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Joseph Philip Kalenowski v. Canyon Capital Funding Corp. et al


April 26, 2013


The opinion of the court was delivered by: Robert C. Jones United States District Judge


This is a residential foreclosure avoidance action. Pending before the Court is a Motion (ECF No. 47). For the reasons given herein, the Court grants the motion.


Plaintiff Joseph Philip Kalenowski gave lender GreenPoint Mortgage Funding, Inc. ("GreenPoint") a $232,000, thirty-year, adjustable-rate promissory note (the "Note") on June 7, 2006 with an initial interest rate of 1% and initial monthly payment of $746.20. (See Note 1--2, June 7, 2006, ECF No. 8, at 8). The interest rate was adjustable as of August 1, 2006, and on the first of each month thereafter, but could never exceed 9.95%. (See id. 1). The monthly payment was adjustable as of August 1, 2007, and on that date every year thereafter. (See id. 2). The principal could never exceed 110% of the loan amount, and any remaining principal was due at the thirty-year loan period. (See id.). The Note was secured by a deed of trust (the "DOT") against real property at 1740 Peavine Road, Reno, NV 89503 (the "Property").

DOT 1--3, June 7, 2006, ECF No. 8, at 15). The trustee of the DOT was Martin Corp., and Mortgage Electronic Registration Systems, Inc. ("MERS") was the lender's nominee, as well as the beneficiary of the DOT. (See id. 2). Executive Trustee Services, filed a notice of default (the "NOD") against the Property "as agent for beneficiary," based upon a default of unspecified amount as of May 1, 2010. (See NOD, Aug. 10, 2010, ECF No. 22, at 37). MERS then later substituted ETS as trustee on the DOT. (See Substitution, July 1, 2011, ECF No. 22, at 33).*fn1 On July 22, 2011, ETS purported to sell the to GMAC Mortgage, LLC ("GMAC") at a trustee's sale. (See Compl. ¶¶ 38--39, Oct. 10, 2011, ECF No. 3).

Plaintiff sued Canyon Capital Funding Corp., GreenPoint, MERS, ETS, and GMAC in state court on six nominal causes of action: (1) wrongful foreclosure; (2) unjust enrichment; (3) injunctive relief; (4) declaratory relief; (5) restoration of title; and (6) quiet title. Defendants removed. GreenPoint moved to dismiss, as did ETS and GMAC. The Court granted GreenPoint's motion in full but granted ETS's and GMAC's motion only in part, dismissing the wrongful foreclosure claim because Plaintiff admitted default but refusing to dismiss the remaining claims because Plaintiff had sufficiently alleged a statutorily defective foreclosure under section 107.080 of the Nevada Revised Statutes ("NRS"), i.e., that ETS had filed the NOD when it was still a stranger to the DOT. (See Order, May 11, 2012, ECF No. 30). ETS and GMAC then filed a Notice of Bankruptcy, reporting that they had filed for Chapter 11 bankruptcy protection in the Southern District of New York. (See Notice of Bankruptcy, May 18, 2012, ECF bankruptcy judge in New York granted limited relief from the automatic stay, debtors to continue with foreclosures and similar proceedings. (See Notice, June 26, 2012, ECF No. 32). ETS and GMAC have now moved to dismiss again.


Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief" in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47 (1957). Federal Rule of Civil Procedure 12(b)(6) mandates that a court dismiss a cause of action that fails to state a claim upon which relief can be granted. A motion to dismiss under Rule 12(b)(6) tests the complaint's sufficiency. See N. Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). When considering a motion to dismiss under Rule 12(b)(6) for to state a claim, dismissal is appropriate only when the complaint does not give the defendant fair notice of a legally cognizable claim and the grounds on which it rests. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering whether the complaint is sufficient to state a claim, the court will take all material allegations as true and construe them in the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). The court, however, is not required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences. See Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). A formulaic recitation of a cause of action with conclusory allegations is not sufficient; a plaintiff must plead facts showing that a violation is plausible, not just possible. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. at 555).

"Generally, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion. However, material which is properly submitted as part of the complaint may be considered on a motion to dismiss." Hal Roach Studios, Inc. v. Richard Feiner

, 896 F.2d 1542, 1555 n.19 (9th Cir. 1990) (citation omitted). Similarly, "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6)

motion to dismiss" without converting the motion to dismiss into a motion for summary

Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). Moreover, under Federal Rule of Evidence 201, a court may take judicial notice of "matters of public record." Mack v. S. Bay ., Inc., 798 F.2d 1279, 1282 (9th Cir. 1986). Otherwise, if the district court considers materials outside of the pleadings, the motion to dismiss is converted into a motion for judgment. See Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir.


Movants note that the Court previously refused to dismiss many of the claims because the substitution provided indicated that ETS had filed the NOD on August 10, 2012 but was not substituted as trustee until July 1, 2011. Movants now adduce a new substitution in which MERS substituted ETS as trustee on August 10, 2010. (See Substitution, Aug. 10, 2010, ECF No. 47, at 8). The 2010 Substitution appears valid. It is notarized and signed, and it does indeed appear in the public records of Washoe County as Document. No. 3911353, as the copy adduced indicates. A close examination of the two Substitutions indicates that they relate to different

trust. The Substitution adduced with the present motion, executed on August 10, 1010 and recorded on August 12, 2010 (the same dates as the NOD was executed and recorded), relates to Document No. 3402260, which is the DOT securing the $232,000 loan to GreenPoint, and to which the NOD relates. The Substitution previously adduced, executed on July 1, 2011 and recorded on July 8, 2011, relates to Document No. 3402261, which has not been adduced, but which the public records indicate is a deed of trust securing a $29,000 home equity line of credit against the Property that is not at issue in the present case. The Court is now satisfied that was no statutory defect in foreclosure.

The Court rejects Plaintiffs arguments in opposition that because MERS did not hold the Note, foreclosure was improper. As the Court has noted, MERS is not the beneficiary of the Note, but it is the beneficiary's "nominee" (agent) with respect to the Note, and MERS is in fact the beneficiary of the DOT itself. See generally Edelstein v. Bank of N.Y. Mellon, 286 P.3d 249 (Nev. 2012). Because MERS was the beneficiary of the DOT, and because MERS was also the agent of the beneficiary of the Note, the trustee MERS substituted to conduct foreclosure, ETS, had the required authority to conduct the foreclosure. See generally id.


IT IS HEREBY ORDERED that the Motion to Dismiss (ECF No. 47) is GRANTED. IT IS FURTHER ORDERED that the Clerk shall enter Judgment and close the case. IT IS SO ORDERED.

Dated this 11th day this 26th day of April, 2013. of April, 2013.

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