Herbert Pearse v. First Horizon Home Loan Corp.

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 31, 2018
• Docket: 16-35935
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAY 31 2018 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

HERBERT R. PEARSE, No. 16-35935

Plaintiff-Appellant, D.C. No. 3:16-cv-05627-BHS

v. MEMORANDUM* FIRST HORIZON HOME LOAN CORPORATION; NATIONSTAR MORTGAGE, LLC; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; BANK OF NEW YORK MELLON F/K/A BANK OF NEW YORK, AS TRUSTEE FOR FIRST HORIZON MORTGAGE PASS-THROUGH TRUST 2007-AR3; QUALITY LOAN SERVICE CORPORATION OF WASHINGTON,

Defendants-Appellees.

Appeal from the United States District Court for the Western District of Washington Benjamin H. Settle, District Judge, Presiding

Argued and Submitted May 18, 2018 Seattle, Washington

Before: BERZON and HURWITZ, Circuit Judges, and DEARIE,** District Judge.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Raymond J. Dearie, United States District Judge for the Eastern District of New York, sitting by designation. Herbert Pearse appeals an order dismissing, for failure to state a claim upon

which relief can be granted, his complaint against various defendants for wrongful

foreclosure, fraud, and violation of the Washington Consumer Protection Act

(“CPA”), Wash. Rev. Code § 19.86.010 et seq. We affirm.

1. Because no foreclosure sale occurred, any wrongful foreclosure claim

necessarily fails. Frias v. Asset Foreclosure Servs., Inc., 334 P.3d 529, 537 (Wash.

2014).

2. Pearse’s complaint alleged that First Horizon Home Loan Corporation

(“First Horizon”), the loan originator, violated the CPA and committed fraud by

(1) refusing to modify his loan after promising to do so; (2) listing Mortgage

Electronic Registration Systems (“MERS”) as a beneficiary on the deed of trust; and

(3) later assigning its interest in the note and deed of trust to a securitized trust. The

complaint alleges that MERS, the original beneficiary on the deed of trust, violated

the CPA and committed fraud because (1) the deed of trust improperly listed it as

beneficiary and (2) MERS later assigned an interest in the deed of trust to Bank of

New York Mellon (“BNYM”) that it did not legally possess. Fraud claims are

subject to a three-year statute of limitations, Wash. Rev. Code § 4.16.080(4), and

CPA claims to a four-year statute, Wash. Rev. Code § 19.86.120. These statutes

begin to run “when a party has the right to apply to a court for relief,” Shepard v.

Holmes, 345 P.3d 786, 790 (Wash. Ct. App. 2014) (quoting O’Neil v. Estate of

2 Murtha, 947 P.2d 1252, 1254 (Wash. Ct. App. 1997)), or, alternatively, “when the

plaintiff, through the exercise of due diligence, knew or should have known the basis

for the cause of action,” Shepard, 345 P.3d at 790 (quoting Green v. Am. Pharm. Co,

925 P.2d 652, 655 (Wash. Ct. App. 1997)).

The district court correctly found the fraud and CPA claims against First

Horizon and MERS time-barred. At the latest, Pearse was on notice of First

Horizon’s refusal to modify the loan terms in June 2011, when he received a letter

from First Horizon indicating that it intended to foreclose. At that point, reasonable

diligence—a review of the recorded deed of trust—would have disclosed that MERS

was the named beneficiary. See Green v. Am. Pharm. Co., 960 P.2d 912, 916 (Wash.

1998) (finding plaintiff “is deemed to have notice of all acts which reasonable

inquiry would disclose”) (quoting Hawkes v. Hoffman, 105 P. 156, 158 (Wash.

1909)); Shepard, 345 P.3d at 790 (“[T]he public record serves as ‘constructive notice

to all the world of its contents.’”) (quoting Davis v. Rogers, 222 P. 499, 501 (Wash.

1924)). Similarly, Pearse should have been aware of the putative assignment by

MERS to BNYM no later than October 18, 2011, when the second such assignment

was recorded. See Shepard, 345 P.3d at 790 (stating that discovery is inferred

“where the facts constituting the fraud were a matter of public record”). Pearse did

not file his complaint until June 10, 2016.

3. Pearse’s CPA claims against BNYM are grounded in the theory that

3 BNYM improperly appointed the successor trustee that noticed a foreclosure sale,

because BNYM was not the legal holder of the note at the time of appointment. The

district court correctly rejected those claims.

A. Pearse alleged that because the deed of trust improperly listed MERS as a

beneficiary, all subsequent assignments of MERS’s alleged beneficial interest in the

deed of trust and the promissory note were void. Although “a CPA action may be

maintainable” when MERS has “act[ed] as an unlawful beneficiary,” “the mere fact

MERS is listed on the deed of trust as a beneficiary is not itself an actionable injury.”

Bain v. Metro. Mortg. Grp., Inc., 285 P.3d 34, 49, 52 (Wash. 2012). And, interests

in negotiable instruments are freely transferrable under Washington law. Wash.

Rev. Code § 62A.3-203. Pearse’s promissory note was endorsed in blank, and thus

payable to any possessor. See Wash. Rev. Code § 62A.3-205(b) (“When indorsed

in blank, an instrument becomes payable to bearer and may be negotiated by transfer

of possession alone until specially indorsed.”). Indeed, the deed of trust expressly

contemplates assignment, naming MERS the beneficiary as “nominee for Lender

and Lender’s successors and assigns”; similarly, the note expressly contemplates

transfers, indicating that Pearse “understand[s] that Lender may transfer this Note.”

If BNYM actually possessed the note at the time of appointment of the successor

4 trustee—and Pearse did not allege otherwise in his complaint1—it was the

beneficiary, and the appointment conformed to Washington law. See Wash. Rev.

Code § 61.24.005(2); Trujillo v. Nw. Tr. Servs., Inc., 355 P.3d 1100, 1105–06

(Wash. 2015).

B. Nor may Pearse argue that the defendants’ alleged violations of the

securitized trust’s pooling and servicing agreement voided the assignments, note, or

deed of trust. Pearse lacks standing to assert claims based on the securitized trust

agreement, to which he was not a party. Deutsche Bank Nat’l Tr. Co. v. Slotke, 367

P.3d 600, 606 (Wash. Ct. App. 2016).

4. The complaint makes no allegations of deceptive conduct by Nationstar

Mortgage, LLC, the loan servicer, sufficient to give rise to CPA liability. See

Trujillo, 355 P.3d at 1107 (requiring a causal link between the act complained of and

the injury suffered). Rather, his only claim is that Nationstar could not seek

payments because the purported transfer from MERS to BNYM had voided the

promissory note, deed of trust, and later assignments. The district court correctly

rejected that argument for the reasons stated above.

AFFIRMED.

1 The district court afforded Pearse the opportunity to amend his complaint, and Pearse declined to do so, instead filing a notice of appeal before the time allowed by the court for amendment had expired.