NEEDREPLACE, C.A. No. 12–802–M.

CourtNew York District Court
Writing for the CourtJOHN J. McCONNELL
Citation7 F.Supp.3d 169
PartiesRobert W. CLARK, Jr., Plaintiff, v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. et al., Defendants.
Docket NumberC.A. No. 12–802–M.
Decision Date27 March 2014

7 F.Supp.3d 169

Robert W. CLARK, Jr., Plaintiff,
v.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. et al., Defendants.

C.A. No. 12–802–M.

United States District Court, D. Rhode Island.

Signed March 27, 2014


Motion granted.

[7 F.Supp.3d 172]

Corey J. Allard, George E. Babcock, Pawtucket, RI, for Plaintiff.

Paul Michienzie, Michienzie & Sawin, LLC, Boston, MA, Jeanne M. Scott, Law Offices of Jeanne M. Scott, Newport, RI, Harris K. Weiner, Salter McGowan Sylvia & Leonard, Inc., Providence, RI, for Defendants.


MEMORANDUM AND ORDER

JOHN J. McCONNELL, JR., District Judge.

Plaintiff Robert W. Clark, Jr. filed a lawsuit against Defendants Mortgage Electronic Registration Systems, Inc. (“MERS”) and Bayview Loan Servicing, LLC (“Bayview”), alleging that Bayview had no standing to foreclose on his mortgage because the assignment of his mortgage from MERS to Bayview was void. Both Defendants move to dismiss pursuant to Fed.R.Civ.P. Rule 12(b)(6), arguing that Mr. Clark lacks standing to bring his suit in light of the developing case law from the Rhode Island Supreme Court and the United States Court of Appeals for the First Circuit. In the alternative, MERS and Bayview argue that even if Mr. Clark has standing, his claims fail nonetheless.

The issues in this case raise matters that are potentially applicable to hundreds of similar mortgage foreclosure cases on this Court's Mortgage Docket including the validity of assignments and who has standing to raise these issues, the legality of the MERS system, and the requirements of Rhode Island's statutory scheme for mortgages.1 Along with these substantive matters, this case implicates the procedural issues of the proper standard of review to be applied at this stage of the litigation in light of a recent Rhode Island Supreme Court opinion.

I. FACTS

Mr. Clark executed a mortgage for real estate located at 254–256 Old Forge Road in Warwick, Rhode Island. (ECF No. 1 at ¶¶ 1, 7.) The first floor is a restaurant and the second floor has a two-bedroom apartment. (ECF No. 28–5 at 3.) The mortgage listed the Lender as “Equity One, Inc. dba Equity One Mortgage Company” (“Equity One”) and the mortgagee as MERS acting “solely as the nominee for Lender and Lender's successors and assigns.” (ECF No. 1 at ¶¶ 7, 8.) The mortgage was recorded on February 24, 2004. On April 19, 2012, MERS assigned the mortgage to Bayview who recorded the assignment. (ECF No. 1 at ¶ 9.) Mr. Clark alleges that this assignment is void because David Briggs, a Bayview employee, signed the assignment and did not have authority because he was not a Vice President or Assistant

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Secretary of MERS. (ECF No. 1 at ¶¶ 9–13.)

It is not clear from the Complaint, but at some point, Mr. Clark stopped paying his mortgage. Bayview has initiated a foreclosure proceeding for lack of payment, but no foreclosure has taken place to date. (ECF No. 28–1 at 2 n. 2.)

In the face of the threatened foreclosure, Mr. Clark filed this Complaint setting forth three counts: declaratory injunction (Count I), quieting title (Count II), and punitive damages (Count III). (ECF No. 1.) The Complaint requests: a declaration as to title and ownership of the property; a declaration that Mr. Clark owns the property as a matter of law; a declaration that only Mr. Clark has marketable title; a declaration that the conveyance, the assignment, and the acknowledgment are void; an order quieting title to the property; unspecified damages and attorney's fees; and punitive damages. ( Id.)

Mr. Clark bases his plea for relief on four arguments. First, he argues that the assignment from MERS to Bayview is not valid because a person duly authorized did not sign the assignment. Second, he asserts that the assignor did not hold both the mortgage and note as is required under Rhode Island state law. Third, he asserts that Defendants did not follow the statutory and contractual notice requirements. Fourth, Mr. Clark asserts that the mortgage is current or has been satisfied.

This case was originally assigned to the Special Master's docket. By text order issued on May 24, 2013, this Court accepted the Special Master's recommendation (ECF No. 16) that the case be removed from her docket because the property was considered commercial. Defendants then filed the instant motion to dismiss. (ECF No. 28.) Mr. Clark filed an objection (ECF No. 33) to which Defendants replied, attaching several documents. (ECF No. 38.) Mr. Clark filed a supplemental memorandum citing two recently issued Rhode Island Supreme Court opinions, Mruk v. Mort. Elec. Registration Sys., Inc., 82 A.3d 527 (R.I.2013) and Chhun v. Mort. Elec. Registration Sys., Inc., 84 A.3d 419 (R.I.2014). (ECF No. 39.) The Court held a hearing on the motion on February 4, 2014 and Defendants filed a post-hearing reply memorandum, addressing the new case law.2 (ECF No. 40.)

On February 14, 2014, this Court issued a text order stating that because Defendants presented matters outside the pleading in support of its Motion to Dismiss ( see e.g., ECF No. 38–5), the Court intended to treat the motion as one for summary judgment pursuant to Fed.R.Civ.P. 12(d). All parties were given time to present any additional material that they deemed pertinent to the motion. Neither party submitted additional materials. Mr. Clark objected to the matter being converted to a summary judgment motion. (ECF No. 47.) Defendants then filed a motion asking the Court to reconsider and not to convert the motion to one for summary judgment, but to consider it as a motion to dismiss. (ECF No. 48.) In light of both parties' positions, the extensive briefing, argument, existing case law and supplements, the Court finds itself well equipped to decide the motion to dismiss without considering matters outside the Complaint. Moreover, because of the guidance set forth in the rapidly evolving case law, specifically the First Circuit Court of Appeal's decision in Wilson v. HSBC Mortg. Servs., Inc., 744 F.3d 1 (1st Cir.2014), the Court

[7 F.Supp.3d 174]

will decide Defendants' motion to dismiss under 12(b)(6) as originally filed.3

II. STANDARD OF REVIEW

To survive a motion to dismiss for failure to state a claim, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). At the same time, the Court must accept Plaintiffs' allegations as true and construe them in the light most favorable to them. Gargano v. Liberty Int'l Underwriters, 572 F.3d 45, 48 (1st Cir.2009).

“A Rule 12(b)(6) motion will be granted only if, when viewed in this manner, the pleading shows no set of facts which could entitle plaintiff to relief.” Gooley v. Mobil Oil Corp., 851 F.2d 513, 514 (1st Cir.1988) (citing Conley v. Gibson, 355 U.S. 41, 45–48, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). These “minimal requirements are not tantamount to nonexistent requirements. The threshold may be low, but it is real—and it is the plaintiff's burden to take the step which brings his case safely into the next phase of the litigation.” Gooley, 851 F.2d at 514. “[A] plaintiff ... is ... required to set forth factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory.” Id. at 515.

In light of the Rhode Island Supreme Court's Chhun decision, an important distinction must be drawn in this case between the standard of review that Rhode Island state courts use in deciding motions to dismiss and our federal standard. State courts grant motions to dismiss “when it is clear beyond a reasonable doubt that the plaintiff would not be entitled to relief from the defendant under any set of facts that could be proven in support of the plaintiff's claim.” Palazzo v. Alves, 944 A.2d 144, 149–50 (R.I.2008). Conversely, in federal court, “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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). The Rhode Island Supreme Court recognized that the federal standard is more stringent and “cannot be blended with the traditional Rhode Island standard.” Chhun, 84 A.3d at 422 n. 5.

Though this Court sitting in diversity must apply Rhode Island substantive law, it is obliged to apply federal procedural law and is bound to apply the Iqbal–Twombly federal standard. Alison v. Byard, 163 F.3d 2, 4 (1st Cir.1998). Therefore, in order to survive a motion to dismiss, a complaint's “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. The Court need not accept all allegations in the complaint as true—“threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Plaintiff's complaint must state a plausible claim for relief in order to survive a motion to dismiss. Id.

III. ANALYSIS

Mr. Clark levels three claims against Bayview and MERS—Declaratory Judgment (Count I), Quieting Title (Count II), and Punitive Damages (Count III). (ECF No. 1.) The Court will analyze each of these claims in light of Defendants' motion to dismiss and the applicable case law.

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A. Count I—Declaratory Judgment

In his claim for declaratory judgment, Mr. Clark alleges that he owns the property and any assignment of his mortgage to Bayview “failed to vest title” therein. (ECF No. 1 at ¶¶ 86–87.) He seeks a declaration, among other things, that he owns the property as a matter of law, has marketable title to the property, and an award of costs. ( Id. at 7–8.) Before getting to the merits of his claim, the Court must consider whether Mr. Clark, who is not a signatory to the assignment of his mortgage from MERS to...

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