Nancy Gardner v. Quicken Loans, Incorporated

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 14a0398n.06
No. 13-2257 FILED
Jun 02, 2014
DEBORAH S. HUNT, Clerk
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
NANCY GARDNER, )
)
Plaintiff-Appellant, )
)
v. ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
QUICKEN LOANS, INC., et al., ) COURT FOR THE EASTERN
) DISTRICT OF MICHIGAN
Defendants-Appellees. )
)
)
BEFORE: GUY, GIBBONS, GRIFFIN, Circuit Judges.
JULIA SMITH GIBBONS, Circuit Judge. In this mortgage foreclosure case, plaintiff-
appellant Nancy Gardner appeals the district court’s grant of the motion of the defendants-
appellees, Quicken Loans, Inc., Flagstar Bank, FSB, and Potestivo and Associates, P.C., to
dismiss for failure to state a claim upon which relief can be granted. We affirm.
I.
On May 18, 2007, Gardner executed a note in the amount of $215,200.00 to obtain a loan
from Flagstar to purchase real property commonly known as 7221 State Road, Burtchville,
Michigan 48059. As security for the loan, Gardner executed a mortgage on the property. On
May 22, 2007, the mortgage was recorded with the St. Clair County Register of Deeds, in Liber
3723 Page 10. Both the note and mortgage were in favor of Flagstar, as lender, with Mortgage
Electronic Registration Systems, Inc. (MERS) acting solely as the nominee for Flagstar and its
successors and assigns. The mortgage provided that MERS is the mortgagee under the
No. 13-2257
Gardner v. Quicken Loans Inc., et al.
mortgage. On March 4, 2013, the mortgage was assigned from MERS, as nominee for Flagstar
and its successors and assigns, to Quicken. The assignment was recorded with the St. Clair
County Register of Deeds.
Gardner defaulted on the note for nonpayment. On February 11, 2013, Potestivo, a debt
collector acting on behalf of Quicken, served a pre-foreclosure notice on Gardner notifying her
that default was made for nonpayment and that the amount due under the note was $207,350.35.
On March 6, Gardner responded, requesting a meeting with Potestivo to attempt to work out a
modification of the mortgage loan. On March 12, Potestivo replied, informing Gardner that it
was the designee for Quicken with regard to her loan pursuant to section 600.3205(a)(1)(c) of the
Michigan Compiled Laws. Potestivo advised that to initiate a modification, Gardner would need
to complete and return certain financial paperwork along with any supporting documentation
within seven days. Potestivo also advised that the ninety-day hold on foreclosure proceedings
would expire on May 13, 2013. Gardner responded on March 16. Instead of providing the
documentation Potestivo requested, Gardner requested documentation of Potestivo’s legal right
to negotiate with her and to enter into a modification agreement under the terms of the mortgage.
On March 25, Potestivo replied, stating that its response was in connection with Gardner’s
request that Quicken review the loan for a possible modification and again requesting that
Gardner complete and return certain financial paperwork along with supporting documentation
within seven days. The letter again advised that the ninety-day hold on foreclosure proceedings
would expire on May 13, 2013. On April 8, Potestivo again wrote to Gardner, noting the receipt
of her March 16 letter, explaining that it was the designee for Quicken, and advising that it must
receive Gardner’s documentation by April 12, 2013. On May 23, Potestivo again wrote to
Gardner, responding to her request for information about the mortgage loan. Potestivo reiterated
-2-
No. 13-2257
Gardner v. Quicken Loans Inc., et al.
that it was the designee for Quicken and informed Gardner that on March 4, 2013, the mortgage
was assigned from MERS as nominee for Flagstar to Quicken. Potestivo enclosed copies of the
note, mortgage, assignment, and correspondence from its office. The letter also informed
Gardner that Quicken was entitled to enforce the mortgage as the mortgagee of record, that the
outstanding balance of the loan was $210,270.10, and that a foreclosure sale was scheduled for
May 30, 2013. The foreclosure notice was posted on the door of the property and published four
times in the Port Huron Times Herald on April 19, April 25, May 3, and May 10, 2013. A
sheriff’s sale was held on May 30, 2013. Quicken was the highest bidder and received the
sheriff’s deed to the property. Gardner had six months to redeem the property, and the
redemption period expired on November 30, 2013.
A day before the sheriff’s sale, on May 29, 2013, Gardner filed a lawsuit in St. Clair
County circuit court against Flagstar, Quicken, and Potestivo. Gardner framed her complaint in
three counts. Count I sought a declaratory judgment of no debt owed the defendants because
they “failed to satisfy their burden of showing they are entitled to enforce the debt.” In Count I,
Gardner alleged multiple challenges to the foreclosure sale: (1) that the defendants failed to
comply with Article 3 of the UCC; (2) that they lacked “standing” to foreclose on her mortgage
because the defendants failed to endorse the note and were not a holder in due course; (3) that
she was entitled to a copy of the original note before Quicken could foreclose; and (4) that
Flagstar violated section 6 of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C.
§ 2605, because it sold the note shortly after it was originated. Count II alleged that the
mortgage was an unenforceable contract of adhesion. Count III sought injunctive relief barring
the defendants from proceeding with the foreclosure. On June 19, Quicken and Potestivo timely
removed the case to federal district court because Gardner alleged that Flagstar violated the
-3-
No. 13-2257
Gardner v. Quicken Loans Inc., et al.
REPSA, 12 U.S.C. § 2605. Flagstar consented to the removal. Quicken and Potestivo moved to
dismiss pursuant to Rule 12(b)(6). Flagstar concurred in the motion. On August 27, 2013, the
district court granted the defendants’ motion and dismissed Gardner’s case for failure to state a
claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6). Gardner v. Quicken
Loans, Inc., No. 13-12720, 2013 WL 4533085, at *1 (E.D. Mich. Aug. 27, 2013). Gardner
timely appealed.
II.
This court reviews de novo a district court’s grant of a motion to dismiss under Rule
12(b)(6). Top Flight Entm’t, Ltd. v. Schuette, 729 F.3d 623, 630 (6th Cir. 2013). Federal Rule of
Civil Procedure 12(b)(6) tests the sufficiency of a complaint. The rule permits dismissal for
“failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). “In
assessing a motion to dismiss under Rule 12(b)(6), this court construes the complaint in the light
most favorable to the plaintiff, accepts the plaintiff’s factual allegations as true, and determines
whether the complaint ‘contain[s] sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.’” Heinrich v. Waiting Angels Adoption Servs., Inc., 668 F.3d
393, 403 (6th Cir. 2012) (alteration in original) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)). “A plaintiff’s complaint must provide ‘more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not do.’” Id. (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Courts are not required to accept as true legal
conclusions couched as factual allegations. See Twombly, 550 U.S. at 555 (citing Papasan v.
Allain, 478 U.S. 265, 286 (1986)). “Factual allegations must be enough to raise a right to relief
above the speculative level on the assumption that all the allegations in the complaint are true
(even if doubtful in fact).” Id. (internal citations omitted). “[W]here the well-pleaded facts do
-4-
No. 13-2257
Gardner v. Quicken Loans Inc., et al.
not permit the court to infer more than the mere possibility of misconduct, the complaint has
alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’” Iqbal, 556 U.S. at 679
(second alteration in original) (quoting Fed. R. Civ. P. 8(a)(2)).
In reviewing this motion to dismiss, the panel may consider the complaint along with any
document not formally incorporated by reference or attached to the complaint as part of the
pleadings if the “document is referred to in the complaint and is central to the plaintiff’s claim.”
Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 514 (6th Cir. 1999) (internal quotation marks
omitted); see also Commercial Money Ctr., Inc. v. Ill. Union Ins. Co., 508 F.3d 327, 335−36 (6th
Cir. 2007) (“[W]hen a document is referred to in the pleadings and is integral to the claims, it
may be considered without converting a motion to dismiss into one for summary judgment.”);
Weiner v. Klais & Co., 108 F.3d 86, 89 (6th Cir. 1997) (“‘[D]ocuments that a defendant attaches
to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff’s
complaint and are central to her claim.’” (quoting Venture Assocs. Corp. v. Zenith Data Sys.
Corp., 987 F.2d 429, 431 (7th Cir. 1993))). Hence, in this case, the panel may consider
documents relating the note, mortgage, assignment, loan modification process, and foreclosure
that are referenced in the complaint and integral to Gardner’s claims.
Gardner’s complaint raised claims under both Michigan and federal law. As to the
former, this court applies the substantive law of Michigan and federal procedural law. Biegas v.
Quickway Carriers, Inc., 573 F.3d 365, 374 (6th Cir. 2009) (citing Erie R. Co. v. Tompkins, 304
U.S. 64 (1938)). In applying Michigan law, we “must ‘follow the decisions of the state’s highest
court when that court has addressed the relevant issue.’” Savedoff v. Access Grp., Inc., 524 F.3d
754, 762 (6th Cir. 2008) (quoting Talley v. State Farm Fire & Cas. Co., 223 F.3d 323, 326 (6th
Cir. 2000)).
-5-
No. 13-2257
Gardner v. Quicken Loans Inc., et al.
On appeal, Gardner ignores the district court’s dismissal of some claims and raises other
new claims. Gardner does not challenge the district court’s dismissal of the RESPA claim, the
contract of adhesion claim, or the claim that she was entitled to a copy of the original note before
the initiation of foreclosure proceedings. Those claims are therefore forfeited. See Farm Labor
Org. Comm. v. Ohio State Highway Patrol, 308 F.3d 523, 544 n.8 (6th Cir. 2002) (“It is well
established that an issue not raised in a party’s briefs on appeal may be deemed waived.” (citing
Ahlers v. Schebil, 188 F.3d 365, 374 (6th Cir. 1999))). Gardner does, however, challenge the
authority of Potestivo and Quicken to initiate the foreclosure sale because the assignment of the
mortgage was invalid. This claim is raised for the first time on appeal and therefore is not
properly before this court. J.C. Wyckoff & Assocs. v. Standard Fire Ins. Co., 936 F.2d 1474,
1488 (6th Cir. 1991).
Of the properly presented claims, the focus of Gardner’s challenge is that Quicken and
Potestivo did not lawfully initiate the foreclosure sale because they cannot show that they are the
holder of the note. Gardner couches this challenge as a failure to comply with Article 3 of the
UCC, specifically the requirement that a person who makes a “presentment” of an instrument
must, upon demand, exhibit the instrument and give reasonable identification. See Mich. Comp.
Laws § 440.3501. But, as several district courts have properly concluded, the UCC does not
apply to mortgage foreclosures. Schare v. Mortgage Elec. Registration Sys., Inc., No. 11-cv-
11889, 2012 WL 2031958 (E.D. Mich. June 6, 2012) (holding that Article 3 of the UCC is
inapplicable to mortgages); Jaboro v. Wells Fargo Bank, N.A., No. 10-11686, 2010 WL
5296939, at *6 (E.D. Mich. Dec. 20, 2010) (same). More importantly, the highest state court to
have addressed the relevant issue has also held that “[a] mortgage instrument is not a negotiable
instrument since it does not ‘contain an unconditional promise or order to pay a sum certain. . . .”
-6-
No. 13-2257
Gardner v. Quicken Loans Inc., et al.
Mox v. Jordan, 463 N.W.2d 114, 115 (Mich. Ct. App. 1990) (alternation in original) (quoting
Mich. Comp. Laws § 440.3104(1)(b)). The Mox court explained that “[a] mortgage merely
secures payment of the negotiable instrument. In effect, the mortgagor merely grants a security
interest in the real estate to the mortgagee.” Id. (citing Barbour v. Handlos Real Estate & Bldg.
Corp., 393 N.W.2d 581, 588 (Mich. Ct. App. 1986)); see also Schare, 2012 WL 2031958, at *1–
2 (noting that the argument that the defendant did not meet the UCC’s requirements to enforce a
negotiable instrument has been rejected sub silentio by the Michigan Supreme Court (citing
Residential Funding Co. v. Saurman, 805 N.W.2d 183 (Mich. 2011))). Therefore, Gardner is not
entitled to relief on this claim.1
Gardner also reasserts the bare claim that Quicken and Potestivo lacked authority to
conduct the foreclosure sale because neither defendant is the holder of the note. Michigan’s
foreclosure-by-advertisement statute does not require that the underlying note be endorsed to the
party instituting the foreclosure or that that party be a holder or a holder-in-due-course of the
note. Rather, the statute only requires that the party instituting the foreclosure have an interest in
the indebtedness secured by the mortgage. Mich. Comp. Laws § 600.3204(1)(d). The Supreme
Court of Michigan has held that mortgagees of record have an interest in the indebtedness.
Saurman, 805 N.W.2d at 184 (“[T]he Legislature’s use of the phrase ‘interest in the
indebtedness’ to denote a category of parties entitled to foreclose by advertisement indicates the
intent to include mortgagees of record among the parties entitled to foreclose by advertisement,
1
Gardner also asserts on appeal that the mortgage is a security instrument subject to
Article 9 of the UCC. This argument was not conspicuously presented, but it seems that
Gardner’s claim is that Article 9 requires that only the note holder can enforce its security
instrument, the mortgage. In her complaint, Gardner did not specifically challenge the
foreclosure sale as in violation of any provision in Article 9 of the UCC. Accordingly, the claim
is not properly presented on appeal. See J.C. Wyckoff, 936 F.2d at 1488. And, in any event,
removed from its UCC housing, Gardner’s argument is addressed and rejected below.
-7-
No. 13-2257
Gardner v. Quicken Loans Inc., et al.
along with parties who ‘own[ ] the indebtedness’ and parties who act as ‘the servicing agent of
the mortgage.’” (second alteration in original) (quoting Mich. Comp. Laws § 600.3204(1)(d))).
Furthermore, the Saurman court restated its longstanding view that “[i]t has never been
necessary that the mortgage should be given directly to the beneficiaries. The security is always
made in trust to secure obligations, and the trust and the beneficial interest need not be in the
same hands. . . . The choice of a mortgagee is a matter of convenience.” Id. (second alteration in
original) (citing Adams v. Niemann, 8 N.W. 719, 720 (Mich. 1881)). In other words, “[u]nder
Michigan law, it is lawful for the holder of the mortgage to be different from the holder of the
debt.” Hargrow v. Wells Fargo Bank N.A., 491 F. App’x 534, 538 (6th Cir. 2012) (citing
Saurman, 805 N.W. at 184). Accordingly, the district court properly dismissed the claim that
Quicken and Potestivo lacked the authority to initiate the foreclosure sale because neither is the
holder of the note.
III.
For the foregoing reasons, we affirm the district court’s grant of the defendants’ motion
to dismiss.
-8-