Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_14-cv-01021/USCOURTS-azd-2_14-cv-01021-1/pdf.json

Nature of Suit Code: 360
Nature of Suit: Other Personal Injury
Cause of Action: 15:0045 Federal Trade Commission Act

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1

 Although both parties attached various documents to the motion, response and reply,

the Court cannot locate a Deed of Trust executed in 2007. However, it appears that the

controlling Deed of Trust is attached to Plaintiff’s motion for preliminary injunction.

WO

 

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Shizue S. White, 

Plaintiff(s), 

v.

Aurora Loan Services LLC, Nationstar

Mortgage LLC, 

Defendant(s).

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CV-14-1021-PHX-JAT

ORDER

Plaintiff brought this lawsuit seeking to prevent Defendants from conducting a

Trustee’s Sale of her residence. Pending before this Court is Defendants’ motion to dismiss

in which Defendants argue the complaint fails to state a claim. Doc. 13. Previously, this

Court granted a preliminary injunction to enjoin the Trustee sale of Plaintiff’s residence.

Doc. 25. Therefore, none of the waiver provisions of A.R.S. § 33-811(C) are applicable.

I. Background

Plaintiff refinanced her house in March 2007, with the lender on the note being

American Broker’s Conduit. Doc. 13 at 3; Doc. 36 at 2. The note was secured by a Deed

of Trust under which the Trustee was Chicago Title Insurance Company and the beneficiary

was Mortgage Electronic Registrations Systems, Inc. (“MERS”).1

 Defendants allege that

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American Broker’s Conduit hired Aurora Loan Services, L.L.C. (“Aurora”) to service the

note. Doc. 13 at 2. Defendants allege that at some point American Broker’s Conduit sold

or assigned the note and its proceeds to U.S. Bank as Trustee for the Certificate Holders of

the LXS 2007 7N Trust Fund (“U.S. Bank”). Doc. 13 at 13. Defendants further allege that

after July 1, 2012, either American Broker’s Conduit or U.S. Bank relieved Aurora of its

servicing responsibilities, and engaged Nationstar Mortgage, L.L.C. (“Nationstar”) to service

the note. Doc. 13 at 2.

Nationstar contends that it is still the servicer through today, and that being a servicer

is its only involvement with this transaction. However, the record, including Nationstar’s

own filings, shows that Nationstar’s legal obligations go beyond that of merely being a

servicer. For example, MERS assigned the beneficial interest in the Deed of Trust that

secures Plaintiff’s residence to Nationstar. Doc. 13 at 13; 51. Notably, MERS made this

assignment as nominee for American Broker’s Conduit on August 31, 2012. Then, on

November 6, 2013, MERS (as nominee for American Broker’s Conduit) assigned the “Deed

of Trust,” including MERS’ “beneficial interest under the Deed of Trust” to U.S. Bank (in

the fiduciary capacity listed above). Doc. 38 at 21. After MERS assigned its beneficial

interest in the Deed of Trust that secures Plaintiff’s residence to two different entities, on

February 26, 2014, Nationstar as “Attorney in Fact” for U.S. Bank appointed Clear Recon

Corporation as Trustee of the Deed of Trust that secures Plaintiff’s residence. Doc. 13 at 13,

48. Defendants further allege that Clear Recon Corporation noticed a Trustee sale on April

26, 2014. Doc. 8 at 8. As indicated above, this Court enjoined that sale.

II. Motion to Dismiss

Defendants move to dismiss Plaintiff’s entire complaint under Federal Rule of Civil

Procedure 12(b)(6). The Court may dismiss a complaint for failure to state a claim under

12(b)(6) for two reasons: 1) lack of a cognizable legal theory and 2) insufficient facts alleged

under a cognizable legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th

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Cir. 1990). 

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

requirements of Federal Rule of Civil Procedure 8(a)(2). 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

Atlantic 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.” Twombly, 550 U.S. at 555 (internal citations omitted). The factual allegations

of the complaint must be sufficient to raise a right to relief above a speculative level. Id.

Rule 8(a)(2) “requires a ‘showing,’ rather than a blanket assertion, of entitlement to relief.

Without some factual allegation in the complaint, it is hard to see how a claimant could

satisfy the requirement of providing not only ‘fair notice’ of the nature of the claim, but also

‘grounds’ on which the claim rests.” Id. at n.3 (citing 5 C. Wright & A. Miller, Federal

Practice and Procedure §1202, pp. 94, 95 (3d ed. 2004)).

A. Proper Defendant

Defendants make a general argument that they are not the proper Defendants for

Plaintiff’s causes of action. Specifically, Defendants argue that they are not the loan

originator; thus, they are not responsible for any issues relating to the terms of the note. Doc.

13 at 3. Defendants argument on this point spans pages 7-8 of their motion to dismiss and

does not cite any law.

The issue of whether a contract is enforceable, and by whom, is a complex legal

question. In this case, Nationstar as attorney in fact for U.S. Bank (and perhaps as the actual

beneficiary in its own right under the Deed of Trust), is enforcing the Deed of Trust. The

Deed of Trust incorporates the note for purposes of outlining the repayment terms. Doc. 6

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at 27-40.

It appears undisputed that Nationstar is acting as an agent for U.S. Bank, to whom

U.S. Bank has delegated all authority under a Power of Attorney. It is possible, based on the

documents in the record, Nationstar is also the beneficiary under the Deed of Trust. In either

case, it appears undisputed Nationstar is the decision maker who is collecting under the note

and enforcing the security interest of the Deed of Trust. Thus, the issue is whether, when an

agent has been delegated all authority, is the agent responsible for its own actions taken on

behalf of the principle.

The Arizona courts have held, “It goes without saying that the agent is also liable to

third persons under general negligence principles.” Borbon v. City of Tucson, 556 P.2d 1153,

1156 (Ariz. Ct. App. 1976). Thus, the fact that Nationstar may be only an agent does not

absolve it from all liability. As indicated above, Defendants have not cited a single statute

or case in support of their argument that an agent is not liable for its actions taken on behalf

of the principle. In the context of a motion to dismiss, the Court concludes that Defendants

have failed to establish that they are not subject to liability as a matter of law.

In the introduction of the motion to dismiss, Defendants suggest that even the

principle, U.S. Bank, could not be liable to Plaintiff for issues stemming from origination of

the loan because U.S. Bank is a holder is due course. Doc. 13, at 3 n.4 (citing Mecham v.

United Bank of Ariz., 489 P.2d 247, 252 (1971) (discussing holders in due course under the

U.C.C. (codified at A.R.S. § 44-2201, et seq.))). However, the Arizona Supreme Court

directly rejected this argument in the context of conducting Trustees’ Sales under Deeds of

Trust securing notes in the residential real estate context. Hogan v. Wash. Mut. Bank, N.A.,

277 P.3d 781, 783 ¶ 9 (Ariz. 2012) (“The UCC does not govern liens on real property.”).

Accordingly, this argument fails to absolve U.S. Bank, and its agents Nationstar and Aurora,

from liability.

Plaintiff has moved to amend her complaint in the event the Court concludes that it

fails to state a claim. Doc. 36 at 12. The Court has concluded that on this record, the Court

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will not dismiss the complaint for the reason advanced by the Defendants. However,

Plaintiff should nonetheless move to amend should Plaintiff determine that she must sue

Nationstar as attorney in fact for U.S. Bank in addition to its individual capacity to survive

a motion for summary judgment.

B. Rule 19

Defendants next move to dismiss arguing that Plaintiff failed “to join a required party

under Rule 19.” Doc. 13 at 9. Defendants argue that Plaintiff’s failure to name Clear Recon

Corporation, the Trustee, and American Broker’s Conduit, the original lender, means this

case must be dismissed because Plaintiff failed to name an indispensable party under Rule

19. Id. at 10.

With regard to the Trustee, Defendants’ argument is inconsistent with Arizona law.

Specifically, A.R.S. § 33-807(E) provides:

The trustee need only be joined as a party in legal actions pertaining to a

breach of the trustee’s obligation under this chapter or under the deed of trust. Any

order of the court entered against the beneficiary is binding upon the trustee with

respect to any actions that the trustee is authorized to take by the trust deed or by this

chapter. If the trustee is joined as a party in any other action, the trustee is entitled

to be immediately dismissed and to recover costs and reasonable attorney fees from

the person joining the trustee.

(Emphasis added.). Indeed, Nationstar was a Defendant in a case where this Court addressed

this exact provision as a basis (argued by Defendants) for immediate dismissal of a Trustee.

See Graham-Miller v. Nationstar Mortg. L.L.C., 2012 WL 2368494, *4 (D. Ariz. 2012).

Accordingly, under Arizona law, the Trustee is not a necessary party to an action against the

beneficiary.

With regard to American Broker’s Conduit, the original lender, Defendants again

reassert that they are only servicers; therefore, they cannot be held responsible for any

defense to the contract or to formation. However, as discussed above, U.S. Bank is not

necessarily absolved from liability because it is enforcing the note and Deed of Trust.

Further, Nationstar either its individual capacity or as agent for U.S. Bank acting with

complete delegation of authority under a power of attorney is actually foreclosing the house.

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In fact, Nationstar’s own arguments support this conclusion. Specifically, in its

motion, Nationstar states: “... MERS assigned the Deed of Trust to Nationstar on August 31,

2012. [footnote omitted]. Nationstar’s rights are very clear. Furthermore arguments based

on the supposed insufficiency of title transfers by MERS do nothing to diminish Nationstar’s

right to pursue foreclosure.” Doc. 13 at 13. Thus, Nationstar takes the position that it is the

party with the right to foreclose, but that is has no duty to legally carry out the foreclosure.

The Court will not conclude that Nationstar has different capacities for purposes of rights

versus liabilities.

On this record, the Court cannot conclude that Plaintiff cannot obtain full relief

against Nationstar alone, and accordingly, the Court will not dismiss this case under Rule 19.

However, to the extent that Plaintiff may have claims against American Broker’s Conduit,

U.S. Bank, and/or Nationstar as Power of Attorney for U.S. Bank, Plaintiff may move to

amend her complaint to add these Defendants.

C. Plaintiff’s complaint

Defendant also attacks some Counts and allegations in Plaintiff’s complaint arguing

that those Counts fail to state a claim. The Court will address the Counts of the Complaint

in turn.

1. Negligence

The first Count of Plaintiff’s complaint alleges that Defendants were negligent in

creating and enforcing an unconscionable note. Doc. 1 at 7. More specifically, Plaintiff

alleges that the negative amortization features of her note made it unconscionable. Id. 

Defendants argue that a lender’s non-disclosure of negative amortization provisions

in a loan, without more, fails to state a claim. Doc. 13 at 11 n.41. Defendants further argue

that neither Nationstar nor Aurora made any representations regarding the terms of the loan.

Id. at 11.

In Steinberger v. McVey ex rel. County of Maricopa, 318 P.3d 419 (Ariz. Ct. App.

January 30, 2014) (review denied Sept. 23, 2014), the Arizona Court of Appeals held that

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2

 In the reply, Defendants continue to assert the “holder in due course” argument with

regard to Plaintiff’s unconscionability claim. As discussed above, Defendants are wrong

with respect to collection of a security under a Deed of Trust. See Hogan v. Wash. Mut.

Bank, N.A., 277 P.3d 781, 783 ¶ 9 (Ariz. 2012) (“The UCC does not govern liens on real

property.”).

3

 In their motion, Defendants never list the elements of a cause of action for fraud under

Arizona law. The Court notes that Plaintiff must plead that: defendant made a false,

material misrepresentation that he knew was false or was ignorant of its truth, with the

intention that plaintiff would act on it in a manner that was reasonably contemplated, that

plaintiff was ignorant of the representation’s falsity, rightfully relied on the truth of the

representation, and sustained consequent and proximate damage. Haisch v. Allstate Inc.

Co., 5 P.3d 940, 944 (Ariz. Ct. App. 2000).

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that a borrower can state a claim for procedural or process unconscionability when there is

“unfair surprise, fine print clauses, mistakes or ignorance of important facts or other things

that mean the bargaining did not proceed as it should.” Id. at 436-37, ¶ 82 (internal citations

omitted). Here, Plaintiff is bringing this claim against the party (Nationstar) seeking to

enforce this allegedly unconscionable note. Plaintiff, for purposes of Count 1, is not alleging

that the terms were not disclosed to her, but that the terms were unconscionable.

Accordingly, the Court finds that this states a claim under Steinberger.

2

For the reasons stated above with regard to Nationstar’s capacity with regard to

enforcement of the note, the Court will deny the motion to dismiss this claim. However,

again, to the extent Plaintiff may be able to assert this claim against other entities, Plaintiff

may move to amend her complaint.

2. Fraud

The second Count of Plaintiff’s complaint alleges fraud. Defendants claim Plaintiff’s

complaint fails to allege what representations were made, who made them, and when. Doc.

13 at 12.3

 However, Plaintiff’s complaint in fact does make such allegations. See Doc. 1 at

8-9, lines 25-7. Therefore, this argument fails.

Next, Defendants argue that “they” did not make the misrepresentations. While this

fact may later be proven to be true, in her complaint Plaintiff alleges that it was Defendants

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and their agents. For purposes of a 12(b)(6) motion, this Court must assume this allegation

is true. See Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). Accordingly, the

Court will not dismiss this claim.

Again, however, to the extent Plaintiff may be able to assert this Count against other

entities, Plaintiff may move to amend her complaint.

3. FTC Act

The third Count of Plaintiff’s complaint claims a violation of the FTC Act. Doc . 1

at 9. Defendants move to dismiss this Count alleging that the Act does not create a private

right of action. Doc. 13 at 9. In her response, Plaintiff does not dispute this legal argument.

Instead, Plaintiff argues that she is alleging a violation of the Arizona Consumer Fraud Act.

Doc. 36 at 9. However, Plaintiff’s Arizona Consumer Fraud Act Claim is alleged in Count

5 of her Complaint, so the Court will address it as Count 5.

Thus, Plaintiff has argued no basis for Count 3 to state a cause of action.

Accordingly, Count 3 will be dismissed.

4. FDCPA

The fourth Count of Plaintiff’s complaint claims a violation of the FDCPA.

Defendants do not specifically move to dismiss the FDCPA claim (beyond the general

arguments already addressed above). Because those theories do not provide a basis for

dismissal, the Court will not dismiss this Count.

5. Arizona Consumer Fraud Act (“ACFA”)

The fifth Count of Plaintiff’s complaint claims a violation of the ACFA. Defendants

do not specifically move to dismiss the ACFA claim (beyond the general arguments already

addressed above). Because those theories do not provide a basis for dismissal, the Court will

not dismiss this Count.

6. Unlawful Attempted Foreclosure

The sixth Count of Plaintiff’s complaint is for “unlawful attempted foreclosure.”

Defendants move to dismiss the Count having characterized it as a “wrongful foreclosure”

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4

 The parties’ failure to discuss this Court’s prior cases is significant because the sole

case cited by Defendants to support their motion to dismiss the wrongful foreclosure

Count is an unpublished Ninth Circuit Court of Appeals opinion applying California law

when obviously a case applying Arizona law would be more on point. See Doc. 13 at 9,

n.35.

5

 It is unclear to this Court whether the Arizona Courts, based on certain cases decided

after this Court decided Schrock, would recognize the tort of wrongful foreclosure.

Grady v. Tri-City Nat’l Bank, CV 12-2507-PHX-JAT; Doc. 26 at 3 (D. Ariz. May 5,

2013).

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claim. This Court has previously issued orders on wrongful foreclosure, which neither party

discusses. See, e.g., Schrock v. Federal Nat. Mort. Ass’n, 2011 WL 3348227, *6 (D. Ariz.

2011).4

 Based on this Court’s understanding of the elements of the tort of wrongful

foreclosure,5

 the Court does not interpret Plaintiff’s claim as one for wrongful foreclosure.

Instead, Plaintiff alleges, “Defendants do not have any legal right to foreclose

Plaintiff’s property.” Doc. 1 at 12, ¶ 61. In Steinberger, the Court held that a borrower in

default may bring a claim if the borrower possesses a good faith basis to dispute the authority

of an entity to conduct a trustee’s sale. 318 P.3d at 429-30, ¶ 41. Here, Plaintiff disputes the

Defendants’ authority to direct the Trustee to conduct the sale. Therefore, the Court finds

Plaintiff has stated a claim for the cause of action to avoid a Trustee sale recognized in

Steinberger. 

Because Steinberger does not mention a tender requirement as an element of stating

this claim, the Court finds Defendants’ argument that Plaintiff’s claim does not state a claim

because she has not alleged that she has tendered full payment is not a basis to dismiss this

claim. Because that is Defendants’ only argument (other than the general arguments

discussed above) why this claim should be dismissed, the motion to dismiss this Count will

be denied.

/ / /

/ / /

/ / /

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6

 Again, neither party has cited the elements of a misrepresentation claim under Arizona

law. The Court notes that negligent misrepresentation is a separate tort from that of

intentional fraud. McAlister v. Citibank (Arizona), 829 P.2d 1253, 1261 (Ariz. Ct. App.

1992) (citations omitted). To prove negligent misrepresentation, (1) there must be

incorrect information given for the guidance of others in business dealings; (2) the party

giving the false information intended that the other parties would rely on that information

and failed to exercise reasonable care in obtaining or communicating that information;

(3) the other parties were justified in relying on that incorrect information and actually

relied to their detriment and (4) such reliance caused their damages. See Taeger v.

Catholic Family & Cmty. Serv., 995 P.2d 721, 730 (Ariz. Ct. App. 1999). However, a

claim for negligent misrepresentation cannot be based only on representations of future

conduct because such a claim requires a misrepresentation or omission of a fact.

McAlister, 829 P.2d at 1261. “A promise of future conduct is not a statement of fact

capable of supporting a claim of negligent misrepresentation.” Id.

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7. Misrepresentation

The seventh Count of Plaintiff’s complaint is for misrepresentation. Doc. 1 at 13.6

Specifically, Plaintiff alleges that Defendants falsely told Plaintiff that she could afford the

terms of the note and that her income could support the payments. Id. Defendants move to

dismiss again arguing that they are not the loan originators, and that none of the obligations

under the note nor defenses to the note run to them as the enforcers of the note. For the

reasons stated above, the Court will not dismiss this Count on that basis.

8. Equitable Estoppel

The eighth Count of Plaintiff’s complaint is for equitable estoppel. Defendants have

not separately moved to dismiss this claim other than for the reasons discussed above. As

discussed above, in the context of this motion to dismiss, the Court will deny the motion.

The Court has presumed, for purposes of this Order only, that equitable estoppel is a cause

of action under Arizona law.

III. Conclusion

For the reasons stated above, the Court will deny the majority of the motion to

dismiss. Going forward, the Court will require the following from Defendants. Should

Defendants decide to file another dispositive motion in this case, they are ordered that they

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must first research Arizona law, and only cite cases applying the law of other jurisdictions

if they confirm in the motion that there are no cases applying Arizona law (including federal

cases applying Arizona law). Further, Defendants must cite and discuss on-point controlling

legal authority, like A.R.S. § 33-807(E), Hogan and Steinberger. Indeed, the Defendants’

failure to cite or discuss Steinberger is particularly troubling given that the Court required

them to brief it for purposes of the preliminary injunction hearing (Doc. 7 at 4-5), and the

Court’s ruling granting a preliminary injunction relied on it. Doc. 25. Thus, the Court knows

that Defendants are aware of it. 

IT IS ORDERED that the motion to dismiss (Doc. 13) is granted in part and denied

in part; it is granted at to Count 3 and denied as to all other Counts.

DATED this 8th day of October, 2014.

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