Edward Zadrozny v. Bank of New York Mellon
2013 U.S. App. LEXIS 13309
| 9th Cir. | 2013Background
- The Zadroznys defaulted on a mortgage loan originated with Soma Financial, secured by a deed of trust with MERS as nominee for the lender.
- The deed of trust allowed sale of the note and appointment of a successor trustee without notice to borrowers; Bank of New York Mellon acquired the beneficiary interests and Recontrust was appointed successor trustee.
- Non-judicial foreclosure was initiated in Arizona after notice of breach; the Zadroznys sued in state court, which was removed to federal court on diversity grounds.
- The district court dismissed the first amended complaint for lack of viable claims and denied leave to amend; the Zadroznys appealed the dismissal.
- The court reviews de novo Rule 12(b)(6) dismissals and abuse of discretion on denial of leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to foreclose and assignment of the note | Zadroznys argue Bank of New York lacked standing due to improper assignment. | BNY possessed/was entitled to enforce the note via proper transfers under the deed of trust. | Arizona law permits foreclosure without possession of the note; no plausible standing defect. |
| Authority to appoint a successor trustee and initiate foreclosure | BNY lacked authority to appoint Recontrust as successor trustee. | Deed of trust authorized successor trustees; MERS was nominee and transfers allowed; trustee could foreclose. | District court proper; successor trustee appointment and foreclosure authority valid. |
| PEB/UCC arguments and security interest after securitization | BNY lacked security interest post-securitization and should be governed by UCC/PEB. | UCC does not govern non-judicial Arizona trustee sales; PEB report is preliminary and non-binding. | Claims premised on PEB/UCC are not viable and properly dismissed. |
| Constitutionality of A.R.S. § 33-811(b) | Section violates separation of powers and distribution of powers. | Statute is constitutional and properly interprets trustee’s sale. | Constitutional challenges waived and meritless; dismissal proper. |
| Fraud/misrepresentation claims and statute of limitations | Fraud claims timely; discovery rule applies. | Claims untimely under Arizona discovery rule and statute of limitations. | Claims barred by statute of limitations; dismissal proper. |
Key Cases Cited
- In re Veal, 450 B.R. 897 (9th Cir. B.A.P. 2011) (distinguishes standing to enforce notes under UCC in bankruptcy from Arizona non-judicial foreclosure)
- Hogan v. Washington Mutual Bank, N.A., 277 P.3d 781 (Ariz. 2012) (Arizona law permits trustee foreclosures without the beneficiary proving possession of the note)
- Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034 (9th Cir. 2011) (MERS as beneficiary; foreclosures initiated by lenders; effects on claims premised on MERS)
- Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777 (9th Cir. 2012) (arguments raised for first time on appeal may be declined in de novo review)
- Ibrahim v. Dept. of Homeland Sec., 669 F.3d 983 (9th Cir. 2012) (pleading standards; plausibility requirement under Rule 12(b)(6))