Rocio Trujillo v. Northwest Trustee Services, Inc.

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
ro 'jlCD
ROCIO TRUJILLO, an unmarried No. 70592-0-1
woman,
DIVISION ONE *"i i
Appellant, 1
ro
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NORTHWEST TRUSTEE SERVICES, PUBLISHED
co 'I
INC., a Washington corporation,
FILED: June 2, 2014
Respondent,
WELLS FARGO, NA,
Defendant.
Cox, J. — The question that we decide is whether the successor trustee
under a deed of trust securing a delinquent note in this case breached its duty of
good faith under the Deeds ofTrust Act, RCW 61.24.010(4).1 Specifically, we
decide whether Northwest Trustee Services Inc. (NWTS), the successor trustee,
was entitled to rely on the beneficiary declaration of Wells Fargo Bank, N.A. for
authority to schedule a trustee's sale of property owned by Rocio Trujillo. We
hold that the declaration satisfies the requirements of RCW 61.24.030(7)(a).
Under the circumstances of this case, NWTS was entitled to rely on that
Brief of Appellant (Oct. 7, 2013) at 7.
No. 70592-0-1/2
declaration as evidence of the proof required under this statute. NWTS did not
violate its duty of good faith under the Deeds of Trust Act.
The trial court properly granted NWTS's CR 12(b)(6) motion to dismiss.
We affirm.
The material facts are not disputed. In 2006, Trujillo obtained a loan for
$185,900 from Arboretum Mortgage Corp. This loan was evidenced by a
promissory note that was secured by a deed of trust dated March 29, 2006
encumbering her real property.2 The deed of trust was recorded in King County,
Washington on March 31, 2006.3
Trujillo claims that Arboretum sold this loan to Wells Fargo in 2006.4 She
further claims that Wells Fargo sold the loan to the Federal National Mortgage
Association ("Fannie Mae") and retained the loan servicing rights.5
This record reflects that the deed of trust was assigned to Wells Fargo
from Arboretum by the Assignment of Deed ofTrust dated February 2, 2012.6
The assignment was recorded in King County, Washington on February 2, 2012.7
2 Clerk's Papers at 17.
3]o\
4 Brief of Appellant at 6.
5 Id,
6 Clerk's Papers at 35.
7 Id.
No. 70592-0-1/3
Trujillo admits that she "defaulted on [her loan] on November 1, 2011."8
By its beneficiary declaration dated March 14, 2012, delivered to NWTS,
Wells Fargo declared under penalty of perjury that Wells Fargo "is the actual
holder of the promissory note . . . evidencing the [delinquent Trujillo] loan or has
requisite authority under RCW 62A.3-301 to enforce said [note]."9
The Notice of Default dated May 30, 2012, which NWTS transmitted to
Trujillo, itemized the amounts in arrears for the delinquent loan.10 Moreover, the
notice provided to Trujillo contained certain contact information for her delinquent
loan.11 Specifically, this notice states, "The owner of the note is Federal National
Mortgage Association (Fannie Mae)," and it further provides Fannie Mae's
address.12 The same page of this notice states, "The loan servicer for this loan is
Wells Fargo Bank, N.A.," and it further states Wells Fargo's address.13
NWTS recorded the Notice of Trustee's Sale dated July 3, 2012.14 The
notice was recorded on July 10, 2012, and it scheduled a sale date of November
8 Plaintiff Trujillo's Complaint Against Foreclosure in Violation of
Washington Deed of Trust Act at 3; Brief of Appellant at 6.
9 Clerk's Papers at 36.
10 ]d, at 37-39.
11 Id at 38.
12 jd,
13 id,
14 Id. at 41-44.
No. 70592-0-1/4
9, 2012 for Trujillo's property.15 Although this record does not tell us, we assume
that sale did not occur, as originally scheduled. We reach this conclusion
because this action followed that November 2012 scheduled sale date.
In February 2013, Trujillo, acting pro se, commenced this action against
NWTS and Wells Fargo. She claimed that NWTS and Wells Fargo violated
various provisions of the Deeds of Trust Act. She also claimed violations of the
Criminal Profiteering Act and the Consumer Protection Act. She sought
damages for these alleged violations as well as for claimed intentional infliction of
emotional distress. Moreover, she sought injunctive relief to restrain the
successor trustee's sale of her property as well as an award of attorney fees.
NWTS moved to dismiss Trujillo's complaint pursuant to CR 12(b)(6). The
trial court granted this motion and dismissed with prejudice her claims against
NWTS. From this record, it appears that the trial court allowed separate claims
against Wells Fargo to stand unaffected by the court's decision on this NWTS
motion.16
Trujillo appeals. Wells Fargo is not a party to this appeal.17
STANDARD OF REVIEW
Trujillo argues that we should review the trial court's order as a summary
judgment order under CR 56(c). NWTS argues that the trial court's order should
be reviewed as a dismissal under CR 12(b)(6). We agree with NWTS.
15 Id, at 41-42.
16 Report of Proceedings (May 31, 2013) at 20-21.
17 Notice of Appeal at 1.
No. 70592-0-1/5
In Cutlery. Phillips Petroleum Co., the supreme court explained that
courts should "dismiss a claim under CR 12(b)(6) only if it appears beyond a
reasonable doubt that no facts exist that would justify recovery."18 "'Under this
rule, a plaintiff's allegations are presumed to be true', and 'a court may consider
hypothetical facts not part of the formal record.'"19 "CR 12(b)(6) motions should
be granted 'sparingly and with care' and 'only in the unusual case in which
plaintiff includes allegations that show on the face of the complaint that there is
some insuperable bar to relief.'"20
CR 12(b)(6), in part, provides:
Every defense, in law or fact, to a claim for relief in any pleading,
whether a claim, counterclaim, cross claim, or third party claim,
shall be asserted in the responsive pleading thereto if one is
required, except that the following defenses may at the option of
the pleader be made by motion:... (6) failure to state a claim upon
which relief can be granted .... A motion making any of these
defenses shall be made before pleading if a further pleading is
permitted.... Ifa pleading sets forth a claim for relief to which the
adverse party is not required to serve a responsive pleading, he
may assert at the trial any defense in law or fact to that claim for
relief. If, on a motion asserting the defense numbered (6) to
dismiss for failure of the pleading to state a claim upon which
relief can be granted, matters outside the pleading are
presented to and not excluded by the court, the motion shall
be treated as one for summary judgment and disposed of as
provided in rule 56, and all parties shall be given reasonable
opportunity to present all material made pertinent to such a
motion by rule 56.[2^
18 124 Wash. 2d 749, 755, 881 P.2d 216 (1994).
19]d,
20 id, (quoting Hoffer v. State, 110 Wash. 2d 415, 420, 755 P.2d 781 (1988)).
21 (Emphasis added.)
No. 70592-0-1/6
A trial court's ruling on a motion to dismiss for failure to state a claim upon
which relief can be granted under CR 12(b)(6) is a question of law and is
reviewed de novo by an appellate court.22
In contrast, under CR 56(c), a party may move for summary judgment if
there is no genuine issue of material fact and the moving party is entitled to a
judgment as a matter of law. A trial court's grant of summary judgment is also
reviewed de novo.23
An appellate court treats a motion to dismiss as a motion for summary
judgment "when matters outside the pleading are presented to and not excluded
by the court."24 But as the rule and case authority plainly indicate "[d]ocuments
whose contents are alleged in a complaint but which are not physically attached
to the pleading may ... be considered in ruling on a CR 12(b)(6) motion to
dismiss."25 Correspondingly, where matters outside the pleadings are not
considered by the court, the motion is not treated as one for summary
judgment.26
22 Cutler. 124Wn.2dat755.
23 Aba Sheikh v. Choe. 156 Wash. 2d 441, 447, 128 P.3d 574 (2006).
24 Sea-Pac Co., Inc. v. United Food and Commercial Workers Local Union
44, 103 Wash. 2d 800, 802, 699 P.2d 217 (1985).
25 Rodriguez v. Loudeve Corp.. 144 Wash. App. 709, 726, 189 P.3d 168
(2008).
26 Id. at 725.
No. 70592-0-1/7
Additionally, where the "basic operative facts are undisputed and the core issue
is one of law," the motion to dismiss need not be treated as a motion for
summary judgment.27
Here, the trial court entered an order granting NWTS's motion to dismiss
under CR 12(b)(6). Because the supporting documents the trial court considered
were alleged in the complaint and the "basic operative facts are undisputed and
the core issue is one of law," we review the order under CR 12(b)(6), not as a
summary judgment under CR 56(c).28
RCW61.24.030(7)(a)
In her briefing, Trujillo identifies the sole issue on appeal as: Whether
NWTS breached its duty of good faith by "recording, transmitting and serving the
[notice of trustee's sale] after receiving a declaration from Wells [Fargo] stating
that [the bank] was the actual holder of the Note."29 The essence of the claim
that she asserts is that the beneficiary declaration that Wells Fargo signed under
penalty of perjury and delivered to NWTS did not satisfy the requirements of
RCW 61.24.030(7)(a).30 We hold that the declaration satisfied this statute.
27 Ortblad v. State, 85 Wash. 2d 109, 111, 530 P.2d 635 (1975).
28 id,
29 Brief of Appellant at 7.
30 Id. at 12-16, 26-27.
No. 70592-0-1/8
"When construing a statute, our goal is to determine and effectuate
legislative intent."31 We first "give effect to the plain meaning of the language
used as the embodiment of legislative intent" where possible.32 "We determine
plain meaning 'from all that the Legislature has said in the statute and related
statutes which disclose legislative intent about the provision in question.'"33 "In
general, words are given their ordinary meaning, but when technical terms and
terms of art are used, we give these terms their technical meaning."34
This court reviews de novo questions involving the interpretation of
statutes.35
The Deeds of Trust Act, specifically RCW 61.24.030, states certain
requisites for a trustee's sale for a nonjudicial foreclosure of a deed of trust. The
version of this statute that was in effect at the time of commencement of the
nonjudicial foreclosure proceeding involving Trujillo's real property in early 2012
stated, in relevant part:
It shall be requisite to a trustee's sale:
31 Swinomish Indian Tribal Cmtv. v. Wash. State Dep't of Ecology, 178
Wash. 2d 571, 581, 311 P.3d 6 (2013).
32
Id.
33 Id, (internal quotation marks omitted) (quoting TracFone Wireless, Inc.
v. Wash. Dep't of Revenue. 170 Wash. 2d 273, 281, 242 P.3d 810 (2010)).
34 id,
35 Dep't of Ecology v. Campbell & Gwinn, LLC, 146 Wash. 2d 1, 9, 43 P.3d 4
(2002).
8
No. 70592-0-1/9
(7)(a) That, for residential real property, before the notice of
trustee's sale is recorded, transmitted, or served, the trustee shall
have proof that the beneficiary is the owner of any promissory
note or other obligation secured by the deed of trust. A declaration
by the beneficiary made under the penalty of perjury stating that the
beneficiary is the actual holder of the promissory note or other
obligation secured by the deed of trust shall be sufficient proof as
required under this subsection.
(b) Unless the trustee has violated his or her duty under RCW
61.24.010(4), the trustee is entitled to rely on the beneficiary's
declaration as evidence of proof required under this
subsection.[36]
Both the former and current versions of RCW 61.24.030(7)(a) require a
trustee or successor trustee to have proof that the beneficiary has authority to
enforce a note "secured by the deed of trust" before recording a notice of a
trustee's sale.37 Prior to the 2011 amendments to this statute, there was no such
proof requirement.38
RCW 61.24.030(7)(a) specifies what proof of authority to enforce such a
note "shall be sufficient." Finally, unless the trustee or successor trustee violates
his or her duty under RCW 61.24.010(4), he or she is "entitled to rely on the
beneficiary's declaration" to satisfy the proof requirement ofthe statute.39
Here, the parties advance conflicting views on how to read and properly
apply RCW 61.24.030(7)(a). Trujillo claim that NWTS was required to obtain
36 Former RCW 61.24.030 (Laws of 2011, ch. 58, § 4) (emphasis added).
37 Compare id., with RCW 61.24.030 (Laws of 2012, ch. 185, § 9); see
also RCW 61.24.010(2) (permitting the resignation of a trustee named in a deed
of trust and the appointment of a successor trustee).
38 See former RCW 61.24.030 (Laws of 2009, ch. 292, § 8).
39RCW61.24.030(7)(b).
No. 70592-0-1/10
proof from Wells Fargo that it was the "owner" of her delinquent note.40 She
further claims that without such proof the successor trustee was not authorized to
record the notice of trustee's sale.41 This argument is primarily based on the first
sentence of this statute, which refers to the beneficiary as the "owner" of the
note.
NWTS disagrees with this argument. It argues that Wells Fargo, the
beneficiary, was the "holder" of the note and, as such, had the authority to
provide the proof required under this statute.42 This argument is primarily based
on the second sentence of the statute, which refers to the beneficiary as the
"holder" of the note. NWTS further argues that it both complied with this statute
and its duty of good faith under the Deeds of Trust Act. Thus, it claims it was
entitled to rely on the beneficiary declaration that Wells Fargo provided.
Commentators have noted that there has been considerable confusion
both in judicial decisions and statutes over the distinction between the "owner" of
a note and the "holder," who has the right to enforce the note.43 They have also
identified Washington's Deeds of Trust Act as an example of this confusion.44
40 Brief of Appellant at 7.
41 Id.
42 Opening Brief of Appellee Northwest Trustee Services, Inc. at 5-6.
43 Dale A. Whitman & Drew Milner, Foreclosing on Nothing: The Curious
Problem of the Deed of Trust Foreclosure without Entitlement to Enforce the
Note, 66 Ark. L. Rev. 21, 26 (2013).
44 id, at 26 n.23.
10
No. 70592-0-1/11
Resolution of the conflicting views in this case requires that we determine
the legislature's intent in enacting this statute. To determine legislative intent, we
focus our inquiry by examining certain key terms of this statute—"beneficiary,"
"owner," and "holder." In examining these key terms, we determine their plain
meanings from what this statute and related statutes say about them.45 And
where these technical terms are used, we give them their technical meanings.46
The first of these technical terms in RCW 61.24.030(7)(a) is "beneficiary."
There is no dispute in this case that Wells Fargo is the "beneficiary" of the deed
of trust securing Trujillo's delinquent note. This record contains the beneficiary
declaration of Wells Fargo dated March 14, 2012 that states:
BENEFICIARY DECLARATION
(NOTE HOLDER)
(Executed by Officer of Beneficiary)
The undersigned, under penalty of perjury declares as
follows:
Wells Fargo Bank, NA is the actual holder of the [Trujillo]
promissory note ... or has requisite authority under RCW 62A.3-
301 to enforce said obligation.
[s/ Vice President of Loan Documentation]1471
There is no evidence in this record that contests either the validity or
truthfulness of this beneficiary declaration, signed by an officer of Wells Fargo
45 Swinomish Indian Tribal Cmtv.. 178 Wash. 2d at 581.
46 id,
47 Clerk's Papers at 36.
11
No. 70592-0-1/12
under penalty of perjury and delivered to NWTS for the purpose of complying
with this statute. Absent conflicting evidence, the declaration should be taken as
true.
We note that our conclusion about the status of Wells Fargo is consistent
with the supreme court's analysis in Bain v. Metropolitan Mortgage Group, Inc.
regarding the Deeds of Trust Act's definition of "beneficiary."48 As that court held,
the beneficiary is "the holder of the instrument or document evidencing the
obligations secured by the deed of trust, excluding persons holding the same as
security for a different obligation."49 The "instrument. . . evidencing the
obligation secured" by the deed of trust is the note in this case.50 And the
Uniform Commercial Code further clarifies that the "'holder'" of the note means
"'the person in possession'" of the note.51
This record reflects that Trujillo concedes in her pleadings that "as soon as
Wells [Fargo] began the foreclosure process, Fannie Mae transferred
possession of the Note to Wells [Fargo]."52 This concession is significant in that
it is consistent with the beneficiary declaration before us. It is also consistent
48 175 Wash. 2d 83, 98-99, 285 P.3d 34 (2012).
49 id, (emphasis added) (quoting RCW 61.24.005(2)).
50 See id. at 101-03.
51 id, at 103-04 (quoting former RCW 62A. 1-201 (20) (2001)).
52 Plaintiff Trujillo's Complaint Against Foreclosure in Violation of
Washington Deed of Trust Act at 4 (emphasis added).
12
No. 70592-0-1/13
with Bain's discussion of who constitutes a beneficiary for purposes of the Deeds
of Trust Act.
For these reasons, we conclude that Wells Fargo, which states under
penalty of perjury, that it is the holder of the note, has provided proof that it is the
"beneficiary" of the deed of trust securing the delinquent note for purposes of this
statute.
We next consider the technical term "owner" in this statute. The term
"owner" is not defined in the Deeds of Trust Act. Likewise, the UCC does not
define the term for purposes of Article 3, Negotiable Instruments. Nevertheless,
commentators have characterized ownership as "the right to economic benefits
of the note."53
The UCC does, however, make clear that the "person entitled to enforce"
a note is not synonymous with the "owner" of the note. That distinction is
explained in UCC Comment 1 to RCW 62A.3-203, which states in relevant part:
Although transfer of an instrument might mean in a particular
case that title to the instrument passes to the transferee, that result
does not follow in all cases. The right to enforce an instrument
and ownership of the instrument are two different concepts. A
thief who steals a check payable to bearer becomes the holder of
the check and a person entitled to enforce it, but does not become
the owner of the check. If the thief transfers the check to a
purchaser the transferee obtains the right to enforce the check. If
the purchaser is not a holder in due course, the owner's claim to
the check may be asserted against the purchaser. Ownership
rights in instruments may be determined by principles of the law of
property, independent of Article 3, which do not depend upon
whether the instrument was transferred under Section 3-203.
53 Whitman, supra note 43, at 25.
13
No. 70592-0-1/14
Moreover, a person who has an ownership right in an
instrument might not be a person entitled to enforce the
instrument. For example, suppose X is the owner and holder of
an instrument payable to X. X sells the instrument to Y but is
unable to deliver immediate possession to Y. Instead, X signs a
document conveying all of X's right, title, and interest in the
instrument to Y. Although the document may be effective to give Y
a claim to ownership of the instrument, Y is not a person entitled to
enforce the instrument until Y obtains possession of the instrument.
No transfer of the instrument occurs under Section 3-203(a) until it
is delivered to Y.
. . .[54]
The absence of a definition of "owner" in either the Deeds of Trust Act or
the UCC is not fatal to our determination of the effect of that term in RCW
61.24.030(7)(a). We say so for several reasons.
First, the use of different words in the same statute ordinarily means that
the legislature did not intend them to mean the same thing.55 Applying that
principle here, we conclude that the legislature intended the words "owner" and
"holder" to mean different things. Indeed, as we explained earlier in this opinion,
the UCC states that these terms are not synonymous.56
Second, the supreme court stated decades ago that although these terms
are not synonymous, this does not preclude the possibility that an "owner" of a
note may also be its "holder." Where one has the status of both "owner" and
"holder," it is the status of holder of the note that entitles the entity to enforce the
obligation. Ownership of the note is not dispositive.
54 (Emphasis added.)
55 Guillen v. Contreras, 169 Wash. 2d 769, 776-77, 238 P.3d 1168 (2010).
56 See UCC Comment 1 to RCW 62A.3-203.
14
No. 70592-0-1/15
The supreme court stated these principles in John Davis & Co. v. Cedar
Glen No. Four, Inc.57 In that case, the supreme court had before it an appeal of a
mortgage foreclosure in which John Davis & Company had foreclosed on real
property to satisfy delinquent notes of a corporation.58 James R. Scott and his
wife held mortgages against the same property.59 The superior court decided
that the mortgages of John Davis securing the delinquent notes had lien priority
over the mortgages held by the Scotts.60 The Scotts appealed.
On appeal, the Scotts contested the priority of the liens of the John Davis
mortgages.61 They argued that John Davis did not have authority to foreclose
the mortgages.62 This was based on the fact that a corporation other than John
Davis had advanced to the borrower the funds for the loans evidenced by the
notes that were secured by the mortgages held by John Davis at the time of the
foreclosure.63 The supreme court rejected that contention by stating:
[John Davis] is the holder and owner of the notes and
mortgages of the [borrower]. The holder of a negotiable instrument
may sue thereon in his own name, and payment to him in due
course discharges the instrument. See RCW 62.01.051. It is not
57 75 Wash. 2d 214, 450 P.2d 166 (1969).
58 id, at 215.
59 id,
60 id,
61 id, at 222.
62 id,
63 id,
15
No. 70592-0-1/16
necessary for the holder to first establish that he has some
beneficial interest in the proceeds.[64]
This passage explains that, at common law, the holder of a note could
also be its owner at the same time. In that case, John Davis was both "holder
and owner" of the notes, as the court expressly stated in the opinion.
Significantly, the quoted language also makes clear that, at common law,
it was the status of holder of the note that was dispositive on the question of who
had authority to enforce the note and mortgage. Likewise, payment to the holder
discharged the debt evidenced by the note, regardless of ownership. The
question of ownership was irrelevant to both enforcement and discharge, as
evidenced by the omission of the term "owner" in the above discussion by the
supreme court concerning enforcement and discharge.
It is also noteworthy that the supreme court cited former RCW 62.01.051
in support of its analysis in John Davis. The case was decided in 1969, but the
events it described occurred before enactment of the UCC in Washington in
1965.
Significantly, the principles of former RCW 62.01.051 were incorporated
into Article 3, Negotiable Instruments, when the UCC was enacted in
Washington.65 Specifically, RCW 62A.3-301 now states:
"Person entitled to enforce" an instrument means (i) the holder of
the instrument, (ii) a nonholder in possession of the instrument who
has the rights of a holder, or (iii) a person not in possession of the
instrument who is entitled to enforce the instrument pursuant to
64 ]d, at 222-23 (emphasis added).
65 See former RCW 62.01.051 (1955).
16
No. 70592-0-1/17
RCW 62A.3-309 or 62A.3-418(d). A person may be a person
entitled to enforce the instrument even though the person is not the
owner of the instrument or is in wrongful possession of the
instrument.!66^
The language of subsection (i) of this provision of the current UCC makes
clear, as did the John Davis court, that the "holder" of a note is entitled to enforce
the note. It also makes clear that a "holder" may enforce the note "even though
the [holder] is not the owner" of the note.67
We have no reason to conclude that the legislature intended to depart
from either the common law, as articulated in John Davis, or the UCC, as
articulated in RCW62A.3-301, in enacting RCW61.24.030(7)(a) regarding proof
of who is entitled to enforce a note that is secured by a deed of trust. The
language of the first sentence of RCW 61.24.030(7)(a) could have more clearly
stated that a beneficiary who is the owner of a note is not always the holder of
the note. The holder is entitled to enforce it. Better still, the legislature could
have eliminated any reference to "owner" of the note in this provision because it
is the "holder" of the note who is entitled to enforce it, regardless of ownership.
Nevertheless, when we consider the second sentence of this statute,
specifying that the beneficiary must be the holder of the note for purposes of
proof, together with the case authority and other related statutes we have
discussed, we must conclude that the required proof is that the beneficiary must
be the holder of the note. It need not show that it is the owner of the note.
66 (Emphasis added.)
67RCW62A.3-301.
17
No. 70592-0-1/18
We next address the meaning of the technical term "holder." In doing so,
we follow the analysis and conclusion set forth by the supreme court in Bain.68
There, the supreme court explained that the interpretation of the Deeds of
Trust Act should be guided by relevant provisions of the Washington UCC, which
include Article 3, Negotiable Instruments, and Article 1, general provisions.69
RCW 62A. 1-201 provides the definition of "holder" of a note:
(21) "Holder" with respect to a negotiable instrument, means:
(A) The person in possession of a negotiable instrument that is
payable either to bearer or to an identified person that is the person
in possession;. . . .[70]
Like the definition for "beneficiary," the definition of "holder" does not include any
reference to the term "owner."
Here, as we observed early in this opinion, the record reflects that Wells
Fargo had possession of Trujillo's note from the beginning of the foreclosure
proceeding.71 By definition, it is the "holder" of that note.
Moreover, as the beneficiary declaration states, Wells Fargo is also
entitled to enforce the note, a negotiable instrument, under RCW 62A.3-301
because it is the "holder of the instrument." RCW 61.24.030(7)(a), properly read,
does not require Wells Fargo to also be the "owner" of the note. Rather, it
68 Bain, 175 Wash. 2d at 103-04.
69 Id,
70 (Emphasis added.)
71 See PlaintiffTrujillo's Complaint Against Foreclosure in Violation of
Washington Deed of Trust Act at 4.
18
No. 70592-0-1/19
requires that a person entitled to enforce a note be a holder and need not also be
an owner.
In sum, the beneficiary declaration in this case is sufficient under RCW
61.24.030(7)(a). Proof that Wells Fargo was the holder of the note was sufficient
under this statute.
At oral argument of this case, recently retained appellate counsel for
Trujillo made a new argument on appeal. Counsel conceded, as the record
reflects, that "as soon as Wells [Fargo] began the foreclosure process, Fannie
Mae transferred possession of the Note to Wells [Fargo]."72 Nevertheless,
counsel took the position that such possession was not "legal possession of the
promissory note as required to be the 'holder' under the UCC, RCW62A.1-
201(b)(21), and to be the 'beneficiary' under the Deed[s] of Trust Act, RCW
61.24.005(2)."73 In support of this argument, counsel cites the Report of the
Permanent Editorial Board for the Uniform Commercial Code dated November
14, 2011 ("Report").74 Counsel also cites § 18.31 of Washington Practice,
"Powers of Collection Agents."75 Because these authorities have nothing to do
with this case, we reject this new argument on appeal.
72 id, (emphasis added).
73 Statement of Additional Authorities (April 3, 2014) at 1-2.
74 id, (citing Report of Permanent Editorial Board for the Uniform
Commercial Code, Application of the Uniform Commercial Code to Selected
Issues Relating to Mortgage Notes 9 n.38 (2011)).
75 id, at 2 (citing 18 William B. Stoebuck &John W. Weaver, Washington
Practice: Real Estate Transactions § 18.31, at 364-66 (2d ed. 2004)).
19
No. 70592-0-1/20
This argument is primarily based on footnote 38 of the Report. That
footnote cites UCC § 9-313 and then discusses how possession of collateral may
not be relinquished when it is delivered to another person.76 However, it is vital
to understand the context of this footnote. The main text of the Report that is
associated with this footnote states:
Section 9-203(b) of the Uniform Commercial Code provides that
three criteria must be fulfilled in order for the owner of a
mortgage note effectively to create a "security interest" (either
an interest in the note securing an obligation or the outright sale of
the note to a buyer) in it.
The third criterion may be fulfilled in either one of two ways.
Either the debtor/seller must "authenticate" a "security agreement"
that describes the note or the secured party must take
possession of the note pursuant to the debtor's security
agreement.^
Reading footnote 38 in the context of the main text, it is clear that this
portion of the Report addresses the criteria for the owner of a mortgage note to
create a security interest in that note. One of the ways is for the secured party to
take possession of the note.
But that has nothing to do with the nonjudicial foreclosure proceeding that
is the subject of this action. That is because the foreclosure proceeding is not
based on the creation of a personal property security interest in the note. Rather,
the security interest underlying the foreclosure proceeding is the lien created by
the deed of trust in the real property securing the note that is in the possession of
76 See Report of Permanent Editorial Board, supra note 74, at 9 n.38.
77 id, (emphasis added) (footnotes omitted).
20
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Wells Fargo. Thus, UCC § 9-313, which is concerned with security interests in
notes, has no bearing on this case.
Another section of the Report makes this point clear:
Article 3 of the UCC provides a largely complete set of rules
governing the obligations of parties on the note, including how to
determine who may enforce those obligations and, thus, to whom
those obligations are owed.
UCC Section 3-301 provides only three ways in which a person
may qualify as the person entitled to enforce a note, two of which
require the person to be in possession of the note (which may
include possession by a third party that possesses it for the
person):
• The first way that a person may qualify as the person entitled
to enforce a note is to be its "holder. "[78]
Thus, Article 3, specifically § 3-301, is dispositive on the question of who
is entitled to enforce the note. And, as we also previously discussed in this
opinion, Bain and other authorities make reference to Article 3 of the UCC
appropriate for purpose of the Deeds of Trust Act.79 There is no authority
supporting the proposition that Article 9 of the UCC applies to this nonjudicial
foreclosure proceeding. We reject counsel's attempt to use UCC § 9-313 for a
purpose for which it was not intended.
The reference to § 18.31 of Washington Practice adds nothing of
substance to counsel's new argument. We also reject that reference to the
extent it is used to support the argument that possession of the note in this case
78 Id, at 4-5 (footnote omitted).
79 See Bain, 175 Wash. 2d at 103-04; Whitman, supra note 43, at 26 n.23.
21
No. 70592-0-1/22
is inadequate to establish either the ability to enforce the note or the beneficiary
status of Wells Fargo.
For these reasons, counsel's reliance on RCW62A.9A-313, which
addresses security interests in personal property, is wholly unpersuasive.
In the Statement of Additional Authorities dated March 5, 2014, counsel
for Trujillo cites In re Meyer.80 Counsel states that the United States Bankruptcy
Court for the Western District of Washington has determined that being an owner
of the note is a requirement of RCW 61.24.030(7)(a).81 That case says no such
thing.
Rather, that court expressly stated that it did not have to address the
argument that counsel now makes in this case:
The Meyers argue that a trustee may not rely on a
beneficiary declaration executed by anyone other than the
beneficiary. Further, they argue that the trustee must have proof, in
the words of the statute, that the beneficiary is the "owner" of the
note as opposed to the holder of the note. It is not necessary to
address either of these arguments, however, because the Court
concludes that NWTS could not rely on the Beneficiary Declaration
because it had no proof that Wells Fargo had authority to execute
that declaration on behalf of U.S. BankJ82!
Thus, Meyer does not provide any support for this new argument.
Counsel also cites Beaton v. JPMoroan Chase Bank. N.A. in a Statement
of Additional Authorities dated March 5, 2014 to support the argument that RCW
80 Statement of Additional Authorities (March 6, 2014) at 1 (citing injre
Meyer, 506 B.R. 533 (Bankr. W.D. Wash. 2014)).
81 id,
82 Meyer. 506 B.R. at 548 (emphasis added).
22
No. 70592-0-1/23
61.24.030(7)(a) requires proof that the beneficiary must be the "owner" of the
note.83 We decline to follow that decision for several reasons.
There, the federal district court for the Western District of Washington
considered whether the successor trustee under a deed of trust in that case
violated the Deeds of Trust Act.84 Specifically at issue was whether proof that
the beneficiary is the owner of a note secured by a deed of trust is required by
61.24.030(7)(a).85 That court held that the beneficiary declaration in that case
was deficient because it relied on RCW 62A.3-301 to show authority to enforce
the note.86 According to that court, this was deficient because the beneficiary
who provided the declaration "could be a nonholder in possession or a person
not in possession who is entitled to enforce the instrument."87 In short, the court
decided that ownership of the note was required.88
83 Statement of Additional Authorities (March 6, 2014) at 1 (citing Beaton
v. JPMorgan Chase Bank, N.A.. 2013 WL 1282225 at *4-5 (W.D. Wash. March
26, 2013)).
84 Beaton. 2013 WL 1282225, at *4.
85 id, at *4-*5.
86 id,
87 id, at *5.
88 Id.
23
No. 70592-0-1/24
First, until now, no state appellate court has decided the meaning of RCW
61.24.030(7)(a). Thus, there has been no authoritative decision on this question
of state law.89
Second, the Beaton court omitted any analysis of the portion of the
beneficiary declaration in that case that expressly stated that the beneficiary was
"the actual holder of the promissory note."90 For the reasons we explained earlier
in this opinion, proof of that status is what entitles a beneficiary to enforce a note
secured by a deed of trust. Ownership of the note is irrelevant.
Third, the Beaton court also misread RCW 62A.3-301 as an impediment to
proof of the right to enforce a note. Properly read, this statute merely clarifies
that one entitled to enforce a note may be any of three specified persons:
(i) the holder of the instrument, (ii) a nonholder in possession of the
instrument who has the rights of a holder, or (iii) a person not in
possession of the instrument who is entitled to enforce the
instrument pursuant to RCW 62A.3-309 or 62A.3-418(d).t911
The plain words of this statute also make clear that:
A person may be a person entitled to enforce the instrument even
though the person is not the owner of the instrument or is in
wrongful possession of the instrument.1921
For these reasons, we decline to follow the decision in Beaton.
89 See Bain, 175 Wash. 2d at 90-91 (certifying questions regarding the Deeds
of Trust Act to the Washington State Supreme Court).
90 See RCW 61.24.030(7)(a).
91 RCW 62A.3-301 (emphasis added).
92 Id, (emphasis added).
24
No. 70592-0-1/25
Counsel also cites Pavino v. Bank of America, N.A. in his Further
Statement Re Additional Authority dated May 7, 2014.93 There, the federal
district court for the Western District of Washington stated that there is no "legal
authority holding that a 'person entitled to enforce' an instrument within the
meaning of RCW 62A.3-301 qualifies as a 'beneficiary' within the meaning of
RCW 61.24.005(2)."94 But in Bain, the supreme court rejected that view.95 Thus,
this argument is not persuasive.
Counsel further argues that "'[t]he rights of pro se litigants require careful
protection where highly technical requirements are involved, especially when
enforcing these requirements might result in a loss of the opportunity to
prosecute ... a lawsuit on the merits.'"96 He cites Garaux v. Pulley in support of
this argument.97
There, the court had before it a motion to dismiss.98 The issue was
whether the district court had abused its discretion in applying certain procedural
rules relating to the motion.99 The court held the district court had abused its
93 Further Statement Re Additional Authority (May 7, 2014) at 1 (citing
Pavino v. Bank of America. N.A., 2011 WL 834146 (W.D. Wash. March 4, 2011)).
94 Pavino, 2011 WL 834146, at *4.
95 See BaiD, 175 Wash. 2d at 104.
96 Supplemental Statement of Additional Authorities (April 29, 2014) at 1
(quoting Garaux v. Pulley, 739 F.2d 437 (1984)).
97 id, (citing Garaux v. Pulley, 739 F.2d 437 (1984)).
98 Garaux, 739 F.2d at 437.
99 id, at 439-40.
25
No. 70592-0-1/26
discretion in applying the rule that disadvantaged a pro se litigant.100 That is the
context in which the Ninth Circuit made the following statement:
District courts must take care to insure that pro se litigants are
provided with proper notice regarding the complex procedural
issues involved in summary judgment proceedings. We hold that
where the non-moving party is appearing pro se, the notice
requirements of Rule 56(c) must be strictly adhered to when a
motion to dismiss under Rule 12(b)(6) is converted into one for
summary judgment.1"1011
Here, there is no procedural rule that is being applied to disadvantage
Trujillo. Rather, we construe the relevant statutes to determine what the laws
require. There is no violation of the principle cited in that federal case.
Trujillo makes a number of arguments in her briefs asserting that Wells
Fargo must prove that it is the owner of her delinquent note. None are
persuasive.
Trujillo argues that the idea that the beneficiary, note holder, and note
owner are the same person "permeates" the Deeds of Trust Act.102 She points to
a number of provisions to support this argument.103 Nothing about these
citations undercuts our conclusion that owner and holder are not legally
synonymous terms for purposes of this act.
100 id,
101 |d_
102
Reply Brief of Appellant at 4-7.
103 id, (citing RCW 61.24.040(2); RCW 61.24.070(2); RCW 61.24.163;
RCW 61.24.005(2), (7); RCW 61.24.020).
26
No. 70592-0-1/27
First, she cites RCW 61.24.040(2) and the language in the notice of
foreclosure form.104 It states, "The attached Notice of Trustee's Sale is a
consequence of default(s) in the obligation to , the Beneficiary of your
Deed of Trust and owner of the obligation secured thereby."105 This form is
nothing more than that. It does not state the law. Our discussion earlier in this
opinion extensively discusses the controlling law. In any event, the statute states
that the form need only be "substantially" followed.106
Second, Trujillo cites RCW 61.24.070(2), which states who may bid at a
trustee's sale.107 It states, "The trustee shall, at the request of the beneficiary,
credit toward the beneficiary's bid all or any part of the monetary obligations
secured by the deed of trust."108 Trujillo argues that this "type of bid would not be
possible if the 'beneficiary' of the DOT was not the 'owner' of the debt obligation
secured by the DOT."109 This argument makes no sense. As we made clear
earlier in this opinion, the holder of the note is entitled to enforce the note.
Bidding at the sale is merely one of the rights to enforce the note. There simply
is no requirement that the bidder at the foreclosure sale must be the owner of the
note.
104 Reply Briefof Appellant at 5 (citing RCW 61.24.040(2)).
105 rcw 61.24.040(2) (alteration in original).
106 id,
107 Reply Briefof Appellant at 5-6 (citing RCW 61.24.070(2)).
108 RCW 61.24.070(2).
109 Reply Brief of Appellant at 6.
27
No. 70592-0-1/28
Third, Trujillo cites RCW 61.24.163, which outlines the foreclosure
mediation program.110 Subsection (5) explains the required documents that the
beneficiary must transmit to the mediator.111 These documents include:
Proof that the entity claiming to be the beneficiary is the owner of
any promissory note or obligation secured by the deed of trust.
Sufficient proof may be a copy of the declaration described in RCW
61.24.030(7)(a).t1121
This statute's references to the beneficiary declaration in RCW 61.24.030(7)(a)
does nothing to undercut the law that the terms "owner" and "holder" are not legal
synonyms. We reach this conclusion despite the reference in the above text that
mentions "owner" but not "holder."
Trujillo also argues that statements by two senators at a senate and house
judiciary committee meeting show that certain legislators believed that the
"beneficiary" of a deed of trust should be the "holder" and the "owner" of the
promissory note.113 In view of our analysis detailed earlier in this opinion, we
reject the argument that these comments by only two legislators show legislative
intent contrary to what we discussed previously in this opinion.
In sum, the Wells Fargo beneficiary declaration in this case is sufficient to
comply with RCW61.24.030(7)(a).
110 id, (citing RCW 61.24.163).
111 RCW 61.24.163(5).
112RCW61.24.163(5)(c).
113 Reply Brief of Appellant at 7-11.
28
No. 70592-0-1/29
RCW61.24.030(7)(b)
Trujillo next argues that the requirements of RCW 61.24.030(7)(b) were
not met.114 We disagree.
RCW 61.24.030(7)(b) states:
Unless the trustee has violated his or her duty under RCW
61.24.010(4), the trustee is entitled to rely on the beneficiary's
declaration as evidence of proof required under this
subsection,[115]
RCW 61.24.010(4) provides that a "trustee or successor trustee has a
duty of good faith to the borrower, beneficiary, and grantor."
Here, Trujillo fails to substantiate that there was any breach of any duty by
NWTS under RCW 61.24.010(4). Accordingly, NWTS was entitled to rely on this
Wells Fargo declaration, as the plain words of the statute provide.
In her Statement of Additional Authorities dated April 3, 2014, Trujillo cites
Schroeder v. Excelsior Management Group, LLC and Klem v. Washington Mutual
Bank to support her argument that NWTS breached its duty of good faith.116
While these cases discuss the duty a trustee owes the beneficiary and the
debtor, they do nothing to substantiate that NWTS breached its duty of good faith
when it relied on this beneficiary declaration. Thus, these cases are not helpful.
114 id, at 13.
115 (Emphasis added.)
116 Statement of Additional Authorities (April 3, 2014) at 1 (citing
Schroeder v. Excelsior Mgmt. Group, LLC, 177Wn.2d94, 102 n.3, 107, 114,297
P.3d 677 (2013); Klem v. Wash. Mut. Bank. 176 Wash. 2d 771, 788-92, 295 P.3d
1179(2013)).
29
No. 70592-0-1/30
MOTION TO SUPPLEMENT THE RECORD
Trujillo moves to supplement the record pursuant to RAP 9.6(a) with
certain documents, some of which have already been authorized by this court.
We deny the motion to the extent of the remaining documents.
Trujillo asserts that her response to Wells Fargo's motion for attorney fees
and costs and its attachment, a letter from a state senator, are "necessary"
because it explains the legislature's intent underlying SB 5191. In SB 5191, the
legislature considered but declined to adopt a bill that would have changed the
definition of "beneficiary" from its current meaning of "holder" to "owner."117
We deny the request to supplement the record with Trujillo's response to
Wells Fargo's motion and its attachment. Trujillo's response to Wells Fargo's
motion for attorney fees and costs was not before the trial court when it granted
NWTS's motion to dismiss. And these materials are not necessary to our
decision.
We affirm the order granting NWTS's CR 12(b)(6) motion to dismiss.
WE CONCUR:
SstQjuwq,.;
117 See Opening Brief of Appellee Northwest Trustee Services, Inc. at 9-
10.
30