108 A.3d 1013
R.I.2015Background
- In 2007 DiLibero bought a Foster, RI home and executed a $255,000 adjustable-rate note to New Century; mortgage named MERS as nominee for the lender and was recorded.
- New Century filed bankruptcy in April 2007 and, in March 2008, filed a notice rejecting its membership agreement with MERS.
- MERS purportedly assigned the mortgage to UBS in July 2009; UBS assigned it to USA Residential in December 2010; USA Residential and its servicer Rushmore later initiated foreclosure and a sale reportedly occurred in August 2011.
- DiLibero filed suit in Superior Court (Aug. 2011) seeking to void the assignments, invalidate the foreclosure sale, quiet title, and obtain injunctive relief; she attached the note, mortgage, assignments, New Century’s rejection notice, and MERS bylaws.
- Defendants moved to dismiss under Super. R. Civ. P. 12(b)(6). The Superior Court dismissed the complaint, finding DiLibero lacked standing and that the assignments and foreclosure were valid. DiLibero appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to challenge mortgage assignments | DiLibero contends homeowners have standing to contest assignments that affect the foreclosing party's authority | Defendants argued DiLibero lacked standing to challenge assignments | Court: Homeowner standing recognized per Mruk; DiLibero has standing to challenge assignments to contest authority to foreclose |
| Standard for Rule 12(b)(6) dismissal | DiLibero argued Superior Court applied federal plausibility standard (Iqbal) improperly instead of Rhode Island’s traditional standard | Defendants argued the court properly disregarded conclusory legal allegations | Court: Rhode Island standard requires assuming factual allegations true; legal conclusions need not be credited (court applied RI law and corrected reliance on Iqbal) |
| Validity of MERS assignment after New Century’s bankruptcy rejection | DiLibero alleged New Century’s bankruptcy rejection terminated its MERS membership, so MERS had no authority to assign the mortgage (assignment void ab initio) | Defendants contended those facts at most make assignments voidable, not void from inception | Court: Accepting complaint allegations, rejection breached the executory contract under 11 U.S.C. §365(g), terminating MERS’s relationship; assignment by an entity with no authority is void ab initio — DiLibero stated a claim |
| Right of USA Residential to foreclose (as non‑original lender) | DiLibero challenged foreclosing party’s authority based on invalid assignments | Defendants maintained USA Residential could properly foreclose despite not being original lender or noteholder | Court: Because assignments could be void, foreclosure authority is contestable; dismissal on pleadings was improper |
Key Cases Cited
- Mruk v. Mortgage Electronic Registration Systems, Inc., 82 A.3d 527 (R.I. 2013) (homeowners have standing to challenge mortgage assignments to contest foreclosing entity’s authority)
- Chhun v. Mortgage Electronic Registration Systems, Inc., 84 A.3d 419 (R.I. 2014) (discussing Rhode Island’s approach to pleading standards versus federal plausibility test)
- Narragansett Electric Co. v. Minardi, 21 A.3d 274 (R.I. 2011) (Rule 12(b)(6) tests complaint sufficiency; assume allegations true)
- Doe ex rel. His Parents v. East Greenwich School Dep’t, 899 A.2d 1258 (R.I. 2006) (legal conclusions need not be assumed true on a motion to dismiss)
- Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282 (1st Cir. 2013) (assignment by an entity without authority can be void ab initio)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (federal plausibility pleading standard)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (establishing plausibility standard for federal pleadings)