Malloy v. Quality Loan Serv. of Wash., Corp.

PAUL AND GLORIA MALLOY, husband and wife, Appellants, v. QUALITY LOAN SERVICE OF WASHINGTON, a Washington corporation;MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a Delaware corporation;GREEN TREE SERVICING LLC, a Delaware corporation; FEDERAL NATIONAL MORTGAGE ASSOC.;a Washington D.C. corporation; BANK OF AMERICA, NA, a North Carolina corporation;and JOHN DOES 1-20, Respondents.

No. 75136-1-I

C/w No. 76331-8-I

COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION ONE

December 11, 2017

UNPUBLISHED OPINION

LEACH, J. — Paul and Gloria Malloy lost their property in a nonjudicial foreclosure. They then sued their lender and other entities for alleged violations of the Consumer Protection Act (CPA)¹ and the deeds of trust act (DTA).² The court dismissed the claims against respondent Bank of America NA (B of A) by stipulated order, granted summary judgment dismissing the claims againstQuality Loan Service of Washington, and dismissed all claims against the remaining defendants under CR 12(b)(6). The Malloys appeal all the decisions except the stipulated dismissal. We affirm.

BACKGROUND

In March 2006, the Malloys borrowed $325,000 from Quicken Loans Inc. and signed a note and deed of trust (DOT). The DOT named Orange Coast Title Co. as trustee and Mortgage Electronic Registration Systems Inc. (MERS) as the beneficiary. The DOT recited that MERS was "acting solely as a nominee for Lender and Lender's successors and assigns."

In June 2011, MERS recorded an "Assignment of Deed of Trust," assigning its interest in the DOT to BAC Home Loans Servicing LP.

In January 2013, B of A, successor-in-interest by merger to BAC, assigned its interest in the note and DOT to Green Tree Servicing LLC. In June 2013, Green Tree recorded an "Appointment of Successor Trustee," appointing Quality as the new trustee.

In September 2013, Quality mailed the Malloys a "Notice of Default," stating that they had made no loan payments since November 2012. Before doing this, Green Tree filed a "Declaration of Beneficiary," stating it was "the actual holder" of the promissory note.

In February 2015, Quality recorded a "Notice of Trustee's Sale." It scheduled a sale for June 12, 2015. Later, Quality discontinued the sale by recording a "Notice of Discontinuance of Trustee's Sale."

In August 2015, Quality recorded a second notice of sale. It scheduled a sale for December 11, 2015. Quality later postponed the sale to January 15, 2016.

Shortly before the sale, the Malloys filed this lawsuit, alleging violations of the DTA and CPA and seeking an injunction and damages. After the court denied the injunction, the property sold to a third party at the trustee's sale.

In September 2016, the court entered a stipulated order dismissing defendant B of A from the suit.

On March 30, 2016, the court dismissed the claims against Quality on summary judgment.

On December 14, 2016, the court dismissed MERS, Green Tree, and Federal National Mortgage Association (Fannie Mae) under CR 12(b)(6), ruling that the complaint failed "to state a claim . . . upon which relief can be granted."³ The Malloys appeal.

STANDARDS OF REVIEW

We review a dismissal under CR 12(b)(6) de novo.⁴ We assume the truth of all facts alleged in the complaint and may consider hypothetical facts supporting the plaintiff's claim.⁵ But if a plaintiff's claim remains legally insufficient even under hypothetical facts, dismissal pursuant to CR 12(b)(6) is appropriate.⁶ Dismissal is appropriate "when it appears beyond doubt" that the plaintiff cannot prove any set of facts that "would justify recovery."⁷

We review a summary judgment order de novo, engaging in the same inquiry as the trial court.⁸ We view the facts and all reasonable inferences from them in the light most favorable to the nonmoving party.⁹ Summary judgment is proper if there are no genuine issues of material fact and the moving party isentitled to judgment as a matter of law.¹⁰ Mere allegations or conclusory statements of fact unsupported by evidence are not sufficient to establish a genuine issue of fact.¹¹

ANALYSIS

We note first that the Malloys' briefing on appeal does not comply with the Rules of Appellate Procedure. Despite the clear requirements of RAP 10.3(a)(2) (5), and (6), 10.4(b), and 10.4(f),¹² the Malloys' opening briefs, which total 70 pages, contain only one citation to nearly 400 pages of clerk's papers, provide a table of cases lacking numerous references to page numbers in the briefs, do not identify or apply the correct standard of review for the dismissal under CR 12(b)(6), and exceed the 50-page limit without permission of the court.¹³ These violations significantly hamper our review and are fatal to the appeal.¹⁴ But even if the Malloys had complied with the rules, their arguments do not warrant relief.

Dismissal under CR 12(b)(6)

Authority To Foreclose. The Malloys first challenge the superior court's dismissal of their claims against MERS, Green Tree, and Fannie Mae. They argue that Green Tree lacked authority to appoint Quality as trustee and to direct the foreclosure because it was not the holder and owner of the note. They acknowledge the Washington Supreme Court's contrary holdings in Brown v. Department of Commerce¹⁵ and Bain v. Metropolitan Mortgage Group, Inc.¹⁶ that a foreclosing entity need only be the holder of the note. They claim that those cases conflict with RCW 62A.9A-203, are wrongly decided, and unconstitutionally encroach on the legislature's authority. Specifically, they contend "the security follows the note doctrine is . . . a security-follows-the-sale-of-a-note concept, not a security-follows-the-transfer-of-the-right-to-enforce-the-note concept."

But Brown expressly addressed RCW 62A.9A-203 in its decision and held that the holder of a note can enforce a deed of trust even if the holder is not the owner.¹⁷ And we must follow the decisions of our state Supreme Court.¹⁸

Alternatively, the Malloys contend "the terms of the Note itself, which is a contract, require Green Tree to be both the holder and owner of the secured note to be entitled to enforce the DOT that secures it." They support this claim with the following language in the note: "I understand that the Lender may transfer this Note. The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the 'Note Holder.'" This language does not purport to govern the authority to foreclose. It does not require a foreclosing entity to be both the owner and holder of the note. Nor does it change who the "holder" is for purposes of the Uniform Commercial Code or who the "beneficiary" is for purposes of the DTA. Under the DTA, the "beneficiary" is "the holder of the instrument or document evidencing the obligations secured by the deed of trust."¹⁹ The "holder" of a note is "[t]he person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession."²⁰

Here, the record establishes that Green Tree possessed the note. In its "Declaration of Beneficiary," Green Tree declared it was "the actual holder" of the Malloys' note. The Malloys do not allege otherwise in their complaint.²¹ Nor do they allege that the note was not endorsed in blank or payable to Green Tree.

The Malloys also contend possession of the note is insufficient to bestow authority to foreclose "where the actual Owner is known." They assert that '[t]he test of RCW 61.24.030(7)(a) is that where the Owner is known then the Trustee can conduct the foreclosure [on] the security for the Note only when instructed by the Owner of the Note who also holds the Note." They further assert, "If the trustee cannot ascertain who the Owner of the Note is, only then may the trusteerely on the 'safe harbor' provided the trustee to rely on a Declaration of the alleged Beneficiary that it holds the Note."

But RCW 61.24.030(7)(a) does not support the Malloys' assertion. It states,

[F]or residential real property, before the notice of trustee's sale is recorded, transmitted, or served, the trustee shall have proof that the beneficiary is the owner of any promissory note or other obligation secured by the deed of trust. A declaration by the beneficiary made under the penalty of perjury stating that the beneficiary is the actual holder of the promissory note or other obligation secured by the deed of trust shall be sufficient proof as required under this subsection.

Nothing in the statute limits a trustee's authority to rely on a beneficiary's declaration to situations where the note's owner is unknown. To the contrary, in the portion of its opinion addressing this statute, the Brown court concluded that the holder of a promissory note is entitled to enforce it regardless of who owns it²² or whether the owner is known.²³

Finally, the Malloys contend Green Tree lacked authority to appoint Quality and to direct the foreclosure because of earlier ineffective assignments of the DOT and note, including an assignment from MERS.²⁴ But again, asdiscussed above, possession of the note in bearer status provides the possessor with power to foreclose and to appoint a trustee. The validity of any prior assignments had no effect on Green Tree's authority to foreclose.²⁵

CPA Violations. The Malloys argue alternatively that even if earlier assignments or appointments did not affect the validity of the sale, those actions violated the CPA because they were deceptive. To prevail on a CPA claim, a plaintiff must show (1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) a public interest impact, (4) injury to the plaintiff in his or her business or property, and (5) a causal link between the unfair or deceptive act and the injury.²⁶ The causal link must demonstrate that the alleged injury would not have occurred "but for" the defendant's unlawful acts.²⁷ An appellate courtreviews whether a particular action gives rise to a CPA violation as a question of law.²⁸

The Malloys'...