Higley v. Flagstar Bank, Case No. 3:12–cv–00502–SI.

910 F.Supp.2d 1249

Doyle HIGLEY and Shelly Higley, husband and wife, Plaintiffs,

v.FLAGSTAR BANK, FSB, Defendant.

Case No. 3:12–cv–00502–SI.

United States District Court, D. Oregon.

Dec. 21, 2012.

Jeffrey A. Myers, John Bowles, and Timothy Zimmerman, Bowles Fernández Law LLC, Lake Oswego, OR, for Plaintiffs.

Kevin H. Kono, Davis Wright Tremaine LLP, Portland, OR, and Frederick B. Burnside, Davis Wright Tremaine LLP, Seattle, WA, for Defendant.

OPINION AND ORDER

SIMON, District Judge.

In 2008, Plaintiffs Doyle and Shelly Higley (the “Higleys”) obtained a loan secured by a trust deed to purchase property. When they defaulted on the loan two years later, Northwest Trustee Services and Defendant Flagstar Bank, FSB (“Flagstar”) commenced the nonjudicial foreclosure process set forth in the Oregon Trust Deed Act (“OTDA”), Or.Rev.Stat. §§ 86.705–86.795. In this action, the Higleys assert two claims for relief and seek a declaration that Flagstar may not nonjudicially foreclose their trust deed under the OTDA. In their first claim, the Higleys allege that the Home Owners' Loan Act (“HOLA”), 12 U.S.C. §§ 1461–1468, which governs the operation of federal savings associations such as Flagstar, preempts the OTDA. In their second claim, the Higleys assert that Flagstar may not nonjudicially foreclose because not all assignments of the trust deed have been recorded in the county records, as required by Or.Rev.Stat. § 86.735(1). Before the Court is Flagstar's motion to dismiss for failure to state a claim. Dkt. 22. For the reasons stated below, the Court grants Flagstar's motion.

BACKGROUND

In October 2008, the Higleys obtained a loan for $208,000 from Greater Northwest Mortgage, Inc. (“NW Mortgage”) to purchase property in Clackamas County, Oregon. Amended Complaint (“Compl.”) at ¶¶ 1, 3, 6 (Dkt. 15). The loan was secured by a trust deed. The trust deed names NW Mortgage as the lender, MERS as the beneficiary, and Fidelity National Title as the trustee. Dkt. 15–1 at 1. On March 27, 2009, NW Mortgage “was dissolved and ceased to operate as a business entity.” Compl. ¶ 13.

On September 30, 2010, MERS executed an assignment of the trust deed from itself to Flagstar. Compl. ¶ 14; Dkt. 15–1 at 14. The assignment was recorded on October 25, 2010. Id. Flagstar executed an appointment of successor trustee naming Northwest Trustee Services (“NWTS”) trustee on September 30, 2010. Compl. ¶ 16; Dkt. 15–1 at 15. The appointment of successor trustee was also recorded on October 25, 2010. Id.

Plaintiffs defaulted on the loan and NWTS executed a notice of default on October 21, 2010, and recorded that notice on October 25, 2010. Compl. ¶ 17, Dkt. 15–1 at 16–17. NWTS executed a Trustee's Notice of Sale on October 26, 2010. Dkt 15–1 at 18–20. NWTS originally scheduled the foreclosure sale to occur on February 28, 2011.¹ Dkt. 15–1 at 18. The sale was postponed and has not taken place. Compl. ¶¶ 18–19.

On March 20, 2012, Plaintiffs filed suit against Flagstar and NWTS, seeking a permanent injunction to halt nonjudicial foreclosure and a declaration that nonju-dicial foreclosure is inappropriate. Dkt. 1. Approximately one month later, on April 24, 2012, Flagstar recorded a “Sworn Affidavit,Transfer Statement, and Notice of Assignment.” Dkt. 11, Ex. 1. This document states:

Pursuant to ORS 79.0203(7) the indorsement and delivery of the Note to Flagstar constituted a transfer of the Note and Trust Deed to Flagstar, and this Sworn Affidavit, Transfer Statement, and Notice of Assignment operates as the recorded assignment of the Trust Deed consistent with the prior transfer. This Sworn Affidavit, Transfer Statement, and Notice of Assignment also constitutes a transfer statement within the meaning of ORS 79.0619.

Dkt. 11, Ex. 1. A copy of the indorsed note was attached to the affidavit. Id.

NWTS and the Higleys stipulated to the dismissal of NWTS and, on April 12, 2012, Judge Papak entered an order dismissing NWTS. Dkt. 9. Flagstar filed an Answer on April 30, 2012. Dkt. 11. On June 14, 2012, by stipulation, the Higleys filed an amended complaint. Dkt. 15. The amended complaint names only Flagstar as a defendant. Before the Court is Flagstar's motion to dismiss for failure to state a claim, pursuant to Fed.R.Civ.P. 12(b)(6). Dkt. 22.

STANDARDS

A motion to dismiss for failure to state a claim may be granted only when there is no cognizable legal theory to support the claim or when the complaint lacks sufficient factual allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir.2010). In evaluating the sufficiency of a complaint's factual allegations, the court must accept as true all well-pleaded material facts alleged in the complaint and construe them in the light most favorable to the non-moving party. Wilson v. Hewlett–Packard Co., 668 F.3d 1136, 1140 (9th Cir.2012). All reasonable inferences from the factual allegations must be drawn in favor of the plaintiff. Nw. Envtl. Def. Ctr. v. Brown, 640 F.3d 1063, 1070 (9th Cir.2011).

A complaint need not state “detailed factual allegations,” but it must contain sufficient factual matter to “state a claim to relief that is plausible on its face.” Wilson, 668 F.3d at 1140 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 663, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The court, however, need not credit the plaintiff's legal conclusions that are couched as factual allegations. Iqbal, 556 U.S. at 678–679, 129 S.Ct. 1937.

DISCUSSION

The Higleys make two claims for relief. In their first claim, the Higleys ask the Court for a declaration “setting aside, voiding, and invalidating the present nonjudicial foreclosure process because” the Home Owners' Loan Act of 1933 (“HOLA”), 12 U.S.C. §§ 1461–1468, preempts the nonjudicial foreclosure process set forth in the Oregon Trust Deed Act (“OTDA”), Or.Rev.Stat. §§ 86.705–86.795. Compl. ¶¶ 27–36, 45(1). In their second claim, the Higleys allege that even if HOLA does not preempt the OTDA, Flagstar may not nonjudicially foreclose because not all assignments of the trust deed have been recorded in the county records, as required by Or.Rev.Stat. § 86.735(1). Compl. ¶¶ 37–44; see James v. ReconTrust Co., 845 F.Supp.2d 1145 (D.Or.2012); Niday v. GMAC Mortgage LLC, 251 Or.App. 278, 284 P.3d 1157 (2012), review allowed, No. S060655 (Sept. 27, 2012).

Flagstar raises several reasons why the Court should dismiss the Higleys' complaint.Two are dispositive. First, Flagstar contends that the Higleys failed to satisfy a notice-and-cure provision in the trust deed. Def.'s Mem. at 7–8. Second, Flagstar argues that HOLA does not preempt the entire OTDA. Id. at 8–11.

A. Notice and Cure

A provision in the Higley's trust deed provides that neither party may “commence ... any judicial action” without first notifying the other party of the alleged breach and affording that party an opportunity to take “corrective action.” The trust deed states:

Neither Borrower nor Lender may commence, join, or be joined to any judicial action ... that arises from the other party's actions pursuant to this Security Instrument or that alleges that the other party has breached any provision of, or any duty owed by reason of, this Security Instrument, until such Borrower or Lender has notified the other party ... of such alleged breach and afforded the other party hereto a reasonable period after the giving of such notice to take corrective action.

Dkt. 15–1, Ex. 1. Flagstar argues that the Higleys failed to “allege compliance with [this] prelitigation notice-and-cure provision[.]” Def.'s Mem. at 7. As such, “the Court should dismiss [the Higley's] claims on this basis alone.” Id. at 8.

Several courts in other jurisdictions have found that identical notice-and-cure provisions in trust deeds bar claims when the homeowners fail to provide notice before commencing an action. See Gerber v. First Horizon Home Loans Corp., No. C05–1554P, 2006 WL 581082 (W.D.Wash. Mar. 8, 2006) (failure to comply with notice-and-cure provision bars breach of contract claim); Niyaz v. Bank of Am., No. 1:10CV796, 2011 WL 63655 (E.D.Va. Jan. 3, 2011)aff'd,442 Fed.Appx. 838 (4th Cir.2011) (failure to comply with notice-and-cure provision bars claims attempting to halt foreclosure). ² Furthermore, similar contractual agreements providing for alternative dispute resolution are generally enforceable under Oregon law. See Rueda v. Union Pac. R. Co., 180 Or. 133, 141, 175 P.2d 778 (1946) ( “Limited arbitration or submission agreements when stated as conditions precedent to liability are not illegal and, when a plaintiff has brought suit without first pursuing the agreed procedure, they may be set up as a stay or a bar to the action.”); Lincoln Const., Inc. v. Thomas J. Parker & Associates, Inc., 289 Or. 687, 692, 617 P.2d 606 (1980) (“When a contract clearly expresses that a third person is to make final decisions respecting specified matters, such agreement is enforceable.”).

The Higleys do not assert that they complied with the notice-and-cure provision. Instead, they argue that their failure to comply is “non-material, de minimis[,] and will do nothing to alter the outcome of the present case except to cause further delay.” Pls.' Resp. at 9. With respect to the Higley's first claim for relief, the Court agrees. The notice-and-cure provision is intended to give the allegedly breaching party an opportunity to cure its breach. Yet, even if the Higleys had notified Flagstar of their contentionthat HOLA preempts the OTDA, Flagstar could not have taken “corrective action.” Flagstar has no power to alter the relationship between state and federal law. The law does not “require the doing of a useless...