U.S. Bank, N.A. v. Tuttle

U.S. BANK, NATIONAL ASSOCIATION,AS SUCCESSOR TRUSTEE TO BANK OF AMERICA, N.A.,AS SUCCESSOR BY MERGER TO LASALLE BANK, N.A.,AS TRUSTEE FOR THE CERTIFICATEHOLDERS OF MLMI TRUST,MORTGAGE LOAN ASSET-BACKED CERTIFICATES, SERIES 2006-MNLI Plaintiff, v. MICHAEL S. TUTTLE, Defendant,JPMORGAN CHASE BANK, N.A., BANK OF AMERICA, N.A.,KAMCO SUPPLY CORP. OF BOSTON, and MAINE DEPARTMENTOF HEALTH AND HUMAN SERVICES,DIVISION OF SUPPORT AND ENFORCEMENT AND RECOVERY, Parties-in-Interest.

2:19-cv-00280-JAW

UNITED STATES DISTRICT COURT DISTRICT OF MAINE

December 16, 2019

ORDER ON MOTION TO DISMISS

A lender loaned a residential property owner $760,000 and obtained a promissory note from the borrower but failed to obtain title to the legally-enforceable mortgage to secure payment of the promissory note. When the borrower failed to pay in accordance with the terms of the promissory note, the lender's successor attempted to foreclose on the residential property asserting that the circumstances created an equitable mortgage on the borrower's property. The Court grants the borrower's motion to dismiss the equitable mortgage count because the Maine Supreme Judicial Court does not recognize the concept of equitable mortgage in these circumstances.

I. BACKGROUND

A. Procedural Background

On June 19, 2019, U.S. Bank, National Association, as Successor Trustee to Bank of America, N.A., as Successor by Merger to LaSalle Bank, N.A., as Trustee for the Certificateholders of MLMI Trust, Mortgage Loan Asset-Backed Certificates, Series 2006-MNLI (U.S. Bank) filed a complaint against Michael S. Tuttle and Tamara Lea Tuttle, naming as parties-in-interest JPMorgan Chase Bank, N.A.; Bank of America, N.A.; KAMCO Supply Corp. of Boston; and the Maine Department of Health and Human Services, Division of Support and Enforcement and Recovery. Compl. (ECF No. 1). The Complaint asserted five counts against each defendant: breach of note; breach of contract, money had and received; quantum meruit; unjust enrichment; and equitable mortgage. Compl. ¶¶ 25-69.

On September 5, 2019, Mr. Tuttle answered the Complaint, Def.'s Answer to Pl.'s Compl. (ECF No. 16), and filed a motion to dismiss for failure to state a claim. Def.'s Mot. to Dismiss Counts II, III, IV & V of Pl.'s Compl. (ECF No. 17) (Def.'s Mot.).¹On September 26, 2019, U.S. Bank filed a consent motion to extend its time to respond to Mr. Tuttle's Motion to Dismiss, stating that "[t]he Parties have engaged in extensive negotiating to limit the issue[s] before the Court which will be reflected in an Amended Complaint and Partial Opposition to Motion to Dismiss which will be filed on September 30, 2019." Consented Mot. to Extend (ECF No. 21).

On September 30, 2019, U.S. Bank filed a response to Mr. Tuttle's motion. Opp'n to Def.'s Mot. to Dismiss Count V of Pl.'s Compl. (ECF No. 23) (Pl.'s Opp'n). On October 10, 2019, Mr. Tuttle filed a reply. Def.'s Reply to Pl.'s Obj. to Def.'s Mot. to Dismiss (ECF No. 24) (Def.'s Reply). On October 18, 2019, U.S. Bank filed a consent motion to amend its complaint, Consented to Mot. to Amend Compl. (ECF No. 25), and on the same day the Magistrate Judge granted U.S. Bank's consent motion to amend the complaint. Order Granting Mot. to Am. Compl. (ECF No. 27). On October 21, 2019, U.S. Bank filed an amended complaint asserting only two counts against Mr. Tuttle: breach of note and equitable mortgage. Am. Compl. ¶¶ 24-43 (ECF No. 28). On the same day, Mr. Tuttle answered the Amended Complaint. Def.'s Answer to Pl.'s Am. Compl. (ECF No. 29).

B. Factual Background²

Ms. Tuttle conveyed the property at 15 Ocean Avenue, town of Cape Elizabeth, Cumberland County, state of Maine, to Mr. Tuttle by a warranty deed on March 28,2018. Am. Compl. ¶ 10. On May 25, 2006, Mr. Tuttle "executed and delivered to Mortgage Lenders Network USA, Inc. [MLNUS] a certain Note in the amount of $760,000." Id. ¶ 11. This amount was "significantly below the property's value at that time . . .." Id. ¶ 36. The Amended Complaint is imprecise about how exactly U.S. Bank came to be the holder of the promissory note, but U.S. Bank alleges that it is "the proper holder of the Note and is entitled to enforce the terms and conditions of the Note due to its breach by the Defendant, Michael S. Tuttle." Id. ¶ 27.

Mr. Tuttle also "executed a Mortgage on May 25, 2006, which particularly referenced exactly the same property address of 15 Ocean Avenue, Cape Elizabeth, ME 04107, which was referenced on the aforesaid Promissory Note." Id. ¶ 38. U.S. Bank acknowledges in the Amended Complaint that the "aforesaid Mortgage is arguably unenforceable under current Maine Law pursuant to the Greenlea[f] decision." Id. ¶ 39 (citing Bank of Am., N.A. v. Greenleaf, 2014 ME 89, 96 A.3d 700; Fed. Nat'l Mortg. Ass'n v. Deschaine, 2017 ME 190, 170 A.3d 230; Pushard v. Bank of Am., N.A., 2017 ME 230, 175 A.3d 103).³

On March 19, 2019, the law firm of Doonan, Graves & Longoria, LLC on behalf of U.S. Bank sent Mr. Tuttle a notice of mortgagor's right to cure, or demand letter. Id. ¶ 12; Compl., Attach. 3 (Demand Letter). This demand letter informed Mr. Tuttle of "the payment due date, the total amount necessary to cure the default, and the deadline by which the default must be cured . . .." Am. Compl. ¶ 13; see also Demand Letter at 1-2. Mr. Tuttle failed to cure the default prior to the expiration of the deadline for cure specified in the demand letter. Am. Compl. ¶ 14. U.S. Bank is the present holder and lawful owner of the note, id. ¶¶ 15-16, which is indorsed in blank by Mortgage Lenders Network USA.⁴ See Compl., Attach. 2 at 4 (Note). The total debt owed under the note as of May 17, 2019, was $1,023,328.20. Am. Compl. ¶ 21. Mr. Tuttle was, at the time of the filing of the Amended Complaint, in possession of the property secured by the note, and was not in the military. Id. ¶¶ 22-23.

II. POSITIONS OF THE PARTIES

A. Michael S. Tuttle's Motion to Dismiss⁵

Mr. Tuttle asserts that "[a]n equitable mortgage arises when a property owner borrows money from another party and gives a deed (or possibly some sort of assignment in the case of personal property) to that lender." Def.'s Mot. at 4. "It isnot," in Mr. Tuttle's view, "a concept which has any meaning in this case," because "[u]nder an equitable mortgage theory involving the giving of a deed, if the parties have agreed that upon payment of the debt the original owner gets the real property conveyed by the deed back, then the aforementioned deed is really an equitable mortgage." Id.

Purportedly quoting Seaman v. Seaman, 477 A.2d 734 (Me. 1984), Mr. Tuttle writes that "[a] court will label a transaction an 'equitable mortgage' when there has been a conveyance of an interest in property and the facts surrounding the transfer indicate that the intent of the parties was that the conveyance was to be a security." Def.'s Mot. at 4 (quoting Seaman, 477 A.2d at 736).⁶ Mr. Tuttle contends that "[i]n the Complaint in this case, there is not any suggestion that [Mr. Tuttle] executed and delivered to [U.S. Bank] anything like a deed or assignment which might be construed as an equitable mortgage." Def.'s Mot. at 4. "[O]ther than by the blank endorsement of the Promissory Note which [U.S. Bank] claims to hold, it appears that there are no writings whatsoever running from" Mr. Tuttle to U.S. Bank, but rather "a perfectlyproper mortgage from [Mr. Tuttle] to Mortgage Lenders Network USA, Inc." Id. at 4-5 (footnote omitted). According to Mr. Tuttle, the mortgage "exists to this day, even if it is not . . . owned by" U.S. Bank. Id.

Additionally, Mr. Tuttle states that, though U.S. Bank may be the holder of Mr. Tuttle's note, "there is nothing in the note itself, or in any of the ineffectual recorded mortgage assignments which effectuates or purports to effectuate, the assignment or transfer to [U.S. Bank] from Mortgage Lenders Network USA, Inc. of the cause[] of action which [U.S. Bank] now asserts . . .." Id. at 6. Therefore, in Mr. Tuttle's view, U.S. Bank does not have standing to proceed on an equitable mortgage theory, as that cause of action has not been assigned to it. Id.

B. U.S. Bank's Response

U.S. Bank begins by discussing the standard of review on a motion to dismiss for failure to state a claim. Pl.'s Opp'n at 2. U.S. Bank then states that "Maine is a mortgage title state," id. (citing Jordan v. Cheney, 74 ME 359, 361 (1883)), and that "the concept of equitable mortgage is well founded in Maine as an alternative to a legal mortgage." Id. (citing Hawes v. Williams, 92 ME 483, 43 A. 101 (1899)). It also argues that "it is the intent of the parties at the inception of the transaction" that controls whether an equitable mortgage arises, id. at 2-3 (citing Seaman, 477 A.2d at 736; Sposedo v. Merriman, 111 ME 530, 90 A. 387, 392 (1914)), particularly where the relationship is long-term. Id. at 3 (citing Norton v. Berry, 120 ME 536, 115 A. 287, 289 (1921)). U.S. Bank asserts that the equitable mortgage concept "is a broad one encompassing 'Any written evidence of conveyance' or even oral testimony." Id.at 3 (quoting Braddock v. McBurnie, 152 ME 39, 41, 122 A.2d 319, 320 (1956)). U.S. Bank further notes that "the Law Court of Maine has recently left this issue open for further interpretation" in the case of Federal National Mortgage Association v. Deschaine, 2017 Me. 190, ¶ 14 n.4, 170 A.3d 230. Pl.'s Opp'n at 3.

U.S. Bank argues that Mr. Tuttle is "asking this Court to consider whether [U.S. Bank] can ultimately recover" on the equitable mortgage theory but that that question is premature because "it is conceivable that relief could be granted on this ground . . .." Id.

C. Michael S. Tuttle's Reply

Mr. Tuttle argues that the cases cited by U.S. Bank in its opposition do not "apply to the present matter" because in each of those cases, "there was a writing of some sort between the 'equitable mortgagor' and the 'equitable mortgagee'" and "an agreement between the parties," but no such writing or...