Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_11-cv-00027/USCOURTS-azd-2_11-cv-00027-0/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1444 Petition for Removal- Foreclosure

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

IN RE Mortgage Electronic Registration

Systems (MERS) Litigation

MDL 09-2119-PHX-JAT

_________________________________

This Order applies to:

CV 11-00027-PHX-JAT

Dustin Rollins,

Plaintiff,

v.

Mortgage Electronic Registration Systems,

Incorporated, MERSCORP Incorporated,

Defendants. _________________________________

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MDL 09-2119-PHX-JAT

ORDER

Pending before the Court is Mortgage Electronic Registration Systems, Inc. and

MERSCORP, Inc.’s (collectively, “MERS”) Motion to Dismiss the First Amended

Complaint (MDL 09-2119, Doc. 1664). The Court now rules on the Motion. 

I. FACTUAL BACKGROUND

On or about May 6, 2004, Plaintiff executed a promissory note in the amount of

$176,000, in connection with a loan from GreenPoint Mortgage Funding, Inc.

(“GreenPoint”). (CV 11-00027, Doc 22-2 at 2). The promissory note was secured by a

Security Deed executed by Plaintiff and recorded against the property located at 905

Moreland Avenue 8E, Atlanta, Georgia 30316 (the “Property”). (Id. at 3). Defendant

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Mortgage Electronic Registration Systems, Inc. (“MERS”), is named as a “nominee for

Lender and Lender’s successors and assigns” and the “grantee under this Security

Instrument” in the Security Deed. (Id. at 2). Plaintiff alleges that, in April 2010, MERS sent

him a letter claiming it was the creditor on his residential mortgage loan and that his failure

to comply with the terms of the loan created a default. (Doc. 22 at 2). Plaintiff alleges that

MERS conducted a foreclosure sale of the Property on August 3, 2010. (Id. at 3). 

Plaintiff alleges that this foreclosure was wrongful under Georgia law because MERS

lacked authority to foreclose the Property because the Security Deed was void as a matter of

Georgia law and MERS could not act under the Security Deed because (1) it did not possess

the promissory note, (2) the security deed calls upon MERS to act as a corporate fiduciary

or a trust company in violation of Georgia law, (3) MERS failed to comply with O.C.G.A.

§ 14-14-162.2 when it sent notice of foreclosure to Rollins because it was not the secured

creditor and the notice was otherwise defective, and (4) MERS failed to exercise the power

of sale fairly and in good faith. (Doc. 22 at 3-4). As a result of these actions, Plaintiff seeks

invalidation of the foreclosure sale, a declaratory judgment regarding the invalidity of the

MERS security deed, and compensation. (Id. at 4-5). In the alternative, Plaintiff requests

that the Court impose a constructive trust over the proceeds from, or the value of the property

as determined by any such foreclosure action. (Id. at 6). 

II. PROCEDURAL BACKGROUND

In October 2010, Plaintiff filed a Class Action Complaint against Defendants in the

Fulton County Superior Court in Georgia. (CV 11-00027, Doc. 1 at 13). MERS removed

the suit to the United States District Court for the Northern District of Georgia. (CV 11-

00027, Doc. 1 at 1). In January 2011, the Judicial Panel on Multidistrict Litigation

transferred the lawsuit to this Court for inclusion in the MERS Multidistrict Litigation. (CV

11-00027, Docs. 9-11). In November 2011, Plaintiff filed an Amended Complaint. (Doc.

22). Defendants now move to dismiss Plaintiff’s Amended Complaint for failure to state

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a claim upon which relief can be granted pursuant to Federal Rules of Civil Procedure

12(b)(6). 

III. LEGAL STANDARD

To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must meet

the requirements of Rule 8. Rule 8(a)(2) requires a “short and plain statement of the claim

showing that the pleader is entitled to relief,” so that the defendant has “fair notice of what

the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S.

544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). 

Although a complaint attacked for failure to state a claim does not need detailed

factual allegations, the pleader’s obligation to provide the grounds for relief requires “more

than labels and conclusions, and a formulaic recitation of the elements of a cause of action

will not do.” Id. (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). The factual

allegations of the complaint must be sufficient to raise a right to relief above a speculative

level. Id. 

Rule 8’s pleading standard demands more than “an unadorned, the-defendantunlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing

Twombly, 550 U.S. at 555). A complaint that offers nothing more than blanket assertions

will not suffice. To survive a motion to dismiss, a complaint must contain sufficient factual

matter, which, if accepted as true, states a claim to relief that is “plausible on its face.” Id.

Facial plausibility exists if the pleader pleads factual content that allows the court to draw

the reasonable inference that the defendant is liable for the misconduct alleged. Id.

Plausibility does not equal “probability,” but plausibility requires more than a sheer

possibility that a defendant has acted unlawfully. Id. “Where a complaint pleads facts that

are ‘merely consistent’ with a defendant’s liability, it ‘stops short of the line between

possibility and plausibility of entitlement to relief.’” Id. (quoting Twombly, 550 U.S. at 557).

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In deciding a motion to dismiss under Rule 12(b)(6), the Court must construe the facts

alleged in a complaint in the light most favorable to the drafter of the complaint, and the

Court must accept all well-pleaded factual allegations as true. Shwarz v. United States, 234

F.3d 428, 435 (9th Cir. 2000). Nonetheless, the Court does not have to accept as true a legal

conclusion couched as a factual allegation, Papasan, 478 U.S. at 286, or an allegation that

contradicts facts that may be judicially noticed by the Court, Shwarz, 234 F.3d at 435.

IV. ANALYSIS

At the outset, the Court notes that Plaintiff’s claims, at least in part, are based on the

premise that the promissory note has been split from the deed of trust as a result of the

securitization of the Note. This argument has been repeatedly rejected by the District Court

of Arizona. See Diessner v. Mortg. Elec. Registration Sys., 618 F.Supp.2d 1184, 1187–88

(D. Ariz. 2009) (citing cases). Further, in Cervantes, the Ninth Circuit Court of Appeals

recognized “the notes and deeds are not irreparably split: the split only renders the mortgage

unenforceable if MERS or the trustee, as nominal holders of the deeds, are not agents of the

lenders.” Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1044 (9th Cir. 2011).

Further, this Court has previously rejected the argument that “as a lender’s nominee,

MERS cannot act as a lender’s agent.” Bean v. BAC Home Loans Servicing, L.P., No CV11-

553-PHX-GMS, 2012 WL 171435, at *1 -2 (D. Ariz. Jan. 20, 2012) (citing Fontenot v. Wells

Fargo Bank, N.A., 129 Cal.Rptr.3d 467, 479–80 (2011)). 

Accordingly, to the extent that Plaintiff’s claims rely on his theory that the promissory

note has been split from the deed of trust because of the securitization of the promissory note,

Plaintiff has failed to state a claim upon which relief can be granted with respect to this

theory.

The Court will now individually discuss Defendants’ arguments as to why each Claim

should be dismissed for failure to state a claim upon which relief can be granted. 

A. Count II - Wrongful Foreclosure pursuant to O.C.G.A. § 44-14-

162.2 & Count III - Wrongful Foreclosure as a Tort

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1

 O.C.G.A. § 44-14-162.2 provides,

(a) Notice of the initiation of proceedings to exercise a power of

sale in a mortgage, security deed, or other lien contract shall be

given to the debtor by the secured creditor no later than 30 days

before the date of the proposed foreclosure. Such notice shall be

in writing, shall include the name, address, and telephone

number of the individual or entity who shall have full authority

to negotiate, amend, and modify all terms of the mortgage with

the debtor, and shall be sent by registered or certified mail or

statutory overnight delivery, return receipt requested, to the

property address or to such other address as the debtor may

designate by written notice to the secured creditor. The notice

required by this Code section shall be deemed given on the

official postmark day or day on which it is received for delivery

by a commercial delivery firm. Nothing in this subsection shall

be construed to require a secured creditor to negotiate, amend,

or modify the terms of a mortgage instrument.

(b) The notice required by subsection (a) of this Code section

shall be given by mailing or delivering to the debtor a copy of

the notice of sale to be submitted to the publisher.

O.C.G.A. § 44-14-162.2.

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Plaintiff alleges that MERS had no right to proceed with the non-judicial foreclosure

of Plaintiff’s property because the notice of the sale that Plaintiff received was defective

because it did not comply with O.C.G.A. section 44-14-162.2.1

 Plaintiff alleges that the

notice failed to comply with section 44-14-162.2 because that section requires the secured

creditors to send the notice and, in this case, MERS sent the notice and MERS is not the

secured creditor.

Defendant argues that this claim should be dismissed because MERS, as agent for the

secured creditor, is permitted to send the notice under section 44-14-162. Courts within the

Northern District of Georgia have considered Plaintiff’s argument that only a secured

creditor and not a secured creditor’s agent may send the notice regarding foreclosure and

have rejected it. See, e.g., LaCosta v. McCalla Raymer, LLC, No. 1:10-CV-1171-RWS, 2011

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2

 Plaintiff also relies on Morgan v. Ocwen Loan Servicing, LLC, 795 F.Supp.2d 1370,

1375-76 (N.D. Ga. 2011) for the proposition that the separation of the note and the security

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WL 166902, at *3-4 (N.D. Ga. Jan. 18, 2011) (“According to Plaintiff’s reasoning, the

Section’s requirement that notice be given ‘by the secured creditor’ is not satisfied by the

secured creditor directing its loan servicer or other authorized agent to provide pre-sale

notice on its behalf. Such an interpretation of the statute is not tenable. . . . Such a holding

would defeat the underlying premise of agency law: that a principal has the power to appoint

someone to act on his behalf. . . . The goal of Section 162 is to give the debtor notice of the

foreclosure sale. Whether that notice is provided by the secured creditor directly, or by its

agent, is of no consequence.”); Kabir v. Statebridge Co., LLC, No. 1:11-cv-2747-WSD, 2011

WL 400050, at *4 (N.D. Ga. Sept. 27, 2011). 

This Court agrees with the reasoning of the Georgia District Court in LaCosta and

Kabir. Section 44-17-162 exists to ensure that a debtor gets notice of a foreclosure sale. In

this case, Plaintiff does not dispute that he received notice of the sale and he does not dispute

that he was in default on his loan. Rather, he argues that because MERS “was not the

secured creditor,” the notice was invalid. Plaintiff relies on Krapf v. Wiles, 252 Ga. 452,

657-58 (1984) to support his argument. The Court finds this case inapposite. Krapf did not

interpret section 44-14-162, but rather held that a statutory notice sent by a party who had

already transferred the note and security deed to a new party was not adequate under a statute

allowing attorneys’ fees to the noticing party because that notice misled the defendant in

material respects as to the liability for attorney’s fees. 

In this case, Plaintiff’s theory that the Notice misled him in a material respect is

premised on his argument that note and deed of trust were split rendering the loan unsecured

by the Deed of Trust. However, as explained above, this Court rejects this “split the note”

theory. Accordingly, as the Georgia District Court explained in LaCosta, whether the notice

was provided by the secured creditor directly or its agent is of no consequence in this case.2

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deed creates a substantial question of what entity has the right to foreclose when the

borrower defaults on the loan. Morgan did not decide the merits of the question, but this

Court and the Ninth Circuit in Cervantes have determined that “the split only renders the

mortgage unenforceable if MERS or the trustee, as nominal holders of the deeds, are not

agents of the lenders.” See Cervantes, 656 F.3d at 1044. In this case, Plaintiff has made no

colorable allegation that MERS was not the agent of the lender and the notice of foreclosure

showed that MERS was acting on behalf of Aurora Loan Services. (Doc. 22-6 at 1). 

Finally, the Security Deed that Plaintiff signed states that “Borrower does hereby

grant and convey to MERS (solely as nominee for lender and Lender’s successors and

assigns) and the successor and assigns of MERS, with the power of sale” of the Property.

(Doc. 22-2 at 4). Accordingly, Plaintiff’s argument that MERS sending the notice of

foreclosure constituted a material representation is undercut by the language in the Security

Deed. See Cervantes, 656 F.3d at 1042 (“In light of the explicit terms of the standard deed

signed by Cervantes, it does not appear that the plaintiffs were misinformed about MERS’s

role in their home loans.”). 

Plaintiff cites to Stubbs v. Bank of America, __ F. Supp. 2d __, No. 1:11-CV-1367-

AT, 2012 WL 516972, (N.D. Ga. Feb. 16, 2012) and claims that it “validates Rollins’

theories,” and affirms that Plaintiff has stated a claim for wrongful foreclosure under

O.C.G.A. § 44-14-162(b). (Doc. 1746 at 2). In Stubbs, Plaintiff alleged that Fannie Mae was

the secured creditor on his loan, but Fannie Mae did not send notice under § 44-14-162(b).

The Stubbs Plaintiff attached (1) letters to the complaint that identified Fannie Mae as the

secured creditor and (2) a foreclosure notice letter identifying BAC Home Loans Servicing,

LP as the secured creditor. The Stubbs court found that this created confusion about the

identity of the holder of the loan and that Plaintiff stated a claim under O.C.G.A. § 44-14-

162.2, which was designed to avoid such confusion.

This case is distinguishable from Stubbs because Plaintiff does not allege that he was

confused by the Notice of Sale. First, as noted above, Plaintiff consented to MERS’s power

of sale of the Property in the Security Deed. The Stubbs Court specifically noted that notice

of sale cannot be waived in the Security Deed, but Notice was not waived in this case, rather

MERS provided Plaintiff notice and consistently represented that MERS and Aurora Loan

Servicing could negotiate the terms of his loan, as required by the notice statute. Unlike in

Stubbs, Plaintiff does not allege who he believes the secured creditor of his loan actually was,

but rather alleges that there could be no secured creditor because no known party possesses

the underlying note. This is merely the split the note that theory that this Court has

repeatedly rejected. Accordingly, the allegations in Stubbs are distinguishable from the facts

alleged in this case. Further, to the extent that the Stubbs decision is inconsistent with

LaCosta, 2011 WL 166902 and Smith v. Saxon Mortgage, No. 11-11762, 2011 WL 5375063

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(11th Cir. 2011), summarily aff’g No. 1:09-CV-3375 (N.D. Ga. March 16, 2011), this Court

respectfully disagrees with the Stubbs court’s analysis. 

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B. Count III - MERS’ Status as Corporate Fiduciary

Plaintiff next argues that Georgia’s corporate fiduciary statute prohibits MERS from

acting as a fiduciary under the Security Deed because MERS is not authorized to act as a

fiduciary under Georgia law. Plaintiff argues that, because MERS cannot be a corporate

fiduciary, the Security Deed is unenforceable as a matter of law because, under O.C.G.A. 13-

8-1, a “contract to do an immoral or illegal thing is void.” Plaintiff’s argument is that MERS

acts as a fiduciary to the lender, but is prohibited from doing so because it is not one of the

entities empowered to act as fiduciary under O.C.G.A. § 7-1-242. As a result of this

prohibition, Plaintiff argues that the Security Deed is an illegal contract and is, thus, void,

rendering Plaintiff’s obligation under the Security Deed unenforceable. 

Upon reevaluation of the substance of this claim, this Court finds that it previously

erred in failing to interpret the conditional transfer order as remanding this part of Count III

to the Georgia District Court. Under this Court’s interpretation of the conditional transfer

orders, this Court should not retain claims relating to loan origination or collection practices

and whose facts would needlessly entangle the litigation in unrelated, fact-intensive issues.

This Court is to retain jurisdiction over all allegations that security instruments are

unenforceable or foreclosures are inappropriate due to MERS’s presence as a party. 

At first glance, the Court interpreted Count III as alleging that the security instrument

was unenforceable due to MERS’s presence as a party. However, upon full examination of

this claim, Plaintiff’s argument is solely based on whether MERS is acting as a corporate

fiduciary under a Georgia criminal statute and, if so, whether Georgia public policy would

require rescission of that portion of the Deed of Trust that allegedly made MERS an illegal

corporate fiduciary. Accordingly, the argument does not involve the invalidation of the Deed

of Trust because MERS was a party to the Deed of Trust, but, rather, whether MERS was in

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violation of a criminal statute and the consequences of such a violation. The resolution of

these facts can be determined solely through an analysis of Georgia’s corporate fiduciary

statute, which is a necessarily fact-intensive issue not common to the MDL. Further, there

would be no common issues of discovery relating to the other claims in the MDL.

Accordingly, the Court finds that its prior interpretation of the conditional transfer order was

in error with regard to this part of Count III and thus, this part of Count III is remanded to

the transferor court. 

B. Count I - Declaratory Judgment; Count IV - Equitable Relief;

Count IV - Punitive Damages; Count V - Attorneys’ Fees

Plaintiff’s claims for declaratory judgment (Count I), equitable relief (Count IV),

punitive damages (Count IV), and attorneys’ fees (Count V) are claims for relief that are

dependent on the remaining Counts of Plaintiff’s Complaint. Accordingly, because Plaintiff

has failed to state a claim upon which relief can be granted on Counts Two and part of Count

Three, the subsidiary claims for relief based on those Counts must also be dismissed.

Accordingly, the remaining Counts of Plaintiff’s Complaint for declaratory judgment,

equitable relief, punitive damages, and attorneys’ fees will be dismissed in this case, but the

parts that are dependent on the part of Count III that is being remanded will also be

remanded.

V. LEAVE TO AMEND

The Ninth Circuit has instructed district courts to grant leave to amend when

dismissing a case for failure to state a claim, “unless the court determines that the pleading

could not possibly be cured by the allegations of other facts.” Lopez v. Smith, 203 F.3d

1122, 1127 (9th Cir.2000) (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir.1995)).

Because Plaintiff’s claims depend on legal theories that have repeatedly been rejected by this

Court and the District Court for the Northern District of Georgia, and in light of the

foregoing analysis, the Court finds that Plaintiff’s Complaint could not be cured by

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allegations of other facts and, thus, allowing Plaintiff to amend his Complaint would be

futile. Accordingly, the Court will not grant Plaintiff leave to amend.

VII. CONCLUSION

Based on the foregoing,

IT IS ORDERED Mortgage Electronic Registration Systems, Inc. and MERSCORP,

Inc.’s Motion to Dismiss the First Amended Complaint (MDL 09-2119, Doc. 1664) is

granted in part and denied in part as set forth herein. Part of Counts III, Part of Count IV

(Equitable Relief), Part of Count IV (Punitive Damages) and Part of Count V have been

remanded to the transferor court. The Clerk of the Court shall file a copy of this Order with

the transferor court.

The Clerk of the Court shall enter judgment for Defendants.

 The Clerk of the Court shall file a copy of this Order in MDL 09-2119-PHX-JAT and

CV 11-00027-PHX-JAT.

DATED this 25th day of May, 2012.

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