Ruggia v. Wash. Mut.

• Decision Date: 13 May 2010
• Docket Number: Civil Action No. 1:09-cv-1067.
• Citation: 719 F.Supp.2d 642
• Parties: Winfried P. RUGGIA, et al., Plaintiffs, v. WASHINGTON MUTUAL, a division of JPMorgan Chase Bank, N.A., et al., Defendants.
• Court: U.S. District Court — Eastern District of Virginia

719 F.Supp.2d 642

Winfried P. RUGGIA, et al., Plaintiffs,

v.WASHINGTON MUTUAL, a division of JPMorgan Chase Bank, N.A., et al., Defendants.

Civil Action No. 1:09-cv-1067.

United States District Court,E.D. Virginia,

Alexandria Division.

May 13, 2010.

Christopher E. Brown, Brown Brown & Brown, Alexandria, VA, for Plaintiffs.

Jonathan Stuart Hubbard, Troutman Sanders LLP, Richmond, VA, John C. Lynch, Troutman Sanders LLP, Virginia Beach, VA, for Defendants.

Memorandum Opinion

LIAM O'GRADY, District Judge.

This matter comes before the Court on Defendants' Motion to Dismiss Plaintiffs' Amended Complaint (Dkt. no. 19) filed on behalf of Defendants JPMorgan Chase Bank, N.A., as acquirer of certain assets and liabilities of Washington Mutual Bank from the Federal Deposit Insurance Corporation (“FDIC”), as Receiver for Washington Mutual Bank (“Chase”), JPMC Specialty Mortgage, LLC (“JPMC”), Mortgage Electronic Registration Systems, Inc. (“MERS”), and Equity Trustees, LLC (“Equity”) (collectively “Defendants”). For the reasons that follow, Defendants' Motion (Dkt. no. 19) is hereby GRANTED. This case is DISMISSED WITH PREJUDICE, as any further effort to amend would prove futile.

I. Background

Plaintiffs filed their Amended Complaint on October 29, 2009, alleging claims under the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692 et seq., as well as claims seeking to invalidate a contract due to “illegal gambling,” and claims for declaratory judgment, quiet title, and fraud. The pertinent factual allegations in this case, which the Court assumes to be true, are as follows.

On April 14, 2006, Plaintiffs executed a promissory note (the “Note”) and deed of trust (the “Deed”), which placed a security interest on their home (the “Property”) with Accredited Home Lenders, Inc. (“Accredited”). ¹ Amend. Compl. at ¶¶ 10-14. An allonge to the Note bears an endorsement which indicates a transfer of the Note from Accredited to Washington Mutual. The endorsement is signed by Mary K. Kochmer, who is listed as Assistant Secretary for Accredited. Washington Mutual's assets were in turn assumed by Chase. ² A second allonge to the Note shows that Chase negotiated the Note to JPMC via an endorsement signed by Barbara Hindman, who is indicated as Vice President for Chase.

Plaintiffs began receiving demands for payment from Washington Mutual (now Chase) in 2009. Amend. Compl. at ¶¶ 18-19. Plaintiffs allege that the Loan was then securitized and put into of a “pool of securitized mortgage and asset backed securities.” Amend. Compl. at ¶¶ 21-22. Plaintiffs were notified that they were in default, that their loan had been accelerated, and the date of the foreclosure sale. Amend. Compl. at ¶ 36. Defendant Equity scheduled a foreclosure sale of the Property on August 6, 2009. Amend. Compl. at ¶ 46. Equity was appointed as a “substitute trustee” and JPMC Specialty Mortgage, LLC acted as a “mortgage servicer.” That foreclosure sale has yet to go forward and no further action has proceeded against the property since the inception of this suit.

II. Standard of Review

Under Fed.R.Civ.P. 12(b)(6) an adequate Complaint must contain “sufficient factual matter, accepted as true ‘to state a claim to relief that is plausible on its face.’ ”

Ashcroft v. Iqbal, --- U.S. ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citing Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A claim is “facially plausible” when a plaintiff “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Further, because Count VI of the Amended Complaint alleges a claim for fraud, Fed.R.Civ.P. 9(b) heightens the pleading standard applicable to that claim. See Anderson v. Sara Lee Corp., 508 F.3d 181, 188 (4th Cir.2007).

III. Procedural Posture

Plaintiffs filed their original Complaint in the Circuit Court of Fairfax County, Virginia on or about August 6, 2009. On September 22, 2009, Defendants removed the action to this Court. Defendants filed their Motion to Dismiss Plaintiffs' original Complaint on September 29, 2009. On October 29, 2009, Plaintiffs filed their Amended Complaint, which Defendants subsequently moved to dismiss on November 11, 2009. The Court heard oral arguments on Defendants Motion to Dismiss on January 8, 2010 and requested supplemental briefing from the parties by Order dated March 26, 2010.

IV. Analysis

Plaintiffs' allegations seek to challenge the authority of the various named Defendants to enforce the Deed securing the Note executed by Plaintiffs. ³

Plaintiffs allege that the entities seeking to foreclose on their home are not entitled as a matter of law to do so. Specifically, Plaintiffs allege that “given the splitting, selling, trading, and insuring of the pieces of the Note on the secondary market, the Deed of Trust is split from the Note and is unenforceable ...” Amend. Compl. at ¶ 67. However, nothing in Plaintiffs' conclusory allegations provides a plausible basis for relief after considering the settled law of negotiable instruments or the enforcement of deeds of trust securing notes after their negotiation.

Under Virginia law, the holder of an instrument or a nonholder in possession of the instrument with the same rights as the holder may enforce the instrument. Va.Code. Ann. § 8.3A-301. Indeed, an individual may be “entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.” Id. An individual becomes the “holder” of an instrument through the process of negotiation, and if “an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its endorsement by the holder.” Id. at § 8.3A-201(b). On the other hand, if an instrument has a blank endorsement, it is considered “payable to bearer,” and may be negotiated by transfer of possession alone. See VA.Code §§ 8.3A-201(b) & & 8.3A-205.

As reflected in its March 26, 2010 Order, the Court was careful to consider the nature of the transfer of the Note from the initial lender to its current holder, as the initial copy of Note submitted with Plaintiffs' Motion to Dismiss established that Plaintiffs entered into a lending agreement with Accredited, but contained no further endorsements. Supplemental briefing from the parties revealed, however, that Defendants continue to possess the Note, together with two allonges. The allonges reflect the entire transactional history of the Note, and indicate that the Note was properly negotiated to JPMC. ⁴ The Court deems the allonges part of the Note because in Virginia, “[f]or the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is part of the instrument.” Va.Code § 8.3A-204. Thus, the documents referenced and relied upon in the Complaint demonstrate that the Note was executed by Plaintiffs and subsequently negotiated to JPMC, vesting JPMC with the rights and privileges of the holder of the Note.

Finally, absent a contrary provision, notes are generally freely transferable, and the transferee retains the right to enforce the instrument. Under Va.Code Ann. § 8.3A-203(b), the “[t]ransfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument ...” See also Johnson v. Ferris, 58 Va. Cir. 7, 2001 WL 1829719, at *4 (May 31, 2001 Va.Cir.Ct.)(noting that “in the absence of an express provision against assignment of a contract not involving personal skill, trust, or confidence, the contract is freely assignable” and citing J. Maury Dove Co. v. New River Coal, 150 Va. 796, 143 S.E. 317 (Va.1928)).

The explicit terms of the Note at issue here indicate that they are freely transferable. See Note at ¶ 1 (“I understand that the Lender may transfer this Note. The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the Note Holder”). As the Virginia Supreme Court noted long ago, the promise to pay a mortgage is a promise to pay a “negotiable note [ ] secured by [the mortgage] to the respective payees thereof, or to the person or persons to whom [it] might ... be negotiated ...” Blanton v. Keneipp, 155 Va. 668, 681, 156 S.E. 413 (Va.1931).

The parties agree that Plaintiffs have ceased making payments on the Note. In Virginia, the obligation to pay an instrument can only be “discharged as stated in [Title 8.3A] or by an act or agreement with the party which would discharge an obligation to pay money under a simple contract.” Va.Code § 8.3A-601. Plaintiffs offer no allegation that they reached an agreement with a noteholder or took any other action which would suffice to discharge the obligation under the Virginia statute. Thus, “to permit the parties to the [instrument] to object to its payment, on any of the grounds stated, would greatly impair the negotiability of bills and notes; their most distinguishing, most useful, and most valued feature.” Whitworth v. Adams, 1827 WL 1200 at *45 (Va.1827).

Next, the so-called “split” of the Deed from the Note alleged by Plaintiffs does not render the Deed unenforceable nor does it leave the Note unsecured. Under Virginia law, when a note is assigned, the deed of trust securing that debt necessarily runs with it. See Williams v. Gifford, 139 Va. 779, 784, 124 S.E. 403 (1924); see also Stimpson v. Bishop, 82 Va. 190, 200-01 (1886)(“It is undoubtedly true that a transfer of a secured debt carries with it the security without formal assignment or delivery.”). Moreover, as the Virginia Supreme Court has recognized, when deeds of trust and their underlying notes are “separate and distinct” documents,

... in appropriate circumstances, we have recognized that ‘notes and contemporaneous written agreements executed as part of the same transaction will be construed...