United States District Court, N.D. California, San Jose Division
ORDER DENYING MOTION TO DISMISS; DENYING MOTION FOR
SANCTIONS RE: DKT. NOS. 22, 26
Gary Merle Koeppel and Emma K. Koeppel have moved to dismiss
the complaint filed by Plaintiff Mortgage Electronic
Registration Systems, Inc. (“MERS”) and have
moved for Rule 11 sanctions against MERS and its counsel. Per
Civil Local Rule 7-1(b), the Court has taken these motions
under submission without oral argument. Having considered the
papers filed by the parties and the arguments therein, the
Court denies both motions.
case concerns a property on Outlook Drive in Carmel,
California (the “Property”). Compl. ¶ 11.
Defendants are the record owners of the property.
Id. ¶ 12. On July 19, 2005, they obtained a
$1.335 million residential mortgage loan with respect to the
property from Central Pacific Mortgage (“CPM”)
through a promissory note (the “Note”) and
secured it with a deed of trust (the “DOT”).
Id. ¶ 37. Defendants signed the DOT and
initialed each page. Id. ¶ 48; Ex. A. Under the
DOT, Defendants are the “Borrower.” Ex. A at 1.
CPM is the “Lender.” Id. The Note
defines MERS as “a separate corporation that is acting
solely as a nominee for Lender and Lender's successors
and assigns. MERS is the beneficiary under this Security
Instrument. . . .” Id. at 2 (bold in the
original). The DOT provides:
Borrower understands and agrees that MERS holds only legal
title to the interests granted by Borrower in this Security
Instrument, but, if necessary to comply with law or custom,
MERS (as nominee for Lender and Lender's successors and
assigns) has the right: to exercise any or all of those
interests, including, but not limited to, the right to
foreclose and sell the Property; and to take any action
required of Lender including, but not limited to, releasing
and canceling this Security Instrument.
Id. The DOT was recorded by the Monterey County
Recorder on July 28, 2005. Id. With respect to the
Note, the DOT provides, in part, “The Note or a partial
interest in the Note (together with this Security Instrument)
can be sold one or more times without prior notice to
Borrower.” Id. at 11. After the Note and DOT
were executed, Plaintiffs allege that it transferred the Note
to “subsequent entities.” Compl. ¶ 45.
role as to the DOT is typical for the services it provides to
its members. See Id. ¶¶ 16-27. Generally,
when a borrower signs a deed of trust or mortgage as part of
the “closing” to a property, that document will
grant a security interest in the property to MERS as the
beneficiary/mortgagee as the nominee for the lender and the
lender's successors and assigns. Id. ¶ 19.
MERS will generally have the right to exercise the
lender's rights regarding the property, even if the
promissory note is sold to a different entity. Id.
¶¶ 20-21. Approximately 60 percent of residential
mortgages in the United States identify MERS as mortgagee,
beneficiary or grantee. Id. ¶ 24. One of the
key services that MERS provides to its members is to receive
service of legal process related to secured properties.
Id. ¶ 26. MERS can then notify the note holder
and can take other action to protect the security interest.
August 31, 2015, Defendants filed an action in the Superior
Court of Monterey County to quiet title to the Property
against CPM, “All Persons or Entities Unknown, Claiming
Any Legal or Equitable Right, Title, Estate, Lien or Interest
in” the Property and assorted Doe Defendants (the
“Quiet Title Action”). Id. ¶ 49;
Ex. B. Defendants' state court complaint alleged that CPM
was in “SOS/FTB Suspended Status, ” that it could
not defend itself, and that its agent for service of process
had resigned in 2008. Compl. ¶¶ 51-52; Ex. B ¶
2. The state court complaint did not identify MERS or any
other entities as defendants even though it referenced MERS
and attached the DOT as an exhibit. Compl. ¶¶ 53,
57-57, 63; see generally Ex. B. Defendants did not
notify MERS of the state court action. Compl. ¶¶
62-63. Defendants averred that the Property was “free
and clear as to any securitization instrument, and or any
secured interest, ” and based on this claim they asked
that the court in the Quiet Title Action to quiet title
“exclusively” in them. Ex. B ¶ 29. After
Defendants requested entry of default in the state court
action, no defendant or their representatives appeared at the
default hearing. Compl. ¶¶ 65-67. The state court
entered a Judgment for Quiet Title, Cancellation and
Expungement of Deed of Trust (the “Judgment”),
quieting title to the Property in Defendants as against
“CENTRAL PACIFIC MORTGAGE COMPANY, and ‘ALL
PERSONS or ENTITIES UNKNOWN, CLAIMING ANY LEGAL or EQUITABLE
RIGHT, TITLE, ESTATE, LIEN or INTEREST in the PROPERTY
DESCRIBED in this COMPLAINT ADVERSE to [Defendants']
TITLE, or ANY CLOUD UPON [Defedants'] TITLE
THERETO.” Compl. ¶ 67; Ex. D. Defendants then
ceased making payments on the Note. Compl. ¶ 69. MERS
alleges that Defendants intentionally failed to provide
notice of the state court action to MERS despite actual and
constructive knowledge of MERS's claim and interest in
the Property. Compl. ¶ 72; see also Id.
alleges that the Judgment caused it harm. The Judgment
deprived MERS of its bargained-for security interest in the
property. So, MERS could not defend the rights of subsequent
owners and servicers of the Note, who were members of MERS.
Id. ¶ 76-77. MERS had contracted with them to
receive notice of legal actions concerning the property, such
as the state court action, and to provide them with notice to
ensure the security of the Note was protected. See
Id. And more generally, the Judgment harmed MERS overall
business model, the “essence” of which is to
protect its clients' interests in mortgaged properties.
Id. ¶ 78.
brings this lawsuit asking this Court to set aside the
Motion to Dismiss
Court begins its analysis by recognizing that the factual
allegations here are very similar to two recent cases brought
by MERS in Central District of California: MERS. v.
Robinson filed in 2013 and MERS v. Johnston
filed in 2015. In Robinson and Johnston,
both sets of the defendants obtained loans-secured by deeds
of trust-to purchase real properties. Mortg. Elec.
Registration Sys. v. Robinson, 45 F.Supp.3d 1207, 1208
(C.D. Cal. 2014) (“Robinson I”);
Mortg. Elec. Registration Sys. Inc. v. Johnston,
2016 WL 7339873, at *1 (C.D. Cal. Dec. 14, 2016)
(“Johnston I”). Those deeds of trust and
the DOT here contain identical language regarding MERS's
role as beneficiary to the deed of trust and right to
foreclose or sell the subject properties on behalf of the
lenders. Compare Robinson I, 45 F.Supp.3d at 1208
with Johnston I, 2016 WL 7339873, at *1
with Ex. A at 2 (all three deeds of trust provide
that MERS is the nominee for the lenders and the lenders'
assigns and successors and that “Borrower understands
and agrees that MERS holds only legal title to the interests
granted by Borrower in this Security Instrument, but . . .
MERS . . . has the right . . . including, but not limited to,
the right to foreclose and sell the Property; and to take any
action required of Lender including, but not limited to,
releasing and canceling this Security Instrument.”).
The Robinson and Johnston defendants filed
quiet title actions in state court, but did not name MERS as
a defendant. Robinson I, 45 F.Supp.3d at 1208-09;
Johnston I, 2016 WL 7339873, at *1. The defendants
obtained quite title judgments expunging the deeds of trust.
Robinson I, 45 F.Supp.3d at 1209; Johnston
I, 2016 WL 7339873, at *1. MERS then sued in the Central
District to set aside the quite title judgments. Robinson
I, 45 F.Supp.3d at 1209; Johnston I, 2016 WL
7339873, at *2. Both district courts granted summary judgment
in favor of MERS and issued declaratory judgments voiding the
quite title judgments. Mortg. Elec. Registration Sys.,
Inc. v. Robinson, 2015 WL 993319, at *9 (C.D. Cal. Feb.
27, 2015) (“Robinson II”); Johnston
I, 2016 WL 7339873, at *3, 5. The Ninth Circuit affirmed
both grants of summary judgment. Mortg. Elec.
Registration Sys., Inc. v. Robinson, 671 Fed.Appx. 562,
563 (9th Cir. 2016) (“Robinson III”);
Mortg. Elec. Registration Sys. Inc v. Johnston, 749
Fed.Appx. 601, 602 (9th Cir. 2019) (“Johnston
II”). Defendants assert that this case is
distinguishable from Robinson and Johnston,
but, at most, they merely identify inconsequential factual
differences without explaining how or why those differences
alter the legal analysis here.
Rule of Civil Procedure 8 requires a complaint to contain
“short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed.R.Civ.P.
8(a)(2). “To survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to
state a claim that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
“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.” Id. “The
plausibility standard is not akin to a probability
requirement, but it asks for more than a sheer possibility
that a defendant has acted unlawfully.” Id.