Opinion
Civ. 1:22-cv-00435-CL
10-25-2022
MARY MARTHA MCCOMAS, Plaintiff, v. PHH MORTGAGE CORPORATION, et al, Defendants.
FINDINGS AND RECOMMENDATION
Mark Clarke United States Magistrate Judge
This case comes before the Court On a motion to dismiss (#21), filed by Defendants, PHH Mortgage Corporation, and HSBC Bank USA, N.A. Defendants have also filed a Request for judicial notice (#22). Plaintiff has filed a Motion for Leave to file a Second Amended Complaint. These motions are appropriate for decision without oral argument. For the reasons below, the motion to dismiss and request for judicial notice (#21, #22) should be granted. Plaintiffs motion for leave (#31) should be denied. Because the deficiencies of Plaintiff s claims cannot be cured by amendment, this case should be dismissed with prejudice.
LEGAL STANDARD
To survive a motion to dismiss under the federal pleading standards, the complaint must include a short and plain statement of the claim and “contain sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard... asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. The court is not required to accept legal conclusions, unsupported by alleged facts, as true. Id.
Pro se pleadings are held to less stringent standards than pleadings by attorneys. Haines v. Kerner, 404 U.S. 519, 520-521 (1972). That is, the court should construe pleadings by pro se plaintiffs liberally and afford the plaintiffs the benefits of any doubt. Karim-Panahi v. Los Angeles Police Dep't, 839 F.2d 621, 623 (9th Cir. 1988) (citation omitted). Additionally, a Pro se litigant is entitled to notice of the deficiencies in the complaint and the opportunity to amend, unless the complaint's deficiencies cannot be cured by amendment. Id.
BACKGROUND
Plaintiffs original Complaint (#1) was dismissed because the facts alleged failed to state a claim for relief against the Defendant. Dismissal was without prejudice, and Plaintiff was given leave to file an amended complaint (#13). Subsequently, Plaintiff filed a First Amended Complaint (#19), as well as a Proposed Second Amended Complaint (#31-1). The allegations of the FAC and PSAC do clarify the issues and the claims asserted, but the essential and material facts alleged remain the same as discussed in the Court's previous Opinion and Order (#13).
In brief review, Plaintiffs claims all arise out of a series of transactions concerning a piece of property in Medford, Oregon. Plaintiff alleges that, in January 2005, acting as her father's attorney-in-fact and agent, Plaintiff conveyed the property at issue from her father to her father and herself, “not as tenants in common, but with rights of survivorship.” Acting again as his attorney-in-fact, in November 2005, Plaintiff obtained a mortgage loan (“the Loan”) in the amount of $458,800.00 from Merrill Lynch Credit Corporation. Plaintiff alleges that she signed the Promissory Note only as her father's attorney-in-fact, not as a borrower on the Loan herself. She also signed the Deed of Trust, however, which defines “Borrower,” as: “William P. McComas. An unmarried person. Mary Martha McComas.” The Defendants did not participate in the origination of the Loan. Defendant PHH now services the Loan for Defendant HSBC.
In their Request for Judicial Notice, the Defendants attach as Exhibit 1 a Warranty Deed recorded on April 2,1987, which purports to convey the property from Ronald R. Stuart and Carol F. Stuart to Mary Martha McComas. Exhibit 2 is a Warranty Deed recorded on March 23, 2000, purporting to convey the property from Mary Martha McComas to William P. McComas. Plaintiff objects to the Request for Judicial Notice, but she does not raise any issue of authenticity, nor does she dispute the veracity of the contents. These exhibits are not material to the Court's decision, but in the interests of justice and the completeness of the record, the Request (#22) should be granted.
William McComas later passed away, and Plaintiff alleges that from March 2017 to July 2019, she made mortgage payments on the Loan. She claims she was not required to make those payments, because she was.not a borrower on the Loan, and she believes the property should have passed to her through the survivorship unencumbered. In particular, she asserts:
The purpose of executing a Bargain and Sale Deed was to protect Plaintiff because it contains a right of survivorship so that if the owner were to die the deceased owner's interest in the property is fully paid by the Plaintiffs father's Estate and subsequently transferred to the Plaintiff without having to pay anything for the property.SAC ¶ 10. All of Plaintiffs claims stem from the idea that William McComas' estate should have paid the balance on the Loan, thereby leaving the property to Plaintiff free and clear of any encumbrances. However, Plaintiff does not assert claims against the estate. Instead, she claims that the Defendants failed to write and send a letter to Mr. McComas' estate certifying that Plaintiff was not a borrower on the Loan.
DISCUSSION
I. The First Amended Complaint and the Proposed Second Amended Complaint fail to state a claim for relief against the Defendant, and the deficiencies cannot be cured by further amendment.
The facts alleged in this case fail to state any legally wrongful conduct on the part of the Defendants. Plaintiff has not asserted, and cannot assert, any special duty owed to her by the Defendants, nor has she alleged any breach. Moreover, whether Plaintiff acted solely on behalf of William McComas, as she alleges, or on behalf of herself as a borrower as well, Plaintiffs own submitted exhibits show that she voluntarily encumbered the property with a mortgage loan, thus subjecting her interest in the property to the priority of that debt and the other provisions of the instruments, including those governing default. She cannot now bring claims against the loan servicer for simply enforcing the terms of the Loan. "
First, Plaintiffs claims for professional negligence, negligent misrepresentation, and negligent infliction of emotional distress (“NIED”) all fail as a matter of law because Plaintiff did not and cannot allege the existence of the requisite “special relationship” between herself and the Defendants. To allege a claim for professional negligence, Plaintiff “must allege that a particular duty arising from a special relationship runs from the defendant to the plaintiff, one that is distinct from the general duty not to engage in conduct that unreasonably creates a foreseeable risk of harm.” Delaney v. Clifton, 180 Or.App. 119, 123, 41 P.3d 1099, 1103 (2002) (citing Stevens v. Bispham, 316 Or. 221, 227, 851 P.2d 556 (1993) and Fazzolari v. Portland School Dist. No. 1J, 303 Or. 1, 14-17, 734 P.2d 1326 (1987) (discussing elements of negligence action in the context of a special relationship). Similarly, “for the duty to avoid making negligent misrepresentations to arise, the parties must be in a ‘special relationship,' in which the party sought to be held liable had some obligation to pursue the interests of the other party.” Conway v. Pac. Univ., 324 Or. 231, 236-37, 924 P.2d 818, 822 (1996). Thus, liability for negligent misrepresentation “must be predicated on a duty owed by the negligent actor to the injured party beyond the common law duty to exercise reasonable care to prevent foreseeable harm.” Rothstein v. Bayview Loan Servicing, . LLC, 2015 WL 1058976, at *6 (D. Or. Mar. 10, 2015)
Likewise, “in Oregon a person cannot recover for the negligent infliction of emotional distress in the absence of a physical injury.” Kahut v. J.P. Morgan Chase Bank, N.A., ,2013 WL 1131059, at *1 (D. Or. Feb. 5, 2013), report and recommendation adopted, 2013 WL 1131053 (D. Or. Mar. 12, 2013) (citing Paul v. Providence Health System Oregon 351 Or. 587, 597(2012)). “Further, purely economic losses are also not recoverable because there is no alleged injury to the plaintiffs person or property.” Id. at *4 (citation omitted). Without a physical injury, purely economic losses can be recovered only if the defendant has a special duty to guard against the economic loss that occurred. Onita Pacific Corp. v. Trustees of Bronson, 315 Or. 149, 159, 843 P.2d 890 (1992). Such a duty must arise “from a defendant's particular status or relationships, or from legislation, beyond the generalized standards that the common law of negligence imposes on persons at large.” Fazzolari v. Portland School Dist. No. 1J, 303 Or. 1, 10, 734 P.2d 1326 (1987).
In this case, Plaintiff has not alleged the existence of a special relationship between herself and the Defendants, such that she can pursue any of the above claims. Moreover, it is undisputed that the defendants are the lender and servicer of the Loan. Under Oregon law, the relationship between a lender/servicer and a borrower is considered to be an arm's length commercial relationship, not a special one. Fleshman v. Wells Fargo Bank, Nat'l Ass'n, 27 F.Supp.3d 1127, 1132 (D. Or. 2014) (citing cases). Here, Plaintiff has specifically alleged that she is not the borrower under the terms of the loan, therefore there is no relationship at all between the parties. However, even if Plaintiff were a borrower, the relationship with the Defendant would be considered an arms-length commercial relationship, not a special one. These claims should be dismissed.
Similarly, Plaintiffs claim for professional negligence fails because Plaintiff cannot allege that Defendants breached any duty owed to Plaintiff. “[B]ecause a claim for professional negligence involves a special relationship between the plaintiff and the defendant, a different standard applies: Professional negligence is ‘the failure to meet the standard of care used in the reasonable practice of the profession in the community.' ... The plaintiff must plead and prove ‘(1) a duty that runs from the defendant to the plaintiff; (2) a breach of that duty; (3) a resulting harm to the plaintiff measurable in damages; and (4) a causal link between the breach and the harm.'” Son v. Ashland Cmty. Healthcare Servs., 239 Or.App. 495, 506, 244 P.3d 835, 841 (2010) (citing Delaney, 180 Or.App. at 123).
Plaintiff claims that Defendant owed her a duty of care by virtue of the Deed of Trust, the Bargain and Sale Deed, the Power of Attorney... the Prospectus and other documents,” which HSBC submitted to the SEC. FAC ¶ 35. She claims that “PHH and HSBC failed to exercise reasonable care and skill and undertaking to perform their services by not providing to Plaintiff the letter to the Judge who presided over the Probate case in order to release the funds to pay for the mortgage, despite multiple requests by Plaintiff and her attorney.” FAC ¶ 36. These allegations are conclusory and do not establish a duty to the Plaintiff, or a breach on behalf of PHH or HSBC. Moreover, the deficiencies of this claim cannot be cured by amendment, as evidenced by the exhibits submitted by Plaintiff herself. “Real property is transferable even though the title is subject to a mortgage or deed of trust, but the transfer will not eliminate the existence of that encumbrance. Thus, the grantee takes title to the property subject to all deeds of trust and other encumbrances, whether or not the deed so provides. ” Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25, 37 (B.A.P. 9th Cir. 2008); see also Settlemire v. Newsome, 10 Or. 446, 446 (1882) (judgment lien attaches to title). Here, even if Plaintiff was not the “borrower,” as identified by the Deed of Trust, she still knew of the mortgage loan, and explicitly approved of it as Mr. McComas' attorney-in-fact. The lien created by the Loan and the Deed of Trust attached and encumbered the property, and the transfer of title to Plaintiff, by right of survivorship, did not eliminate the existence of that encumbrance. Thus, while she may not be personally responsible for making the payments under the Loan, the property is still encumbered by the Loan, and the Loan's default threatens Plaintiff s interest in the property'. In this way, even if she is not a “borrower,” Plaintiff is responsible for the Loan, and the Defendants were under no obligation to write a letter to the estate to certify that she was not. This claim fails as a matter of law.
Finally, Plaintiff asserts claims of breach of contract and breach of the implied duty of good faith and fair dealing, both of which are simply reiterations of her claims above. She claims that by not sending the letter she requested to Mr. McComas' estate, the Defendants breached the terms of the Note and the Note's implied covenant of good faith and fair dealing.
“To state a claim for breach of contract under Oregon law, a claimant must plead ‘the existence of a contract, its relevant terms, [the claimant's] full performance and lack of breach, and [the opposing party's] breach resulting in damage' to the claimant.” Kee Action Sports, Ltd. Liab. Co. v. Shyang Huei Indus. Co., 2015 U.S. Dist. LEXIS 173312, at *11 (D. Or. Dec. 30, 2015) [citation omitted]. Similarly, “[a]ll contracts include an implied covenant of good faith and fair dealing.” Morrow v. Red Shield Ins. Co., 212 Or.App. 653, 661, 159 P.3d 384 (2007). The two primary purposes of the implied covenant are to "facilitate performance and enforcement of the contract" and "protect the objectively reasonable contractual expectations of the parties." Id.', Zygar v. Johnson, 169 Or.App. 638, 645, 10 P.3d 326 (2000). “[H]owever, the implied covenant of good faith and fair dealing does not vary the substantive terms of the contract or impose obligations inconsistent with the terms of the contract.” Morrow, 212 Or.App. at 662. Instead, it “focuses on the 'agreed common purpose' and the 'justified expectations' of the parties, both of which are intimately related to the parties' manifestation of their purposes and expectations in the express provisions of the contract.” Klamath Off-Project Water Users, Inc. v. Pacificorp, 237 Or.App. 434, 445, 240 P.3d 94 (2010). In other words, it "serves to effectuate the objectively reasonable expectations of the parties." Id.
Here, Plaintiff alleges that Defendants breached Sections 3, 4A, 4F, 5, 6, 8, and 9 of the Note. FAC ¶¶43-49. However, as Plaintiff alleges, she is not a party to the Note - she only signed the Note as attorney in fact for Mr. McComas. Therefore, she cannot establish the existence of a contract between herself and Defendants, nor an implied covenant of good faith and fair dealing. She also concedes that the Loan is in default, and therefore full performance under the contract cannot be established. Moreover, Plaintiff cannot point to the provisions of the Note that would require Defendants to send a letter to the estate explaining that Plaintiff is not the “borrower.” These claims fail as a matter of law.
RECOMMENDATION
For all of these reasons, Plaintiff fails to state a claim for relief against the Defendants. The deficiencies of the Amended Complaint and Proposed Second Amended Complaint cannot be cured by amendment. Defendants' motion to dismiss and request for judicial notice (#21, #22) should be granted. Plaintiffs motion for leave to file an amended complaint (#31) should be denied. This case should be dismissed with prejudice.
SCHEDULING
This Findings and Recommendation will be referred to a district judge. Objections, if any, are due no later than fourteen (14) days after the date this recommendation is entered. If objections are filed, any response is due within fourteen (14) days after the date the objections are filed. See FED. R. CIV. P. 72, 6. Parties are advised that the failure to file objections within the specified time may waive the right to appeal the District Court's order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).