Pewitt v. Peak Foreclosure Services of Washington Inc et al, No. 2:2015cv00173 - Document 9 (E.D. Wash. 2015)
Court Description: ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS; granting in part and denying in part 3 Motion to Dismiss - Pewitts' breach of contract cause of action is dismissed with prejudice. Signed by Chief Judge Rosanna Malouf Peterson. (CV, Case Administrator)
Download PDF
<![CDATA[
Pewitt v. Peak Foreclosure Services of Washington Inc et al Doc. 9 1 2 3 4 5 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON 6 7 8 JAMES B. PEWITT and ELIZABETH C. PEWITT, as a married couple and on behalf of others similarly situated, Plaintiffs, 9 v. NO: 2:15-CV-173-RMP ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO DISMISS 10 11 12 13 14 PEAK FORECLOSURE SERVICES OF WASHINGTON, INC., a Washington corporation; PEAK FORECLOSURE SERVICES, INC., a California corporation; and BANK OF NEW YORK MELLON CORPORATION, a Delaware corporation, Defendants. 15 16 17 BEFORE THE COURT is Defendants’ Motion to Dismiss, ECF No. 3. The 18 Court has reviewed the motion, the response (ECF No. 7), the reply (ECF No. 8), 19 and is fully informed. 20 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 1 Dockets.Justia.com 1 2 BACKGROUND In October 2006, Plaintiffs James B. Pewitt and Elizabeth C. Pewitt 3 (hereinafter the “Pewitts”) borrowed $477,750.00 from Mortgage Solutions 4 Management, Inc. (hereinafter “MSM”) to refinance their property in Chelan 5 County, Washington. ECF No. 1-1 at 20. The Pewitts executed a promissory note 6 (hereinafter the “Note”) for the loan. Id. The Note was secured by a Deed of 7 Trust. Id. at 21. The Deed of Trust identified MSM as the “Lender,” the Pewitts 8 as the “Borrowers,” and Mortgage Electronic Registration Systems, Inc. 9 (hereinafter “MERS”) as the “Beneficiary” under the security agreement. ECF No. 10 3-1 at 2. MSM’s interest was transferred to Countrywide Home Loans Servicing 11 LP. ECF No. 1-1 at 20. Countywide Home Loans was then acquired by Bank of 12 America on or about July 1, 2008. Id. Bank of America serviced the Note until 13 November 18, 2012, when the Note was transferred to Resurgent Mortgage 14 Services. Id. at 20–21. On or about March 1, 2014, Shellpoint Mortgage Servicing 15 purchased substantially all of Resurgent’s assets and became the servicer of the 16 Note. Id. at 21. 17 The Deed of Trust noted that “[t]he beneficiary of this Security Instrument is 18 MERS (solely as nominee for Lender and Lender’s successors and assigns) and the 19 successors and assigns of MERS.” ECF No. 3-1 at 3. On June 2, 2011, MERS 20 purported to assign “all beneficial interest under [the] Deed of Trust . . . together 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 2 1 with the note(s) and obligations therein” to the Bank of New York Mellon 2 (hereinafter “BONY”). ECF No. 3-2. 3 The Pewitts later became delinquent on their loan obligations and attempted 4 to negotiate with Bank of America for a modification of the terms of their loan. 5 ECF No. 1-1 at 22. On or about January 8, 2014, the Pewitts received a “Notice of 6 Default and Intent to Accelerate” from Resurgent. Id. On February 4, 2015, the 7 Pewitts received from Defendant Peak Foreclosure a “Notice of Default.” Id. at 8 23. The Pewitts allege that BONY substituted Peak Foreclosure as the successor 9 trustee for the Deed of Trust and directed Peak Foreclosure to initiate nonjudicial 10 foreclosure proceedings. Id. The Pewitts then referred their action to the 11 Washington State Department of Commerce for mediation. Id. at 24. The Pewitts 12 allege that they withdrew from mediation in response to BONY’s failure to comply 13 with its statutory obligations to disclose certain documents. Id. at 25. 14 On June 2, 2015, the Pewitts filed their Complaint against Defendants in the 15 Chelan County Superior Court. ECF No. 1-1. The Complaint alleges causes of 16 action under the Washington State Consumer Protection Act (“CPA”) against both 17 BONY and Peak Foreclosure as well as a breach of contract cause of action against 18 BONY. Id. at 26–37. Defendants removed the action to this Court on July 10, 19 2015. ECF No. 1. Defendants filed this Motion to Dismiss on September 1, 2015. 20 ECF No. 3. The Pewitts filed a response memorandum on September 22, 2015. 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 3 1 ECF No. 7. Defendants filed a reply memorandum on October 6, 2015. ECF No. 2 8. 3 DISCUSSION 4 I. 5 As an initial matter, both parties ask the Court to consider several Judicial Notice of Mortgage Documents 6 documents. ECF No. 3 at 9 n.2; ECF No. 7 at 7 n.1. The documents include the 7 following: a copy of the Deed of Trust encumbering the property (ECF No. 3-1; 8 ECF No. 6-1 at 10–34); a copy of the Assignment of Deed of Trust from MERS to 9 BONY (ECF No. 3-2; ECF No. 6-1 at 35); and a copy of the Adjustable Rate Note 10 (ECF No. 6-1 at 1–9). On a Rule 12(b)(6) motion, the Court may consider 11 documents “whose contents are alleged in a complaint and whose authenticity no 12 party questions, but which are not physically attached to the [plaintiff's] pleading.” 13 Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005). The documents presented 14 fit within this category and may be properly considered by the Court. 15 II. 16 The Pewitts complain that Defendants’ motion violated a number of this Local Court Rule Violations 17 Court’s Local Rules concerning spacing and font requirements. ECF No. 7 at 3–4. 18 Defendants concede their error and note that even if the motion had complied with 19 the Local Rules, it would still fall within the twenty page limit for dispositive 20 motions imposed by LR 7.1. ECF No. 8 at 3 n.2. As the Pewitts have not suffered 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 4 1 any prejudice from Defendants’ rule violations, the Court will not deny the motion 2 on that basis. 3 III. 4 The Federal Rules of Civil Procedure allow for the dismissal of a complaint 5 where the plaintiff fails to state a claim upon which relief can be granted. Fed. R. 6 Civ. P. 12(b)(6). A motion to dismiss brought pursuant to this rule “tests the legal 7 sufficiency of a claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In 8 reviewing the sufficiency of a complaint, a court accepts all well-pleaded 9 allegations as true and construes those allegations in the light most favorable to the 10 non-moving party. Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 11 2010). Rule 12(b)(6) Legal Standard 12 To withstand dismissal, a complaint must contain “enough facts to state a 13 claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 14 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual 15 content that allows the court to draw the reasonable inference that the defendant is 16 liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 17 IV. 18 To maintain a CPA cause of action, a plaintiff must allege: (1) an unfair or CPA Causes of Action 19 deceptive act or practice by a defendant; (2) occurring in trade or commerce; (3) an 20 impact on the public interest; (4) injury to the plaintiff’s business or property; and 21 (5) that the defendant’s alleged unfair or deceptive act caused plaintiff’s injury. ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 5 1 Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 2 784–85 (1986). 3 Defendants argue that the Pewitts’ CPA allegations are predicated on two 4 distinct sets of unfair or deceptive acts: (1) that Defendants initiated foreclosure 5 proceedings against the Pewitts when they knew or should have known that BONY 6 was not the owner or holder of the Note nor the lawful beneficiary of the Deed of 7 Trust and (2) that Defendants violated certain provisions of the Washington State 8 Deed of Trust Act in connection with the foreclosure proceedings. ECF No. 3 at 6. 9 The Pewitts do not dispute this characterization of their complaint. See ECF No. 7. 10 As Defendants organize their Motion to Dismiss around this characterization of the 11 Pewitts’ CPA causes of action, the Court will analyze Defendants’ arguments 12 through that lens for the purpose of this Order. 13 Defendants attack both sets of alleged unfair or deceptive acts on separate 14 grounds. In doing so, Defendants aim to demonstrate that neither theory can 15 support the Pewitts’ CPA causes of action, thereby warranting dismissal. 16 Defendants argue that the Pewitts’ CPA causes of action predicated upon the 17 transfer to BONY must be dismissed because (1) the Pewitts’ claim that BONY 18 was neither the holder of the Note nor the lawful beneficiary of the Deed of Trust 19 fails as a matter of law and (2) the Pewitts have failed to plead sufficient facts 20 demonstrating that, even if the transfer to BONY was ineffective, they suffered any 21 injury as a result. ECF No. 3 at 6–11. Defendants argue that the Pewitts’ CPA ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 6 1 causes of action predicated upon the alleged violations of the Washington State 2 Deed of Trust Act must be dismissed because the Pewitts have failed to plead 3 sufficient facts demonstrating an impact on the public interest. Id. at 11–12. 4 A. Whether the Pewitts Plausibly have Alleged that BONY was Not the Lawful Holder or Beneficiary of the Note 5 The Supreme Court of Washington addressed MERS’ role as a purported 6 deed of trust beneficiary in Bain v. Metropolitan Mortgage Group, Inc., 175 Wn.2d 7 83 (2012). In Bain, as here, MERS was named as beneficiary and nominee in the 8 deed of trust. Id. at 89. The court noted that “the deed of trust act has defined a 9 ‘beneficiary’ as ‘the holder of the instrument or document evidencing the 10 obligations secured by the deed of trust.’” Id. at 98 (quoting RCW 61.24.005(2)). 11 Thus, as “MERS never held the promissory note . . . it is not a lawful beneficiary.” 12 Id. at 99 (internal quotation marks omitted). As the court concluded, “if MERS is 13 not the beneficiary as contemplated by Washington law, it is unclear what rights, if 14 any, it has to convey.” Id. at 111. 15 After concluding that MERS was an ineligible beneficiary, the court 16 addressed the potential agency relationship between MERS, the lender, and 17 successive noteholders. Id. at 106. “[A]n agency relationship results from the 18 manifestation of consent by one person that another shall act on his behalf and 19 subject to his control, with a correlative manifestation of consent by the other party 20 to act on his behalf and subject to his control.” Id. (quoting Moss v. Vadman, 77 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 7 1 Wn.2d 396, 402–03 (1970)). “[A]gency requires a specific principal that is 2 accountable for the acts of its agents.” Id. at 107. 3 MERS argued that it transferred the Note as an agent for the lender. The 4 court observed, however, that MERS’ “principals . . . remain unidentified.” Id. 5 The deed of trust described MERS as “acting solely as a nominee for Lender and 6 Lender’s successors and assigns.” Id. (quoting Doc. 131–2 at 2 (Bain deed of 7 trust)). While the Supreme Court of Washington noted that MERS could act as an 8 agent, Bain found that the deed of trust language did not automatically create such 9 a relationship with successive noteholders. Id. The court noted that “MERS offers 10 no authority for the implicit proposition that the lender’s nomination of MERS as a 11 nominee rises to an agency relationship with successor noteholders.” Id. As such, 12 this language in a deed of trust does not, without more, create an agency 13 relationship between MERS, its transferees, and noteholders. 14 The Pewitt and Bain deeds of trust contain identical language concerning 15 MERS’ role as a beneficiary and nominee. The Pewitts’ Deed of Trust states that 16 “MERS is a separate corporation that is acting solely as a nominee for Lender and 17 Lender’s successors and assigns.” ECF No. 3-1 at 2. This is the same language 18 the Supreme Court of Washington held did not implicitly create an agency 19 relationship between MERS and subsequent noteholders. Bain, 175 Wn.2d at 107. 20 21 As the Pewitts’ Deed of Trust contains identical boilerplate language as in Bain, the Court cannot find as a matter of law that MERS had agency authority to ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 8 1 transfer the Note to BONY. Although the Deed of Trust discusses MERS having 2 the right to exercise a lender’s interests as nominee, ECF No. 3-1 at 4, Bain held 3 that such language was not enough, by itself, to create an agency relationship. 4 Bain, 175 Wn.2d at 107. Further, the Assignment of Deed of Trust makes no 5 mention of MERS acting as an agent for the lender. ECF No. 3-2. Instead, MERS 6 seemingly purports to be the noteholder itself. Id. Finally, the Adjustable Rate 7 Note does not mention MERS at all. ECF No. 6-1 at 1–9. Although the Note 8 states that “I understand that Lender may transfer this Note,” id., there is no 9 indication that MERS was or would be acting as an agent for the lender or any 10 successive noteholder. 11 Bain explicitly held that MERS is an ineligible beneficiary and, as such, any 12 transfer to BONY can only be legitimized if MERS was acting as the noteholder’s 13 agent. Defendants have not demonstrated that MERS had the agency authority to 14 transfer the Note and Deed of Title to BONY as a matter of law. If BONY was not 15 the holder of the Note, it would similarly not have had authority to appoint Peak 16 Foreclosure as trustee to initiate foreclosure proceedings. The Pewitts have made a 17 plausible allegation that MERS may not have had authority to orchestrate the 18 transfer, which would result in a trickledown dispute as to both BONY and Peak 19 Foreclosure’s authority to initiate foreclosure proceedings. 20 21 Defendants argue that a series of decisions from the District Court for the Western District of Washington have addressed identical claims as the Pewitts ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 9 1 allege here. ECF No. 3 at 7–8. The Court finds these decisions to be 2 distinguishable or unpersuasive. In Wilson v. Bank of America, N.A., C12-1532 3 JLR, 2013 WL 275018 (W.D. Wash. Jan. 24 2013), the court noted that the 4 plaintiffs “make the conclusory allegation that MERS did not have the authority to 5 transfer the Deed of Trust . . . because of their unsupported legal conclusion that 6 ‘[a] nominee of the owner of the note and mortgage may not effectively assign the 7 note to another for want of an ownership interest in said note by nominee.’” Id. at 8 *8 n.9. However, as discussed above, the Court finds that the Deed of Trust does 9 not automatically legitimize the transfer to BONY as a matter of law. As the 10 Pewitts have plausibly alleged that MERS did not have authority to transfer the 11 Note, the Court finds Wilson distinguishable. 12 In Zhong v. Quality Loan Service Corp. of Washington, C13-0814 JLR, 13 2013 WL 5530583 (W.D. Wash. Oct. 7, 2013), the court noted that “Ms. Zhong 14 cites no authority for her assertion that MERS is incapable of transferring its 15 interest in a deed of trust.” Id. at *3. Again, as the Court finds that the Pewitts 16 have made a plausible allegation concerning MERS’ ability to transfer any interest 17 to BONY, the Court declines to follow Zhong. 18 19 20 21 Finally, in Andrews v. Countrywide Bank, N.A., C15-0428 JLR, 2015 WL 1487093 (W.D. Wash. April 1, 2015), the court noted that [t]he Andrews have not demonstrated any basis for their challenge to MERS’s eligibility to assign the deed of trust. Although MERS is not an eligible beneficiary under the DTA, MERS may act as an agent of ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 10 1 3 the note-holder. Here, the deed of trust designates MERS as a beneficiary “acting solely as a nominee for Lender and Lender’s successors and assigned.” The Andrews cite no authority for their contention that MERS is incapable of transferring its interest in a deed of trust. 4 Id. at *3. Andrews is correct that, based on Bain, MERS potentially can be an agent 5 for the noteholder. However, the deed of trust at issue in Andrews contained the 6 same language analyzed in Bain and present in the Pewitts’ Deed of Trust. See 7 Bain, 175 Wn.2d at 107 (noting that “the deeds of trust . . . describe MERS as 8 ‘acting solely as a nominee for Lender and Lender’s successors and assigns’”); 9 Andrews, 2015 WL 1487093, at *3 (noting that the “deed of trust designates 2 10 MERS as beneficiary ‘acting solely as a nominee for Lender and Lender’s 11 successors and assigns’”); ECF No. 3-1 at 2 (“MERS is a separate corporation that 12 is acting solely as a nominee for Lender and Lender’s successors and assigns.”). 13 As discussed above, Bain, when construing this language, noted that “MERS 14 offers no authority for the implicit proposition that the lender’s nomination of 15 MERS as a nominee rises to an agency relationship with successor noteholders.” 16 Bain, 175 Wn.2d at 107. As the Supreme Court of Washington has held that such 17 language is not, by itself, sufficient to create an agency relationship between 18 19 20 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 11 1 MERS and successor noteholders, see id., the Court does not find Andrews 2 persuasive where it relies upon this same boilerplate phrasing. 3 4 5 Based on the above, the Court rejects Defendants’ first argument for dismissal of the CPA causes of action. B. Whether the Pewitts have Pleaded Sufficient Facts Demonstrating an Injury Caused by Defendants’ Allegedly Unlawful Transfer 6 Defendants argue that, even assuming the transfer to BONY was invalid, the 7 Pewitts have failed to plead facts demonstrating that the invalid transfer caused 8 them any injury. ECF No. 3 at 10. Defendants base this argument on the idea that 9 BONY’s purported status as an invalid beneficiary had no causal nexus to the 10 eventual foreclosure. Id. The Pewitts respond that they have pleaded “injury to 11 their property in an amount to be proven at trial.” ECF No. 7 at 15 (quoting ECF 12 No. 1-1 at 29, 36). 13 The Court finds that the Pewitts have alleged sufficient facts to plausibly 14 demonstrate injury to property. The Pewitts note that “[t]he unlawfully recorded 15 Notice of Trustee’s Sale placed a public stigma on the Pewitt’s [sic] residence, 16 reducing its fair market value to an amount less than its value prior to the Notice’s 17 recordation.” ECF No. 1-1 at 24–25. Under the CPA, “[t]he injury involved need 18 not be great.” Hangman, 105 Wn.2d at 792. The “injury requirement is met upon 19 proof the plaintiff’s ‘property interest or money is diminished because of the 20 unlawful conduct even if the expenses caused by the statutory violation are 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 12 1 minimal.’” Panag v. Farmers Ins. Co. of Wash., 166 Wn.2d 27, 57 (2009) 2 (quoting Mason v. Mrtg. Am., Inc., 114 Wn.2d 842, 854 (1990)). The Pewitts’ 3 alleged reduction of fair market value is a sufficiently plausible allegation of injury 4 to property under Rule 12(b)(6). 5 Further, “[i]nvestigative expenses, taking time off from work, travel 6 expenses, and attorney fees are sufficient to establish injury under the CPA.” 7 Walker v. Quality Loan Serv. Corp., 176 Wn. App. 294, 320 (2013); see also 8 Knecht v. Fidelity Nat’l Title Ins. Co., C12-1575 RAJ, 2014 WL 4057148, at *9 9 (W.D. Wash. Aug. 14, 2014) (noting that “[i]f a jury concludes that DB had no 10 authority to foreclose, then a trier of fact could infer that the cause of [plaintiff’s] 11 need to investigate was DB’s wrongfully-initiated foreclosure proceedings”). 12 Knecht found that investigative expenses were an injury under the CPA despite the 13 defendants’ argument that “the cause of Mr. Knecht’s injury was his default, not 14 their wrongdoing.” Id. In addition to injury to property, the Pewitts have pleaded 15 that they incurred investigation expenses, expenses from taking time off from 16 work, travel expenses, and attorney fees. ECF No. 1-1 at 29. These allegations are 17 also sufficient to show a plausible allegation of injury under the CPA. Further, as 18 in Knecht and as pleaded by the Pewitts, these injuries would plausibly have been 19 caused by the Defendants’ allegedly wrongful foreclosure. The Court concludes 20 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 13 1 that the Pewitts have pleaded sufficient facts to allege an injury from Defendants’ 2 allegedly unlawful and ineligible transfer of the Note and Deed of Title. 3 4 C. Whether the Pewitts have Pleaded Sufficient Facts Demonstrating an Impact on the Public Interest from Defendants’ Alleged Violations of the Washington Deed of Trust Act 5 Defendants argue that the Pewitts’ alleged unfair or deceptive acts stemming 6 from technical violations of the Washington Deed of Trust Act fail under Rule 7 12(b)(6) as the Pewitts “plead no facts which demonstrate an impact on the public 8 interest.” ECF No. 3 at 11. To the contrary, the Pewitts’ complaint states that 9 [BONY]’s unfair or deceptive acts impacted the public interest in that the unfair or deceptive acts were committed in the course of [BONY]’s business and as part of a pattern or generalized course of conduct where the same or similar unfair or deceptive acts were repeated by [BONY] prior to the above-listed unfair or deceptive acts. Further, there exists a real and substantial potential for repetition of [BONY]’s conduct in the future in that the above-listed unfair or deceptive acts are part of [BONY]’s pattern or generalized course of conduct. 10 11 12 13 ECF No. 1-1 at 29; see also id. at 35–36 (same concerning Peak Foreclosure). 14 Further, the Pewitts pleaded that “Defendants [sic] actions are part of their 15 respective common course of conduct and have caused similar damages to possibly 16 thousands of other [sic] in Washington State.” Id. at 12. Although the Pewitts do 17 not allege a specific number of similarly harmed parties, they do note that BONY 18 “is one of the largest lenders and/or beneficiaries of deeds of trust in the nation, as 19 20 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 14 1 well as in the state of Washington” and that “Peak Foreclosure is one of the largest 2 providers of default servicing solutions in Washington State.” Id. at 16. 3 When determining whether an alleged unfair or deceptive act has an impact 4 on the public interest, the Court must consider the following factors: “(1) [w]ere 5 the alleged acts committed in the course of defendant’s business?; (2) [d]id 6 defendant advertise to the public in general?; (3) [d]id defendant actively solicit 7 this particular plaintiff, indicating potential solicitation of others?; [and] (4) [d]id 8 plaintiff and defendant occupy unequal bargaining positions?” Hangman, 105 9 Wn.2d at 790–91. “[N]ot one of these factors is dispositive, nor is it necessary that 10 11 all be present.” Id. at 791. In Bain, the Supreme Court of Washington found that “there is considerable 12 evidence that MERS is involved with an enormous number of mortgages in the 13 country (and our state), perhaps as many as half nationwide. If in fact the language 14 is unfair or deceptive, it would have a broad impact.” Bain, 175 Wn.2d at 118. 15 Although the alleged violations of the Deed of Trust Act are specific to the 16 Pewitts’ mortgage and subsequent foreclosure, the Pewitts have alleged that 17 BONY and Peak Foreclosure committed these violations as part of their general 18 course of conduct as large corporations in the mortgage and foreclosure industries. 19 ECF No. 1-1 at 16, 29, 35–36. Similar to Bain’s analysis of MERS, the alleged 20 violations of the Deed of Trust Act, if unfair or deceptive, could have a broad 21 impact on other mortgagors. The Pewitts have pleaded sufficient facts showing a ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 15 1 plausible impact of the alleged deceptive or unfair violations of the Deed of Trust 2 Act on the public at large. 3 Defendants argue that the alleged violations of the Deed of Trust Act affect 4 no one but the Pewitts and therefore do not impact the public interest. However, at 5 the Rule 12(b)(6) stage, a plaintiff must only demonstrate that their claim is 6 plausible to withstand a motion to dismiss. See Iqbal, 556 U.S. at 678. The Pewitts 7 allege that Defendants committed these violations in their course of business. ECF 8 No. 1-1 at 29, 35–36. Defendants’ citation to Shugart v. GYPSY Official No. 9 251715, 2:14-CV-1923 RSM, 2015 WL 1965375 (W.D. Wash. May 1, 2015), is 10 unavailing. In Shugart, the court found that “Defendants’ Answer and 11 Counterclaim is devoid of any facts sufficient to meet the public interest prong.” 12 Id. at *3. As the Pewitts have pleaded facts indicating that the Defendants’ 13 conduct extended beyond the Pewitts’ mortgage and foreclosure, the instant case is 14 distinguishable from Shugart. Although the Pewitts will have to provide further 15 evidence concerning the extent of BONY and Peak Foreclosure’s operations to 16 prevail at trial, the Pewitts have pleaded sufficient facts to allege a plausible impact 17 on the public interest under Rule 12(b)(6). 18 V. 19 BONY argues that the Pewitts’ breach of contract cause of action must be 20 Breach of Contract Cause of Action dismissed because (1) the Pewitts have failed to allege the breach of a specific 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 16 1 contractual term and (2) the Pewitts’ own breach of the Deed of Trust precludes 2 them from asserting a breach of contract action. ECF No. 3 at 12–14. 3 “A breach of contract is actionable only if the contract imposes a duty, the 4 duty is breached, and the breach proximately causes damage to the claimant.” Nw. 5 Indep. Forest Mfrs. v. Dep’t of Labor and Indus., 78 Wn. App. 707, 712 (1995). 6 “Although there is a duty of good faith and fair dealing implied in all existing 7 contracts, we have consistently held there is no ‘free-floating’ duty of good faith 8 and fair dealing that is unattached to an existing contract.” Keystone Land & Dev. 9 Co. v. Xerox Corp., 152 Wn.2d 171, 177 (2004). The duty exists only “in relation 10 to performance of a specific contract term.” Badgett v. Sec. State Bank, 116 Wn.2d 11 563, 570 (1991); see also Donald B. Murphy Contractors, Inc. v. King Cty., 112 12 Wn. App. 192, 197 (2002) (“A duty of good faith and fair dealing is deemed to 13 exist in every contract, but it arises only in connection with the performance of 14 specific contract obligations. If no contractual duty exists, there is nothing that 15 must be performed in good faith.”). 16 The Pewitts argue that BONY violated Paragraph 16 of the Deed of Trust, 17 ECF No. 7 at 18–19, which states that “[t]his Security Instrument shall be 18 governed by federal law and the law of the jurisdiction in which the Property is 19 located. All rights and obligations contained in this Security Instrument are subject 20 to any requirements and limitations of Applicable Law.” ECF No. 3-1 at 12. The 21 Pewitts argue that this provision imposes on BONY “an express duty to comply ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 17 1 with Washington law in enforcing its rights under the Deed of Trust and an implied 2 duty of good faith and fair dealing in so enforcing.” ECF No. 7 at 19. 3 The Court does not agree with the Pewitts’ interpretation of Paragraph 16. 4 Paragraph 16 is titled “Governing Law, Severability, Rules of Construction.” ECF 5 No. 3-1 at 12. It is merely a choice-of-law provision that does not impose any 6 additional or independent contractual rights or duties. Other courts interpreting 7 identical contract provisions have reached the same conclusion. See Uzodinma v. 8 JPMorgan Chase Bank, N.A., 3:13-CV-5010-L, 2014 WL 4055367, at *4 (N.D. 9 Tex. Aug. 14, 2014) (“These paragraphs outline the governing law of the Deed of 10 Trust. This language does not imply that if a party to the contract violates a state 11 or federal law, it also breaches the contract . . . This argument yields an absurd 12 result, as any violation of any state or federal law would automatically be a breach 13 of contract, and is not reflected in the language of the Deed of Trust.”); Girgis v. 14 Countrywide Home Loans, Inc., 1:10-CV-00590, 2010 WL 4365884, at *7 (N.D. 15 Ohio Oct. 28, 2010) (noting that “the choice of law provision is meant to dictate 16 the law that will govern disputes related to the mortgage—it is not meant to 17 incorporate the law at large”). This understanding is confirmed by Washington 18 State contract principles. See Boguch v. Landover Corp., 153 Wn. App. 595, 615 19 (2009) (“If a party alleges breach of a duty imposed by an external source, such as 20 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 18 1 a statute or the common law, the party does not bring an action on the contract, 2 even if the duty would not exist in the absence of a contractual relationship.”). 3 The Pewitts’ complaint alleges that a wide-ranging slew of BONY’s actions 4 were not in good faith, did not constitute fair dealing, and were not in compliance 5 with Washington State law. ECF No. 1-1 at 30–34. However, as correctly noted 6 by Defendants, the complaint never alleges a violation of a specific provision of 7 the Deed of Trust. ECF No. 3 at 13. Under Washington State contract law, an 8 allegation that a party breached the duty of good faith and fair dealing must be in 9 relation to a specific provision of the contract. See Badgett, 116 Wn.2d at 570. As 10 the Pewitts have failed to allege that BONY breached these duties in relation to 11 any specific provision of the Deed of Trust, the Court finds that the Pewitts have 12 not pleaded sufficient facts to maintain their breach of contract action. 13 Further, under Washington State contract law, “[i]f a contract requires 14 performance by both parties, the party claiming nonperformance of the other must 15 establish as a matter of fact the party’s own performance.” Willener v. Sweeting, 16 107 Wn.2d 388, 394 (1986). The Supreme Court of Washington also has noted 17 that “[i]t is true that one who seeks to enforce the terms of a contract against 18 another or to recover damages for the breach of a contract by another must show 19 that there has been no breach on his own part.” Downs v. Smith, 169 Wn. 203, 206 20 (1932). Here, the Pewitts admitted that they “became delinquent on their loan 21 obligations.” ECF No. 1-1 at 22. As correctly noted by Defendants, the Pewitts’ ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 19 1 admission of their own breach and non-performance precludes them from asserting 2 a breach of contract action against BONY. See ECF No. 3 at 13. 3 The Pewitts’ counterarguments are unavailing. The Pewitts cite State v. 4 Trask, 91 Wn. App. 253 (1998), for the proposition that “[t]he nonperformance 5 (breach) of a promise made by A does not necessarily excuse the performance of a 6 different promise made by B . . . A’s nonperformance (breach) renders A liable for 7 damages; it does not, however, excuse B’s performance of the other promise.” Id. 8 at 273. The Pewitts however conflate the separate issues of whether BONY was 9 excused from performing under the Deed of Trust and whether the Pewitts can 10 maintain a breach of contract cause of action. The Pewitts’ breach may not excuse 11 BONY’s performance, but it does strip the Pewitts of their ability to seek money 12 damages through a breach of contract cause of action. 13 VI. 14 In the Ninth Circuit, “a district court should grant leave to amend even if no Leave to Amend Complaint 15 request to amend the pleading was made, unless it determines that the pleading 16 could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 17 F.3d 1122, 1130 (9th Cir. 2000). 18 The Court finds that leave to amend would be futile under these 19 circumstances. As discussed above, the Pewitts’ breach of the Deed of Trust strips 20 them of the ability to bring a breach of contract action against BONY. Any 21 opportunity to amend the complaint would be futile, as no amendment can alter the ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 20 1 Pewitts’ admission concerning their default. As such, the Court will not grant the 2 Pewitts leave to amend their complaint and their breach of contract cause of action 3 is dismissed with prejudice. 4 Accordingly, IT IS HEREBY ORDERED that Defendants’ Motion to 5 Dismiss, ECF No. 3, is GRANTED IN PART AND DENIED IN PART. The 6 Pewitts’ breach of contract cause of action is dismissed with prejudice. 7 8 9 The District Court Clerk is directed to enter this Order and provide copies to counsel. DATED this 4th day of November 2015. 10 11 12 s/ Rosanna Malouf Peterson ROSANNA MALOUF PETERSON Chief United States District Judge 13 14 15 16 17 18 19 20 21 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS ~ 21
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
