Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_11-cv-08094/USCOURTS-azd-3_11-cv-08094-0/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1441 Petition for Removal- Petition to Quiet Title

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Merrill J Badger and Lane M Badger, a 

married couple, 

Plaintiffs, 

vs. 

Mortgage Electronic Registration Systems, 

Inc.; ReconTrust Company, NA; Bank of 

New York Mellon FKA The Bank of New 

York, as trustee, for the Certificateholders, 

CWABS, Inc., Asset-Backed Certificates 

Series 2007-8; BAC Home Loans 

Servicing, LP; Ann Gray, Notary and 

resident of Yavapai County; and Does 1-

100, 

Defendants. 

No. CV-11-08094-PCT-NVW 

ORDER 

Before the Court is a motion to dismiss (Doc. 6) filed by all Defendants save for 

Ann Gray, who has not yet been served. The moving Defendants filed their motion on 

June 23, 2011. This District’s local rules required Plaintiffs to respond by July 11, 2011. 

LRCiv 7.2(c); Fed. R. Civ. P. 6(d). Plaintiffs filed no response. On this basis alone, the 

Court could grant Defendants’ motion. LRCiv 7.2(i). However, as explained below, the 

Court will grant Defendants’ motion on its merits. 

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I. BACKGROUND 

In May 2007, Plaintiffs took out a $378,000 loan to buy a home in Sedona. Nonparty Home Capital Funding loaned this money through the typical deed of 

trust/promissory note arrangement. 

Plaintiffs claim that Home Capital intentionally inflated Plaintiffs’ income to 

approve Plaintiffs for an ultimately unaffordable loan. Plaintiffs also claim that, 

sometime after their loan closed, the original (i.e., paper) promissory note was scanned 

and then destroyed to permit easy transfers and securitization. Plaintiffs’ loan was then 

securitized, facilitated by Defendant Mortgage Electronic Registration Systems 

(“MERS”). 

At some unspecified date, the Badgers fell behind on their house payments. Then, 

on September 24, 2010: (1) Home Capital assigned its interest in the deed of trust and 

promissory note to Defendant Bank of New York Mellon (“New York Mellon”); (2) New 

York Mellon, through the loan servicer, Defendant BAC Home Loans Servicing 

(“BAC”), appointed Defendant ReconTrust as successor trustee; and (3) ReconTrust filed 

a notice of trustee’s sale. 

ReconTrust cancelled the trustee’s sale on October 18, 2010, but noticed a new 

trustee’s sale on December 29, 2010. The Badgers’ complaint contains nothing about 

what has happened since then, but the Badgers filed suit in Yavapai County District 

Court on May 6, 2011. The Badgers asserted five causes of action: (1) breach of contract 

against BAC, ReconTrust, New York Mellon, and non-party Home Capital, apparently 

on a loosely asserted theory that the Badgers’ loan documents do not authorize anyone to 

assign the note, securitize the debt, and so forth; (2) fraud against non-party Home 

Capital, based on the theory that Home Capital inflated the Badgers’ income to qualify 

them for a loan they ultimately could not afford;1

 (3) statutory consumer fraud against 

 1

 This cause of action also contains out-of-context allegations that Defendant Ann 

Gray notarized some unspecified statement known to be false, failed to keep a proper 

notary journal, and failed to discharge her duties appropriately, in violation of Arizona 

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BAC, New York Mellon, ReconTrust, and non-party Home Capital; (4) accounting 

against BAC, New York Mellon, and MERS, asking for all documentation regarding all 

aspects of the Badgers’ loan; and (5) quiet title against BAC and New York Mellon. All 

of the Badgers’ claims appear linked to the theory that the destruction of the original 

promissory note made it impossible to transfer or enforce it. Therefore, the Badgers 

conclude, no one has a right to foreclose on them, even if they have missed payments, 

because no one has a legitimate right to receive those payments. 

Defendants BAC, New York Mellon, and ReconTrust were served between 

May 10 and May 17, 2011. Defendants MERS and Ann Gray have not been served. 

Defendants MERS, BAC, New York Mellon, and ReconTrust — from this point on, 

“Defendants” — removed to this Court on June 16, 2011.2

 Defendants claim jurisdiction 

under 28 U.S.C. § 1332 because the amount in controversy exceeds $75,000 (given that 

the Badgers borrowed $378,000) and no Defendant is an Arizona resident — save for 

Ann Gray, whom Defendants claim was fraudulently joined. 

II. ANALYSIS 

A. Diversity Jurisdiction 

1. Legal Standard 

If a case filed in state court could have been filed in federal court, the defendant(s) 

in that case can sometimes remove it to federal court. 28 U.S.C. § 1441(b). “Could have 

been filed in federal court” is the most important prerequisite for removal, meaning that a 

federal court has original jurisdiction over the dispute. Original federal jurisdiction most 

commonly arises when the complaint raises an issue of federal law. 28 U.S.C. § 1331. 

However, if a lawsuit raises no issues of federal law (such as this one), district courts still 

 

statutes relating to notaries. 

2

 At least one Circuit has held that a not-yet-served party — such as MERS, in this 

case — can nonetheless remove once it receives some sort of notice of the case. 

See Delgado v. Shell Oil Co., 231 F.3d 165, 177 (5th Cir. 2000). 

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have original jurisdiction over civil actions between citizens of different states where the 

amount in controversy exceeds $75,000 — so-called “diversity jurisdiction.” 28 U.S.C. 

§ 1332(a)(1). 

State court cases that could have been filed in federal court as diversity 

jurisdiction cases can be removed to federal court under the following conditions. First, 

no defendant can be a resident of the forum state. 28 U.S.C. § 1441(b). Second, a 

defendant must file a notice of removal within thirty days of receiving the plaintiff’s 

complaint, and in any event, no later than one year after the action begins. Id. § 1446(b). 

Third, when a case involves multiple defendants, all defendants must consent to removal. 

Proctor v. Vishay Intertech. Inc., 584 F.3d 1208, 1225 (9th Cir. 2009). However, “the 

filing of a notice of removal [by one defendant] can be effective [as to all defendants] 

without individual consent documents on behalf of each defendant. One defendant’s 

timely removal notice containing an averment of the other defendants’ consent and 

signed by an attorney of record is sufficient.” Id. 

The removing party bears the burden of establishing federal subject matter 

jurisdiction. Emrich v. Touche Ross & Co., 846 F.2d 1190, 1195 (9th Cir. 1988). There 

is a strong presumption against removal jurisdiction. See Gaus v. Miles, Inc., 980 F.2d 

564, 566 (9th Cir. 1992). If at any time before final judgment it appears that the district 

court lacks jurisdiction over a case removed from state court, the case must be remanded. 

28 U.S.C. § 1447(c). 

2. Fraudulent Joinder of Ann Gray 

Ann Gray, allegedly an Arizona resident, would normally prevent Defendants 

from establishing diversity jurisdiction. However, 

one exception to the requirement of complete diversity is 

where a non-diverse defendant has been “fraudulently 

joined.” 

Fraudulent joinder . . . is a term of art. Joinder of a nondiverse defendant is deemed fraudulent, and the defendant’s 

presence in the lawsuit is ignored for purposes of determining diversity, if the plaintiff fails to state a cause of action against 

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a resident defendant, and the failure is obvious according to the settled rules of the state. 

Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001) (citations and 

internal quotation marks omitted). A district court can find fraudulent joinder “[o]n the 

basis of the complaint alone.” McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th 

Cir. 1987). The question in this case, then, is whether Ann Gray has been fraudulently 

joined. 

In this case, the complaint alone demonstrates that the Badgers have failed to state 

a cause of action against Ann Gray. First, the Badgers do not name Gray as the target of 

any cause of action. Second, the only factual accusations against Gray (buried in the 

fraud cause of action) are that she (1) knowingly notarized “a statement know[n] to be 

false,” (2) “failed to keep a journal in accordance with [a notary statute],” and (3) “failed 

to discharge fully and faithfully her duties as a notary.” (Doc. 1-1 at 18–19, ¶¶ 70–72.) 

These accusations amount to nothing. The Badgers do not identify the statement known 

to be false, nor do they provide any details to substantiate any other accusation. And the 

notary statutes which Gray purportedly violated have never been held to create a private 

cause of action for those aggrieved by the notary’s actions. Instead, the statute directs 

such persons to complain to the secretary of state, who refers the complaint to the 

attorney general for investigation. A.R.S. § 41-331(A). 

Given all this, it is “obvious according to the settled rules of the state” that “the 

plaintiff fails to state a cause of action against” Ann Gray. Morris, 236 F.3d at 1067. 

Accordingly, Gray will be dismissed as a party and need not be considered for purposes 

of diversity jurisdiction because she was fraudulently joined. Absent Gray, diversity 

jurisdiction is proper, and Defendants properly removed. 

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B. Defendants’ Motion to Dismiss 

1. Legal Standard 

a. Rule 8(a) 

To state a claim for relief under Fed. R. Civ. P. 8(a), a plaintiff must make “‘a 

short and plain statement of the claim showing that the pleader is entitled to relief,’ in 

order to ‘give the defendant 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) (citations 

omitted). This “short and plain statement” must also be “plausible on its face.” Ashcroft 

v. Iqbal, 129 S. Ct. 1937, 1949 (2009). A claim is plausible if it contains “[f]actual 

allegations [sufficient] to raise a right to relief above the speculative level,” Twombly, 

550 U.S. at 555, and to permit a reasonable inference that the defendant is liable for the 

conduct alleged, Iqbal, 129 S. Ct. at 1949. “Determining whether a complaint states a 

plausible claim for relief . . . [is] a context-specific task that requires the reviewing court 

to draw on its judicial experience and common sense.” Id. at 1950. 

A proper complaint needs no “formulaic recitation of the elements of a cause of 

action,” see Twombly, 550 U.S. at 555, but the plaintiff must at least “allege sufficient 

facts to state the elements of [the relevant] claim,” Johnson v. Riverside Healthcare Sys., 

LP, 534 F.3d 1116, 1122 (9th Cir. 2008). All of the plaintiff’s plausible factual 

allegations are accepted as true and the pleadings are construed in a light most favorable 

to the plaintiff. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). 

b. Rule 9(b) 

Under Fed. R. Civ. P. 9(b), “a plaintiff [alleging fraud] must set forth more than 

the neutral facts necessary to identify the transaction. The plaintiff must set forth what is 

false or misleading about a statement, and why it is false.” In re GlenFed, Inc. Sec. 

Litig., 42 F.3d 1541, 1548 (9th Cir. 1994) (en banc). The plaintiff can usually satisfy this 

requirement by alleging the identity of the person who made the misrepresentation; the 

time, place, content, and manner of the misrepresentation; the persons who heard, read, or 

otherwise received the misrepresentation; and the injury caused by reliance on the 

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misrepresentation. 2 James Wm. Moore, Moore’s Federal Practice § 9.03[1][b] (3d ed. 

2010). 

Specifically with regard to allegations of identity, “there is no absolute 

requirement that where several defendants are sued in connection with an alleged 

fraudulent scheme, the complaint must identify false statements made by each and every 

defendant.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007). However, 

Rule 9(b) does not allow a complaint to merely lump multiple defendants together but requires plaintiffs to differentiate 

their allegations when suing more than one defendant and 

inform each defendant separately of the allegations 

surrounding his alleged participation in the fraud. . . . [A] 

plaintiff must, at a minimum, identify the role of each defendant in the alleged fraudulent scheme. 

Id. at 764–65 (alterations incorporated; citations and internal quotation marks omitted). 

2. The Badgers’ First Cause of Action: Breach of Contract 

The Badgers claim that BAC, ReconTrust, New York Mellon, and non-party 

Home Capital breached the promissory note and deed of trust. The Badgers admit that 

their contract was with Home Capital, but that BAC and New York Mellon “have 

inserted themselves” into those instruments “by claiming to be, in [New York Mellon]’s 

case, the Beneficiary under the Deed of Trust, and in BAC’s case, some kind of agent for 

an undisclosed true holder of the Note.” (Doc. 1-1 at 9, ¶¶ 49–50.) 

The Badgers do not clearly explain how the note and trust deed have been 

breached. To the extent they argue that BAC and New York Mellon acted without 

authority (because the cannot exercise rights under the now-destroyed promissory note), 

their argument fails. This “show me the note” theory states no claim, see Mansour v. 

Cal-Western Reconveyance Corp., 618 F. Supp. 2d 1178, 1181 (D. Ariz. 2009), and it is 

difficult to see how it satisfies the elements of a breach of contract claim in any event. 

The Badgers also vaguely accuse BAC of misapplying their house payments. 

Instead of applying such payments to principal and interest, the Badgers believe BAC has 

been applying them in “unknown ways” that “protect a revenue stream for investors.” 

(Doc. 1-1 at 15, ¶ 52; see also id. ¶ 60.) As alleged, this claim is not plausible on its face. 

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The Badgers do not explain how they came to believe that BAC has misapplied their 

payments, nor the contract breached by such alleged misapplication. Accordingly, this 

cause of action fails. 

3. The Badgers’ Second Cause of Action: Fraud 

The Badgers allege their second cause of action against Home Capital, a nonparty. A cause of action against a non-party is effectively no cause of action at all. It 

therefore fails and will be dismissed. 

To the extent this cause of action was somehow directed at Defendants, it does not 

give any defendant fair notice of the alleged wrongdoing, in violation of Rule 8(a), much 

less the specifics required by Rule 9(b). The Badgers’ fraud cause of action will be 

alternatively dismissed on these grounds. 

4. The Badgers’ Third Cause of Action: Statutory Consumer 

Fraud 

This claim is asserted against BAC, New York Mellon, ReconTrust, and Home 

Capital. Like the Badgers’ common law fraud claim, this cause of action does not give 

any defendant fair notice of the alleged wrongdoing, in violation of Rules 8(a) and 9(b). 

This cause of action will accordingly be dismissed. 

5. The Badgers’ Fourth Cause of Action: Accounting 

The Badgers ask for an “accounting,” which they interpret as a requirement for 

BAC, New York Mellon, and MERS to turn over all information related to their loan. 

Actions for an accounting are usually reserved for situations in which one party entrusts 

property to another in a fiduciary relationship. Dooley v. O’Brien, 226 Ariz. 149, ¶ 21, 

244 P.3d 586, 591–92 (Ct. App. 2010). Absent a special agreement, a debtor-creditor 

relationship in Arizona is not a fiduciary relationship. See McAlister v. Citibank, 171 

Ariz. 207, 212, 829 P.2d 1253, 1258 (Ct. App. 1992) (bank owed no fiduciary duty to 

borrower); cf. Stewart v. Phoenix Nat’l Bank, 49 Ariz. 34, 44, 64 P.2d 101, 106 (1937) 

(special relationship between debtor and creditor existed only because bank officers and 

directors had been debtor’s financial advisors for 23 years). “There is no statutory 

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requirement that the [homeowner/borrower] be supplied with a complete accounting,” 

Kelly v. NationsBanc Mortg. Corp., 199 Ariz. 284, 286–87, 17 P.3d 790, 792–93 (Ct. 

App. 2000), nor is there any Arizona authority otherwise establishing anything like a 

right to an accounting in these circumstances. Therefore, it is not clear that the Badgers 

are entitled to an accounting. 

However, the Badgers allege that they 

are informed and believe that their Note may have already been paid by a third party either through a government program or through private mortgage or other counter party insurance. As a result, such information is necessary to determine if the security Deed of Trust was a valid lien 

against the Property and whether or not the pending trustee’s sale is valid . . . . 

(Doc. 1-1 at 22, ¶ 92.) If some third party has, in fact, already paid off the Badgers’ loan, 

the Badgers would have a valid defense to foreclosure, and such a defense is appropriate 

to assert in an action (such as this one) intended to halt the foreclosure. Unfortunately, 

the Badgers’ allegation is not “plausible on its face” and therefore fails the requirements 

of Rule 8(a). In this Court’s judicial experience, and according to common sense, see 

Iqbal, 129 S. Ct. at 1950, third parties, governments, and insurers rarely pay off a private 

borrower’s mortgage debt gratuitously. Accordingly, the Badgers’ accounting cause of 

action fails to state a claim. 

6. The Badgers’ Fifth Cause of Action: Quiet Title 

This Court has no power to quiet title in these circumstances. If the Badgers want 

to quiet title in their home, they must pay off the loan they used to buy the home. Eason 

v. IndyMac Bank, FSB, CV09-1423-PHX-JAT, 2010 WL 1962309, at *2 (D. Ariz. May 

14, 2010); Farrell v. West, 57 Ariz. 490, 491, 114 P.2d 910, 911 (1941). Their 

Complaint contains no allegation that they are prepared to pay off the loan. The Court 

will therefore dismiss the quiet title cause of action. 

C. Leave to Amend 

Although leave to amend should be freely given “when justice so requires,” Fed. 

R. Civ. P. 15(a)(2), the Badgers do not merit leave to amend in this instance. Leave to 

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amend need not be granted where there exist circumstances “such as undue delay, bad 

faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by 

amendments previously allowed, undue prejudice to the opposing party by virtue of 

allowance of the amendment, [and] futility of amendment.” Foman v. Davis, 371 U.S. 

178, 182 (1962). Here, the Badgers’ refusal to defend against Defendants’ motion to 

dismiss displays a dilatory motive, and is effectively the same as failing to cure 

deficiencies in a previously dismissed complaint. Accordingly, the Badgers will not 

receive leave to amend. 

IT IS THEREFORE ORDERED that unserved Defendant Ann Gray is 

DISMISSED as a party, having been fraudulently joined. 

IT IS FURTHER ORDERED that Defendants’ Motion to Dismiss (Doc. 6) is 

GRANTED. Plaintiffs’ complaint is DISMISSED with prejudice. 

IT IS FURTHER ORDERED that the Clerk enter judgment in favor of Defendants 

against Plaintiffs, and that Plaintiffs take nothing. The Clerk shall terminate this case. 

Dated this 27th day of July, 2011. 

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