The opinion of the court was delivered by: Hon. Otis D. Wright, II United States District Judge
Amended Order GRANTING Defendants' Motions to Dismiss [20, 41]
Before the Court are (1) Defendants Deutsche Bank National Trust Company, as Trustee for Argent Securities Inc., Asset-Backed Pass-Through Certificates, Series 2006-W2 and Deutsche Bank National Trust Company, LLC's Motion to Dismiss Plaintiffs Kale Kepekaio Gumapac and Dianne Lee Gumapac's First Amended Complaint ("FAC"); and (2) Defendants Argent Mortgage Company, LLC ("Argent Mortgage") and Argent Securities Inc.'s (collectively with Argent Mortgage, the "Argent Defendants") Motion to Dismiss Plaintiffs' FAC. (ECF Nos. 20, 41.) Having carefully considered the papers filed in support of and in opposition to the instant Motion, the Court deems the matter appropriate for decision without oral argument. See Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. For the reasons discussed below, the Court GRANTS Defendants' Motions.
On April 17, 2002, Plaintiffs purchased the property located at 15-1716 Second Avenue, Keaau, Hawaii 96749 (the "Property") from Linda and Alice Little. (FAC ¶¶ 2, 18.) A warranty deed evidencing the transfer from the Littles to Plaintiffs was registered in the Office of Assistant Registrar on February 24, 2003. (FAC ¶ 21.)
On December 12, 2005, Plaintiffs executed a promissory note to obtain a $290,000.00 loan secured by a mortgage on the Property in favor of Argent Mortgage. (FAC ¶¶ 22, 23.) As a condition of the loan, Plaintiffs were required to obtain property title insurance on the Property to insure against any title defects. (FAC ¶ 24.) One provision of the title insurance policy informs the crux of Plaintiffs' entire complaint: under the policy, the insured-identified as Argent Mortgage on December 19, 2005 (FAC Ex. 1 Ecl. 1 Ex. E)-was obligated to provide prompt written notice to the insurer (Stewart Title Company) upon learning of a potential title defect in the property. (FAC ¶¶ 44, 45.) While Plaintiffs contend that they "were the beneficiaries of the Title Guaranty Policy" (FAC ¶ 26), they also allege that the title insurance was "for the benefit of Lender Defendant Argent Mortgage" and that the "Stewart Title Policy provides coverage for defect in title for insured Lender Defendant Argent Mortgage" (FAC ¶¶ 24, 27).
On February 1, 2006, Argent Mortgage securitized its interest in the Property to the Agent Securities Inc. Asset-Backed Pass-Through Certificates, Series 2006-W2 securitized trust (the "Trust") by a Pooling and Service Agreement ("PSA"); Deutsche Bank National Trust Company ("Deutsche Trust Company") was designated as trustee of the Trust. (FAC ¶¶ 33, 34.) According to Plaintiff, Section 2.03 of the PSA "require[d] the Defendants to take affirmative action when there [was] notice of any defect of title relating to mortgage instruments which comprise the 2006 W2 Certificates, which includes the Gumapac Mortgage." (FAC ¶ 37.)
On February 11, 2009, Argent Mortgage executed an Assignment of Mortgage selling and transferring its interest in the Property to Deutsche Trust Company, "as trustee for" the Trust. (FAC ¶ 46 & Ex. 2.) The assignment was recorded on March 9, 2009. (FAC ¶ 46 & Ex. 2.)
On August 7, 2009, Deutsche Trust Company executed a second Assignment of Mortgage, transferring its interest to "Deutsche Bank National Trust Company, a National Banking Association as Trustee in trust for the benefit of" the Trust ("Deutsche Bank"). (FAC ¶ 54 & Ex. 3 (emphasis added).)
On August 3, 2010, following Plaintiffs' default on their mortgage, Deutsche provided Plaintiffs a Notice of Mortgagee's Intention to Foreclose Under Power of Sale. (FAC ¶ 56.) "Due to the confusion of various entities claiming rights and responsibilities to the Subject Property under the Gumapac Mortgage, the Pooling Agreement, insurance obligations . . . and possibly other legal documents and or unknown transfers," Plaintiffs subsequently retained Hawaiian Alliance to investigate possible title defects. (FAC ¶ 57.)
On January 13, 2011, Deutsche Bank purchased the Property at an non-judicial foreclosure auction. (FAC ¶ 58.) Following this purchase, Deutsche Bank quitclaimed the Property to itself by a January 27, 2011 Mortgagee's Quitclaim Deed Pursuant to Power of Sale, which Deutsche recorded on February 3, 2011. (FAC ¶ 61 & Ex. 4.)
Meanwhile, on January 21, 2011 (after foreclosure but before Deutsche Bank recorded its quitclaim deed), Hawaiian Alliance issued a Title Claim Report for Plaintiffs' Property, which revealed that based on Hawai'i Alliance's title search of the Subject Property, there was a defect of title 'by virtue of an executive agreement entered into between President Grover Cleveland of the United States and Queen Lili'uokalani of the Hawaiian Kingdom whereby the President and his successors in office were and continue to be bound to faithfully execute Hawaiian Kingdom law by assignment of the Queen's [powers/interests] under threat of war on January 17th 1893.' (FAC ¶ 59 (emphasis and brackets in original).) According to the report, this executive agreement between President Cleveland and Queen Lili'uokalani rendered the notaries public in the Hawaiian Islands and the registrar of the Bureau of Conveyances unlawful since January 17, 1893, which in turn nullified the deed of conveyance in the Property to Plaintiffs because it was "not lawfully executed in compliance with Hawaiian Kingdom Law." (FAC ¶ 59 (quoting Ex. 1).) Plaintiffs further contend that Deutsche National Bank's Mortgagee's Quitclaim Deed "is invalid and void" as a result of the title defect identified in the Title Claim Report and certain other notarization deficiencies. (FAC ¶ 62.)
On February 9, 2011, Deutsche Bank filed a Complaint for Ejectment in Hawaii state court. (FAC ¶ 65.) On April 29, 2011, Plaintiffs filed a motion to dismiss the ejectment action, arguing that the title report had unearthed a title defect undermining Deutsche Bank's interest in Plaintiffs' property. (FAC ¶ 68.) According to Plaintiffs, this motion to dismiss served as notice to Deutsche Bank of a title defect sufficient to trigger its responsibility under the title insurance policy to notify Stewart Title of the defect. Plaintiffs also allege that they formally notified Deutsche Bank of the supposed title defect again, this time by letter, on November 22, 2011. (FAC ¶ 74.) Despite receiving ...