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Dufresne v. JP Morgan Chase Bank, N.A

United States District Court, E.D. California

September 11, 2019

CHRISTOPHER DUFRESNE AND ESTATE OF SYLVIA BROWN, Plaintiffs,
v.
JP MORGAN CHASE BANK, NA, et al., Defendants.

          FINDINGS AND RECOMMENDATIONS RECOMMENDING THAT DEFENDANTS JPMORGAN CHASE BANK, N.A. AND WILMINGTON TRUST COMPANY'S MOTION TO DISMISS BE GRANTED AND PLAINTIFFS' REQUEST FOR LEAVE TO AMEND BE DENIED (ECF NOS. 3, 10)

         Plaintiffs Christopher Dufresne and the Estate of Sylvia Brown (“Plaintiffs”) bring this suit against Defendants JPMorgan Chase Bank, N.A. (“Chase”), Wilmington Trust Company (“WTC”), Quality Loan Service Corp. (“Quality”), DOES 1-100, and Guaranty Holdings of California, Inc. (“Guaranty Holdings”), (collectively “Defendants”) alleging that Defendants improperly foreclosed on property in Calaveras County. Plaintiffs allege causes of action for “(1) wrongful foreclosure, (2) cancellation of instruments, (3) declaratory relief, and (4) to set aside Trustee's sale.” (ECF No. 1-1.)

         On June 10, 2019, Defendants Chase and WTC filed a motion to dismiss all of Plaintiffs' claims. (ECF No. 3.) For the following reasons, the Court recommends that Chase and WTC's motion to dismiss be granted and that, to the extent considered, Plaintiffs' request for leave to amend be denied.

         I. BACKGROUND

         A. Allegations in the Complaint [1]

         Plaintiffs' Complaint alleges as follows:

         On or about September 23, 2004, Plaintiffs executed a Promissory Note (“Loan”) in connection with a loan they received in the amount of $1, 000, 000 from Washington Mutual Bank, FA (“WAMU”) for real property located at 108 Sanguinetti Court, Copperopolis, CA 5228 (“the Property”). The Loan was secured by a Deed of Trust (“DOT”) recorded against the Property with the Calaveras County Recorder's Office on September 28, 2004. The DOT identified Sylvia C. Brown and Christopher M. Dufrense as the “Borrower, ” WAMU as the “Lender” and “Beneficiary, ” and California Reconveyance Company as the “Trustee.”

         Plaintiffs allege on “information and belief” that immediately after the Loan was funded and no later than December 31, 2004, WAMU sold and/or transferred the Loan to an unidentified third-party and WAMU ceased to be the Lender or Beneficiary under the Loan or DOT. Plaintiffs further allege that it was WAMU's “business model and practice to sell these loans immediately after they were funded. The secondary market's refusal to purchase these loans in 2008 then caused WAMU to collapse.” (ECF No. 1-1, ¶10.)

         The Federal Deposit Insurance Corporation (“FDIC”) put WAMU into receivership on September 25, 2008. However, Plaintiffs allege on information and belief that WAMU was no longer the beneficiary of the loan at the time it was placed into receivership by the FDIC “because it previously sold the loan on or before December 31, 2004.” (Id. at ¶11.) Thus, according to Plaintiffs, the FDIC never acquired any interest in their Loan.

         On July 16, 2015, Chase, as attorney-in-fact for the FDIC as receiver of WAMU, executed a Corporate Assignment of Deed of Trust to Chase (“Assignment 1”). Assignment 1 transferred the DOT on Sylvia Brown's property to Chase, thereby purporting to “further memorialize the transfer that occurred by operation of law on September 25, 2008, as authorized by Section 11(d)(2)(G)(i)(II) of the Federal Deposit Insurance Act, 12 U.S.C. § 1821(d)(2)(G)(i)(II).” (Exhibit C to Plaintiffs' Complaint).

         That same day, Chase executed another Corporate Assignment of Deed of Trust, this time purporting to transfer whatever interest it had in the DOT to WTC in its individual capacity but solely as successor Trustee to U.S. Bank, N.A. as Trustee to MASTR Asset Securitization Trust 2004-11 (“Assignment 2”) (Exhibit D to Plaintiffs' Complaint).

         On August 3, 2015, Assignment 1 was recorded with the Calaveras County Recorder's Office as Document No. 2015-8589. On the same day, Assignment 2 was recorded with the Calaveras County Recorder's Office as Document No. 2015-8590.

         On or about October 6, 2015, Chase as alleged attorney-in-fact for WTC, executed a Substitution of Trustee (“SOT”) purporting to name Quality as the successor Trustee under the DOT. On or about October 13, 2015, Quality as the purported successor Trustee, executed a Notice of Default and Election to Sell Under Deed of Trust (“NOD”) alleging that Plaintiffs were in default in the amount of $56, 732.55.

         On October 15, 2015, the SOT was recorded with the Calaveras County Recorder's Office as Document No. 2015-11499. On July 18, 2018, Quality executed a Notice of Trustee's Sale (“NOTS”) which set a foreclosure sale for August 21, 2018, and a sale amount of $525, 674.65.

         On July 20, 2018, the NOTS was recorded with the Calaveras County Recorder's Office as Document No. 2018-008258.

         On December 11, 2018, Defendants completed a foreclosure sale of the Property through which the Property was sold to Guaranty Holdings.

         On December 14, 2018, Quality executed a Trustee's Deed Upon Sale (“TDUS”) purportedly transferring title in the Property to Guaranty Holdings.

         On December 19, 2018, the TDUS was recorded with the Calaveras County Recorder's Office as Document No. 2018-013873.

         B. Brown 1 and the Instant Suit

         Plaintiffs originally filed suit against Defendants in Calaveras County on December 18, 2018, alleging causes of action relating to Plaintiffs' failure to secure a loan modification from Chase. (Chase and WTC refer to this suit as Brown I, and the Court adopts that reference herein). Defendants removed the case to this Court and filed a motion to dismiss for failure to state a claim. (ECF No. 10 in Case No. 1:19-cv-00042-LJO-BAM.) Plaintiffs then filed a First Amended Complaint adding causes of action for cancellation of instruments and quiet title. (ECF No. 12 in Case No. 1:19-cv-00042-LJO-BAM.) Defendants again moved to dismiss. Plaintiffs voluntarily dismissed Brown 1 on April 26, 2019, the same day they filed this suit in state court. (ECF No. 28. in Case No. 1:19-cv-00042-LJO-BAM.)

         Defendants removed the instant suit to this Court on June 3, 2019. (ECF No. 1.) The crux of Plaintiffs' allegations are that Defendants lacked an interest in their Loan because WAMU allegedly sold it to an unidentified third party before being acquired by the FDIC. Thus, the foreclosure was illegal, and the instruments executed in furtherance of the foreclosure- particularly Assignments 1 and 2-are void and subject to cancellation.

         C. Motion to Dismiss

         On June 10, 2019, Chase and WTC filed a motion to dismiss Plaintiffs' Complaint. (ECF No. 3.) Chase and WTC also filed a request for judicial notice on that same date. (ECF No. 4.) The assigned district judge referred the motion to the undersigned for findings and recommendations on June 20, 2019. (ECF No. 7.)

         In the motion to dismiss, Chase and WTC claim that WAMU did sell the Loan in 2004, but it was sold to the MASTR Asset Securitization Trust 2004-11 (“Trust”), the beneficiary that ultimately foreclosed on the Loan in 2018, with WAMU retaining the servicing rights. Chase claimed that it then acquired those servicing rights from the FDIC after the FDIC had placed WAMU into receivership. The documents susceptible of judicial notice (see below) establish the following chronology:

• Several WAMU-originated loans were transferred to the Trust in 2004. (Request for Judicial Notice (“RJN”), Ex. A. at 23, 27 & § 3.14.) Under the Trust's Pooling and Servicing Agreement, WAMU remained the servicer for all WAMU-originated loans, with the power to conduct foreclosure in the event of default.[2]
• On September 25, 2008, Chase acquired WAMU's assets from the FDIC through a Purchase and Assumption Agreement. (RJN, Ex. B.) The Purchase and Assumption Agreement explains that Chase acquired, with limited exceptions, “all of the assets” of WAMU, and it “specifically purchases all mortgage servicing rights and obligations.” (Id. at § 3.1.)
• On September 17, 2014, the Trust, at that point having U.S. Bank N.A. as Trustee, also executed a limited Power of Attorney further establishing Chase's ability to foreclose on WAMU-originated loans that had been sold to the Trust. (RJN, Ex. C.)

         After setting forth their explanation for their legal right to foreclose on Plaintiffs' property, Chase and WTC argue that Plaintiffs' Complaint should be dismissed because each cause of action rests on the single “information and belief” allegation that Plaintiffs' original lender, WAMU, “sold and/or transferred [Plaintiffs'] Loan to a third party” in 2004, and that, as a result of this sale, Chase never acquired any interest in Plaintiffs' Loan and that all recorded instruments associated with the foreclosure are thus void. Chase and WTC argue that Plaintiffs lack sufficient basis for this assertion and that, more importantly, that allegation is consistent with Chase's basis for foreclosure, which stems from WAMU's sale of the Loan to the Trust. Because Plaintiffs do not, and cannot, ...


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