Natalia Karnatcheva v. JP Morgan Chase Bank , 704 F.3d 545 ( 2013 )

United States Court of Appeals
For the Eighth Circuit
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No. 12-2375
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Natalia Karnatcheva and Kevin R. Gurule
lllllllllllllllllllll Appellants
v.
JPMorgan Chase Bank, N.A.,
Chase Home Finance LLC,
Mortgage Electronic Registration
Systems, Inc., Federal National
Mortgage Association, MERSCORP,
Inc., and Usset, Weingarden and
Liebo, P.L.L.P.
lllllllllllllllllllll Appellees
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Appeal from United States District Court
for the District of Minnesota
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Submitted: January 14, 2013
Filed: January 28, 2013
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Before MURPHY, ARNOLD and COLLOTON, Circuit Judges.
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ARNOLD, Circuit Judge.
Mortgagors filed suit in Minnesota state court against Fannie Mae;
MERSCORP, Inc., and its subsidiary, Mortgage Electronic Registration Systems, Inc.;
two financial institutions; and one non-diverse party (a law firm), alleging numerous
deficiencies in the assignment of their mortgages and in their foreclosures. Asserting
that the plaintiffs had fraudulently joined the law firm, the defendants removed the
case to federal court. After moving to remand, the plaintiffs filed an amended
complaint seeking to quiet title under Minn. Stat. § 559.01, asserting a claim for
slander of title, and requesting declaratory judgments as to whether the defendants had
a "true interest in or right to foreclose on their properties" and whether the notes were
properly accelerated by the correct party; the defendants moved to dismiss for failure
to state a claim, see Fed. R. Civ. P. 12(b)(6). The district court1 denied the motion to
remand because it concluded that the plaintiffs had fraudulently joined the non-diverse
law firm, and it granted the motion to dismiss all claims against the remaining
defendants under Rule 12(b)(6). See Karnatcheva v. JPMorgan Chase Bank, N.A.,
871 F. Supp. 2d 834 (D. Minn. 2012).
The plaintiffs appeal, asserting that the district court erred in denying their
motion to remand, in concluding that they failed to make out claims for slander of
title, declaratory judgment, and quiet title, and in mistakenly relying on Jackson v.
Mortgage Electronic Registration Sys., 770 N.W.2d 487, 500-501 (Minn. 2009),
which rejected the so-called "show-me-the-note" theory under which an entity seeking
foreclosure must present the original promissory note.
We must first determine whether the district court erred in denying the motion
to remand to the state court since that issue relates to jurisdiction. The district court
1
The Honorable Michael J. Davis, United States District Judge for the District
of Minnesota.
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denied remand, concluding that it had jurisdiction over the case based on the diversity
of the parties, see 28 U.S.C. § 1332(a), because the plaintiffs had fraudulently joined
the only resident defendant. "Joinder is fraudulent and removal is proper when there
exists no reasonable basis in fact and law supporting a claim against the resident
defendants." Wiles v. Capitol Indem. Corp., 280 F.3d 868, 871 (8th Cir. 2002).
Because we recently concluded that nearly identical claims against a resident law firm
had no reasonable basis in law and fact under Minnesota law and constituted
fraudulent joinder, see Murphy v. Aurora Loan Servs., LLC., 699 F.3d 1027,
1031–1032 (8th Cir. 2012), we reject the plaintiffs' contention that the district court
erred by dismissing the claims against the law firm and denying remand.
We next address the claims against the other defendants. We can easily dispose
of the plaintiffs' slander-of-title claim because we recently upheld the dismissal of a
virtually identical claim in Butler v. Bank of America, NA., 690 F.3d 959, 961, 962-63
& 962 n.3 (8th Cir.2012). See also Murphy, 699 F.3d at 1032. In Butler, id. at 961,
962, we concluded that the slander-of-title claim, along with other claims in the
complaint, was "simply an attempt to invalidate the foreclosure ... based on the flawed
[show-me-the-note] theory" that the Minnesota Supreme Court had rejected in
Jackson. See also Stein v. Chase Home Fin., LLC, 662 F.3d 976, 979-80 (8th Cir.
2011).
We can deal with equal dispatch with the dismissal of the plaintiffs' request for
a declaratory judgment to determine whether the defendants had "any true interest in
or right to foreclose on their properties." The plaintiffs base this request for
declaratory relief on allegations that their notes and mortgages were transferred to
trusts underlying mortgage-backed securities and that their foreclosures violated the
terms of the trust agreements relating to these mortgage-backed securities. But district
courts in Minnesota have recently addressed this issue and have uniformly held that
mortgagors do not have standing to request declaratory judgments regarding these
types of trust agreements because the mortgagors are not parties to or beneficiaries of
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the agreements. See, e.g., Novak v. JP Morgan Chase Bank, N.A., No. 12-589, 2012
WL 3638513, at *6 (D. Minn. August 23, 2012); Greene v. Home Loan Servs., Inc.,
No. 09-719, 2010 WL 3749243, at *4 (D. Minn. Sept. 21, 2010); see also
Karnatcheva, 874 F. Supp. 2d at 842. We believe that the reasoning in these cases is
sound, and we adopt it.
The plaintiffs also ask for a declaratory judgment to determine whether the
notes were properly accelerated by the correct party. The Federal Rules of Civil
Procedure apply to declaratory judgment actions, see Fed. R. Civ. P. 57, and thus the
plaintiffs must comply with the pleading requirements of Rule 8(a), see, e.g., National
Union Fire Ins. Co. of Pittsburgh, Pa. v. Karp, 108 F.3d 17, 21 (2d Cir. 1997). See
also 10B Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice
and Procedure § 2768 (2012). We conclude that the relevant pleadings here fail to
meet the Rule 8(a) standards because they lack "sufficient factual matter, accepted as
true," that raise plausible questions as to the rights of parties to accelerate the
mortgages, Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), but instead offer only legally
insufficient conjecture and "labels and conclusions," Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555 (2007).
The plaintiffs also appeal the dismissal of their quiet title claim. Our rejection
of an identical theory in Murphy requires us to affirm the district court's dismissal on
one of the plaintiffs' five grounds for quiet title – that the "[m]ortgages are not
properly perfected" – because, as our decision in Murphy held, it is a "regurgitation
of the 'show-me-the-note' theory" and precluded by Jackson. See Murphy, 699 F.3d
at 1033. We also conclude that another quiet title ground pleaded here but not
considered in Murphy – that the "Defendants are not Note Holders as defined in the
Original Notes" – would require acceptance of the "show-me-the-note" theory to state
a claim and so is likewise barred by Jackson.
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Our decision in Murphy held, however, that two quiet title theories relating to
allegations of invalid mortgage assignments that were laid substantially the same as
two theories pleaded here did "not rely on the failure of the foreclosing party to
produce the note" and were thus not barred by Jackson. See Murphy, 699 F.3d at
1033. As pleaded here, the two theories that Murphy sustained are that "[t]he Notices
of Pendency, Powers of Attorney, and Assignments of Mortgages were not executed
by an authorized individual" and that "[t]he Assignments of Plaintiffs' Mortgages were
invalid." Another theory pleaded here – that "Defendants are not entitled to receive
payments on Plaintiffs' Original Notes under the express terms of Plaintiffs' Original
Notes and Mortgages" – was not considered in Murphy but is likewise not foreclosed
by Jackson's rejection of the "show-me-the-note" theory.
We nevertheless affirm the district court's dismissal of the quiet title action
based on these three grounds because the plaintiffs did not sufficiently plead them.
We apply federal pleading standards – Rules 8 and 12(b)(6) – to the state substantive
law to determine if a complaint makes out a claim under state law. See Council Tower
Ass'n v. Axis Specialty Ins. Co., 630 F.3d 725, 730 (8th Cir. 2011); see also Shady
Grove Orthopedic Assoc., v. Allstate Ins. Co., 130 S. Ct. 1431, 1442 (2010). The
Minnesota quiet title statute provides in relevant part that "[a]ny person in possession
of real property..., may bring an action against another who claims an ... interest
therein, or a lien thereon, adverse to the person bringing the action, for the purpose of
determining such adverse claim and the rights of the parties, respectively." Minn.
Stat. § 559.01. The plaintiffs correctly note that, historically, the "only facts necessary
to constitute a cause of action under this statute are, the actual possession of the land
by the plaintiff ... and some claim by the defendants adverse to him, of an estate or
interest in the land." Steele v. Fish, 2 Minn. 153, 154-55 (1858). But these are only
the state pleading rules; they are not state substantive standards that govern the
success of a quiet title claim. Indeed, "[t]he fact of possession or vacancy is not a
jurisdictional fact, nor does it go to the merits of the controversy as to title"; instead
"[i]t goes only to the right of the plaintiff to present his claim of title under the form
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of action," to quiet title. Union Central Life Ins. Co. v. Page, 190 Minn. 360, 363, 251
N.W. 911, 912 (1933). We therefore affirm the district court's dismissal of the
plaintiffs' three theories for quiet title that are not precluded by Jackson, because the
plaintiffs' pleadings, on their face, have not provided anything to support their claim
that the defendants' adverse claims are invalid, other than labels and conclusions,
based on speculation that transfers affecting payees and assignments of the notes were
invalid. See Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at 555.
Affirmed.
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