David Manning v. Mortgage Electronic Registration Systems ( 2016 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DAVID AND ROBBIN MANNING,
husband and wife, NO. 73908-5-
Appellants, DIVISION ONE
MORTGAGE ELECTRONIC UNPUBLISHED OPINION
REGISTRATION SYSTEMS, INC.
("MERS"); THE BANK OF NEW YORK
MELLON, f/k/a THE BANK OF NEW
YORK, SOLELY AS TRUSTEE FOR
THE CERTIFICATE HOLDERS OF
CO
CWMBS, INC., CHL MORTGAGE
PASS-THROUGH TRUST 2004-5
(A NEW YORK REMIC TRUST),
MORTGAGE PASS THROUGH CO
CERTIFICATES, SERIES 2004-5; en <_j
REGIONAL TRUSTEE SERVICES
PACIFIC, INC. ("RTS"); RESIDENTIAL
CREDIT SOLUTIONS, INC.; JOHN
DOESNOS. 1-20,
FILED: October 31, 2016
Respondents.
Leach, J. — David and Robbin Manning appeal the trial court's dismissal
of their lawsuit against successive holders of their promissory note, the
designated beneficiary of their deed of trust, and the successor trustee. They
challenge the trial court's decision that the four-year statute of limitations barred
their Consumer Protection Act (CPA)1 claim and that they waived other claims.
Ch. 19.86 RCW.
NO. 73908-5-1 / 2
They contend that the defendants violated the deeds of trust act (DTA)2 by
foreclosing without holding a "negotiable instrument." Because the Mannings did
not use the DTA's procedure for restraining the sale and allege only narrow,
technical violations of the DTA, they waived all their claims except the CPA and
fraud claims. Because the entity that appointed the successor trustee also held
the promissory note, that trustee had authority to foreclose. Because the
Mannings' CPA claim accrued more than four years before they brought suit, the
statute of limitations barred their CPA claim. And because the Mannings do not
contest the trial court's ruling that they did not plead their fraud claim with
specificity, they have abandoned that claim. We affirm.
FACTS
In 2004, David and Robbin Manning borrowed money from Countrywide
Home Loans to finance their purchase of a house on Lopez Island. They signed
a promissory note and executed a deed of trust securing it. The deed of trust
named Mortgage Electronic Registration Systems Inc. (MERS) as the
beneficiary, "acting solely as a nominee for [Countrywide] and [Countrywide]'s
successors and assigns." The deed of trust designated LS Title of Washington
the trustee.
2Ch. 61.24RCW.
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NO. 73908-5-1/3
The following occurred after the Mannings signed their note. The Bank of
New York (BNY) acquired the note in April 2004. MERS assigned the deed of
trust to BNY in March 2012. The Mannings defaulted on the loan in July 2012.
Residential Credit Solutions obtained possession of the note in 2013 for
purposes of servicing the Mannings' loan for BNY.3 Residential Credit issued a
notice of default in January 2014. In May 2014, BNY appointed Residential
Trustee Services as successor trustee. Trustee Services recorded a notice of
trustee's sale in September 2014.
In January 2015, the Mannings sued MERS, BNY, Trustee Services, and
Residential Credit, claiming fraud, slander of title, and violations of the CPA and
seeking damages, declaratory and injunctive relief, and to quiet title. They did
not use the DTA procedure to ask the trial court to restrain the trustee's sale.4
Trustee Services sold the house on January 15, 2015.
The defendants moved to dismiss the Mannings' complaint for failure to
state a claim upon which relief could be granted. The trial court granted the
motion. It decided that the Mannings waived most of their claims by not using
the DTA restraint procedure. It also dismissed their two unwaived claims, ruling
3 As of April 2015, Residential Credit held the note "on behalf of the Bank
of New York."
4 See RCW 61.24.130.
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NO. 73908-5-1/4
that the four-year statute of limitations barred their CPA claim and that they did
not plead fraud with enough particularity.5 The Mannings appeal.
STANDARD OF REVIEW
The parties' briefs raise two issues relevant to the standard of review.
First, the Mannings challenge the trial court's application of the CR 12(b)(6)
standard. They point to arguments the defendants made in their motion to
dismiss urging the trial court to apply the federal courts' pleading standard, which
is stricter than Washington's.6 The record contains no indication that the trial
court applied that standard, nor do the Mannings explain how it would change the
outcome of this appeal. The Mannings also contend that the defendants "urged
the trial court to ignore a leading case in California" regarding borrowers'
standing to challenge assignments of loan documents. They do not, however,
explain how those developments in California case law should affect this court's
consideration of the issues in this appeal. We decline to speculate.
Second, the trial court's consideration of facts outside the pleadings
converted its decision to one for summary judgment. Generally, in considering a
CR 12(b)(6) motion to dismiss, "the trial court may consider only the allegations
contained in the complaint and may not go beyond the face of the pleadings."7 It
5 See CR 9(b).
6 See Handlin v. On-Site Manager Inc.. 187 Wash. App. 841, 845, 351 P.3d
226(2015).
7 Rodriguez v. Loudeve Corp., 144 Wash. App. 709, 725-26, 189 P.3d 168
(2008).
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NO. 73908-5-1 / 5
may also take judicial notice of certain facts "'not subject to reasonable dispute. >»8
But when the trial court considers other "matters outside the pleadings," such as
declarations and attached documents, it converts a motion to dismiss for failure
to state a claim to a motion for summary judgment.9
Here, the defendants supported their motion to dismiss with a request for
judicial notice containing several documents. These included a Residential
Credit officer's declaration describing the note's ownership and possession
history with the original note attached, the deed of trust, the assignment of the
deed from MERS to BNY, BNY's appointment of Trustee Services as successor
trustee, the notice of default from Residential Credit, the notice of trustee's sale
from Trustee Services, and the trustee's deed.
The trial court did not exclude those documents. Rather, it indicated in its
decision letter that it reviewed the defendants' request for judicial notice and its
order states that it reviewed "the files contained in this matter." Under CR 12(b),
8 Rodriguez, 144 Wash. App. at 725-26 (quoting ER 201(b)). These include
facts "capable of accurate and ready determination by resort to sources whose
accuracy cannot reasonably be questioned." ER 201(b). The court may also
take notice of documents that are attached to the complaint or that the complaint
alleges the contents of. Rodriguez, 144 Wash. App. at 726.
9 CR 12(b); Perrin v. Stensland, 158 Wash. App. 185, 192, 240 P.3d 1189
(2010). CR 12(b) provides that where
matters outside the pleading are presented to and not excluded
by the court, the motion shall be treated as one for summary
judgment and disposed of as provided in rule 56, and all parties
shall be given reasonable opportunity to present all material
made pertinent to such a motion by rule 56.
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NO. 73908-5-1 / 6
this converted the trial court's decision to one for summary judgment.10 In their
response to the motion to dismiss, the Mannings made arguments based on
information from those documents. They did not ask for more time to present
their own evidence.11 We thus review the trial court's summary judgment
decision de novo, asking whether the evidence creates a genuine issue of
material fact when viewed in the light most favorable to the nonmoving party.12
ANALYSIS
Waiver
The Mannings dispute the trial court's conclusion that they waived most of
their claims by failing to use the DTA procedure to stop the trustee's sale. We
agree with the trial court that only the Mannings' fraud and CPA claims survive
waiver.
The DTA "creates a three-party mortgage system allowing lenders, when
payment default occurs, to nonjudicially foreclose by trustee's sale."13 The act
10 See Perrin, 158 Wash. App. at 192. While the trial court may consider
documents whose contents a complaint alleges without converting its ruling to a
summary judgment, this rule does not apply where the parties dispute those
contents, as the Mannings do here. See Trujillo v. Nw. Tr. Servs., Inc., 183
Wash. 2d 820, 827 n.2, 355 P.3d 1100 (2015).
11 See CR 56(f).
12 Mohr v. Grantham. 172 Wash. 2d 844, 859, 262 P.3d 490 (2011); CR
56(c).
13 Albice v. Premier Mortg. Servs. of Wash.. Inc.. 174 Wash. 2d 560, 567, 276
P.3d 1277(2012).
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NO. 73908-5-1 / 7
has three goals: an efficient and inexpensive process, adequate opportunities for
parties to prevent wrongful foreclosure, and stability of land titles.14
To further these goals, RCW 61.24.130 provides a procedure for stopping
a trustee's sale.15 The DTA requires borrowers to use this procedure or risk
waiving objections to the sale and claims arising out of the underlying
obligation.16 Courts may apply waiver where it "is equitable under the
circumstances and . . . serves the goals of the act."17 The borrower must have
"(1) received notice of the right to enjoin the sale, (2) had actual or constructive
knowledge of a defense to foreclosure prior to the sale, and (3) failed to bring an
action to obtain a court order enjoining the sale."18 RCW 61.24.127(1) preserves
four types of claim that a plaintiff "may not" waive by failing to use the DTA
restraint procedure. These include claims for fraud and for CPA violations.
Here, the trial court ruled that "to the extent Plaintiffs' claims identify only
formal technical violations of the DTA, with no suggestion that any such
violations could not have been corrected if they had been timely raised under
RCW 61.24.130, Plaintiffs have waived their right to raise them." We agree.
14 Albice. 174Wn.2dat567.
15 Plein v. Lackey. 149 Wash. 2d 214, 225, 67 P.3d 1061 (2003).
16 Plein, 149 Wash. 2d at 227; Brown v. Household Realty Corp.. 146 Wn.
App. 157, 169, 189 P.3d 233 (2008); RCW 61.24.040(1 )(f)(IX).
17 Albice. 174 Wash. 2d at 570.
18 Plein. 149Wn.2dat227.
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NO. 73908-5-1 / 8
The Mannings do not contest that they received notice of their right to
enjoin the sale, knew of the defenses to foreclosure they now assert, and did not
bring an action to stop the sale as authorized by the DTA.19 They assert that
applying waiver here would be inequitable. They claim that unlike the "technical,
formal, likely correctable and nonprejudicial violations of the DTA" described in a
Division Three opinion the trial court cited, Merry v. Northwest Trustee Services.
Inc..20 the violations they allege are "gross violations."21 They offer no support for
this distinction. Like the plaintiffs in Merry, the Mannings based their claims on a
deed of trust's designation of MERS as beneficiary and its assignment of its
interest to a company that later appointed a successor trustee.22 Division Three
noted that the Supreme Court has "signaled disapproval of the type of
hypertechnical, inequitable result requested by Mr. Merry's complaint."23 The
Mannings' claims fit this description. As in Merry, waiver is not inequitable here.
19 Plein, 149Wn.2dat227.
20 188 Wash. App. 174, 177, 352 P.3d 830 (2015).
21 The Mannings mischaracterize the trial court's decision as
acknowledging that the defendants violated the DTA. The trial court instead
indicated that even if the defendants had violated the DTA, the Mannings waived
their claims.
22 See Merry, 188 Wash. App. at 183-84.
23 Merry. 188 Wash. App. at 196; see Bain v. Metro. Mortg. Grp.. Inc., 175
Wash. 2d 83, 111, 285 P.3d 34 (2012).
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NO. 73908-5-1 / 9
The Mannings thus waived claims that RCW 61.24.127(1) does not
preserve.24 That provision saves only their CPA and fraud claims and, to the
extent made, DTA claims against the trustee.
Authority To Foreclose
The Mannings contend that the defendants lacked authority to foreclose
because MERS could not assign the deed of trust. We disagree.
A trustee must be properly appointed to initiate foreclosure proceedings
under the DTA.25 An entity obtains the authority to appoint a successor trustee
from possession of the note, not by an assignment of the deed of trust.26
That MERS lacked authority to assign the deed of trust does not matter
because MERS did not appoint the successor trustee and the entity that did—
BNY—had the authority to do so. The record shows that possession of the note
passed from Countrywide to BNY in 2004 and from BNY to Residential Credit in
2013 to hold on behalf of BNY. BNY appointed Trustee Services as successor
trustee in 2014. BNY's power to do so came from its status as holder of the note
24 See Brown. 146 Wash. App. at 169. These include their slander of title
claim and forms of relief they requested other than damages, including injunctive
relief, declaratory relief, and quiet title.
25 Bavand v. OneWest Bank. FSB, 176 Wash. App. 475, 486, 309 P.3d 636
(2013).
26 McAfee v. Select Portfolio Servicing. Inc.. 193 Wash. App. 220, 228-29,
370 P.3d 25 (2016); Bain, 175 Wash. 2d at 89 ("[Ojnly the actual holder of the
promissory note or other instrument evidencing the obligation may be a
beneficiary with the power to appoint a trustee to proceed with a nonjudicial
foreclosure on real property.").
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through its agent, Residential Credit, and not MERS's assignment of the deed of
trust.27 Trustee Services was thus properly appointed. The Mannings did not
create a genuine issue of material fact about Trustee Services' authority to
foreclose on their house.
The Mannings' argument that Trustee Services lacked authority to
foreclose because the promissory note is not a "negotiable instrument" lacks
merit.
The Washington Uniform Commercial Code defines a "negotiable
instrument" as an "unconditional promise or order to pay a fixed amount of
money."28
[A] promise or order to pay is unconditional unless it contains an
express condition to payment and states that (1) the promise or
order to pay is subject to or governed by another writing or (2)
rights or obligations with respect to the promise or order to pay are
stated in another writing.[29]
The Mannings contend that the note is not a "negotiable instrument," and
thus no defendant was the "holder of an instrument," and thus any foreclosure
actions any defendant took violated the DTA.30 They rely on Anderson v.
See McAfee. 193 Wash. App. at 228-29. A note holder can possess a
27
note "directly or through an agent." RCWA62A.3-201 U.C.C. cmt. 1.
28 RCW 62A.3-104(a).
29 Alpacas of Am.. LLC v. Groome, 179 Wash. App. 391, 396-97, 317 P.3d
1103 (2014); see RCW 62A.3-106(a).
30 See RCW 61.24.005(2) ("'Beneficiary' means the holder of the
instrument or document evidencing the obligations secured by the deed of trust,
excluding persons holding the same as security for a different obligation."); RCW
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NO. 73908-5-1/11
Hoard.31 a case that predates the DTA, in which the Supreme Court held a note
to be nonnegotiable. That note provided for the lender to apply payments first to
interest, then "to the payment, at the option of the holder, of such advances as
the holder may have made for taxes, assessments or insurance premiums and
other charges on any property mortgaged or pledged to secure this note." and
only then to principal.32 The Mannings claim that their note likewise is not an
unconditional promise to pay and is nonnegotiable because it does not include a
fixed amount of principal and contains several material conditions, making
uncertain the amount due.
The Mannings are wrong. The promissory note states the principal
amount is $495,000.00 and fixes the annual interest rate at 5.875 percent. It
requires monthly payments of $2,928.11 and provides for a 5 percent charge on
overdue payments. Unlike the note in Anderson, the Mannings' note does not
provide for the borrowers to reimburse the holder for taxes and other charges "at
the option of the holder."33 Thus, the Mannings did not make a conditional
promise to pay an uncertain sum.34 The note is a negotiable instrument.
62A.3-104(b) (defining "instrument" as "a negotiable instrument"); 62A.3-104(a)
(defining "negotiable instrument").
31 63 Wash. 2d 290, 293-94, 387 P.2d 73 (1963).
32 Anderson. 63 Wash. 2d at 291.
33 Anderson. 63 Wash. 2d at 291, 293.
34 See Anderson, 63 Wash. 2d at 293.
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CPA Claim
Next, the Mannings challenge dismissal of their CPA claim. The trial court
correctly decided that the statute of limitations barred this claim.
RCW 61.24.127(2)(a) provides that even when RCW 61.24.127(1)
prevents a claim from being waived, the plaintiff must bring the claim within two
years of the trustee's sale and within the specific statute of limitations for the type
of claim. For a CPA claim, that period is four years.35 Whether the statute of
limitations barred the Mannings' claim thus depends on whether their claim
accrued within four years of the filing of their complaint in January 2015.
In general, "'[a] cause of action accrues and the statute of limitations
begins to run when a party has the right to apply to a court for relief.'"36 This
occurs "'when the plaintiff can establish each element of the action.'"37 The
discovery rule is an exception to this general rule. Courts apply it, as a matter of
judicial policy, when "'injured parties do not, or cannot, know they have been
injured.'"38 Where it applies, "'a cause of action accrues when the plaintiff,
through the exercise of due diligence, knew or should have known the basis for
35 RCW 19.86.120.
36 Shepard v. Holmes, 185 Wash. App. 730, 739, 345 P.3d 786 (2014)
(alteration in original) (quoting O'Neil v. Estate of Murtha. 89 Wash. App. 67, 69-70,
947P.2d 1252(1997)).
37 Shepard. 185 Wash. App. at 739 (quoting Hudson v. Condon. 101 Wn.
App. 866, 874, 6 P.3d 615 (2000)).
38 Shepard. 185 Wash. App. at 739 (quoting In re Estates of Hibbard. 118
Wash. 2d 737, 744-45, 826 P.2d 690 (1992)).
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the cause of action.'"39 When that occurred is normally a fact question.40 But a
court may infer actual discovery where the claim is based on documents in the
public record.41
Here, the Mannings' CPA claim accrued more than four years before the
Mannings sued. It accrued when they knew or had reason to know of facts
supporting every element of their claim.42 The Mannings' claim thus accrued
when they were first injured since at that point they knew of facts supporting
every element of their CPA claim.43
The parties disagree on when the Mannings first knew or should have
known they were injured. The defendants assert that the Mannings' CPA claims
stem solely from the deed of trust naming MERS as beneficiary and thus accrued
when the deed of trust was recorded in 2004, giving the Mannings constructive
notice of any claims based on it. The Mannings contend their cause of action did
39 Shepard, 185 Wash. App. at 739 (quoting Green v. Am. Pharm. Co., 86
Wash. App. 63, 66, 935 P.2d 652 (1997)).
40 Samuelson v. Cmtv. Coll. Dist. No. 2, 75 Wash. App. 340, 346, 877 P.2d
734(1994).
41 See Shepard, 185 Wash. App. at 742 (inferring actual discovery of facts
constituting fraud).
42 See Green. 86 Wash. App. at 66.
43 A plaintiff can satisfy the injury element by showing that the plaintiff's
"'property interest or money is diminished because of the unlawful conduct even
if the expenses caused by the statutory violation are minimal.'" Panag v.
Farmers Ins. Co. of Wash.. 166 Wash. 2d 27, 57, 204 P.3d 885 (2009) (quoting
Mason v. Morto. Am.. Inc.. 114 Wash. 2d 842, 854, 792 P.2d 142 (1990)). This can
include "[ijnvestigative expenses, taking time off from work, travel expenses, and
attorney fees." Walker v. Quality Loan Serv. Corp. of Wash.. 176 Wash. App. 294,
320, 308 P.3d 716 (2013).
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not accrue until after the defendants sought nonjudicial foreclosure in 2014
because until that time the defendants were "strangers to the Mannings' loan
obligations." They contend the "unfair and deceptive acts" that supports the CPA
claim was not the deed of trust itself but foreclosure based on "rogue documents"
that include the deed of trust.44
Neither party is correct. The test the defendants propose would start the
statute of limitations for CPA claims alleging illegal loan documents whenever
those documents are recorded. This rule is too broad. "[T]he mere fact MERS is
listed on the deed of trust as a beneficiary is not itself an actionable injury."45
Thus, while the defendants are correct that the Mannings had constructive notice
of the allegedly improper deed of trust when it was recorded in 2004, the
Mannings can rely on the assignment of MERS in the deed only for the "unfair or
deceptive acts or practices" element of their CPA claim, not the injury element.46
While the Mannings' complaint and briefing do not make clear when they
were first injured,47 they base their CPA claim on at least one injury that they
necessarily knew about before 2011. They assert that because "there has been
44 See Perez v. U.S. Bank, No. 2:15-CV-0114-TOR, 2016 WL 792420, at
*4 (E.D. Wash. Feb. 29, 2016) (court order) ("Plaintiffs' CPA claims accrued and
the statute of limitations began to run in 2013, when Plaintiffs[ ] allege their injury
occurred, namely when U.S. Bank foreclosed upon their property.").
45 Bain. 175 Wash. 2d at 120.
46 See Bain, 175 Wash. 2d at 116, 119-20.
47 The Mannings' brief alludes cursorily to investigation expenses, time
taken off from work, and travel expenses, but their complaint did not allege these
injuries, let alone attach a date to them.
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NO. 73908-5-1/15
no full disclosure of what entity, if any, actually provided funds to the plaintiffs,"
none of the defendants were entitled to receive payments from them. The
Mannings would thus have been injured when their first payment was received.
The record does not show when that happened, but this court can infer, given the
promissory note's requirement of monthly payments and a Residential Credit
officer's declaration that the Mannings defaulted in 2012, that the Mannings
made payments well before 2011.48 Thus, the trial court was correct that the
four-year statute of limitations had run when the Mannings filed their complaint in
January 2015.
Fraud
Finally, the Mannings do not contest the trial court's finding that they did
not plead fraud with enough particularity to survive a motion to dismiss. They
have thus abandoned any challenge to that finding.49
CONCLUSION
Because the Mannings did not use the DTA procedure for stopping the
trustee's sale, they waived all claims except those brought under the CPA or for
fraud. Because BNY held the note when it appointed Trustee Services, Trustee
48 The Mannings also assert that the deed of trust was illegal and void and
placed a cloud on their title as soon as it was recorded in 2004. But they do not
appear to rely on this injury for their CPA claim.
49 See Cowiche Canyon Conservancy v. Boslev. 118 Wash. 2d 801, 809, 828
P.2d 549 (1992) (holding that an appellant waives an issue by failing to argue it
in his opening brief).
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NO. 73908-5-1/16
Services had authority to foreclose regardless of MERS's attempted assignment
of the deed of trust. Because the Mannings became aware of every element of
their CPA claim more than four years before filing suit, the statute of limitations
barred that claim. And because the Mannings do not challenge the trial court's
dismissal of their fraud claim for insufficient pleading, they have conceded that
issue. Accordingly, we affirm.
WE CONCUR:
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