Robert Ferguson v. Bank of New York Mellon

Robert and Wendy Ferguson defaulted on their residential mortgage loan and sought to enjoin Bank of New York Mellon Corporation (“BNY”) from foreclosing, claiming that the assignment of the deed of trust (“DOT”) to BNY was void. The Fergusons also brought a false-lien claim under Texas Civil Practice and. Remedies Code § 12.002 against BNY and Mortgage Electronic Registration Systems (“MERS”). The district court granted BNY’s motion to dismiss, and the Fergu-sons appeal. We find no error and affirm.

I.

In 2006 the Fergusons purchased a house in Texas with a $510,000 loan from Countrywide Home Loans, Inc. (“Countrywide”), executing a promissory note in favor of Countrywide and its successors and assigns secured by a DOT. 1 The DOT named MERS as a beneficiary and Countrywide’s nominee, granting MERS the right to act on Countrywide’s behalf and to foreclose. 2

*780 In 2011 MERS assigned the DOT to BNY — the trustee of the CWMB, Inc. CHL Mortgage Pass-Through Trust 2006-9 (“the Trust”). 3 The Fergusons thereafter defaulted, and BNY initiated foreclosure proceedings.

The Fergusons sued BNY, MERS, and Residential Credit Solutions seeking an injunction and declaratory relief preventing BNY from foreclosing; the Fergusons also brought a false-lien claim under Texas state law. The district court granted BNY’s Federal Rule of Civil Procedure 12(b)(6) motion to dismiss for failure to state a claim.

II.

Because jurisdiction is based on diversity of citizenship, “Texas substantive law and federal procedural law apply to these state-law claims.” Harris Cnty. v. MERSCORP Inc., 791 F.3d 545, 551 (5th Cir.2015). “We review a district court’s decision on a [Rule] 12(b)(6) motion de novo, accepting all well-pleaded facts as true and viewing those facts in the light most favorable to the plaintiff.” Stokes v. Gann, 498 F.3d 483, 484 (5th Cir.2007). We assess a Rule 12(b)(6) motion only on “the facts stated in the complaint and the documents either attached to or incorporated in the complaint.” Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir.1996). To avoid dismissal, a plaintiff must plead sufficient “facts to state a claim to relief that is plausible on its face.” 4

III.

The Fergusons bring two issues on appeal. First, they claim MERS’s assignment of the DOT to BNY was void, so BNY cannot foreclose. They contend the assignment was void because Texas law does not permit MERS — as a book-entry system 5 — to act as a beneficiary of a DOT. They alternatively maintain that New York law governs the validity of the assignment, under which the assignment was void because it violated the Trust’s pooling and service agreement (“PSA”). Second, the Fergusons posit that MERS’s assignment of the DOT to BNY created a false lien in violation of Section § 12.002.

A.

Borrowers have limited standing to challenge their lenders’ assignments of their promissory notes and DOTs. “In Texas [] an obligor cannot defend against ah assignee’s efforts to enforce the obligation on a ground that merely renders the as *781 signment voidable at the election of the assignor....” Reinagel, 735 F.3d at 225 (emphasis added). But an obligor has standing to challenge an assignee’s efforts to enforce the obligation on a ground that would render the assignment void. See id. Therefore, the Fergusons (obligors) have standing to challenge BNY’s (assignee) efforts to foreclose if the Fergusons’ claim would render the assignment void rather than voidable. The Fergusons have failed to make that showing.

1.

The DOT specifically named MERS as a beneficiary with the right to “exercise any or all of those interests” in the DOT. The Fergusons concede that language but claim that Chapter 51 of the Texas Property Code (“Chapter 51”) does not allow MERS to act as a beneficiary. They contend that Chapter 51 includes book-entry systems as eligible mortgagees only to allow book-entry systems to aid in administering foreclosures, not to act as beneficiaries. Our precedent forecloses that argument.

We rejected a similar claim in MERSCORP, 791 F.3d at 559. There, various Texas counties claimed MERS fraudulently misrepresented itself as the beneficiary of DOTs recorded in the counties. The DOTs — using language identical to the language in the Fergusons’ DOT — named MERS as a beneficiary with the right to exercise all of the interests in a DOT. The counties contended MERS had no interest in- the debts or promissory notes and thus could not be a beneficiary of the DOTs. We concluded MERS had committed no fraudulent misrepresentation because it was a valid beneficiary as a matter of contract law and under Chapter 51. Id. at 558-59. We reasoned that the DOTs explicitly designated MERS as a beneficiary, the borrowers agreed to the DOTs, and it was immaterial that MERS had no interest in the promissory notes or debts because Texas law treats a DOT and a note as separate instruments. See id. at 558 (citing Athey v. Mortg. Elec. Registration Sys., Inc., 314 S.W.3d 161, 162, 165-66 (Tex.App.—Eastland 2010, pet. denied)). Further, we observed that Chapter 51 grants MERS authority to act as a beneficiary of DOTs by including book-entry systems in Chapter 51’s definition of “mortgagees” capable of initiating foreclosure. Id. at 559. 6

The Fergusons agreed to a DOT that explicitly designated MERS as the beneficiary with a right to exercise all the interests in the DOT. Our precedent precludes the notion that MERS cannot act as a beneficiary under Chapter 51. As a beneficiary, MERS had the right to assign the DOT. Therefore, MERS’ acting as the beneficiary did not render the transfer to BNY void, and the Fergusons’ first issue fails as a matter of law.

2.

The Fergusons posit that the assignment to BNY was void because it vio *782 lated the Trust’s PSA. Our decision in Reinagel, 735 F.3d at 228, directly defeats that argument under Texas law: We concluded that home-loan borrowers — such as the Fergusons- — had no standing under Texas law to enforce a PSA because they were neither parties to the PSA nor intended third-party beneficiaries under it. Id. Even if the borrowers had standing to enforce the PSA as intended third-party beneficiaries, their cause of action would be for breach of the PSA. Id. The assignment would thus be voidable but not void. Therefore, the borrowers lacked standing under Texas law to challenge the lender’s efforts to foreclose on the ground that it violated the PSA. The Fergusons offer no theory to distinguish themselves from the borrowers in Reinagel, so their claim under Texas law — that the assignment is void because it violated the PSA — fails.

The Fergusons also take the position that New York law governs whether the alleged PSA violation renders the transfer void, because the Trust is a common-law trust formed under New York law and the PSA states it should be construed in accordance therewith. They say an assignment that violates the PSA is void — rather than voidable- — under New York’s Estate Powers & Trust Law § 7-2.4, 7 so they have standing to challenge BNY’s efforts to foreclose. This appeal to New York law, however, is unavailing.

The Fergusons rely on the unreported New York trial-court decision in Wells Fargo Bank, N.A. v. Erobobo, No. 31648/2009, 39 Misc.3d 1220, 2013 WL 1831799 (N.Y.Sup.Ct. Apr. 29, 2013). There, a trustee accepted assignment of a note and mortgage after the trust was closed, which violated the trust’s PSA. Id. at *8. The court concluded that Section 7-2.4 rendered void any conveyance made in violation of a PSA. Id.

The Appellate Division reversed: “[A] mortgagor whose loan is owned by a trust[ ] does not have standing to challenge the [assignee’s] possession or status as assignee of the note and mortgage based on purported noncompliance with certain provisions of the PSA.” 8 This case cuts directly against the Fergusons’ standing argument, even assuming New York law applies.

Assuming the Fergusons had standing to challenge violations of a PSA, New York courts have not applied Section 7-2.4 in the manner the Fergusons would hope but instead have treated a trustee’s act in violation of the trust as voidable but not void. 9 Thus, even under New York law, any alleged violation of the PSA would render *783 MERS’s assignment of the DOT to BNY at most voidable but not void.

It therefore makes no difference which state’s law applies. The Fergusons lack standing to challenge BNY’s efforts to foreclose on the ground that MERS’s assignment to BNY was void for violating the PSA. See Reinagel, 735 F.3d at 225.

B.

The Fergusons claim BNY violated Texas’s false-lien statute — Section 12.002 — by falsely asserting the right to foreclose. To state a claim under Section 12.002, a plaintiff must plead facts showing that the defendant

(1) made, presented, or used a document with knowledge that it was a fraudulent lien or claim against real or personal property or an interest in real or personal property, (2) intended that the document be given legal effect, and (3) intended to cause the plaintiff physical injury, financial injury, or mental anguish.[ 10 ]

The Fergusons fail to state a claim under Section 12.002. Their theory goes that BNY’s attempt to foreclose was an assertion of a false lien because MERS could not validly assign BNY the right to foreclose. Without a valid assignment, BNY could only falsely assert the right to foreclose. Their false-lien claim is thus entirely derivative of- their first claim that the assignment to BNY was invalid. But as we have explained, the assignment was valid.

It follows that BNY’s lien (the right to foreclose) is in no way fraudulent. The DOT explicitly designated MERS as a beneficiary with the right to foreclose and gave MERS the right to assign the DOT. MERS validly assigned the DOT to BNY. The right to foreclose was validly created and assigned, so it is not a fraudulent lien. Moreover, assuming the Fergusons pleaded facts to show it was fraudulent, they have not pleaded facts to show that BNY knew it was fraudulent or intended any injury. In any event, because they have failed to plead facts showing BNY’s lien was in fact fraudulent, the Fergusons have failed to state a claim under Section 12.002. 11

The .judgment of dismissal is AFFIRMED.