hooker v northwest trustee memorandum of law 14 oct 2010

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PAGE 1 - MEMORANDUM IN SUPPORT OF MOTION TO DISMISS

LANE POWELL PC601 SW SECOND AVENUE, SUITE 2100

PORTLAND, OREGON 97204-3158503.778.2100 FAX: 503.778.2200

Stephen P. McCarthy, OSB No. [email protected] C. French, OSB No. [email protected] POWELL PC601 SW Second Avenue, Suite 2100Portland, Oregon 97204-3158Telephone: 503.778.2100Facsimile: 503.778.2200

Attorneys for Defendants Bank of America, NA andMortgage Electronic Registration Systems, Inc.

UNITED STATES DISTRICT COURT

DISTRICT OF OREGON

MEDFORD DIVISION

IVAN HOOKER and KATHERINE HOOKER,

Plaintiffs,

v.

NORTHWEST TRUSTEE SERVICES, INC.; BANK OF AMERICA, NA; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,

Defendants.

Case No. 10-CV-3111-PA

Defendants Bank of America, NA and Mortgage Electronic Registration Systems, Inc.’sMEMORANDUM IN SUPPORT OF MOTION TO DISMISS

I. INTRODUCTION

Defendants Bank of America, NA and Mortgage Electronic Registration Systems, Inc.

(“MERS”), (collectively “Bank Defendants”), move to dismiss plaintiffs’ complaint pursuant to

Federal Rules of Civil Procedure 12(b)(6), for failure to state a claim for relief, and 8(a), for

failure to provide a short and plain statement of the claim showing the pleader is entitled to

relief. Plaintiffs are borrowers obligated on a residential loan and trust deed. On or about

Case 1:10-cv-03111-PA Document 9 Filed 10/14/10 of 15 Page ID#: 72

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September 1, 2009, plaintiffs materially defaulted on their loan obligations resulting in the

commencement of a non-judicial foreclosure by trustee Northwest Trustee Services, Inc.

Plaintiffs are in gross breach of the loan agreement. They have not made a regular

monthly payment for approximately 13 months. Even though plaintiffs expressly agreed to

permit foreclosure if they defaulted, plaintiffs claim that defendants are not permitted to

foreclose. In support of that claim, plaintiffs argue that the trust deed unlawfully identifies

MERS as the “beneficiary” and nominee for GN Mortgage, LLC, the originating lender. For the

reasons discussed more fully below, the Court should dismiss plaintiffs’ claims:

1. Oregon’s Trust Deed Act does not prohibit MERS from being identified as the

beneficiary in the trust deed.

2. The publicly recorded documents relating to the non-judicial foreclosure establish

that Northwest Trustee Services, Inc. has properly instituted a non-judicial foreclosure.

3. By failing to contest that they are in default or allege that they can cure the

default, plaintiffs have failed to plead sufficient facts to show they would be entitled to

declaratory relief.

4. Bank Defendants have not breached the loan agreement. In fact, plaintiffs are the

breaching parties and Bank Defendants should be awarded their reasonable attorney fees for

having to defend this lawsuit.

II. STATEMENT OF FACTS1

A. Plaintiffs Entered Into a Loan Agreement With GN Mortgage, LLC.

On or about November 17, 2005, in exchange for a loan of $260,000, which plaintiffs

received, plaintiffs gave originating lender GN Mortgage, LLC an assignable promissory note

and executed a deed of trust as security. (Complaint, ¶ 2, Ex. 1.) Pursuant to the terms of the

1 Defendants recite the Statement of Facts in the light most favorable to plaintiffs solely for purposes of this motion and based on allegations alleged in plaintiffs’ Complaint and documents that are incorporated into the Complaint.


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promissory note and deed of trust, plaintiffs agreed to make payments as required by the note,

and that if they failed to pay as promised, they would be in default. (Id., Ex. 1 at pp. 4, 10.)

Plaintiffs further agreed that if they failed to cure the default, upon written notice, the note holder

would be able to demand the total amount due. (Id, Ex. 1 at p. 13.) Plaintiffs also agreed that if

the holder of the note were forced to incur expenses, including reasonable attorney fees to

enforce its rights under the note, that it could recover those expenses under the terms of the note.

(Id, Ex. 1 at p. 13.)

The deed of trust executed by plaintiffs granted a security interest in the residential

property commonly known as 1380 Daisy Creek Road, Jacksonville, Oregon 97350 (“the

Property”). (Complaint, Ex. 1, p. 2-3.) The deed of trust was recorded in the official records of

Jackson County on November 23, 2005, under Record No. 2005-071547. (Id., Ex. 1, p 1.) The

deed of trust identifies MERS as grantee and nominee for the originating lender, GN Mortgage,

LLC, plaintiffs as the borrower, and Regional Trustee Services Corp. as the Trustee.

(Complaint, Ex. 1, pp. 1, 2.)

B. MERS Assigns the Deed of Trust to Bank of America.

On or about May 3, 2010, MERS as nominee for GN Mortgage, LLC assigned the deed

of trust to Bank of America, National Association c/o Wells Fargo Bank, NA. (Complaint at ¶ 4

and Ex. 2.) On May 7, 2010, the Assignment of Deed of Trust was recorded in the official

records of Jackson County under Record No. 2010-014400. (Id.)

C. Northwest Trustee Services, Inc. is Appointed Successor Trustee and Issues a Notice of Default and Election to Sell.

On or about May 3, 2010, MERS as nominee for GN Mortgage, LLC appointed

Northwest Trustee Services, Inc. to serve as the successor trustee for the deed of trust.

(Complaint, ¶ 4, Ex. 3.) The Appointment of Successor Trustee was executed on May 3, 2010,

and recorded in the official records of Jackson County on May 7, 2010 under Record

No. 2010-014401. (Id.)


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On May 3, 2010, Northwest Trustee Services, Inc. executed a Notice of Default and

Election to Sell the Property. (Complaint, ¶ 4, Ex. 4.) On May 7, 2010, the Notice of Default

and Election to Sell was recorded in the official records of Jackson County under Record

No. 2010-014402. The notice recites that plaintiffs had failed to make monthly payments of

$1,590.60, plus late charges and advances since September 2009. (Id.)

D. Northwest Trustee Services, Inc. Rescinds the Notice of Default and Election to Sell.

After receiving plaintiffs’ complaint, Northwest Trustee Services, Inc. recognized that

certain documents were recorded out-of-order. On September 16, 2010, Northwest Trustee

Services, Inc. signed a Rescission of Notice of Default. (Declaration of Stephen P. McCarthy in

Support of Request for Judicial Notice (“McCarthy Decl.”), Ex. 1.) The Rescission of Notice of

Default was recorded in the official records of Jackson County on September 20, 2010 under

record number 2010-031346. (Id.)

E. Appointment of Successor Trustee.

On September 13, 2010, Wells Fargo Bank, as attorney-in-fact for Bank of America,

National Association, executed an Appointment of Successor Trustee appointing Northwest

Trustee Services, Inc. as successor trustee. (McCarthy Decl., Ex. 2.) The Appointment of

Successor Trustee was recorded in the official records of Jackson County on September 20,

2010, under Record No. 2010-031347. (Id.)

F. Second Notice of Default and Election to Sell Issued.

On September 16, 2010, Northwest Trustee Services, Inc. executed a Notice of Default

and Election to Sell. (McCarthy Decl., Ex. 3.) The Notice of Default and Election to Sell was

recorded in the official records of Jackson County on September 20, 2010, under Record

No. 2010-031348. (Id.) The foreclosure sale of the Property is set for January 25, 2011. (Id.)


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III. ARGUMENT

A. Standard of Review.

The court must dismiss a complaint when plaintiff “fail[s] to state a claim upon which

relief can be granted.” Fed. R. Civ. P. 12(b)(6); Ashcroft v. Iqbal, 129 S. Ct. 1937, 1953 (2009);

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). In Bell Atlantic Corp. v. Twombly,

the Supreme Court held that a court must dismiss a complaint when a plaintiff has not pleaded

“enough facts to state a claim for relief that is plausible on its face.” 550 U.S. at 555; see also

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1953 (2009) (Twombly’s pleading standards apply to all

claims); Balistreri v. Pacifica Police Dep’t., 901 F.2d 696, 699 (9th Cir. 1988) (the Court should

grant a Rule 12(b)(6) motion to dismiss when a plaintiff’s complaint lacks a “cognizable legal

theory” or sufficient facts to support a cognizable legal theory).

In evaluating a motion to dismiss, the Court must construe plaintiffs’ complaint in the

light most favorable to the plaintiffs and accept all well-pleaded allegations as true. Shwarz v.

United States, 234 F.3d 428, 435 (9th Cir. 2000). The court need not accept as true, however,

allegations that contradict facts that may be judicially noticed. Id. When a plaintiff fails to

introduce a pertinent document as part of his pleading, the defendant may do so as part of its

motion to dismiss. Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994), overruled on other

grounds, Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). Such documents

are not considered to be outside the pleadings. Id.; accord, In re Stac Elecs. Sec. Litig., 89 F.3d

1399, 1405 n.4 (9th Cir. 1996) (court may take judicial notice of “documents whose contents are

alleged in a complaint and whose authenticity no party questions”) (quoting Fecht v. The Price

Co., 70 F.3d 1078, 1080 n.1 (9th Cir. 1995)); U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003)

(“Even if a document is not attached to a complaint, it may be incorporated by reference into a

complaint if the plaintiff refers extensively to the document or the document forms the basis of

the plaintiff’s claim.”). This court also may take judicial notice of documents that are matters of

public record without converting a motion to dismiss into a motion for summary judgment. See


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MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986) (holding district court, when

determining whether complaint fails to state a claim, may take “judicial notice of matters of

public record outside the pleadings”).

B. Plaintiffs’ Claims Should Be Dismissed for Failure to State a Claim.

Plaintiffs have asked the Court to declare that the planned non-judicial foreclosure is

wrongful and seeks a declaration that none of the Bank Defendants hold an interest in the

Property because they purportedly failed to comply with Oregon’s Trust Deed Act. Plaintiffs

frame their action as one for declaratory judgment, but the relief they seek is essentially equitable

and injunctive. Plaintiffs want the Court to enjoin the foreclosure of the Property. (Complaint,

¶¶ 5-11.) Plaintiffs admit that they have been paid and that none of the defendants have been

repaid by them because they stopped paying anyone since September 2009. (Complaint ¶¶ 2, 4

and Ex. 4.) Bank Defendants respectfully submit that these allegations are at best self-serving

speculation and insufficient to survive a motion to dismiss under standards articulated by the

United States Supreme Court.

To the extent that plaintiffs articulate any other theories in support of their claims, they

all—explicitly or implicitly—come down to this: according to plaintiffs, MERS lacked the legal

authority to hold or assign any beneficial interest in the deed of trust, and for that reason, the

assignments and appointments relied upon to support defendants’ security interest in the

Property, including the right to foreclose that interest, must fail.

In support of their “First Claim for Relief” for wrongful foreclosure, plaintiffs initially

contend that MERS has no authority or right to assign the deed of trust (Complaint ¶ 5A),

notwithstanding their own more specific allegations concerning the recorded assignment from

MERS to Bank of America, as nominee for GN Mortgage, LLC (the original lender) and

appointment of Northwest Trustee Services, Inc. as successor trustee to initiate the foreclosure

(Complaint ¶ 4 and Exs. 2-3). Plaintiffs next allege that “MERS has no authority/right to assign

the trust deed” because it never had “any actual interest in the loan” and its listing as a


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beneficiary “is a sham” (Complaint ¶ 5A), that the “assignment from MERS to Bank of America

was a legal nullity” (Complaint ¶ 5B), that because “MERS is not licensed to do business in

Oregon” its actions in foreclosure are “ultra vires and should be deemed void” (Complaint ¶ 5C),

and that the appointment of Northwest Trustee Service was “unlawful” because MERS

transferred its rights before appointing the successor trustee to commence foreclosure

proceedings. (Complaint ¶ 5D.) All of plaintiffs’ theories depend upon the legal assumption that

MERS cannot act as the nominee of the original lender. (Complaint ¶ 5A-D.)

For the reasons explained below, the Court should dismiss plaintiffs’ complaint and

award defendants their reasonable attorney fees incurred in filing this motion.

C. Oregon’s Trust Deed Act Does Not Prohibit MERS From Being Designated as a Beneficiary as Nominee for the Lender.

Plaintiffs first contend that Oregon’s Trust Deed Act does not permit MERS to be

designated as beneficiary as the nominee of the lender. Plaintiffs are incorrect.

ORS 86.705 defines “beneficiary” as “the person named or otherwise designated in a

trust deed as the person for whose benefit a trust deed is given, or the person’s successor in

interest, and who shall not be the trustee unless the beneficiary is qualified to be a trustee under

ORS 86.790(1)(d).” Nothing in that statute prohibited MERS from being designated as

beneficiary or “nominee for” GN Mortgage, LLC, the originating lender.

A nominee such as MERS is recognized to have the powers of a limited agent and “is

generally understood as a person designated to act in place of another.” In re Huggins, 357 B.R.

180, 183 (D. Mass. 2006) (holding MERS has standing to seek relief from bankruptcy stay); see

also Gerald Korngold, Legal And Policy Choices In The Aftermath Of The Subprime And

Mortgage Financing Crisis, 60 S.C. L. Rev. 727, 741-42 (2009).

Black’s Law Dictionary defines “nominee” in relevant part as “[a] person designated to

act in place of another, usu. in a very limited way[,] [or] [a] party who holds bare legal title for

the benefit of others[.]” Black’s Law Dictionary (9th 2009) at 1149. Plaintiffs specifically


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agreed to MERS’s role as the nominee beneficiary for the original lender and its successors and

assigns when they executed the Trust Deed. (Complaint, ¶ 3, Ex. 1.) The Deed of Trust states in

pertinent part:

MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this Security Instrument.

* * * *

The beneficiary of this Security Instrument is MERS (solely as nominee for Lender and Lender’s successors and assigns) and the successors and assigns of MERS.

* * * *

Borrower understands and agrees 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; and to take any action required of Lender[.]

(Id., Ex. 1, at 1-3) (emphasis added).

The Trust Deed is a standard form uniform instrument created and approved by Fannie

May and Freddie Mac, specifically, the “Oregon-Single Family-Fannie Mae/Freddie Mac

UNIFORM INSTRUMENT.” (Id. at 1.) Thus, use of the MERS system and MERS’s status and

powers as nominee beneficiary is expressly contemplated by these Congressionally-chartered

organizations. Simply put, MERS is properly “empowered to act on behalf * * * [of] the

equitable owner of the rights in the Deed of Trust” because “the Deed of Trust itself makes clear

that MERS * * * may, if necessary, exercise all of the substantive rights of the * * * party who

holds the beneficial ownership of the Deed of Trust.” In re Roberts, 367 B.R. 677, 684 (Bankr.

D. Colo. 2007). Thus, MERS had the authority to transfer the note and Trust Deed to subsequent

assignees, including Northwest Trustee Services, Inc.


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Numerous other courts have considered the argument plaintiffs assert here and have ruled

that mortgage lenders and their assigns via MERS have standing to foreclose and enforce secured

obligations, and that MERS has the power to take various actions on behalf of its member

beneficiaries. Vawter v. Quality Loan Service Corporation of Jackson, 2010 WL 1629355 (W.D.

Wash. April 22, 2010) (even accepting plaintiff’s allegation that MERS merely exists to maintain

records regarding ownership of mortgages, that does not mean that MERS cannot hold a

beneficial interest under the trust deed); In re Roberts, 367 B.R. at 684 (holding MERS is

properly “empowered to act on behalf * * * [of] the equitable owner of the rights in the Deed of

Trust” because “the Deed of Trust itself makes clear that MERS * * * may, if necessary, exercise

all of the substantive rights of the * * * party who holds the beneficial ownership of the Deed of

Trust”); Jackson v. MERS, Inc., 770 N.W.2d 487, 496 (Minn. 2009) (holding MERS does not

need to record assignments of underlying indebtedness to initiate foreclosure proceedings);

Mortgage Electronic Registration Systems, Inc., v. Azize, 965 So.2d 151, 153 (Fla. App. 2d

2007) (acknowledging MERS could have standing to enforce obligation); Mortgage Electronic

Registration Systems, Inc., v. Revoverdo, 955 So.2d 33, 34 (Fla. App. 3d 2007) (MERS has

standing to initiate foreclosure proceedings); MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 101,

828 N.Y.S.2d 266, 271, 861 N.E.2d 81 (2006) (MERS trust deeds do not violate real property

law).

The federal courts have reached the same conclusion in a growing number of cases. See

In re Huggins, 357 B.R. at 183 (MERS as nominee has standing to seek relief from Stay). Elias

v. HomeEq Servicing, 2009 WL 481270, at *1 (D. Nev. 2009) (deeds of trust confirmed the

standing of the loan servicer, the loan owner, and MERS as the nominee beneficiary to seek

foreclosure); Blau v. America’s Servicing Co., 2009 WL 3174823, at *7-8 (D. Ariz. 2009)

(MERS was authorized to act on behalf of, and exercise the rights of, the loan originator);

Cervantes v. Countrywide Home Loans, Inc., 2009 WL 3157160, at *11 (D. Ariz. 2009)

(rejecting claim that MERS could not act as beneficiary under a deed of trust); Derakshan v.


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Mortgage Electronic Registration Systems, Inc., 2009 U.S. Dist. LEXIS 63176, *17-*18 (C.D.

Cal. 2009) (same).2

Earlier this year, this court dismissed with prejudice the action of a plaintiff alleging,

among other things, that defendants MERS, U.S. Bank and Northwest Trustee Services lacked

standing based on contentions that defendants were not a real party in interest. Stewart v. MERS,

et al., CV No. 09-687-PK, 2010 WL 1055131 (D. Or. 2010) (construing Oregon Trust Deed

Act). See also Parkin Electric v. Saftencu, et al., Clackamas County Circuit Court Case

No. LV08040727, Opinion dated March 12, 2000 by the Honorable Henry C. Breithaupt (copy

attached as Exhibit 1). Analyzing the Oregon statutes, Judge Breithaupt found the plaintiff’s

claims “were devoid of legal or factual support” and awarded MERS its attorney fees pursuant to

ORS 20.105. Id. at 4, 6-7.

D. Under Oregon Law, MERS Need Not Be Licensed to Do Business in This State.

The Court should also reject plaintiffs’ assertions that any action of MERS is void

because it was not licensed by the state of Oregon. (Complaint ¶ 5C.) Plaintiffs’ claim relies on

the premise that a foreign corporation must be licensed in Oregon in order for its corporate acts

to be valid. This premise is wrong as a matter of law. See ORS 60.701; 60.704. Oregon

statutory law specifically excludes corporations that engage in certain corporate business

activities in the state from licensing requirements, and also specifically provides that the

corporate acts of unlicensed foreign corporations are not invalid. Id.

Generally “[a] foreign corporation may not transact business in this state until it has been

authorized to so by the Secretary of State.” ORS 60.701(1). The activities of MERS with

respect to the Deed of Trust and the Property, however, are not activities that constitute

“transacting business” such that MERS is required to obtain the authority of the Oregon

2 Cf. Opinion and Order of Judge King dated October 6, 2001, in Rinegard-Guirma v. Bank of America, NA, USDC Case No. 10-1065-PK (D. Or.), discussing In Re Allman, USBC. No. 0831282-elp7 (D. Or.).


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Secretary of State. ORS 60.701(2). ORS 60.701(2) identifies certain activities that, even if

conducted in Oregon, do not subject a corporation to the requirement that it be authorized by the

Oregon Secretary of State to conduct business in the Oregon. ORS 60.701(2) states, in pertinent

part:

The following activities among others, do not constitute transacting business within the meaning of subsection (1) of this section:

(a) Maintaining, defending or settling any proceeding.

* * * *

(g) Creating or acquiring indebtedness, mortgages and security interests in real or personal property.

(h) Securing or collecting debts or enforcing mortgages and security interests in property securing the debts.

* * * *

(i) Owning without more real or personal property.

* * * *

(k) Transacting business in interstate commerce.

ORS 60.701(3) further states that, “[t]he list of activities in subsection (2) of this section is not

exhaustive.” Finally, even if MERS’ actions did not fall within any of the exceptions provided

for in the statute, ORS 60.701(5) provides that “[n]otwithstanding subsections (1) and (2) of this

section, the failure of a foreign corporation to obtain authority to transact business in this state

does not impair the validity of its corporate acts or prevent it from defending any proceeding in

this state.”

E. Bank of America Properly Initiated A Non-Judicial Foreclosure.

Plaintiffs also purport to invalidate the foreclosure proceedings by alleging in a

conclusory manner that Bank of America lacks legal authority to act or otherwise failed to

comply with procedures for instituting a non-judicial foreclosure. (Complaint, ¶¶ 5-7.) The


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Court should reject plaintiffs’ allegations because they are devoid of the requisite factual content

to meet the standards set forth in Twombly and Iqbal.

Bank Defendants are also entitled to dismissal because the documents in the official

records of Jackson County concerning the non-judicial foreclosure establish as a matter of law

compliance with the requisite elements of Oregon law. (Complaint ¶¶ 2-3 and Exs. 1-4, Request

for Judicial Notice, Ex. 1.) Contrary to plaintiffs’ allegations, those documents establish the

following:

Since the Trust Deed was assigned to Bank of America c/o Wells Fargo, NA, it

was the proper party to commence foreclosure proceedings. (Id.)

Bank of America through Wells Fargo, NA was the proper party to appoint

Northwest Trustee Services, Inc. as the successor trustee. (Id.)

The Assignment of Trust Deed was properly executed. (McCarthy Decl., Exs. 2-

3.)

The Notice of Default and Election to Sell was properly issued by the successor

trustee and identifies the beneficiary. As previously discussed, MERS was

properly identified as the beneficiary and nominee of the original lender and its

assignee.

The assignment and appointment were properly recorded before the recording of

the Notice of Default and Election to Sell. (Id. at Exs. 2-5.)

Accordingly, the publicly recorded documents relating to the non-judicial foreclosure plainly

establish that Bank of America has properly instituted a non-judicial foreclosure. Plaintiffs’

claims fail as a matter of fact and law.

Plaintiffs also contend that Bank of America cannot foreclose because, based on their

speculations and assumptions concerning the legality of the assignment by MERS, Bank of

America is not the holder of the note and trust deed. (Complaint at ¶¶ 5-7.) As this Court found

in Stewart v. MERS, 2010 WL 1055131, at *12 (D. Or.), however, the Oregon Trust Deed Act


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“does not require presentment of a promissory note or any other proof of ‘real party in interest’

or ‘standing,’ other than the Deed of Trust.” Here, under the Oregon statute, the Trust Deed,

Assignment of Trust Deed, and Appointment of Successor Trustee collectively establish that

Bank Defendants have authority to foreclose.

F. Plaintiffs Are Not Entitled to Declaratory Relief and Cannot State a Claim for Wrongful Foreclosure or to Quiet Title.

The Court should dismiss plaintiffs’ claim for declaratory relief because they do not

contest their default or claim that they can cure it. In Hogan v. NW Trust Services, 2010

WL 1872945, *5 (May 7, 2010), this Court recently rejected a claim for declaratory relief,

concluding that the claim amounted to nothing more than a collateral attack on Oregon

foreclosure law.

The Court reasoned:

Plaintiffs have not complained that they were not properly served with the Notice on the subject property. Nor do plaintiffs deny that they are in default on their loans or offer anything to indicate that they were able to tender the debt in order to disrupt the non-judicial foreclosure. Thus while a mortgage is said to carry with it the equity of redemption, that right exists only until the foreclosure sale and only if the mortgagor reimburses the mortgagee and cures the default.

Id.

Here as in Hogan, plaintiffs’ claim is deficient. They do not dispute that they are in

default, and have failed to plead that they can cure their default. Nor have they plead any basis

for granting declaratory relief. Similarly, the Court should dismiss plaintiffs’ claims for

wrongful foreclosure and to quiet title by abrogating Bank Defendants’ security interest in the

Property.

Plaintiffs have not pleaded any facts to show that Bank Defendants are in breach of the

loan agreement. In fact, plaintiffs have alleged that they are in breach by defaulting on their

loan, and filed suit seeking to prevent Bank Defendants from exercising Bank of America’s

contractual right to foreclose. Viewed in light of the specific statutory authorizations provided


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under Oregon’s statutes governing the foreclosure of trust deeds, plaintiffs’ claims lack any

objectively reasonable legal or factual basis. Accordingly, this Court should award defendants

their reasonable costs and attorney fees incurred in defending against this lawsuit under the terms

of the parties’ contractual agreements, and under ORS 20.105, pursuant to the procedure set forth

in Fed. R. Civ. P. 54(d).

G. Plaintiffs’ Claims Should Also Be Dismissed for Failure to Comply With Fed. R. Civ. P. 8.

The purpose of Rule 8 is to protect defendants from undefined charges and to keep

federal courts free of frivolous suits. Howard v. Koch, 575 F. Supp. 1299, 1304 (E.D.N.Y.

1982). To allow a defendant to frame a responsive pleading, Fed. R. Civ. P. 8(a)(2) requires a

pleading which sets forth a claim for relief to contain “a short and plain statement of the claim

showing the pleader is entitled to relief.” Fed. R. Civ. P. 8(e)(1) requires each averment to be

“simple, concise, and direct.” Fed. R. Civ. P. 10(b) requires claims to be limited to the extent

possible to a “statement of a single set of circumstances.” Plaintiffs’ Complaint fails to satisfy

these requirements.

Plaintiffs’ pleading does not clearly and concisely allege the legal basis for their action.

The appropriate recourse, in this jurisdiction as in others, is to dismiss the Complaint. Hatch v.

Reliance Ins. Co., 758 F.2d 409, 415 (9th Cir.), cert. denied, 474 U.S. 1021, 106 S. Ct. 571, 88

L. Ed. 2d 555 (1985) (court upheld dismissal of a complaint exceeding 70 pages which was

confusing and conclusory and not in compliance with Rule 8); Nevijel v. North Coast Life Ins.

Co., 651 F.2d 671, 675 (9th Cir. 1981) (dismissal with prejudice upheld). Otherwise, the

Complaint “becomes a springboard from which the parties dive off into an almost bottomless sea

of interrogatories, depositions, and pre-trial proceedings on collateral issues, most of which may

have little relationship to the true issue in the case.” New Dyckman Theatre Corp. v. Radio-

Keith-Orpheum Corp., 16 F.R.D. 203, 206 (S.D.N.Y. 1954). Even if the factual elements of the

claim are present, but are dispersed throughout the Complaint and not organized into a “short and


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plain statement of the claim,” dismissal for failure to satisfy the requirements of Rule 8(a) is

proper. Sparling v. Hoffman Const. Co., 864 F.2d 635, 640 (9th Cir. 1988).

IV. CONCLUSION

For the foregoing reasons, Defendants Bank of America and MERS’ Motion to Dismiss

should be granted with prejudice, and Bank Defendants should be allowed to recover their

reasonable costs and attorney fees incurred herein.

DATED: October 14, 2010LANE POWELL PC

By s/ Stephen P. McCarthyStephen P. McCarthy, OSB No. 894152Pilar C. French, OSB No. 962880Telephone: 503.778.2100

Attorneys for Defendants Bank of America, NA and Mortgage Electronic Registration Systems, Inc.


CIRCUIT COURT OF OREGONFIFTH JUPICIAL DISTRICT

CLACKAMAS COUNTY COURTHOUSE807 MAIN STRBET

OREGON CITY, OR 97045

HENRY C. BREITHAUPT

Judge Pro Tem

503-722-2732Fax: 503-655-8280

March 12, 2009

RogerJ Leo

Attorney at Law520 SW yamhill Street Ste 102Sportland OR 97204

Kevin J TillsonHunt & Associates PC101 SW Main Street Ste 805portland OR 97204

Teresa M Sllill

Routh Crabtree Olson PC11830 SW Kerr Parkway Ste 385Uilce Oswego OR 97035

Re: Parkin Electric. Inc. y. Saftencu. et a1.. No. LV08040727

Dear Counsel:

This matter is before the court on the application by Defendant Mortgage ElectronicRegistration Systems (MERS) for iúi award of attorney fees pursuant to ORCP 68. This court

has reviewed the entire court file in thlsmatter.. the recordings of

both the ORCP 21 hearing, and

the initial hearing on the mOtIgQ..fot 'sunuiimy Judgment.

As a preliminary matter, Plaintiff objects that tlus request is somehow defective becauseno judgment has been entered. ORCP 68 C(5)(a) clearly contemplates that the matter offees can

be addressed l?efore a judgment is entered or, pursuant to ORCP 68 C(5)(b), by way or

an

application and a supplemental judgment following an earlier entry of an earlier underlyingjudgment. The decisions on the underlying motions of MERS were based on decisions

announced orally at the hearing on the motions. The disposition sheet in the file indicated that"supplemental briefing may occur on atty's fees." MERS ultimately submitted a form of order

that ordered that MERS bring its motion aglUnst Plaintiff under ORS 20.1 OS "separately in theform of a motion for Supplemental Judgmeot witlun the ORCP 68 timeframe." With matters

proceeding in panillel on discussion of the order on the motions for sW1lßlary judgment and theapplication for fees, MERS did file a Motion fOT Supplemental Judgment for Attorney's Fees andCosts. Discussion among the parties and the court occurred, and the court permitted MERS to

Par!gn Eleçtric. Inc. v Saftepçu. ct øl" No. L VOS040721

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Case 1:10-cv-03111-PA Document 9-1 Filed 10/14/10 Page 1 of 7 Page ID#: 87

proceed over an objection by Plaintiff

that a motion for suppiemental judgment was not proper as

there was, as yet, no underlying judgment. On this point Plaintiff is technically correct as nojudgment has yet been entered as betWeen MERS and Plaintiff. Howevcr this tcchnical

impeñection must be disregarded and the motion for fees must be treated as an application forfees to be included in a judgment ORCP 12 miindiites such action where, as here, there was noprejudice to Plaintiff

from the error. Plaintiff had full opportunity to iind did fu1lytesist the

application for fees both in ~riefing and at a hearing on the matter.

Next, Plaintiff objects that MERS cannot recover fees because its allegation of a right tofees under ORS 20.105 was stricken from its complaint in a proceeding before Judge Redman ona motion fiied by Plaintiff

under ORCP 21 E. This court is of

the opinion that the action of

Judge Redman in the hearing on thc motion to strike was either in error or irre10viint to the ability

ofMERS to seek fees.

ORCP 68 C(2)(a) requireS that a party seeking fees "allege the facts, statute or iuJ,e that

provides a basis for the award of such fees If: . · ," No attomey fees shall bc awarded unless aright to recover such fees is alleged as provided in this subsecûon." (Emphasis added). The rulegoes on to provide that an opposing party can move to strike an allegation, and P1aintiffhere didmove to strike the allegation of a right to fees under ORS 20. i 05 on the basis that it was a sham.

frivolous, or irrelevant. Plaintiff argued at the hcB1ing that there were no facts alleged that wouldgive right to an award of fees. To the extent Judge Redman relied on that argument, and there

was no other argument, the reliance was misplaced because the rule permits an allegation of facts

or a statutory basis for the claim. and the statutory basis

was clearly' set out. Parkhurst v.

Faessler, 62 Or App 539, 541-42, 661 P2d 571 (1983). Further, ORCP 68 C(2)(a) specificallyprovides that "(a)ttomey fees may be sought before the substaDtive right to recover such fees

accrues."

To bar a party from an award offees in a situation such as this would serve no purpose towhich the rule addresses itself. As the Court of Appeals has recognized, the purpose of

the

requiremeht that a party plead the basis for a fee awø:rd is abnply to put the opposing party on

notice that a request for fees may be filed after the case bas been decided on the meritS.Walker v. Grote, 106

Or App 214,217,806 P2d 72S (1991). That

purpose was fully served by

the allegation in the initial answer filed by MERS and further by its reassertion of

that claim for

fees in: its motion fClr sununarY judgnient. .AdditiOiial1y,

because, under :Dimeo v. Gestk, 197 Or

App 560, 562,106 P3d 697 (2005) a right to fees may arise iiithe course of

the litigìition or be

IlII1plified in such course, it would

be unreasonable to require a party to plead facts uiat might not

yet have occurred. Indeed, just such a situation occurred here. Counsel for MERS attempted todissUade Plaintiff from proceeding with its action. asserting in correspondence the arguments

that, in the end. proved successful at tho suriiøiary judgment stage. Nonetheless, Plaintiff

persisted, but did so without inclUding in its pleadings the facts or theories on which it relied atsummary judgment (Ulose being the claims that MERS was incapable of appearing in court. thatit was not the real party in interest, and that the recordation ofits trust deed somehow violated

the Oregon recording statutes and was not entitled to the benefit ofORS 87.025(6)).

At such time as the broader outline ofP1aintiff's attack was known, MBRS moved forsummary judgment and in connection with that motion reasserted its right to rees under

Pile 2 or7

~ Elcebic, Inc. v. Siú\encu. el'\ No L V08Q40727

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ORS 20.105. The court notes that. at the time that MERS raised its right to fees wider

ORS 20.105 by motion. the motion to strike the allegation oftbenght to fees underORS 20.105had not been ruled upon. This court can see no reason that MERS has not met the requirements

of ORCP 68, especially col1Sidering that in naming MERS as a defendant in its foreclosure suitwithout alleging facts to support relief against a prior liciiholder, Plaintiff acted in derogation ofclearly established Oregon case law.

It is totbat case law that the court will pow tum. In Giesy v. Aurora St4te Bank, et al.,122 Or 1,255 P 467, reh 'gden, 122 Or 1 (1927), the Oregon Supreme Court

dealt with a

property encmnbered with a prior lien and a subsequent lien. The court spoke within the contextof section 423 Oregon Laws, see ¡d. at 6, a statute whose provisions are the predecessor of thecurrent ORS 88.030, which provides:

"Any pmon having a lien subsequent to the plaintiff upon the same

property or any part thereof, or who bas given a proinissory note or other personal

obligation for the payment of the debt, or any part thereof, secured by themortgage, or other lien which is the subject of the suit, shall be made a derendantin the suit, and my person having a prior lien may be made defendant at theoption of the plaintiff, or by the order of

the court when deemed necessary. The

failure of any junior lien or interest holder who is omitted as a party defendant in

the suit to redeem within five yean of the date of a sheriff's sale under

ORS 88.080 shall bar such junior lien or interest holder from any other action orpl'Qceeding against the property by the person on accomt of such person's lien orinterest. It (Emphasis added).1 .In Giesy, the subsequent lienholder (WeiDer) named the prior lienholder ("the

company") and alleged only that the company claimed an interest in the property but thatsuch interest was subordinate to the interests of

Weiner. 122 Or at 6-7. That is

essentially what Plaintiff alleged in this case as to MBRS. The court in Giesy stated ofthat allegation:

'%is is a mere legal conclusion. If the company's mortgage had been

paid, but was unsatisfied of record, or irit was fraudulent or invalid...iind ror that

reason inferior to WeiDer's c1aint, the pleader should have set forth the facts

showing such to be the case. Whenever a litigant in a suit to foreclose a mortgagelien seeks to challenge the validity of a prior recorded mortgage; or the right ofthe mortgagee therein named to a superior lien, it is mandatory upon him to allegefacts from which it would appear that the prior mortgage was invalid. or that itwould be inequitable that such mortgagee's lien be made superior to his,"

Giesy, i 22 Or at 7. hi this case, no suab allegations were made. Plaintiff alleged only theconclusion that its lien was in parity with or superior to that ofMERS even though the title. records established that Plaintiff s lien was later in time. Plaintiff alleged no facts and stated DOtheories by which tlús rev~al ofpnority would be justified. Those facts and theones were first

I While the current statule, IS wu true of tbci iiaiuic in Giuy, permits joinder of ieuior interests, that

pmnission does DOllct 10 iIllullillllI piirty from II fee llward if the cliiim miide is without foundatioD in fact or liiw.

Piirldn El!!Clric, Inc. y. Safteøcu, elllln No, L V08Q40127Page 30f7

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presented in Plaintiff's papers at the summary

judgment stage and they involved the three claiins

mentioned above: that MERS was disqualified from maintaining its defense in the proceeding,

that MERS was not the real party in interest. and that the MERS position was obtained in

violation of the Oregon recording statutes and was, therefore, either void or without the benefitof ORS 87.025(6). 1n naming the senior lienholder without allegations of

how Plaintiff could

obtain priority and without any allegation offacts or theories supporting a claim that the MERSlien was void, Plaintiff's actions were devoid oflegal or factual support.

Moreover, each of the grounds that Plaintiff

ultimately stated and relied on in connection

with the cross-motions for summary judgment is devoid

of legal or factual support. Plaintiff first

asserted that MEltS could not make a claim for attoniey fees or other affirmative rc1iefbecause itwas not registered to do business in Oregon. For this proposition Plaintiff cited ORS 60.704, astatute dèscribing the disabilities

under which a foreign corporation mli5tlive ifit is doing

business in Oregon without proper registration. However, ORS 60.701 explicitly states that

maintaining or defending an action is not doing business such as to require regislration. Thatstatute also provides that creating or acquiring indebtedness end sCC1JJIty for indebtedness is not

transacting business. Finally, ORS 60.701 provides that securing and collecting debts andenforcing mortgages and other sCC1JJIty interests is not doing business so as to require

registration. Plaintiff asserted there is a distinction betWeen MERS defending, wlucb Plaintiff

says is permitted without registration-and MERS seeking affirmative relief-either adeclaration as to priority or attorney fees-which Plaintiff says is not permitted. That distinctionfinds support in ORS 60.704(5). However, the court camiot see how the remedy of a fee awardunder ORS 20.105 in connection with the defense

of an action brought by plaintiff, and without

foundation iD fact or law, could be vicwed as affirmative relief.

Plaintiff's second position was that MBRS is not tho real party in iDterest in this matter as

required by ORCP 26. There is no doubt that wider the trust deed between the original lender

and the borrower, MERS was both listed as the beneficiary of

the trust deed and the parties to

that contract agreed that MERS could and would act as, in effect. agent for the original1ender

and any later bolder of the rights of the original lender. It is importaiit to consider that under oW'

trust deed statute, the "beneficiary" is "the person Damed or otherwise designated in a trust deed

as the person for whose benefit the tIUSt deed is given. or the person's successor in interest."ORS 86.705(1). The record also reveals that Plaintiff

had noticeoftbe role ofMERS and the

terms of the trust deed very early in the course of

this litigation.

ORCP 26 A provides that "a party with whom or in whose nmne a contract has been

made for the benefit of another. · · may sue in that party's own name without

joining the party

for whose benefit the action is brought. . * .n Under that language, MERS, as the named

beneficiary under the trust deed as a nominee for others. could bring an action without beingrequired to name such others and therefore can defend against Plaintiff. Further, if the claim ofMERS for declaratory relief and attorney fees is viewed as seeking affirmative relief for suchothers, ORCP 26 provides that MERS is to be treated as the reø1 party in interest as to suchclaims.

Plaintiff next asserted that something in the practice ofMERS operating as an agent or

nominee for others as to liens is such a violation of the spirit and letter of Oregon recording law

Piirkip E1cçaic. Inc, v. Saftenç!L ei iL" No. LVoa040727

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that the actions of MERS cause any lien naming it as agent to be void or not subject to the

beneficial provisions orORS 87.025(6). Plaintiff cites no statute or case that provides direct

support for such a proposition. The only support provided was stated to be in ORS 93.640 andORB 93.643. ORS 93.640 and ORS 93.643 do not provide that the practices oflcoders andMERS as their agent arc invalid. Those statutes omy provide that unrecorded interests are notentitled to the benefit of constructive notice. The simple answer to this argument is that theinterest ofMERS, and those for whom it was nominee, in question here was recorded and known

to Plaintiff when it received the litigation guarantee document prior to starting this action.

The statutes do not prohiòit liens to be recorded in the deed records of counties under an

agreement where IIJ1 agent will appear as lienholder for the benefit of the initial

lender and

subsequent 88signees of that lcndor-even where the

assignments of the beneficial interest in the

record lien are Doi recorded. ~ It is clear that such unrecorded iissigmnents of rights are

permissible under Oregon's trust deed statute because ORB 86.735 provides that ifforcclosureby sale is puisucd. aU prior umecorded assignments must be filed in connection with theforeclosure. The trust deed statutes therefore clearly contemplate that usignments of thebeneficial interests in obligations and security rights ~n occur iindl1ll)'. in fact, not have been

recorded prior to foreclosure. The legislature was clearly aware that sUch assignments occurred

and nowhere provided that assignments needed to be recorded to JJUUIltain rights undçr the lien

statutes except where foreclosure by sale wu pumied.

Ultimately, MBRS sought the protection of the lien statutes in ORS cliapter 87. Those

provisions do not provide rights. obligations or status in respect of "lenders," as plaintiff

repeatedly sought to establish. Those statutes look only to notices to and the states of ."mortgagees" and only the beneficiary of a trust deed is trea~ed as a mortgagee under

ORS 87.005(6). The statutes do nòt prevent agency aitaDgcments as agreed upon among"borrowers, lenders, truStees and beneficiiuies. In this case, very early on Plaintiff received a titlereport document that. in fact, showed that the property that it sought to lien bad two prior trust

deeds tiled against it. One was the lien in question here. as to which MBRS was shown as

"beneficiary" and contact information to MERS was provided. The other was a later line ofcredit trust deed as to which Bank of America was listed as "beneficiary." Plaiiitiffproceeded to

name in its complaint Bank of Amcrica-a ''beneficiory''-but did not initially name MBRS. theother listed "beneficiary." lDstead. PlaintiffDamed the original lender who initially was the

. princlpal fOi'MBRS as agent or nominee BIld'di~ not name MERS.

Plaintiff may also have failed to provide certain notices toMERS that impaired its rights

to collect attorney fees in its forecloswe action. This action. for whicti Plaintiffhas only itself

to

b1aine-MERS was. after all, shown as the beneficiary on the litigation guarantee cannot affect

the rights ofMERS. The notice provisions in the lien statutes

do not direct notices be given to

lenders but rather direct that they be given to "mortgageeS." Moreover, as will be nextdiscussed. no amount of notice to MERS or any person for whom it acted would have allowed

Plaintiff to obtain a position superior to that ofMBRS or such other persons. They had theprotection of Oregon's priority statutes and were not subject to an exception under

ORS 87.025(6).

'ulcin EI!jCIUÇ.lnc. y. saftClPCu. et all! No 008040727

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From the moment MERS became a target of Plaintifl s efforts, its cowisel asserted thatMERS bad priority over Plaintiff's construction lien by reason of the provisions ofORS 87.025(6). At the hearing on the summary judgment motions in this matter, Plaintiff

attempted to establish that its lien was superior to that ofMERS because its lien had the benefitof ORB 87.025(2). hi its argument, Plaintiff completely ignored the opening clause of

that

statute wluchprovides that its rules do not apply in the case that ORS 87.025(6) appUes.2

When Plaintiff finally addressed ORS 87.025(6), it asserted that MERS bad the burden ofproor with respect to the factual predicate stated in the statute that could give a lien, likePlaintifls, created under ORS 87.010, priority as to certain alterations or repairs. That predicateis that the deed of trust over which priority is sought must have been given to finance thealteration or repair. If that predicate is not satisfied, the statute provides that Plaintiff's lien

. "shall not take precedence over the mortlPlSC or trust deed." Thus, for a lien claimant to get the

benefit ofthc exception in ORS 87.025(6), the lien claimant must be involved in an å1teration orrepair iind the tnist deed involved must have been given to finance the alteration or repair. Thecourt is of the opinion, and so ruled at hearing on this matter, that on such questions the plaintiff

would have the burden of proof as it would be the party taking any benefit from positive findings

on such factual questions. Plaintiff contested this conclusion but admitted that it did not haveevidence in the record that the contract was a contract for alteration or repair. Plaintiff does notappear to have ever asserted that the tJUst deed in question was given to finance any repair oralteration. Interestingly, the record appears to Mly support, and permit no factual conclusioiis

other thaii. that Plaintiff's contract was for alteration or repair. Indeed, Plaintiffalleged that its

contract was for "remodeling." The record also establishes without doubt that the trust deed in

question was given long before Plaintiff ever visited the property and was not given to finance

the ''remodeling'' that Plaintiff undertook.

Plaintiff's arguments as to the operatiOD of ORS 87.025(6) were devoid oflegal or factual

support. PIlUDtiff could avoid the clearly adverse effect of that statute only if it somehowestablished that MERS was not the beneficiary of a trust deed or that MERS was somcbowdisabled from making an assertion that it was the beneficiary of a trust deed. For this purpose itmade the arguments on corporate qualification to do business, real party in interest and violationof the recording statutes that were discussed above and found to be devoid of

basis in fact or law.

Plaintiff chose to go on a ciiisade in this ~e against the contractual practices thatlenders, borrowers, and MERS have chosen to use. Those practices are not proscribed by law.Although Plaintiff at the heaiing on summary judgment in this matter admitted that it was not

authorized to act as a private attorney general as to the question of the validity orthe MaRS

system. tlus is exact1y.what it has chosen to do-arguiiig numerous public policy and revenue

interests that it assertS are vioiated by the MERS system. Whatever iui motivations were, MERS

should not have to bear the economic consequence of defending against this crusade.

Plaintiff did Dot request iin evidentiary hearing on the question of reasonableness oftbe

fee request. It did object to the amount although it did Dot object to the hourly mte on which the

2 Plaintiff appeanid 10 also iirguo thai it could ciaim tiic benefit of DRS 87.025(3) bccall8e MERS bad not

shown the work was not original cOnstiuCtiOD. However. Plainûffbad actually aUeged that the work was for"remodeling" and was 0810pped from asserting otberwisc.

Parkip Electric. IDe. v. Saftencu, e! a1.. No. iyOR04Q727Page 6 of7

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request is based. Plaintiff asserted that the time invested by counsel for MERS in this matter was

excessive and not reasonably calculated to protect the interests ofMBRS. Pløintiffasserts thatthe fees were charged due to a "contest ofwiUs" that was unnecessary because counsel forPlaintiff offered reasonable alternatives to litigation. The court concludes that, if there was acontest o'fwills, Plaintiff's counsel initiated the contest. This court has considered DRS 20.075and finds the amount of

the fee and cost request to be reasonable for the following reasons:

(1) MERS early on sought to obtain the result it obtained in this matter, and. for thereasons it ultimately prevailed. Plaintiff rebuffed all such attempts to resolve the matter;

(2) The court is not aware of

any reason why MERS was obliged to accept

alternatives suggested by Plaintiff in order to escape from litigation brought against it byPlaintiff. Plaintiff

brought noevideoce to the court, other than the assertions ofits own counsel

that it would be viewed as UllJ'eBSonable for MERS to resist the crusàde on which P1aintift'

embarlccd¡

(3) Plaintiff served discóvery requests .on MERS to which responses were demanded,

but which had little or nothing to do with the claims ultimately made by Plaintiff against MERS.Those requests required atteution by counsel to MERS;

(4) Notwithstanding clear Oregon case law to the contrarY, Plaintiff did not plead facts ortbeones that would support its position thatjts asserted lien would be superior to that ofMBRS;

(5) The claims and positions of

Plaintiff were in no way reasonable. The ultimate claim

of Plaintiff, never contained in its pleadings, was in substance, for a declaration that the MERS

system is invalid. That substantive position was, howeyer, asserted in the guise ofnUIDerous

other arguments that required attention and work to dispute end which were without basis in fact

or law; and

(6) An award in this instance will not deter good faith claims in other cases and thisaward will, hopefully, deter litigation behavior of

the type undertaken by Plaintiff.

The application for fees and costs is granted. Counsel for MERS is directed to prepare alcmn of judgment based on this decision tJ:ld the earlier oroer entered iniirlsmátter.

v cry Truly Yours,ilslf~~Henry C. BreithauptJudge

lI£1rin Electric. Inc. y. Saftencu el pi.. No. LV0B04Q727

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hooker v northwest trustee memorandum of law 14 oct 2010

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