Joel Johnson v. fhlmc/freddie Mac

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JOEL JOHNSON, a single person, No. 13-35596
Plaintiff-Appellant,
D.C. No.
v. 2:12-cv-01712-
TSZ
FEDERAL HOME LOAN MORTGAGE
CORPORATION, a foreign
corporation, OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Western District of Washington
Thomas S. Zilly, Senior District Judge, Presiding
Argued and Submitted
May 8, 2015—Seattle, Washington
Filed July 14, 2015
Before: J. Clifford Wallace, Andrew J. Kleinfeld,
and Ronald M. Gould, Circuit Judges.
Per Curiam Opinion
2 JOHNSON V. FHLMC
SUMMARY*
Mortgages
The panel affirmed the district court’s Fed. R. Civ. P.
12(b)(6) dismissal of a homeowner’s claims for breach of
contract and breach of fiduciary duty brought against the
Federal Home Loan Mortgage Corporation (“Freddie Mac”),
arising after the homeowner’s home was foreclosed.
Freddie Mac had purchased the homeowner’s mortgage
from Taylor, Bean & Whitaker Mortgage Co., the loan
originator. Taylor Bean, which had continued to service the
loan after selling it to Freddie Mac, failed to pay the
insurance premium from an escrow account and caused the
homeowner’s insurance to be cancelled.
The panel held that the homeowner failed to allege facts
that would establish that Freddie Mac had a contractual duty
to service the loan where Freddie Mac never agreed to
assume the servicing obligations when it purchased the loan
from Taylor Bean, the Deed of Trust provided that the
obligations would remain with Taylor Bean, and Washington
law did not prohibit the arrangement. The panel also held
that Freddie Mac did not assume the fiduciary duty of an
escrowee because under the Deed of Trust the duty to hold
money for the insurance premiums in escrow remained with
the loan servicer, Taylor Bean.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
JOHNSON V. FHLMC 3
COUNSEL
Joel B. Hanson (argued), Seattle, Washington, for Plaintiff-
Appellant.
Steven K. Linkon (argued), Joshua S. Schaer, RCO LEGAL,
P.S., Bellevue, Washington, for Defendant-Appellee.
OPINION
Joel Johnson, a homeowner, appeals from a 12(b)(6)
dismissal of his action against the Federal Home Loan
Mortgage Corporation, doing business as Freddie Mac, for
breach of contract and breach of fiduciary duty. Freddie Mac
had purchased Johnson’s mortgage from Taylor, Bean &
Whitaker Mortgage Co. (“Taylor Bean”), the loan originator,
on a secondary market. Taylor Bean, which had continued to
service the loan after selling it to Freddie Mac, failed to pay
the insurance premium from an escrow account and caused
Johnson’s insurance to be cancelled. The district court
dismissed the complaint against Freddie Mac because it
concluded that Freddie Mac did not assume any liability for
Taylor Bean’s conduct when it purchased the loan, and in the
alternative, even if it did, the Merrill doctrine precludes
liability. Because Johnson expressly agreed in the mortgage
contract that a subsequent purchaser of the loan would not
assume any servicing obligations, we affirm without
addressing the applicability of the Merrill doctrine.
FACTS
In 2008, Johnson refinanced his home loan with Taylor
Bean, secured by a Deed of Trust. His contract, the Deed of
4 JOHNSON V. FHLMC
Trust, named Johnson as “Borrower” and Taylor Bean as
“Lender.” The contract required Johnson to have a
homeowner’s insurance policy, which he purchased from
Safeco Insurance Co. The contract required him to pay the
insurance premium to an escrow account, from which Taylor
Bean would make the payments when they became due.
Section 20 of the Deed of Trust, “Sale of Note; Change of
Loan Servicer; Notice of Grievance,” provided that:
The Note or a partial interest in the Note
(together with this Security Instrument) can
be sold one or more times without prior notice
to Borrower. A sale might result in a change
in the entity (known as the “Loan Servicer”)
that collects Periodic Payments due under the
Note and this Security Instrument and
performs other mortgage loan servicing
obligations under the Note, this Security
Instrument, and Applicable Law. . . . If the
Note is sold and thereafter the Loan is
serviced by a Loan Servicer other than the
purchaser of the Note, the mortgage loan
servicing obligations to Borrower will remain
with the Loan Servicer or be transferred to a
successor Loan Servicer and are not assumed
by the Note purchaser unless otherwise
provided by the Note purchaser. (Emphasis
added.)
Shortly after originating the loan, Taylor Bean sold the
note and the Deed of Trust to Freddie Mac. Freddie Mac
contracted with Taylor Bean for Taylor Bean to continue to
service the loan. In October 2008, a batch of checks from
JOHNSON V. FHLMC 5
Taylor Bean to Safeco bounced, and Johnson’s insurance
premium was not paid on time. Safeco cancelled Johnson’s
insurance due to this nonpayment. Taylor Bean eventually
filed for bankruptcy, and Freddie Mac hired Central Loan
Administration & Reporting to replace Taylor Bean as loan
servicer.
In January 2009, Johnson’s home was destroyed by an
accidental fire. Safeco denied Johnson’s insurance claim
because the policy had been cancelled before the fire. Taylor
Bean’s lender-placed insurance policy with Mount Vernon
Fire Insurance Co. had become effective when the coverage
by Safeco was cancelled. The premiums were higher than
those of the cancelled Safeco policy. Safeco and Mount
Vernon eventually contributed to pay Johnson the insurance
proceeds of $186,000.
Meanwhile, Johnson’s monthly mortgage payments
increased from $1,500 to $2,300 to cover the higher
premiums, and Johnson’s living expenses increased because
his home had been destroyed. Beginning March 2010,
Johnson failed to make his monthly payments on his note.
Because Johnson was not current on his loan, he had to give
the fire insurance proceeds to the loan servicer, Central Loan.
In July 2011, Central Loan sent Johnson a letter accepting the
insurance proceeds as a final satisfaction of the debt. Next
month, Central Loan sent Johnson a notice of foreclosure.
According to Johnson, the practical effect of Taylor Bean’s
failure to apply Johnson’s monthly payments to Safeco was
that he lost his home.
In September 2011, Johnson filed a complaint against
Freddie Mac in Washington state superior court, alleging
breach of contract and breach of fiduciary duty and other
6 JOHNSON V. FHLMC
related claims. Freddie Mac removed the case to the federal
district court under 12 U.S.C. § 1452(f)(3), which allows a
removal of an action against Freddie Mac “at any time before
the trial.” The district court granted Freddie Mac’s motion to
dismiss under Rule 12(b)(6). Johnson appeals.
ANALYSIS
We review the 12(b)(6) dismissal de novo. Am. Bankers
Mortg. Corp. v. Fed. Home Loan Mortg. Corp., 75 F.3d 1401,
1406 (9th Cir. 1996). Construing the complaint in the light
most favorable to the plaintiff, we determine whether it
alleges enough facts “to state a claim to relief that is plausible
on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
570 (2007). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009).
On appeal, Johnson challenges the district court’s
dismissal of the breach of contract and breach of fiduciary
duty claims.
A. Breach of Contract
Johnson failed to allege facts that, if true, would establish
that Freddie Mac had a contractual duty to service the loan.
In his complaint, Johnson states that “Freddie Mac assumed
all [Taylor Bean’s] rights and obligations contained in the
Deed of Trust” when it purchased the loan from Taylor Bean
on the secondary market. But the Deed of Trust expressly
disavows any assumption of servicing obligations by a
subsequent purchaser of the loan, and Freddie Mac never
JOHNSON V. FHLMC 7
expressly assumed any such obligations. Although as a
general rule we may not consider any material beyond the
pleadings in ruling on a Rule 12(b)(6) motion, we may
consider extrinsic evidence not attached to the complaint if
the document’s authenticity is not contested and the
plaintiff’s complaint necessarily relies on it. Lee v. City of
Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). We consider
the Deed of Trust because its authenticity is not disputed and
because Johnson’s complaint necessarily relies upon it as the
source of Freddie Mac’s alleged duty to service Johnson’s
loan.
Though the complaint averred that “Freddie Mac assumed
all [Taylor Bean’s] rights and obligations contained in the
Deed of Trust,” this was a legal conclusion, not a fact, and
was belied by Section 20 of the Deed of Trust. “[T]he tenet
that a court must accept as true all of the allegations
contained in a complaint is inapplicable to legal conclusions.”
Iqbal, 556 U.S. at 678. “A pleading that offers ‘labels and
conclusions’ or ‘a formulaic recitation of the elements of a
cause of action will not do.’” Id. (quoting Twombly, 550 U.S.
at 555). Moreover, “we need not accept as true allegations
contradicting documents that are referenced in the
complaint.” Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588
(9th Cir. 2008).
In Section 20 of the Deed of Trust, Johnson and Taylor
Bean agreed that “[i]f the Note is sold and thereafter the Loan
is serviced by a Loan Servicer other than the purchaser of the
Note, the mortgage loan servicing obligations to Borrower
will remain with the Loan Servicer . . . and are not assumed
by the Note purchaser” (emphasis added). Therefore, when
Freddie Mac purchased Johnson’s loan from Taylor Bean, the
8 JOHNSON V. FHLMC
servicing obligations remained with Taylor Bean and Freddie
Mac did not assume them.
Johnson argued that under Washington law, which
governs the contractual relationship in this case, an assignee
assumes all of the assignor’s obligations under a real estate
mortgage, so upon purchasing the note, Freddie Mac
necessarily assumed Taylor Bean’s duty to pay the fire
insurance premiums. He relies on Paullus v. Fowler, in
which the Washington Supreme Court stated that “[a]n
assignee of a contract stands in the shoes of his assignor.”
367 P.2d 130, 135 (Wash. 1961). True, but under
Washington law, “an assignee in an executory contract is not
liable on the underlying obligations absent an express
assumption of those obligations.” Lewis v. Boehm, 947 P.2d
1265, 1270 (Wash. Ct. App. 1997). Another case that
Johnson relies on, Bain v. Metropolitan Mortgage Group,
Inc., addresses only whether a contractually agreed-upon
beneficiary of a mortgage can foreclose the mortgage without
actually holding the note. 285 P.3d 34, 41–42 (Wash. 2012)
(en banc). Bain does not bar splitting the loan servicing
duties from the right to receive the payments on the note.
Freddie Mac never agreed to assume the servicing
obligations when it purchased Johnson’s loan from Taylor
Bean, and Section 20 of the Deed of Trust provided that the
obligations would remain with Taylor Bean. Washington law
did not prohibit this arrangement. This arrangement is typical
for such home loans. Freddie Mac buys the notes and
security instruments, bundles them into securities, and sells
the securities representing the market value of the secured
home loans. It provides the money, not the day-to-day
servicing tasks, for home mortgage financing. “Mortgages
are only purchased from, and serviced by, approved
JOHNSON V. FHLMC 9
seller/servicers under the terms of contracts, the most
important document of which is the Sellers’ & Servicers’
Guide, a two-volume looseleaf publication.” Am. Bankers
Mortg. Corp. v. Fed. Home Loan Mortg. Corp., 75 F.3d 1401,
1404 (9th Cir. 1996). Under the Guide, which “sets forth
standards and requirements with which a seller/servicer must
comply in order to sell mortgages to, and service mortgages
for, Freddie Mac,” id., it is the seller, not Freddie Mac, who
“must service all Mortgages that the [seller] has sold to
Freddie Mac.” 1 Freddie Mac Single Family/Single-Family
Seller/Servicer Guide, § 1.2(a)-3.
B. Breach of Fiduciary Duty
Johnson also argues that because the Deed of Trust
required his monthly payments to be put in escrow to pay the
fire insurance premiums and Freddie Mac bought the note
and the Deed of Trust, it assumed the fiduciary duty of an
escrowee. This argument fails as well because of Section 20
of the Deed of Trust. The duty to hold the money for the
insurance premiums in escrow remained with the loan
servicer, Taylor Bean.
CONCLUSION
The district court correctly dismissed Johnson’s breach of
contract and breach of fiduciary duty claims under Rule
12(b)(6).
AFFIRMED.