Opinion ID: 613266
Heading Depth: 3
Heading Rank: 1

Heading: Conspiracy to commit fraud through the MERS system

Text: On appeal, the plaintiffs contend that they sufficiently alleged a conspiracy among MERS members to commit fraud. In count seven of the First Amended Complaint, they allege that MERS members conspired to commit fraud by using MERS as a sham beneficiary, promoting and facilitating predatory lending practices through the use of MERS, and making it impossible for borrowers or regulators to track the changes in lenders. Under Arizona law, a claim of civil conspiracy must be based on an underlying tort, such as fraud in this instance. Baker ex rel. Hall Brake Supply, Inc. v. Stewart Title & Trust of Phoenix, Inc., 197 Ariz. 535, 5 P.3d 249, 256 (Ariz. Ct.App.2000). To show fraud, a plaintiff must identify (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) the speaker's intent that it be acted upon by the recipient in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) the hearer's reliance on its truth; (8) the right to rely on it; [and] (9) his consequent and proximate injury. Echols v. Beauty Built Homes, Inc., 132 Ariz. 498, 647 P.2d 629, 631 (1982). The plaintiffs' allegations fail to address several of these necessary elements for a fraud claim. The plaintiffs have not identified any representations made to them about the MERS system and its role in their home loans that were false and material. None of their allegations indicate that the plaintiffs were misinformed about MERS's role as a beneficiary, or the possibility that their loans would be resold and tracked through the MERS system. Similarly, the plaintiffs have not alleged that they relied on any misrepresentations about MERS in deciding to enter into their home loans, or that they would not have entered into the loans if they had more information about how MERS worked. Finally, the plaintiffs have failed to show that the designation of MERS as a beneficiary caused them any injury by, for example, affecting the terms of their loans, their ability to repay the loans, or their obligations as borrowers. Although the plaintiffs allege that they were deprived of the right to attempt to modify their toxic loans, as the true identity of the actual beneficial owner was intentionally hidden from them, they do not support this bare assertion with any explanation as to how the operation of the MERS system actually stymied their efforts to identify and contact the relevant party to modify their loans. Thus, the plaintiffs fail to state a claim for conspiracy to commit fraud through the MERS system, and dismissal of the claim was proper. While the plaintiffs' allegations alone fail to raise a plausible fraud claim, we also note that their claim is undercut by the terms in Cervantes's standard deed of trust, which describe MERS's role in the home loan. [2] For example, the plaintiffs allege they were defrauded because MERS is a sham beneficiary without a financial interest in the loan, yet the disclosures in the deed indicate that MERS is acting solely as a nominee for Lender and Lender's successors and assigns and holds only legal title to the interest granted by Borrower in this Security Instrument. Further, while the plaintiffs indicate that MERS was used to hide who owned the loan, the deed states that the loan or a partial interest in it can be sold one or more times without prior notice to Borrower, but that [i]f there is a change in Loan Servicer, Borrower will be given written notice of the change as required by consumer protection laws. Finally, the deed indicates that MERS has the right to foreclose and sell the property. By signing the deeds of trust, the plaintiffs agreed to the terms and were on notice of the contents. See Kenly v. Miracle Props., 412 F.Supp. 1072, 1075 (D.Ariz. 1976) (explaining that a deed of trust is an essentially private contractual arrangement). 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. Moreover, amendment would be futile. In their proposed Second Amended Complaint, the plaintiffs seek to add further detail concerning how MERS works in general and how it has facilitated the trade in mortgage-backed securities. But none of the new allegations cure the First Amended Complaint's deficiencies: the plaintiffs have not shown that they received material misrepresentations about MERS that they detrimentally relied upon. Accordingly, we affirm the district court's dismissal, without leave to amend, of the claim for conspiracy to commit fraud through the MERS system.