Mortgage Electronic Registration Systems v. Robinson

Citations: 45 F. Supp. 3d 1207; 2014 U.S. Dist. LEXIS 132464; 2014 WL 4637497Docket: No. CY 13-7142 PSG (ASx)

Court: District Court, C.D. California; September 16, 2014; Federal District Court

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Defendants’ motion for judgment on the pleadings under Rule 12(c) was denied by the Court, which decided the matter without oral argument. The background includes a loan obtained in February 2005 by Defendants Daniel and Darla Robinson for property in Northridge, California, secured by a deed of trust naming United Pacific Mortgage as the lender and Mortgage Electronic Registration Systems, Inc. (MERS) as the nominee. The deed stipulated that MERS, acting solely for the lender, was the beneficiary and held legal title, with the authority to act on behalf of the lender, including foreclosure rights.

In January 2012, Defendants initiated a quiet title action in the Los Angeles County Superior Court, recording a Notice of Lis Pendens. They claimed that the loan note had been assigned to U.S. Bank National Association but only named United Pacific Mortgage and unspecified entities as defendants, not MERS. After United Pacific Mortgage failed to respond, Defendants obtained a default judgment, expunging the deed of trust and recording the judgment with the County Recorder.

On September 26, 2013, MERS and MERSCORP Holdings, Inc. (Plaintiffs) filed the current action seeking to invalidate the Defendants’ quiet title judgment. The First Amended Complaint asserts four claims: (1) the judgment is void for not naming MERS as a defendant, violating California's statutes; (2) a declaratory judgment that the quiet title action violated their due process rights; (3) cancellation of the Notice of Lis Pendens and quiet title judgment; and (4) slander of title.

On May 9, 2014, the Court denied Defendants’ motion to dismiss the First Amended Complaint due to their failure to meet the Court's meet-and-confer requirements. Defendants subsequently filed a motion for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure. A Rule 12(c) motion is evaluated similarly to a Rule 12(b)(6) motion to dismiss, where all material allegations of the non-moving party are accepted as true, and those of the moving party that are denied are presumed false. A Rule 12(c) motion can be granted if the moving party shows that no material issue of fact remains and they are entitled to judgment as a matter of law. Complaints must contain sufficient factual allegations to support plausible claims, avoiding mere labels or formulaic recitations.

The Court focused on whether Defendants were required to name MERS as a defendant in the quiet title action based on California law. After additional briefing, the Court concluded that Defendants were indeed required to name MERS, reversing its earlier analysis. The purpose of a quiet title action is to establish title against adverse claims to property and resolve conflicting claims to that property, thereby determining the interests or estates entitled to each party involved.

California law mandates that a quiet title plaintiff must name as defendants individuals with adverse claims to the title in question, as defined by California Civil Procedure Code § 762.010. The term "claim" encompasses any legal or equitable right, title, estate, lien, or interest in property. Plaintiffs may also include "all persons unknown" with adverse claims, but they must name those whose claims are of record or known to them (Cal. Civ. Proc. Code § 762.060). In this case, the Deed of Trust was recorded and known to the defendants, identifying MERS as the beneficiary and granting it rights, including foreclosure. Courts have consistently recognized that similar deeds authorize MERS to foreclose and sell properties, establishing that MERS made an adverse claim against the defendants' title. The deed effectively creates a lien on the property, which the defendants themselves argue clouds their title. Consequently, the court concludes that MERS held an adverse claim that required it to be named as a defendant in the quiet title action. The defendants argue against this, contending that MERS's status as a "beneficiary" is a mere fiction and that MERS holds only nominal beneficial status, despite the explicit provisions in the Deed of Trust.

MERS's ability to be named as a defendant in the quiet title action is contingent on whether it had an adverse claim regarding the property, not solely based on its status as a 'beneficiary' under the Deed of Trust. The court concludes that MERS did possess such a claim, which was either recorded or known to the defendants. Additionally, the case Fontenot v. Wells Fargo Bank supports MERS's designation as a beneficiary under a similar deed of trust, affirming that MERS can act as both a beneficiary and an agent for the lender without ambiguity. The defendants' reliance on another case, Gomes, is misplaced since it did not address MERS's status as a beneficiary. The purpose of the quiet title action is to resolve conflicting claims, so it is illogical for the defendants to argue that their dispute over MERS's interests should exempt them from naming MERS in the action. Therefore, the court rejects the defendants' claim that they are entitled to judgment as a matter of law based on this argument. 

Regarding subject matter jurisdiction, the defendants assert that the court lacks jurisdiction over the plaintiffs' claims, which are based on diversity and federal question jurisdiction related to procedural due process. The defendants claim that the plaintiffs could have sought relief in state court regarding a prior quiet title judgment but fail to demonstrate how this precludes federal jurisdiction, as they do not contest the existence of diversity jurisdiction. The court finds the defendants' arguments insufficient and remains unconvinced.

Defendants argue that Plaintiffs' due process claim is not ripe because they did not pursue post-judgment motions or appeal an adverse ruling. However, Defendants provide little explanation or authority to support this assertion. The Court finds it unclear whether bypassing these state remedies renders the procedural due process claim unripe, especially given the Ninth Circuit's ruling that exhausting state remedies is not always necessary before filing such claims in federal court. Defendants' reply fails to address Plaintiffs' repeated references to this holding.

Furthermore, Defendants claim that Plaintiffs' actions essentially seek appellate review of a quiet title action, invoking the Rooker-Feldman doctrine, which prohibits district courts from hearing direct appeals from state court judgments. However, Rooker-Feldman does not apply if the party against whom it is invoked was not a party to the state proceeding. Since Plaintiffs were not involved in the quiet title action, the Court finds Rooker-Feldman inapplicable, rejecting Defendants' argument regarding lack of subject matter jurisdiction.

Defendants also contend that Plaintiffs lack standing due to an absence of "actual injury." They argue that Plaintiffs have not claimed a right to monetary payments under the Deed of Trust and assert that alleged business losses and loss of security interest are insufficient. The Court disagrees, stating that Article III standing requires a concrete injury, causation, and redressability. Plaintiffs allege that failure to set aside the quiet title judgment would lead to a loss of transaction fees and revenues, which the Court finds sufficient to establish an injury in fact. Defendants' suggestion that this injury is too vague is dismissed, as the Court must view allegations in the light most favorable to Plaintiffs.

Plaintiffs have adequately demonstrated an injury in fact related to their interest in the Property, independent of their business model claims. The court acknowledges that MERS, regardless of its classification as a 'beneficiary' under the Deed of Trust, possesses a legally protected interest through the power to foreclose and sell the Property, which constitutes a lien. Legal title held by MERS grants it standing, as the Supreme Court affirms that loss of legal title to a claim for payment supports Article III standing, even without a beneficial interest. The court rejects Defendants' assertion that Plaintiffs are not a 'real party in interest' under Rule 17 of the Federal Rules of Civil Procedure, confirming that the lawsuit seeks redress for MERS's substantive rights. Consequently, Plaintiffs have the right to pursue this action in their name. The court denies Defendants' motion for judgment on the pleadings, noting that contrary district court decisions on the nature of the security interest in a deed of trust lack thorough analysis and do not address the rights of beneficiaries or nominees. The court emphasizes that, under California law, a security interest from a deed of trust functions effectively as a lien on the property.