Edgarline Dunbar v. Wells Fargo Bank, N.A.

Citation: 709 F.3d 1254Docket: 12-2076, 12-2369

Court: Court of Appeals for the Eighth Circuit; March 14, 2013; Federal Appellate Court

Original Court Document: View Document

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A group of homeowners, including Edgarline Dunbar and others, challenged the validity of their mortgage foreclosures initiated by Wells Fargo Bank, N.A. after defaulting on their loans. The district court dismissed their suit under Federal Rule of Civil Procedure 12(b)(6), which the Eighth Circuit Court of Appeals affirmed. Wells Fargo, as either the original mortgagee or assignee, initiated non-judicial foreclosure proceedings under Minnesota law after purchasing the properties at sheriff's sales. The homeowners contested Wells Fargo's authority to foreclose, naming Wells Fargo, MERS, Fannie Mae, and the law firm Reiter, Schiller, P.A. as defendants. The case was removed to federal court, where the district court denied the homeowners' motion to remand and sanctioned their counsel for misconduct. The homeowners argued that the federal court lacked subject matter jurisdiction due to incomplete diversity and prior exclusive jurisdiction, but the appellate court found these arguments unpersuasive, affirming the lower court's rulings. MERS was identified as an electronic registration system facilitating mortgage transactions without recording each transfer, and both the homeowners and Reiter, Schiller, P.A. were determined to be Minnesota citizens. The appellate court concluded that the doctrine of prior exclusive jurisdiction did not apply in this case.

The district court's dismissal of the Homeowners' complaint, which included twelve counts against the Wells Fargo parties, was reviewed de novo. Only two counts—"Quiet Title" and "Slander of Title"—remained on appeal. The quiet-title claim, based on Minnesota Statute section 559.01, argued that the Wells Fargo mortgages were invalid for multiple reasons, primarily relying on the "show-me-the-note" theory that requires the holder of a mortgage to also possess the promissory note to foreclose. This theory had already been rejected by precedent. The court emphasized the necessity of establishing subject matter jurisdiction, allowing any person in possession or claiming title to real property to challenge adverse claims.

The district court dismissed the quiet-title claims due to their foundation in the discredited "show-me-the-note" theory, while acknowledging that two theories presented by the Homeowners were distinct from that theory and had been recognized in prior cases. However, the court found these alternative claims to be speculative and conclusory, failing to meet the necessary pleading standards under federal law, which applies in diversity suits. The Homeowners argued that their claims were adequately pled under state standards, but the appellate court affirmed the lower court's decision, citing similar findings in previous rulings.

Regarding the slander of title claim, the court affirmed the dismissal as well. Slander of title requires proof of a maliciously published false statement regarding property ownership that leads to economic harm, as defined by Minnesota law. The Homeowners did not sufficiently demonstrate this requisite harm.

Wells Fargo parties recorded foreclosure notices and mortgage assignments that misidentified the legal title holder. To establish malice, the Homeowners must present factual allegations indicating that at least one Wells Fargo party acted with reckless disregard for the truth, yet their pleadings consist only of unsubstantiated claims that Wells Fargo lacked legal title while still making contrary statements. The Homeowners have not provided sufficient factual content to allow the court to infer misconduct beyond mere possibility, as stated in Ashcroft v. Iqbal.

The Wells Fargo parties sought sanctions under Rule 11 and 28 U.S.C. 1927, and the district court awarded attorneys’ fees under Rule 11(c), not addressing other sanctioning grounds. The review of the district court's Rule 11 determinations follows an abuse-of-discretion standard. Butler contended that a partial reversal in a related case, Murphy, rendered sanctions inappropriate. However, Murphy indicated that Butler’s claims, mirroring this case, were primarily based on a rejected “show-me-the-note” theory, which Butler continued to pursue despite prior judicial disapproval.

The district court considered Butler's history of frivolous litigation when deciding on sanctions. Even quiet-title claims were deemed lacking in substance. Additionally, Butler's attempts to evade federal jurisdiction through fraudulent joinder were found unacceptable. The district court acted within its discretion in imposing sanctions under Rule 11.

Some dismissed quiet-title claims mirrored those remanded in Murphy, though the latter did not rule on their merits but expressed skepticism regarding their validity. The district court had erroneously dismissed these claims solely on the basis of the “show-me-the-note” theory, leading to a remand for reconsideration of their survival potential. Ultimately, the court affirmed the district court’s dismissal of the Homeowners’ suit and the sanctions imposed on their counsel.