, Inc. ("Note"). Dkt. No. 9 at Ex. A. An allonge to the Note provided that payments should be made to the order of Defendant. Id. CitiFinancial secured the Note by a deed of trust ("DOT") that encumbered the real property located at 10497 Silver Fox Drive in Boise, Idaho (the "Property"). Id. at Ex. B. The DOT listed the Debtors as grantors, Transunion Settlement Solution as the trustee, and Citifinancial as the beneficiary. Id. It was recorded in Ada County, Idaho on August 23, 2007. Id.
Debtors fell behind on their payments due under the Note, and on June 25, 2018, they executed a warranty deed in lieu of foreclosure ("DIL") which deeded the Property to Defendant. Id. at Ex. C. The DIL included the following provision:
This Deed is an absolute conveyance of title, in effect as well as in form and is not intended as a mortgage, trust conveyance, or security of any kind. The consideration hereto existing on account of the Deed of Trust on said land recorded on August 23, 2007 as Instrument No. 107119088, records of Ada County, IDAHO. This Deed completely satisfies said Deed of Trust and Note secured thereby, and any effect thereof in all respects.
Id. Just over one month later, on July 27, 2018, Debtors filed a bankruptcy petition and Plaintiff was appointed as the trustee. Case No. 18-00977-JMM at Dkt. No. 1. On August 2, 2018, Defendant recorded the DIL. Id. On January 17, 2019, Plaintiff commenced this adversary proceeding.
Initially, the Court will consider Defendant's request for judicial notice of documents filed in support of its motion to dismiss. Dkt. No. 9. Such requests are governed by Fed. R. Evid. 201(b), which provides that the court "may judicially notice a fact that is not subject to reasonable dispute because it . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." When confronted with such a request, the court "must take judicial notice if a party requests it and the court is supplied with the necessary information." Fed. R. Evid. 201(c).
Defendant attached four exhibits to the motion for judicial notice. Dkt. No. 9. Exhibit A is copy of the Note dated August 17, 2007; Exhibit B is a copy of the recorded DOT dated August17, 20072; Exhibit C is a copy of the recorded DIL dated June 25, 2018; and Exhibit D is a copy of the Court's docket in the underlying bankruptcy case as of February 19, 2019. No objection to the motion was filed.
The Court concludes Defendant's motion for judicial notice is moot. "The Ninth Circuit has explained that, in ruling on a Civil Rule 12(b)(6) motion, a Court may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice. In re Leatham, No. 16-00487-TLM, 2017 WL 3704512, at *2 (Bankr. D. Idaho Aug. 24, 2017) (citing Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1030-31 (9th Cir. 2008)). Because the documents that are the subject matter of Defendant's motion are already appended to Plaintiff's complaint, there is no need for the Court to take judicial notice of them.
One final observation. Because Defendant's motion to dismiss is filed under Civil Rule 12(b)(6), as discussed below, ordinarily the consideration of documents outside the pleadings is not permitted. Instead, when matters outside the pleadings are presented to and not excluded by the court, the motion is usually treated as one for summary judgment and disposed of as provided in Rule 56. Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). The Lee court continued:
There are, however, two exceptions to the requirement that consideration of extrinsic evidence converts a 12(b)(6) motion to a summary judgment motion. First, a court may consider "material which is properly submitted as part of the complaint" on a motion to dismiss without converting the motion to dismiss into a motion for summary judgment. If the documents are not physically attached to the complaint, they may be considered if the documents' "authenticity . . . is not contested" and "the plaintiff's complaint necessarily relies" on them. Second, under Fed. R. Evid. 201, a court may take judicial notice of "matters of public record."
Thus, the Court will consider the Note, DOT, and DIL when considering Defendant's motion to dismiss.
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As discussed above, the Court's consideration of the Note, DOT, and DIL does not convert the instant motion to one for summary judgment. As such, the Court will analyze Defendant's motion as one for dismissal pursuant to Civil Rule 12(b)(6). The standards governing such motions are well-established:
A motion to dismiss in an adversary bankruptcy proceeding is governed by Federal Rule of Bankruptcy Procedure 7012(b), which incorporates Federal Rule of Civil Procedure 12(b)-(i). Agarwal v. Pomona Valley Med. Grp., Inc. (In re Pomona Valley Med. Grp., Inc.), 476 F.3d 665, 671-72 (9th Cir. 2007). At the motion to dismiss phase, the trial court must accept as true all facts alleged in the complaint and draw all reasonable inferences in favor of the plaintiff. Maya v. Centex Corp., 658 F.3d 1060, 1067-68 (9th Cir. 2011). However, the trial court does not have to accept as true conclusory allegations in a complaint or legal claims asserted in the form of factual allegations. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). To survive a motion to dismiss, a plaintiff must aver in the complaint "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 Twombly, 550 U.S. at 570, 127 S.Ct. 1955). A dismissal under Rule 12(b)(6) may therefore be based on either the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008).
In re Tracht Gut, LLC, 836 F.3d 1146, 1150-51 (9th Cir. 2016). Thus, this Court must consider the facts alleged in the complaint to be true, draw all reasonable inferences in favor of the Plaintiff, and consider whether the Plaintiff has alleged sufficient facts to state a facially plausible claim under § 544(a).
A bankruptcy trustee is given the power to avoid any transfer that a hypothetical bona fide purchaser for value ("BFP") could have avoided under the law of the state in which the real property is located. This source of this power is found in § 544(a), which provides:
Plaintiff alleges in his complaint that the DIL completely...
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