Mitchell v. ReconTrust Company
2016 UT App 88
| Utah Ct. App. | 2016Background
- Paula and Wade Mitchell obtained a $1,000,000 loan in 2006 secured by a Utah trust deed naming AWL as Lender, Stewart Matheson as trustee, and MERS as nominee/beneficiary with contractual authority to foreclose and appoint successor trustees.
- In August 2010 MERS assigned its beneficial interest to BNYM; BNYM recorded a substitution appointing ReconTrust as successor trustee and ReconTrust filed a notice of default and intent to sell.
- The Mitchells sued ReconTrust, BNYM, AWL, BAC (loan servicer), and attorney Armand Howell, alleging MERS/BNYM lacked authority, ReconTrust was unqualified, BAC induced default to obtain a modification (estoppel/breach of good faith), securitization severed the deed, and the debt was satisfied by third-party instruments; they sought declaratory relief, injunction, quiet title, punitive damages, and fees.
- The district court dismissed nine of eleven claims on Rule 12(b)(6) grounds (finding the trust deed authorized MERS/BNYM to act, claims moot after cancellation of notice of default, securitization does not sever the security, and other defects) and allowed only estoppel/breach and related fee claims to proceed.
- On summary judgment the court ruled for defendants: the alleged promise to modify was too indefinite to support promissory estoppel or modification, no implied covenant claim arose from the original loan, and discovery sanctions/other rulings provided alternative bases for dismissal; Howell later obtained summary judgment for lack of independent personal allegations.
- The Mitchells appealed; the Utah Court of Appeals affirmed in all respects.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Authority to appoint successor trustee and foreclose | MERS/BNYM lacked beneficial ownership/statutory beneficiary status and thus lacked authority to appoint ReconTrust or foreclose | Trust deed expressly granted MERS (as nominee) rights to exercise lender interests, including appointing trustees and foreclosing | Court: Trust deed language authorized MERS and assignee BNYM to appoint a successor trustee and to foreclose; dismissal affirmed |
| Mootness of claims challenging ReconTrust's actions (notice of default) | Cancellation of notice does not resolve ReconTrust’s continuing duties or statutory qualification | ReconTrust withdrew notice and represented no further foreclosure; relief would not affect parties’ rights | Court: Claims were moot and properly dismissed |
| Promissory estoppel / alleged inducement to default | BAC told Mitchells to miss payments to qualify for modification; Mitchells reasonably relied and were induced to default | Any statements were indefinite, at best an invitation to apply, with no definite promise or written modification | Court: No definite, certain promise; reliance unreasonable as a matter of law; summary judgment for defendants |
| Breach of covenant of good faith and fair dealing | Defendants intentionally induced default, impairing Mitchells’ ability to receive contract benefits | Declining to alter contract rights or forego foreclosure rights is not a breach; conduct did not make performance impossible | Court: No implied duty to forgo contractual rights; claim fails as matter of law |
| Securitization / severing debt from trust deed; debt satisfaction by third party | Securitization fractionalized ownership, severing the note from security; third-party payments (insurance/CDS) extinguished debt | Transfer/securitization does not sever security; no factual basis that third-party payments satisfied Mitchells’ obligations | Court: Securitization did not sever deed; plaintiffs failed to allege basis for third-party satisfaction; dismissals affirmed |
Key Cases Cited
- Burnett v. Mortgage Elec. Registration Sys., Inc., 706 F.3d 1231 (10th Cir. 2013) (MERS may have authority under deed language to appoint successor trustees and foreclose)
- Commonwealth Prop. Advocates, LLC v. Mortgage Elec. Registration Sys., Inc., 680 F.3d 1194 (10th Cir. 2011) (securitization does not remove the trust deed’s securing effect and deed language can preserve foreclosure authority)
- Orvis v. Johnson, 177 P.3d 600 (Utah 2008) (summary judgment burden-allocation principles explained)
- Iota, LLC v. Davco Mgmt. Co., 284 P.3d 681 (Utah Ct. App. 2012) (limits on implied covenant of good faith and fair dealing; cannot create independent contractual rights)
- Doctors' Co. v. Drezga, 218 P.3d 598 (Utah 2009) (attorney fee recovery rules: fees recoverable only when authorized by statute or contract)