Cervantes v. Countrywide Home Loans, Inc.
2011 U.S. App. LEXIS 18569
| 9th Cir. | 2011Background
- Plaintiffs allege conspiracies to use MERS to commit fraud and violations of TILA and the Arizona Consumer Fraud Act in origination and foreclosure of their loans.
- MERS functions as a private electronic database tracking beneficial interests and loan servicers, with MERS named in deeds as nominee for lenders.
- Loans were originated in 2006; Cervantes signed with Countrywide, Almendarez and Maximo with First Franklin; all deeds name MERS as beneficiary.
- Foreclosures were initiated by trustees on behalf of lenders; MERS records reflected its interest transfers when parties stayed within MERS, but county records reflect transfers when not.
- District court dismissed the First Amended Complaint for failure to state a claim; plaintiffs sought leave to amend to add wrongful foreclosure and other theories, which the court denied.
- On appeal, the Ninth Circuit affirmed the dismissal without leave to amend, finding no plausible misrepresentation, reliance, or injury, and noting wrongful foreclosure was not recognized under Arizona law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Conspiracy to commit fraud through MERS | Cervantes alleges MERS acts as sham beneficiary enabling fraud. | Allegations fail to identify specific misrepresentations, reliance, or injury. | Affirmed; conspiracy claim dismissed without leave to amend. |
| Wrongful foreclosure claim | Plaintiffs seek to add wrongful foreclosure based on MERS split-note/deed theory. | Arizona law does not recognize wrongful foreclosure; amendment futile; procedural defects in request. | Affirmed; district court did not abuse discretion in denying leave to amend. |
| Equitable tolling and estoppel of TILA and CFA claims | Equitable tolling/estoppel should apply due to translation issues and misrepresentations. | No basis for tolling or estoppel; limitations ran in 2006–2009. | Affirmed; claims barred by one-year limitations; no tolling or estoppel. |
| Dismissal of Tiffany & Bosco as trustee | Trustee appointment invalid due to MERS being sham beneficiary. | Trustee may rely on beneficiary directions; no independent obligation to challenge appointment. | Affirmed; trustee properly dismissed. |
| Intentional infliction of emotional distress | Lenders’ conduct toward plaintiffs was extreme and outrageous. | Allegations do not meet the extreme-and-outrageous standard under Arizona law. | Affirmed; claim dismissed without leave to amend. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (S. Ct. 2007) (pleading must show plausible claim, not mere conclusions)
- Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097 (9th Cir. 2008) (pleading must contain plausible facts to state a claim)
- Echols v. Beauty Built Homes, Inc., 132 Ariz. 498 (Ariz. 1982) (fraud elements required in Arizona law)
- Landmark Nat'l Bank v. Kesler, 289 Kan. 528, 216 P.3d 158 (Kan. 2009) (split-note/deed issues and agency in foreclosures)
- Gardner v. Martino (In re Gardner), 563 F.3d 981 (9th Cir. 2009) (abuse of discretion in denying leave to amend; futility standard)
- Jablon v. Dean Witter & Co., 614 F.2d 677 (9th Cir. 1980) (equitable tolling analysis and standards for tolling)
- Socop-Gonzalez v. I.N.S., 272 F.3d 1176 (9th Cir. 2001) (equitable tolling principles described)
- Ed Peters Jewelry Co. v. C & J Jewelry Co., Inc., 124 F.3d 252 (1st Cir. 1997) (predicting state law developments in wrongful foreclosure context)
- Swartz v. KPMG LLP, 476 F.3d 756 (9th Cir. 2007) (pleadings stage consideration of attachment and authenticity)
- Kenly v. Miracle Props., 412 F. Supp. 1072 (D. Ariz. 1976) (deed of trust as private contract; notice of terms)
- Jackson v. Mortg. Elec. Registration Sys., Inc., 770 N.W.2d 487 (Minn. 2009) (MERS and recording statute considerations)