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Algaier v. CMG Mortgage, Inc.

United States District Court, E.D. Washington

August 13, 2014

CMG MORTGAGE, INC., a California Corporation doing business in Washington State; BANK OF AMERICA NA, a national bank doing business in Washington State; NORTHWEST TRUSTEE SERVICES, INC., a trustee doing business in Washington State; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC., a corporation doing business in Washington State; PACIFIC NORTHWEST TITLE COMPANY, a Trustee doing business in Washington state; FIRST AMERICAN TITLE COMPANY, successor in interest to Pacific Northwest Title Company, a Trustee, doing business in Washington state; DOES 1-100, inclusively and all persons unknown claiming any legal or equitable right, title, estate, lien or interest in the property described in the complaint adverse to Plaintiffs' title or any cloud on plaintiffs' title thereto, Defendants.


THOMAS O. RICE, District Judge.

BEFORE THE COURT is Defendants Bank of America, N.A., and Mortgage Electronic Registration Systems, Inc.'s Motion to Dismiss Plaintiffs' First Amended Complaint (ECF No. 23). This matter was submitted for consideration without oral argument. The Court has reviewed the briefing and the record and files herein, and is fully informed.


This case concerns a threatened nonjudicial foreclosure.


Plaintiffs purchased property at 4416 N. Simpson Road in Otis Orchards, Washington, on or about July 3, 2006. In 2009, Plaintiffs refinanced the property, a single family dwelling they used as their primary residence, with CMG Mortgage, Inc., a defendant in the instant lawsuit. The property was allegedly the security under a deed of trust, and the loan was evidenced by a promissory note the current owner of which Plaintiffs claim "is yet a mystery and unknown." Bank of America, N.A. ("BANA") is allegedly the loan servicer, though Plaintiff contests the ownership of the note and disputes all sums that may be alleged to be due under it as well as amounts paid that were allegedly improperly credited.

Plaintiffs made payments due on the loan through December 2011. They claim that they were being "over charged [sic] on the Note and loan and not receiving proper credits for sums paid." They also contend that the notice of default was recorded prematurely and illegally, and that the right to mediation "was not noticed at any time prior to recordation of the [notice of default] in violation of the Wash. Stats."

Fraud allegations. On December 5, 2011, Plaintiffs claim Anna Lopez, an agent of Defendant BANA, contacted Plaintiffs offering a novation of the existing promissory note, reducing monthly payments from $1, 872 to $1, 252. They claim that she told them:

If you stopped making payments under the Note for 3 consecutive months, they would be "guaranteed" to qualify for a new Note or modified term or novation beneficially altering the current payment to a lower amount under the existing Note. The new conditions would be implemented and terms made known immediately so no default would be declared or foreclosure brought into play.

They claim Lopez further told them on December 12, 2011, to "just stop paying from January, 2012 through March 2012, and you will qualify, guaranteed." Plaintiffs state that Lopez told them BANA would treat the December 2011 payment as "confirmation in lieu of any written contract in confirmation of this new modification plan."

In October 2013, Plaintiffs filed a lawsuit in Spokane County Superior Court, alleging 1) negligence; 2) fraud and deceit; 3) violation of the Washington Foreclosure Fairness Act ("FFA"); 4) equitable accounting; 5) breach of contract; 6) unjust enrichment and promissory estoppel; 7) quiet title; 8) declaratory relief; and 9) injunctive relief in the form of a temporary restraining order ("TRO") and preliminary injunction. The superior court entered a TRO on October 9, 2013, postponing the sale.[2]

In November 2013, Defendants removed the action to federal court, and later moved to dismiss. The Court granted in part and denied in part Defendants' motion, dismissing with leave to amend Plaintiffs' claims for negligence, Foreclosure Fairness Act violations, equitable accounting, breach of contract, unjust enrichment and quiet title. ECF No. 15 at 30. Only Plaintiff Algaier, timely filed an amended complaint, again alleging all nine of his original claims.[3] In the motion now before the Court, Defendants only move to dismiss Plaintiffs' claims for negligence, violation of the Foreclosure Fairness Act, for an equitable accounting, for breach of contract, and to quiet title.


Defendants BANA and MERS move to dismiss Plaintiffs' claims without leave to amend. They argue that (1) Plaintiffs' negligence claim remains defective because they have not alleged facts showing a legal duty; (2) Plaintiffs' FFA claim fails because they fail to allege facts indicating that Defendants have failed to participate in a mediation in good faith and naming MERS in the DOT does not invalidate Plaintiffs' loan obligations; (3) Plaintiffs have not demonstrated facts entitling them to an accounting; (4) Plaintiffs have inadequately plead breach of contract; and (5) Plaintiffs' quiet title claim still fails for lack of tender. ECF No. 23.

A. Motion to Dismiss Standard

A motion to dismiss for failure to state a claim tests the legal sufficiency of the plaintiff's claims. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). To withstand dismissal, a complaint must contain "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "Naked assertion[s], " "labels and conclusions, " or "formulaic recitation[s] of the elements of a cause of action will not do." Id. at 555, 557. "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). While a plaintiff need not establish a probability of success on the merits, he or she must demonstrate "more than a sheer possibility that a defendant has acted unlawfully." Id.

A complaint must also contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). This standard "does not require detailed factual allegations, but it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). In assessing whether Rule 8(a)(2) has been satisfied, a court must first identify the elements of the plaintiff's claim(s) and then determine whether those elements could be proven on the facts pled. The court should generally draw all reasonable inferences in the plaintiff's favor, see Sheppard v. David Evans and Assocs., 694 F.3d 1045, 1051 (9th Cir. 2012), but it need not accept "naked assertions devoid of further factual enhancement." Iqbal, 556 U.S. at 678 (internal quotations and citation omitted).

In ruling upon a motion to dismiss, a court must accept all factual allegations in the complaint as true and construe the pleadings in the light most favorable to the party opposing the motion. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The court may disregard allegations that are contradicted by matters properly subject to judicial notice or by exhibit. Id. The court may also disregard conclusory allegations and arguments which are not supported by reasonable deductions and inferences. Id.

1. Whether Plaintiffs' Negligence Claim Should Be Dismissed

Defendants argue that Plaintiffs' First Amended Complaint fails-as their original complaint did-to demonstrate any duty owed by Defendants; as such, the Plaintiffs' negligence claim should be dismissed. ECF No. 23 at 8.

As the Court stated in its previous Order on Defendants' motion to dismiss (ECF No. 15), "[t]he economic loss rule applies to hold parties to their contract remedies when a loss potentially implicates both tort and contract relief" Alejandre v. Bull, 159 Wash.2d 674, 681 (2007). "Tort law has traditionally redressed injuries properly classified as physical harm." Stuart v. Coldwell Banker Commercial Group, Inc., 109 Wash.2d 406, 420 (1987). It "is concerned with the obligations imposed by law rather than by bargain, " and carries out a "safety-insurance policy" that requires that products and property that are sold do not "unreasonably endanger the safety and health of the public." Id. at 421, 420. Contract law, on the other hand, carries out an "expectation-bargain protection policy" which "provides an appropriate set of rules when an individual bargains for a product of particular quality or for a particular use." Id. at 420-421. "Where economic losses occur, recovery is confined to contract to ensure that the allocation of risk and the determination of future liability is based on what the parties bargained for in the contract....'" Alejandre, 159 Wash.2d at 682-83.

If the economic loss rule applies, the party will be held to contract remedies regardless of how the plaintiff characterizes the claims. Washington law consistently follows these principles. The key inquiry is the nature of the loss and the manner in which it occurs, i.e., are the losses economic losses with economic losses distinguished from personal injury or injury to other property. If the claimed loss is an economic loss, and no exception applies to the economic loss rule, then the parties will be limited to contractual remedies.

Alejandre, 159 Wash.2d at 683-684.

Unlike in their first complaint, Plaintiffs allege more than economic loss; they allege negligent infliction of emotional distress as well. See ECF No. 20 at 8 ("knowing the foreseeable effect of such breach of duty, emotional distress and damage to credit standing and reputation to plaintiff was likely and in fact was incurred throughout this lender/borrower dispute. Plaintiffs alleged this breached duty has caused' financial injury to them AND inflicted physical harm by the foreseeable infliction of emotional distress upon both ...

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