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Integrity Trust v. Capital One, N.A.

United States District Court, W.D. Washington, Seattle

January 20, 2017

INTEGRITY TRUST, by its trustee, Jon Cuddeback, Plaintiff,
CAPITAL ONE, N.A., et al., Defendants.


          A Robert S. Lasnik United States District Judge.

         This matter comes before the Court on a motion to dismiss (Dkt. #15) filed by defendant Mortgage Electronic Registration Systems, Inc. (“MERS”) and on a motion for summary judgment (Dkt. # 15) filed by defendant Capital One, N.A. (“Capital One”).[1] Having reviewed the memoranda, declarations, and exhibits submitted by the parties, the Court finds as follows:


         This is the third lawsuit involving the 2012 foreclosure of the residential property located at 2222 West Lake Sammamish Parkway NE, in Redmond, Washington (“the Property”). Plaintiff is a self-settled trust established by Gary and Diane Alexander (collectively, “the Alexanders”) for the benefit of their adult sons. (Dkt. #1), ¶ 2; (Dkt. #1), Ex. A-3. In 2007, the Alexanders borrowed three million dollars from Chevy Chase Bank, F.S.B. (“Chevy Chase”) through an Adjustable Rate Note (“Note”). The loan was to be used to finance initial construction of the Alexanders' home. In addition to the Note, the Alexanders signed a notarized Deed of Trust (DOT), authorizing a trustee to sell the Property if the Alexanders defaulted on their obligations under the Note.

         In the first quarter of 2009, Capital One merged with Chevy Chase. Several months later, in October 2009, the Alexanders stopped making payments on the Note. For the next thirty-two months, the Alexanders continued to live on the Property without taking any action to cure the default. On July 27, 2012, the Alexanders received notice that the Property would be sold. At the trustee's sale on November 30, 2012, Capital One bought the Property for $2, 491, 148.85. In spite of the foreclosure and trustee's sale, the Alexanders continued living on the Property without making any rent payments or payments on the Note, which was in default in excess of $561, 000 at the time of the trustee's sale.

         In order to delay their impending eviction, on November 21, 2012, the Alexanders filed suit pro se in Washington superior court against Capital One, MERS, and a number of other defendants. Alexander v. Capital One, et al., (“Alexander I”), No. 12-2-37609-3 (Aug. 21, 2013). The Alexanders also engaged in a number of other delay tactics while Alexander I was pending, such as filing for bankruptcy the day before a summary judgment hearing in order to trigger the automatic stay provision available to parties engaged in bankruptcy proceedings. Alexander v. Capital One, et al, (“Alexander II”), No. 13-2-27723-9, slip op. ¶ 15(a) (June 17, 2014). On July 30, 2013 the Alexanders retained an attorney and submitted a second complaint, Alexander II, voluntarily withdrawing the previous action, which was dismissed on August 21, 2013. The Alexander II complaint, filed against current defendants Capital One and MERS, among others, alleged the following causes of action: Wrongful Foreclosure, Fraud, Slander of Title, Negligence, violation of the Consumer Protection Act (CPA), Criminal Profiteering, and Declaratory Judgment.

         On summary judgment, the Alexander II court dismissed all claims against Capital One and MERS. The court also granted the defendants attorneys' fees and costs pursuant to a provision of the DOT and “for the baseless filing of the Complaint in violation of [Washington Civil Rule 11].” No. 13-2-27723-9, slip op. at 7. The court concluded that “[t]he entirety of [P]laintiffs' lawsuit against defendants was frivolous and advanced without reasonable cause because it could not be supported by any rational argument on the law or facts….” No. 13-2-27723-9, slip op. ¶¶ 26-27. Attorneys' fees and costs were awarded in the amount of $79, 526.63. Id. ¶ 28. The trial court's decision was affirmed on appeal. Alexander v. Capital One, Nos. 71952-1-I, 72350-2-I, 2015 WL 7736383 (Wash.Ct.App. Nov. 30, 2015).

         The instant lawsuit closely resembles the previous two, with Integrity Trust now substituted as Plaintiff. The operative facts are the same, but there are three new causes of action in addition to the claims previously brought in state court. Plaintiff now brings a claim to effectuate rescission under the Truth in Lending Act (TILA), as well as claims that Defendants violated the Fair Debt Collection Act (FDCA) and the CPA.

         In support of its TILA claim, Plaintiff attached a document to its Complaint entitled “Notice of Revocation of Power of Attorney” that was not cited in the earlier actions. (Dkt. #1, Ex. B). The notice-signed by Gary Alexander-is fairly incomprehensible and makes no reference to TILA. Instead, the notice purports to “revoke, rescind and terminate all my signatures relating to any/all said deeds, notes, and agreement's from their inception…and hereby revoke, terminate and rescind all Powers of Attorney…previously assigned by me…as such pertains to any property, real or personal, Promissory Note/Loan/Deed of Trust….” Id. at 5. Plaintiff claims that the Notice is a proper notice of rescission under section 1635 of the Truth in Lending Act. (Dkt. #1), ¶¶ 21-22; 15 U.S.C. § 1635.

         MERS now moves to dismiss Plaintiff's claims for lack of proper service and failure to allege sufficient facts to support a claim against MERS. Capital One moves for summary judgment, arguing that Plaintiff's claims are barred by the doctrine of claim preclusion; that the TILA rescission was invalid; that Plaintiff's FDCA claim fails because Capital One is not a “debt collector” under the terms of the Act and a nonjudicial foreclosure proceeding is not a collection of a debt; that Plaintiff's wrongful foreclosure claim is barred by the statute of limitations; that Plaintiff's CPA claim is not supported by evidence of an unfair or deceptive act or practice by Capital One; and that there is no justiciable controversy to sustain Plaintiff's Declaratory Judgment claim. In turn, Plaintiff argues that claim preclusion does not apply since this is the first action by Integrity Trust against these defendants; that the case is not ripe for dispositive motion practice; that material facts are in dispute; and that Defendants are time-barred from challenging the alleged TILA rescission. Because the Court finds that Plaintiff has not served MERS and is barred from bringing its present claims by the doctrine of claim preclusion, the Court does not address the parties' other arguments.


         A. MERS's Motion to Dismiss

         Defendant MERS moves to dismiss for lack of service and failure to state a claim against MERS. (Dkt. #15), at 2. If Plaintiff has not effectuated proper service as required under Federal Rule of Civil Procedure 4, the Court has no jurisdiction and may not consider the parties' remaining arguments. See Carter v. Champion Int'l, 911 F.2d 737 (9th Cir. 1990) (“Defendants must be served in accordance with Rule 4(d) of the Federal Rules of Civil Procedure or there is no personal jurisdiction.”). The Court therefore addresses the service of process argument first.

         “Once service is challenged, plaintiffs bear the burden of establishing that service was valid under Rule 4.” Brockmeyer v. May, 383 F.3d 798, 801 (9th Cir. 2004). Rule 4 requires the defendant to be served within 90 days after the complaint is filed, or the court “must dismiss the action without prejudice against that defendant or order that service be made within a specified time.” Fed.R.Civ.P. 4(m). In the Ninth Circuit, Rule 4 may be liberally construed so that failure to comply does not require dismissal of the complaint if: “(a) the party that had to be served personally received actual notice, (b) the defendant would suffer no prejudice from the defect in service, (c) there is a justifiable excuse for the failure to serve properly, and (d) the plaintiff would be severely prejudiced if his complaint were dismissed.” Borz ...

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