Craig Watson v. Bank of America
Background
- In 2005 the Watsons took a mortgage from GreenPoint; MERS was nominee and North Idaho Title trustee. They defaulted in 2008. ReconTrust sent a notice of default; the Watsons later obtained a 2010 loan modification from Bank of America (BOA).
- ReconTrust rescinded the earlier default notice and MERS transferred its interest to BOA; the Watsons later defaulted on the modified loan.
- BOA transferred its interest to Green Tree in 2013; Green Tree appointed Northwest Trustee Services (NTS) as successor trustee, which recorded notice of default and initiated nonjudicial foreclosure under Idaho law.
- The Watsons sued in 2014 alleging multiple claims (breach of the loan modification, breach of implied covenant, lack of standing to foreclose, fraud, and statutory claims). Defendants moved to dismiss and for judicial notice of documents (including bankruptcy filings).
- The district court granted judicial notice for limited res judicata purposes and dismissed the amended complaint under I.R.C.P. 12(b)(6) for failure to state claims; Craig Watson appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether taking judicial notice of bankruptcy documents required conversion of 12(b)(6) motion to summary judgment | Watson: court should have converted to Rule 56 after noticing outside documents | Defendants: court limited use of bankruptcy documents to res judicata only; no conversion required | Court: no error — documents were judicially noticed only for res judicata; any error harmless because dismissal reviewed de novo |
| Whether the amended complaint stated a breach-of-contract claim (loan modification) | Watson: defendants breached by not providing a signed copy and not crediting payments | Defendants: modification terms do not require providing signed copy; complaint lacks facts about alleged uncredited payments | Court: dismissal affirmed — no contract term requiring signed copy; allegations about uncredited payments lack specifics to give notice |
| Whether plaintiff stated a claim for breach of implied covenant of good faith and fair dealing | Watson: defendants impaired benefits of modification through their conduct | Defendants: no identified breach of any specific contract term; implied covenant must relate to specific term | Court: dismissal affirmed — no underlying specific contract breach pleaded to support implied-covenant claim |
| Whether defendants had standing to initiate nonjudicial foreclosure | Watson: alleged chain-of-title defects under UCC prevented standing | Defendants: foreclosure statutes I.C. §§ 45-1505 & 45-1506, not ownership of note, govern; recorded assignments and notices complied | Court: dismissal affirmed — documents show statutory requirements satisfied; Idaho precedent allows trustee to initiate foreclosure without proving note ownership |
| Whether fraud claim was sufficiently pleaded | Watson: defendants made false statements about loan modification that he relied on | Defendants: complaint fails to plead particulars required for fraud (who, what, when, reliance, damages) | Court: dismissal affirmed — fraud not pleaded with requisite particularity |
Key Cases Cited
- Taylor v. McNichols, 149 P.3d 642 (Idaho 2010) (limits consideration of outside documents on 12(b)(6) motions and allows judicial notice of documents incorporated by reference)
- Coghlan v. Beta Theta Pi Fraternity, 987 P.2d 300 (Idaho Ct. App. 1999) (standard for affirming dismissal under 12(b)(6))
- Orthman v. Idaho Power Co., 895 P.2d 561 (Idaho 1995) (12(b)(6) focuses on whether plaintiff can offer evidence, not on ultimate success)
- Mortensen v. Stewart Title Guar. Co., 235 P.3d 387 (Idaho 2010) (pleading must put defendant on notice of claims)
- Indep. Sch. Dist. of Boise City v. Harris Family Ltd. P’ship, 249 P.3d 382 (Idaho 2011) (elements required to plead a breach of contract claim)
- Trotter v. Bank of New York Mellon, 275 P.3d 857 (Idaho 2012) (trustee may initiate nonjudicial foreclosure without proving ownership of the note)
- Dengler v. Hazel Blessinger Family Trust, 106 P.3d 449 (Idaho 2005) (elements and particularity requirement for fraud claims)
- Bushi v. Sage Health Care, PLLC, 203 P.3d 694 (Idaho 2009) (implied covenant requires violation of a specific contract benefit)
- Michalk v. Michalk, 220 P.3d 580 (Idaho 2009) (pro se litigants not entitled to attorney fees)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (documents incorporated by reference may be considered on a motion to dismiss)