William Chhun v. Mortgage Electronic Registration Systems, Inc.
84 A.3d 419
R.I.2014Background
- In 2006 William Chhun and Joli Chhim executed a mortgage on property in Cranston listing Domestic Bank as lender and MERS as nominee.
- In 2010 MERS executed a Corporate Assignment of Mortgage purporting to assign the mortgage to Aurora; the assignment was signed by Theodore Schultz.
- Plaintiffs allege Schultz lacked authority (an Aurora employee, not an officer of MERS), no recorded power of attorney exists, and MERS did not order the assignment.
- Plaintiffs sued in 2011 seeking declaratory relief, quiet title, and punitive damages, alleging the assignment and any subsequent foreclosure were void.
- The Superior Court granted defendants’ Rule 12(b)(6) motion, finding plaintiffs lacked standing to challenge the assignment and that the complaint’s allegations were conclusory under Twombly/Iqbal.
- The Supreme Court vacated and remanded, holding plaintiffs had standing (under Mruk) and that the complaint adequately pleaded a plausible claim that the assignment was invalid.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to challenge assignment/foreclosure | Homeowners can challenge an assignment to contest foreclosing entity’s authority | Plaintiffs lack standing because they are neither assignor nor assignee | Plaintiffs have standing under recent precedent to contest the foreclosing entity’s authority |
| Sufficiency of pleading re invalid assignment | Complaint alleges signer lacked authority, was Aurora employee, MERS did not order assignment, no recorded POA — enough to plausibly allege invalid assignment | Allegations are conclusory and fail Twombly/Iqbal plausibility; should be dismissed under Rule 12(b)(6) | Allegations are sufficient to survive dismissal under either Rhode Island traditional standard or the federal plausibility standard |
| Standard of review (Twombly/Iqbal vs. RI standard) | Plaintiffs relied on Rhode Island’s traditional forgiving Rule 12(b)(6) standard | Defendants urged federal plausibility standard controls | Court declined to settle the tension but ruled the complaint survives under either standard |
Key Cases Cited
- Minardi v. Narragansett Electric Co., 21 A.3d 274 (R.I. 2011) (pleading on motion to dismiss: accept allegations and resolve doubts in plaintiff's favor)
- Palazzo v. Alves, 944 A.2d 144 (R.I. 2008) (Rhode Island articulation of Rule 12(b)(6) standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading requires factual plausibility; conclusory statements insufficient)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (complaint must plead facts nudging claims from conceivable to plausible)
- Barrette v. Yakavonis, 966 A.2d 1231 (R.I. 2009) (discussing Rhode Island pleading standards)
- Bucci v. Lehman Brothers Bank, FSB, 68 A.3d 1069 (R.I. 2013) (background on MERS’s role in mortgage industry)