Micah Schnall, App. v. Deutsche Bank National Trust Company, Res. ( 2013 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
MICAH SCHNALL, NO. 68516-3-1
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FILED: November 18, 2013
Respondents.
Lau, J. — Micah Schnall appeals the CR 12(b)(6) dismissal of his complaint
against Deutsche Bank National Trust Company and Mortgage Electronic Registration
Systems (MERS), claiming violations of the Consumer Protection Act (CPA), chapter
19.86 RCW, and the deeds of trust act (DTA), chapter 61.24 RCW. Schnall also
appeals the denials of a preliminary injunction and a motion to amend his complaint.
Because Schnall's complaint alleged facts that, if proved at trial, would f ntitle him to
some relief, we reverse in part and remand for further proceedings.
FACTS
In October 2006, Micah Schnall executed a promissory note in the amount of
$460,000 to Quicken Loans. The loan was secured by a deed of trust encumbering
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Schnall's real property in Redmond, Washington. The deed of trust identified Quicken
Loans as the lender, Stewart Title as the trustee, and MERS, "a separa e corporation
that is acting solely as a nominee for Lender and Lender's successors ^ind assigns," as
the beneficiary. At some point, Schnall's loan was sold to a securitized trust known as
"IndyMac INDX Mortgage Loan Trust 2006-AR39" (IndyMac Trust), Deutsche Bank
serves as the trustee of the IndyMac Trust.
Schnall defaulted on the note. On August 18, 2010, MERS, "as nominee for
Quicken Loans," assigned all beneficial interest in the deed of trust to Deutsche Bank in
its capacity as trustee of the IndyMac trust. The following day, Deutsch^ Bank
appointed Regional Trustee Services Corporation (RTSC) to succeed Stewart Title as
trustee under the deed of trust. On August 24, 2010, RTSC issued Schnall a notice of
default. RTSC scheduled a trustee's sale for June 10, 2011.1
On June 3, 2011, Schnall sued Deutsche Bank and MERS, alleging violations of
the CPA, chapter 19.86 RCW and the DTA, chapter 61.24 RCW.2 Schriell sought
damages, declaratory relief, and a preliminary injunction restraining the trustee's sale.
On July 27, 2011, the trial court denied Schnall's motion for a pre nminary
injunction.3 On November 10, 2011, Deutsche Bank and MERS moved to dismiss the
suit under CR 12(b)(6). Schnall subsequently moved to amend the coniplaint to add
1 The trustee's sale was originally scheduled for February 11, 2011, but was
stayed when Schnall filed for bankruptcy.
2 Schnall also alleged violations of the federal Truth in Lending Act and Real
Estate Settlement Procedures Act, but he abandoned those claims on appeal.
3 Schnall filed a second motion for a preliminary injunction, whicfi was denied on
November 17, 2011.
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RTSC as a defendant and to incorporate additional facts and claims. The superior court
dismissed Schnall's complaint without prejudice and denied Schnall's rrtotion to amend
the complaint. The trial court subsequently denied Schnall's motion for
reconsideration.4 Schnall appeals.
ANALYSIS
As a preliminary issue, we note that a dismissal without prejudio is not
appealable as a matter of right unless its effect is to determine the actic-n and prevent a
final judgment or to discontinue the action. RAP 2.2(a)(3); Munden v. Hazel rigg, 105
Wash. 2d 39, 44, 711 P.2d 295 (1985). As Schnall's reply brief tacitly acknowledges, it is
clear that the dismissal is not appealable under the above rule. The statute of
limitations had not run, and Schnall would have been entitled to refile hiis complaint.5
However, RAP 5.1(c) provides that a notice of appeal of a decision that is not
appealable will be treated as a notice for discretionary review. Under RAP 2.3(b)(2),
discretionary review will be accepted if the superior court has committed probable error
and the decision substantially limits the freedom of a party to act. Although neither
party has addressed the factors in RAP 2.3(b)(2), for the reasons discussed below, we
conclude that this appeal meets that standard and we accept discretionary review.
4 Though Schnall appealed the denial of his motion for reconsideration, he did
not assign error to this order or otherwise challenge it on appeal. We therefore do not
address it. See RAP 10.3(a)(4), (6).
5 See RCW 19.86.120 (limitations period for CPA claims is four years from the
accrual of the cause of action); RCW 61.24.127 (limitations period for c aims made
under the DTA is two years from the date of the foreclosure sale).
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Standard of Review
Under CR 12(b)(6), a complaint may be dismissed if it fails to state a claim upon
which relief can be granted. The superior court properly dismisses a ctaim pursuant to
CR 12(b)(6) only "'f it appears beyond a reasonable doubt that no facts exist that would
justify recovery.'" Atchison v. Great W. Malting Co., 161 Wash. 2d 372 37(6, 166P.3d662
(2007) (quoting Cutlery. Phillips Pet. Co.. 124 Wash. 2d 749, 755, 881 P.2d 219 (1994)).
For purposes of a CR 12(b)(6) motion, we presume the plaintiff's a Negations in the
complaint to be true. Cutler, 124 Wash. 2d at 755. Moreover, in determin ing whether
dismissal is warranted, we may consider hypothetical facts outside of the record,
Burton v. Lehman, 153 Wash. 2d 416, 422, 103 P.3d 1230 (2005). We review a CR
12(b)(6) dismissal de novo. Atchison, 161 Wash. 2d at 376.
Rulings on motions to amend the complaint and for an injunction are within the
discretion of the trial court and may be reversed only for a manifest abuse of discretion.
See Lincoln v. Transamerica Inv. Corp., 89 Wash. 2d 571, 577, 573 P.2d 316(1978)
(addressing motions to amend); Resident Action Council v. Seattle Hous Auth., 177
Wash. 2d 417, 428, 300 P.3d 376 (2013) (grant or denial of an injunction). A superior court
abuses its discretion if its decision is manifestly unreasonable or based on untenable
grounds or untenable reasons. In re Marriage of Littlefield, 133 Wn.2d |39, 46-47, 940
P.2d 1362 (1997).
Deeds of Trust Act
Schnall alleges that the notice of default violated the DTA because it "did not
clearly specify a beneficiary or noteholder, depriving Plaintiff of the opportunity to
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scrutinize and defend against action by the anonymous initiator of foredlosure action."
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As we have done in recent cases raising similar issues, including Walker v. Quality
Loan Service Corp.. Wn. App. , 308 P.3d 716 (2013), and Bavdnd v. OneWest
Bank, F.S.B.. Wn. App. , 309 P.3d 636 (2013), we characterize Schnall's claims
of "wrongful foreclosure" as claims of damages arising from violations of the DTA.
Under the DTA, "only a proper beneficiary has the power to apppint a successor
to the original trustee named in the deed of trust." Bavand, 309 P.3d at 720. Moreover,
"only a properly appointed trustee may conduct a nonjudicial foreclosur^ " Bavand, 309
P.3d at 642. Accordingly, "when an unlawful beneficiary appoints a sudcessor trustee,
the putative trustee lacks the legal authority to record and serve a notic^ of trustee's
sale." Walker, 308 P.3d at 720-21.
Approximately eight months after the dismissal of Schnall's complaint, the
Washington Supreme Court issued its decision in Bain v. Metropolitan Mortgage Group,
inc., 175 Wash. 2d 83, 93, 285 P.3d 34 (2012). Bain held that MERS is " ineligible
"ah
'beneficiary within the terms of the Washington Deed of Trust Act,' if it riever held the
promissory note or other debt instrument secured by the deed of trust." Bain, 175
Wash. 2d at 110. Instead, "only the actual holder of the promissory note or other
instrument evidencing the obligation may be a beneficiary with the power to appoint a
trustee to proceed with a nonjudicial foreclosure on real property." Bain , 175Wn.2dat
89.
Here, Schnall alleges that MERS never held his note and, therefore , lacked
authority to act as a beneficiary under the DTA. He further alleges that if MERS was not
the holder, it lacked the authority to assign the deed of trust and note to Deutsche Bank.
Finally, Schnall reasons, because the assignment to Deutsche Bank wgs ineffective,
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Deutsche Bank's designation of RTSC as successor trustee was also ineffective, and
RTSC lacked authority to initiate nonjudicial foreclosure proceedings. For the purpose
of this appeal, we accept Schnall's allegations as true. Thus, Schnall hps pleaded facts
sufficient to show a violation of the DTA.
Deutsche Bank and MERS attempt to distinguish Bain, arguing tjnat the
assignment executed by MERS is valid because MERS acted solely as an agent for the
lender, Quicken Loans. But this same argument was raised and rejected in Bain
MERS attempts to sidestep this portion of traditional agency law by pointing to
the language in the deeds of trust that describe MERS as "acting solely as a
nominee for Lender and Lender's successors and assigns." But MERS offers no
authority for the implicit proposition that the lender's nomination of MERS as a
nominee rises to an agency relationship with successor noteholders. MERS fails
to identify the entities that control and are accountable for its actions. It has not
established that it is an agent for a lawful principal.
Bain, 175 Wash. 2d at 107 (citations and footnote omitted). Moreover, Schnall argues,
MERS could not have been acting as an agent for Quicken Loans in assigning the loan
to Deutsche Bank because, by the time of the assignment, Schnall's loein had been sold
to the IndyMac trust.
Deutsche Bank and MERS also argue that Deutsche Bank proved it was the
lawful holder by demonstrating physical possession of the note. But this situation was
also addressed by Bain:
The difficulty with MERS's argument is that if in fact MERS is not the beneficiary,
then the equities of the situation would likely (though not necessarily in every
case) require the court to deem that the real beneficiary is the lender whose
interests were secured by the deed of trust or that lender's successors. If the
original lender had sold the loan, that purchaser would need to establish
ownership of that loan, either by demonstrating that it actually held the
promissory note or by documenting the chain oftransactions. Having MERS
convey its "interests" would not accomplish this.
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Bain, 175 Wash. 2d at 111 (footnote omitted). At a hearing on Schnall's second motion for
a preliminary injunction on September 27, 2011, counsel for Deutsche EJank presented
Schnall's original note. But Schnall argues this was insufficient to show that Deutsche
Bank was the holder of the note on the date that it appointed RTSC as l:r
rustee.
Presuming the facts stated by Schnall to be true, Schnall's claim under the DTA
is a claim upon which relief could be granted. Accordingly, the superior court erred in
dismissing this claim pursuant to CR 12(b)(6).
Schnall further argues that because the trustee's sale occurred outside the time
limits of RCW 61.24.040(6), RTSC lacked the statutory authority to conduct the sale.
Schnall concedes he did not raise this issue below. Even in the context of a CR
12(b)(6) motion, a litigant may not raise a legal issue for the first time on appeal when it
has failed to do so in the lower court. RAP 2.5(a); Karlberg v. Often, 167 Wash. App. 522,
531, 280 P.3d 1123 (2012) ("A failure to preserve a claim of error by presenting it first to
the trial court generally means the issue is waived. While an appellate court retains the
discretion to consider an issue raised for the first time on appeal, such discretion is
rarely exercised."). (Citation omitted.) Moreover, Schnall failed to name RTSC as a
party in his original complaint. We decline to address this issue.
Consumer Protection Act
Under Washington's CPA, "[ujnfair methods of competition and Unfair or
deceptive acts or practices in the conduct of any trade or commerce are . . . unlawful."
RCW 19.86.020. To prevail on a CPA claim, a plaintiff must prove (1) the defendant
engaged in an unfair or deceptive act or practice, (2) that the act occurred in trade or
commerce, (3) that the act affects the public interest, (4) that the plaintiff suffered injury
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to his business or property, and (5) the injury was causally related to the act. Hangman
Ridge Training Stables, Inc. v. Safeco Title Ins. Co.. 105 Wash. 2d 778, 780 , 719P.2d531
(1986). The failure to establish even one of these elements is fatal to the claim. Indoor
Billboard/Wash., Inc. v. Integra Telecom of Wash.. Inc.. 162 Wash. 2d 59, 74, 170P.3d10
(2007).
Schnall's opening brief devotes a mere two sentences to his CPA claim. He cites
only to Bain, arguing that Bain "indicates there may be a Consumer Protection Act
violation, where the Deed of Trust seeks to label MERS as beneficiary." Appellant's Br.
at 18. But Bain held that only the first and third criteria are presumptively met when
MERS is characterized as the beneficiary in a deed of trust; it did not hold that the injury
and causation elements were conclusively established. Schnall has no argued on
appeal that his complaint adequately pleaded all five criteria of a CPA claim This court
will not consider arguments that an appellant has not developed in its opening brief and
for which the appellant has cited no authority. State v. Bello, 142 Wash. App. 930, 932
n.3, 176 P.3d 554 (2008); see also Saunders v. Lloyd's of London, 113 Wash. 2d 330, 345,
779 P.2d 249 (1989) ("Absent adequate, cogent argument and briefing, we decline to
wander through the complexities of the Consumer Protection Act."). W^ therefore hold
that Schnall has abandoned his CPA claim on appeal.
Motion to Amend Complaint
Schnall assigns error to the superior court's denial of his motion :o amend his
complaint to add RTSC as a party and to incorporate additional facts arid claims.6 Once
6Schnall's amended complaint included claims for misrepresentation, breach of
contract, and deprivation of due process.
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a responsive pleading has been filed, a party may only amend its pleading by leave of
court or written consent of the opposing party. CR 15(a). Leave to amend a pleading
"shall be freely given when justice so requires." CR 15(a). However, in deciding
whether to grant a motion to amend, "the court may consider the probable merit or
futility of the amendments requested." Doyle v. Planned Parenthood of Seattle-King
County, Inc., 31 Wash. App. 126, 131, 639 P.2d 240 (1982).
Schnall contends that the superior court erred because it gave nb explanation for
its denial of leave to amend the complaint. The written order denying Schnall's motion
does not provide a basis for the superior court's ruling. But the superior court heard
argument on Schnall's motion and made an oral ruling that same day. Schnall does not
provide a transcript of the hearing.7 Schnall has the burden of perfecting the record so
that this court has before it all of the evidence relevant to the issue. RAp 9.2(b); State
v. Sisouvanh, 175Wn.2d 607, 619, 290 P.3d 942 (2012). He has not dbne so. Absent
an affirmative showing of error, we presume a superior court's decision to be correct.
Resident Action Council v. Seattle Housing Auth., 177 Wash. 2d 417, 446, 300 P.3d 376
(2013).
Denial of Preliminary Injunction
Finally, Schnall argues that the superior court erred in denying hils repeated
motions for a preliminary injunction. But an issue is "'technically moot if the court
cannot provide the basic relief originally sought, or can no longer provide effective
7 It appears from the record that the hearing was not recorded, But the rules of
appellate procedure contain provisions for circumstances where relevarit transcripts of
the superior court proceedings are unavailable. Schnall has failed to prpvide either a
narrative report of proceedings authorized by RAP 9.3 or an agreed report of
proceedings as described in RAP 9.4.
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relief.'" IBF, LLC v. Heuft, 141 Wash. App. 624, 630-31, 174 P.3d 95 (20p7) (quoting
Josephinium Assocs. v. Kahli, 111 Wn. App., 617, 622,45 P.3d 627 (2002) 8 Here, the
trustee's sale has already occurred; the action sought to be enjoined can no longer be
prevented. While Schnall has alleged facts that could establish that th^ trustee's sale
did not lawfully comply with the DTA, the relief he seeks cannot be provided by this
court. Thus, we do not address whether the superior court erred in denying the
preliminary injunction.9
CONCLUSION
We reverse the superior court's CR 12(b)(6) dismissal of Schnall s claim for
violation of the DTA. We affirm the dismissal of the CPA claim. We also affirm the
superior court's denial of Schnall's motion to amend his complaint and the denial of the
preliminary injunction. We remand for further proceedings.
WE CONCUR:
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8There are exceptions that permit a court to reach a moot issue, but these
exceptions do not apply to this case.
9 Schnall contends that the superior court erred in making findings of fact in its
order of dismissal pursuant to CR 12(b)(6). However, as Deutsche Bank and MERS
point out, the findings to which Schnall assigns error were made in support of the order
denying the preliminary injunction, not the order of dismissal. See San Juan County v.
No New Gas Tax, 160Wn.2d 141, 154, 157P.3d831 (2007) (superior c^ourt required to
make findings of fact when issuing a preliminary injunction).
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