FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JOEL JOHNSON, a single person,

Plaintiff-Appellant,

v.

FEDERAL HOME LOAN MORTGAGE

CORPORATION, a foreign

corporation,

Defendant-Appellee.

No. 13-35596

D.C. No.

2:12-cv-01712-

TSZ

OPINION

Appeal from the United States District Court

for the Western District of Washington

Thomas S. Zilly, Senior District Judge, Presiding

Argued and Submitted

May 8, 2015—Seattle, Washington

Filed July 14, 2015

Before: J. Clifford Wallace, Andrew J. Kleinfeld,

and Ronald M. Gould, Circuit Judges.

Per Curiam Opinion
2 JOHNSON V. FHLMC

SUMMARY*

Mortgages

The panel affirmed the district court’s Fed. R. Civ. P.

12(b)(6) dismissal of a homeowner’s claims for breach of

contract and breach of fiduciary duty brought against the

Federal Home Loan Mortgage Corporation (“Freddie Mac”),

arising after the homeowner’s home was foreclosed.

Freddie Mac had purchased the homeowner’s mortgage

from Taylor, Bean & Whitaker Mortgage Co., the loan

originator. Taylor Bean, which had continued to service the

loan after selling it to Freddie Mac, failed to pay the

insurance premium from an escrow account and caused the

homeowner’s insurance to be cancelled.

The panel held that the homeowner failed to allege facts

that would establish that Freddie Mac had a contractual duty

to service the loan where Freddie Mac never agreed to

assume the servicing obligations when it purchased the loan

from Taylor Bean, the Deed of Trust provided that the

obligations would remain with Taylor Bean, and Washington

law did not prohibit the arrangement. The panel also held

that Freddie Mac did not assume the fiduciary duty of an

escrowee because under the Deed of Trust the duty to hold

money for the insurance premiums in escrow remained with

the loan servicer, Taylor Bean.

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
JOHNSON V. FHLMC 3

COUNSEL

Joel B. Hanson (argued), Seattle, Washington, for PlaintiffAppellant.

Steven K. Linkon (argued), Joshua S. Schaer, RCO LEGAL,

P.S., Bellevue, Washington, for Defendant-Appellee.

OPINION

Joel Johnson, a homeowner, appeals from a 12(b)(6)

dismissal of his action against the Federal Home Loan

Mortgage Corporation, doing business as Freddie Mac, for

breach of contract and breach of fiduciary duty. Freddie Mac

had purchased Johnson’s mortgage from Taylor, Bean &

Whitaker Mortgage Co. (“Taylor Bean”), the loan originator,

on a secondary market. Taylor Bean, which had continued to

service the loan after selling it to Freddie Mac, failed to pay

the insurance premium from an escrow account and caused

Johnson’s insurance to be cancelled. The district court

dismissed the complaint against Freddie Mac because it

concluded that Freddie Mac did not assume any liability for

Taylor Bean’s conduct when it purchased the loan, and in the

alternative, even if it did, the Merrill doctrine precludes

liability. Because Johnson expressly agreed in the mortgage

contract that a subsequent purchaser of the loan would not

assume any servicing obligations, we affirm without

addressing the applicability of the Merrill doctrine.

FACTS

In 2008, Johnson refinanced his home loan with Taylor

Bean, secured by a Deed of Trust. His contract, the Deed of
4 JOHNSON V. FHLMC

Trust, named Johnson as “Borrower” and Taylor Bean as

“Lender.” The contract required Johnson to have a

homeowner’s insurance policy, which he purchased from

Safeco Insurance Co. The contract required him to pay the

insurance premium to an escrow account, from which Taylor

Bean would make the payments when they became due.

Section 20 of the Deed of Trust, “Sale of Note; Change of

Loan Servicer; Notice of Grievance,” provided that:

The Note or a partial interest in the Note

(together with this Security Instrument) can

be sold one or more times without prior notice

to Borrower. A sale might result in a change

in the entity (known as the “Loan Servicer”)

that collects Periodic Payments due under the

Note and this Security Instrument and

performs other mortgage loan servicing

obligations under the Note, this Security

Instrument, and Applicable Law. . . . If the

Note is sold and thereafter the Loan is

serviced by a Loan Servicer other than the

purchaser of the Note, the mortgage loan

servicing obligations to Borrower will remain

with the Loan Servicer or be transferred to a

successor Loan Servicer and are not assumed

by the Note purchaser unless otherwise

provided by the Note purchaser. (Emphasis

added.)

Shortly after originating the loan, Taylor Bean sold the

note and the Deed of Trust to Freddie Mac. Freddie Mac

contracted with Taylor Bean for Taylor Bean to continue to

service the loan. In October 2008, a batch of checks from
JOHNSON V. FHLMC 5

Taylor Bean to Safeco bounced, and Johnson’s insurance

premium was not paid on time. Safeco cancelled Johnson’s

insurance due to this nonpayment. Taylor Bean eventually

filed for bankruptcy, and Freddie Mac hired Central Loan

Administration & Reporting to replace Taylor Bean as loan

servicer.

In January 2009, Johnson’s home was destroyed by an

accidental fire. Safeco denied Johnson’s insurance claim

because the policy had been cancelled before the fire. Taylor

Bean’s lender-placed insurance policy with Mount Vernon

Fire Insurance Co. had become effective when the coverage

by Safeco was cancelled. The premiums were higher than

those of the cancelled Safeco policy. Safeco and Mount

Vernon eventually contributed to pay Johnson the insurance

proceeds of $186,000.

Meanwhile, Johnson’s monthly mortgage payments

increased from $1,500 to $2,300 to cover the higher

premiums, and Johnson’s living expenses increased because

his home had been destroyed. Beginning March 2010,

Johnson failed to make his monthly payments on his note. 

Because Johnson was not current on his loan, he had to give

the fire insurance proceeds to the loan servicer, Central Loan. 

In July 2011, Central Loan sent Johnson a letter accepting the

insurance proceeds as a final satisfaction of the debt. Next

month, Central Loan sent Johnson a notice of foreclosure. 

According to Johnson, the practical effect of Taylor Bean’s

failure to apply Johnson’s monthly payments to Safeco was

that he lost his home.

In September 2011, Johnson filed a complaint against

Freddie Mac in Washington state superior court, alleging

breach of contract and breach of fiduciary duty and other
6 JOHNSON V. FHLMC

related claims. Freddie Mac removed the case to the federal

district court under 12 U.S.C. § 1452(f)(3), which allows a

removal of an action against Freddie Mac “at any time before

the trial.” The district court granted Freddie Mac’s motion to

dismiss under Rule 12(b)(6). Johnson appeals.

ANALYSIS

We review the 12(b)(6) dismissal de novo. Am. Bankers

Mortg. Corp. v. Fed. Home Loan Mortg. Corp., 75 F.3d 1401,

1406 (9th Cir. 1996). Construing the complaint in the light

most favorable to the plaintiff, we determine whether it

alleges enough facts “to state a claim to relief that is plausible

on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544,

570 (2007). “A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw

the reasonable inference that the defendant is liable for the

misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009).

On appeal, Johnson challenges the district court’s

dismissal of the breach of contract and breach of fiduciary

duty claims.

A. Breach of Contract

Johnson failed to allege facts that, if true, would establish

that Freddie Mac had a contractual duty to service the loan. 

In his complaint, Johnson states that “Freddie Mac assumed

all [Taylor Bean’s] rights and obligations contained in the

Deed of Trust” when it purchased the loan from Taylor Bean

on the secondary market. But the Deed of Trust expressly

disavows any assumption of servicing obligations by a

subsequent purchaser of the loan, and Freddie Mac never
JOHNSON V. FHLMC 7

expressly assumed any such obligations. Although as a

general rule we may not consider any material beyond the

pleadings in ruling on a Rule 12(b)(6) motion, we may

consider extrinsic evidence not attached to the complaint if

the document’s authenticity is not contested and the

plaintiff’s complaint necessarily relies on it. Lee v. City of

Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). We consider

the Deed of Trust because its authenticity is not disputed and

because Johnson’s complaint necessarily relies upon it as the

source of Freddie Mac’s alleged duty to service Johnson’s

loan.

Though the complaint averred that “Freddie Mac assumed

all [Taylor Bean’s] rights and obligations contained in the

Deed of Trust,” this was a legal conclusion, not a fact, and

was belied by Section 20 of the Deed of Trust. “[T]he tenet

that a court must accept as true all of the allegations

contained in a complaint is inapplicable to legal conclusions.” 

Iqbal, 556 U.S. at 678. “A pleading that offers ‘labels and

conclusions’ or ‘a formulaic recitation of the elements of a

cause of action will not do.’” Id. (quoting Twombly, 550 U.S.

at 555). Moreover, “we need not accept as true allegations

contradicting documents that are referenced in the

complaint.” Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588

(9th Cir. 2008).

In Section 20 of the Deed of Trust, Johnson and Taylor

Bean agreed that “[i]f the Note is sold and thereafter the Loan

is serviced by a Loan Servicer other than the purchaser of the

Note, the mortgage loan servicing obligations to Borrower

will remain with the Loan Servicer . . . and are not assumed

by the Note purchaser” (emphasis added). Therefore, when

Freddie Mac purchased Johnson’s loan from Taylor Bean, the
8 JOHNSON V. FHLMC

servicing obligations remained with Taylor Bean and Freddie

Mac did not assume them.

Johnson argued that under Washington law, which

governs the contractual relationship in this case, an assignee

assumes all of the assignor’s obligations under a real estate

mortgage, so upon purchasing the note, Freddie Mac

necessarily assumed Taylor Bean’s duty to pay the fire

insurance premiums. He relies on Paullus v. Fowler, in

which the Washington Supreme Court stated that “[a]n

assignee of a contract stands in the shoes of his assignor.” 

367 P.2d 130, 135 (Wash. 1961). True, but under

Washington law, “an assignee in an executory contract is not

liable on the underlying obligations absent an express

assumption of those obligations.” Lewis v. Boehm, 947 P.2d

1265, 1270 (Wash. Ct. App. 1997). Another case that

Johnson relies on, Bain v. Metropolitan Mortgage Group,

Inc., addresses only whether a contractually agreed-upon

beneficiary of a mortgage can foreclose the mortgage without

actually holding the note. 285 P.3d 34, 41–42 (Wash. 2012)

(en banc). Bain does not bar splitting the loan servicing

duties from the right to receive the payments on the note.

Freddie Mac never agreed to assume the servicing

obligations when it purchased Johnson’s loan from Taylor

Bean, and Section 20 of the Deed of Trust provided that the

obligations would remain with Taylor Bean. Washington law

did not prohibit this arrangement. This arrangement is typical

for such home loans. Freddie Mac buys the notes and

security instruments, bundles them into securities, and sells

the securities representing the market value of the secured

home loans. It provides the money, not the day-to-day

servicing tasks, for home mortgage financing. “Mortgages

are only purchased from, and serviced by, approved
JOHNSON V. FHLMC 9

seller/servicers under the terms of contracts, the most

important document of which is the Sellers’ & Servicers’

Guide, a two-volume looseleaf publication.” Am. Bankers

Mortg. Corp. v. Fed. Home Loan Mortg. Corp., 75 F.3d 1401,

1404 (9th Cir. 1996). Under the Guide, which “sets forth

standards and requirements with which a seller/servicer must

comply in order to sell mortgages to, and service mortgages

for, Freddie Mac,” id., it is the seller, not Freddie Mac, who

“must service all Mortgages that the [seller] has sold to

Freddie Mac.” 1 Freddie Mac Single Family/Single-Family

Seller/Servicer Guide, § 1.2(a)-3.

B. Breach of Fiduciary Duty

Johnson also argues that because the Deed of Trust

required his monthly payments to be put in escrow to pay the

fire insurance premiums and Freddie Mac bought the note

and the Deed of Trust, it assumed the fiduciary duty of an

escrowee. This argument fails as well because of Section 20

of the Deed of Trust. The duty to hold the money for the

insurance premiums in escrow remained with the loan

servicer, Taylor Bean.

CONCLUSION

The district court correctlydismissed Johnson’s breach of

contract and breach of fiduciary duty claims under Rule

12(b)(6).

AFFIRMED.