Mitchell v. Recontrust Co. NA

• Decision Date: 28 April 2016
• Docket Number: No. 20140113–CA.,20140113–CA.
• Citation: 373 P.3d 189,2016 UT App 88
• Parties: Paula A. MITCHELL and Wade Mitchell, Appellants, v. RECONTRUST COMPANY NA, The Bank of New York Mellon, Armand J. Howell, America's Wholesale Lender, and BAC Home Loans Servicing LP, Appellees.
• Court: Utah Court of Appeals

373 P.3d 189

2016 UT App 88

Paula A. MITCHELL and Wade Mitchell, Appellants

v.RECONTRUST COMPANY NA, The Bank of New York Mellon, Armand J. Howell, America's Wholesale Lender, and BAC Home Loans Servicing LP, Appellees.

No. 20140113–CA.

Court of Appeals of Utah.

April 28, 2016.

Rehearing Denied June 29, 2016.

Douglas R. Short, for Appellants.

Chandler P. Thompson and Robert H. Scott, Salt Lake City, for Appellees ReconTrust Company NA, The Bank of New York Mellon, America's Wholesale Lender, and BAC Home Loans Servicing LP.

Armand J. Howell, Appellee Pro Se.

Senior Judge RUSSELL W. BENCH authored this Opinion, in which Judge MICHELE M. CHRISTIANSEN concurred.¹ Judge J. FREDERIC VOROS JR. concurred, with opinion.

Opinion

BENCH, Senior Judge:

¶ 1 Paula A. Mitchell and Wade Mitchell appeal from the district court's orders dismissing several of their claims and granting summary judgment on their remaining claims in favor of ReconTrust Company NA, the Bank of New York Mellon (BNYM), America's Wholesale Lender (AWL), BAC Home Loans Servicing LP (BAC), and Armand J. Howell. We affirm.

BACKGROUND

¶ 2 Paula Mitchell obtained a $1 million loan from AWL in 2006. To secure this loan, she executed a trust deed in favor of AWL on real property in Salt Lake County. The trust deed defined AWL as “Lender” and designated Stewart Matheson as the trustee. The trust deed provided that Mortgage Electronic Registration Systems Inc. (MERS) “is acting solely as nominee for Lender and Lender's successors and assigns” and “is the beneficiary under this Security Instrument.” The trust deed also indicated that Paula Mitchell

agree[d] that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property.

¶ 3 On August 17, 2010, MERS recorded a document assigning its beneficial interest under the trust deed to BNYM. That same day, BNYM recorded a substitution of trustee in which BNYM, as the current beneficiary, appointed ReconTrust as successor trustee under the trust deed. Also on that day, ReconTrust filed a notice of default and intent to sell the property. According to the notice, Paula Mitchell had defaulted on her loan obligation by failing to make payments since May 2010.

¶ 4 Attempting to prevent foreclosure, Paula and Wade Mitchell filed a complaint in January 2011 against ReconTrust, BNYM, AWL, and BAC (collectively, Bank Defendants). The Mitchells also named Howell as a defendant, alleging that he was an attorney who “traditionally conducts foreclosure sales for ReconTrust and is expected to conduct the sale [of the Mitchells' property] unlawfully.”² The Mitchells raised claims generally based on a theory that MERS, which was referred to as the nominee of the lender and the beneficiary under the terms of the trust deed, lacked authority to appoint BNYM as the successor beneficiary and that BNYM thus lacked authority to appoint ReconTrust as the successor trustee. The Mitchells also alleged that ReconTrust was not authorized to serve as a trustee under Utah's statutes. Further, they alleged that BAC, which was servicing the loan and was purportedly acting as an agent of BNYM, “directed [the Mitchells] to default in order to be able to seek a modification because that would be the only way to obtain a loan modification.” Because they purportedly defaulted at BAC's suggestion, the Mitchells alleged that the defendants were estopped from enforcing the trust deed and note.

¶ 5 In terms of relief, the Mitchells sought declaratory judgments clarifying the respective rights under the trust deed and note, invalidating the substitution of trustee and notice of default, declaring the debt unsecured and that the defendants may not foreclose the trust deed, and declaring that the debt had been satisfied via insurance or credit default swaps. The Mitchells also sought a permanent injunction of any foreclosure sale conducted by ReconTrust on behalf of BNYM, an order quieting title to the subject property in their names, an award of punitive damages, and an award of attorney fees incurred in defending against an improper foreclosure.

¶ 6 Bank Defendants moved to dismiss, arguing that the Mitchells failed to state any claims upon which relief could be granted. In support of their motion, Bank Defendants indicated that on October 6, 2011, ReconTrust had recorded a cancellation of notice of default, thereby mooting the Mitchells' claims challenging ReconTrust's authority to act as a trustee with power of sale because ReconTrust would not be conducting any further foreclosure proceedings on the Mitchells' property.

¶ 7 The district court granted the motion to dismiss in part and dismissed nine of the Mitchells' eleven claims. The court first determined that under the terms of the trust deed, “MERS was the statutory beneficiary and, by contract, the agent of the Lender and the Lender's successors.” The court explained that “MERS assigned its interest to BNYM and [BNYM] is now, under the terms of the [trust deed] and the statute, the beneficiary.” The court then addressed each cause of action. Regarding the Mitchells' first cause of action seeking a declaration with respect to the true ownership of the debt, “and by extension the authority of [the] defendants to foreclose,” the district court concluded that it stated “no genuine claim for declaratory relief” because “MERS had, and BNYM has, authority to commence foreclosure under the terms of the [trust deed] and the Utah statutes.” Because the tenth cause of action was “a restatement of the [f]irst,” the court dismissed the tenth cause of action for the same reasons.

¶ 8 The court proceeded to dismiss the second and seventh causes of action, which challenged the notice of default and alleged a breach of duty by the trustee, as moot in light of the cancellation of the notice of default. As for the fourth cause of action, based on a theory that the ownership of the debt had been severed from the trust deed, the court dismissed it because “[n]o fact is alleged suggesting that the [trust deed] has been severed from the underlying obligation, nor is there any allegation how, under Utah law, this might occur.” The court also dismissed the fifth cause of action, stating that “the claim fails to allege any basis for concluding that payment by a third party to the holder of the debt satisfies” the Mitchells' obligations under the note and trust deed. The court dismissed the sixth cause of action for quiet title. It reasoned that BNYM was the beneficiary and that any securitization of the debt “does not change the [trust deed's] terms ... making BNYM now the agent (nominee) for the current owner or owners of the debt.” Moreover, the Mitchells did not dispute that their title was subject to the trust deed. Last, the court dismissed the eighth cause of action for an injunction and the eleventh cause of action for punitive damages because both were remedies rather than stand-alone claims.

¶ 9 The district court denied Bank Defendants' motion to dismiss with respect to two causes of action. Specifically, the court concluded that the third cause of action, which appeared to be based on theories of estoppel and breach of the implied covenant of good faith and fair dealing, possibly stated a claim because “actions by the Lender or its agents encouraging [the Mitchells] to default may constitute a modification of the underlying agreement, a waiver of one or more of its terms, or act to estop the current lender from asserting certain contractual terms.” The court also determined that the ninth cause of action survived the motion to dismiss because it sought attorney fees related to a breach of contract and therefore “if [the Mitchells'] estoppel[ ] theory establishes that the contract was modified by [BAC's] conduct, a breach of contract may be proven.” Accordingly, the district court allowed the Mitchells to proceed on their third and ninth causes of action.

¶ 10 Bank Defendants later moved for summary judgment on the remaining two claims. The court granted this motion. It reasoned that all possible legal theories for the third cause of action relied upon “the alleged misrepresentation that occurred in March 2010 regarding a possible loan modification.” The court then concluded that the evidence showed, “[at] most,” that the Mitchells had a “subjective understanding that they had been assured that a loan modification would occur.” Thus, it was “undisputed that there was never an agreement to modify according to any certain terms, and there was certainly nothing in writing.” Given this undisputed fact, and noting that the third cause of action was “unclear as to precisely its legal theory or the relief sought,” the court determined that “there can be no claim that [BAC] is bound by a modified loan agreement as a matter of law” and that a waiver claim likewise would fail. Similarly, the court concluded that a claim for breach of the covenant of good faith and fair dealing would fail because “there can be no implied duty arising” under a nonexistent modification and “no such duty can be implied out of the [Mitchells'] existing loan.” The court also concluded that any claim grounded in promissory estoppel failed because, inter alia, the Mitchells could not reasonably rely on such an indefinite promise and because the record did not support actual reliance. Consequently, the court dismissed the third cause of action. Because the ninth cause of action depended on the success of the third cause of action, the court dismissed the ninth cause of action as well. Then, upon Bank Defendants' motion, the district court determined that the Mitchells had failed to comply with discovery orders and dismissed the complaint as a discovery sanction; the sanction served as a...