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Kester v. CitiMortgage, Inc.

United States District Court, D. Arizona

March 30, 2016

David A. Kester, on behalf of himself and all others similarly situated, Plaintiff,
v.
CitiMortgage, Inc.; CR Title Services, Inc.; and Does 1 to 25, inclusive, Defendants.

ORDER

Neil V. Wake United States District Judge

This is a putative class action of foreclosed homeowners for statutory damages under A.R.S. § 33-420(A). The statute penalizes persons claiming an interest or lien in real property for recording a document “knowing or having reason to know that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid . . . .” For each such document, the statute imposes a $5, 000 penalty.

Plaintiff alleges three documents relating to the trustee’s sale of his house were recorded in violation of the statute because they were acknowledged before a notary whose commission had been revoked ten days earlier. He also alleges this defect in acknowledgment affected hundreds or perhaps thousands of other documents. On Plaintiff’s theory, statutory penalties could run into the millions of dollars.

Before the Court is Defendants’ Motion to Dismiss Plaintiff’s Amended Class Action Complaint (Doc. 16) for failure to state a claim upon which relief can be granted. The Motion will be granted.

I. LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6), Federal Rules of Civil Procedure, tests the legal sufficiency of the complaint. The motion may be based on “the lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A complaint need include “only enough facts to state a claim for relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).

All allegations of material fact are assumed to be true and construed in the light most favorable to the non-moving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). However, that does not apply to legal conclusions or conclusory factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. “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.” Id. “The plausibility standard is not akin to a ‘probability requirement, ’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. The complaint must permit reasonable inference of more than the mere possibility of misconduct. Id. If the plaintiff’s pleadings fall short of this standard, dismissal is appropriate.

II. FACTUAL ALLEGATIONS ASSUMED TO BE TRUE

The following are Plaintiff’s allegations. On August 17, 2010, the Arizona Secretary of State received a complaint accusing notary public Kristin Lindner of improperly notarizing documents for Defendants when the signer was not present. (Doc. 1-1 at 11.) Plaintiff alleges on “information and belief” that Defendants became aware of the complaint and the Secretary of State’s subsequent investigation “no later than September 2010.” (Id.) Despite this knowledge, Defendants “took no steps to remove or take any other action with respect to Ms. Lindner what [sic] would prevent her from the performance of notarial services on their behalf.” (Id.) In a report dated December 6, 2010, the Secretary of State determined, among other things, that Lindner had “failed to record requisite journal information, ” “failed to properly perform the acknowledgment” on the complainant’s document, “failed to state her commission-expiration date in the notarial certificate, ” and “executed a statement known to be false, ” all in violation of Arizona notary law. (Id. at 23-24.) The Secretary of State therefore revoked Lindner’s commission, effective December 6, 2010. (Id. at 23.)

Plaintiff alleges, again on “information and belief, ” that for three months after learning of the revocation, Defendants permitted Lindner to continue notarizing documents on their behalf, including assignments of deeds of trust, substitutions of trustee, notices of default, and notices of trustee’s sale. (Id. at 12.) Defendants recorded these post-revocation documents in county recorders’ offices across Arizona, California, Nevada, Idaho, and Oregon and used them to institute trustee’s sales against hundreds of properties. (Id.) Defendants have so far “made no attempt to reconstitute, re-do, or re-notarize the invalid documentation properly, nor have they made any attempt to advise any purported current owners of the properties or the Deeds of Trust purportedly encumbering those properties that there is or may be an issue with the title they believe they have.” (Id. at 13.)

On December 16, 2010, ten days after her commission had been revoked, Lindner notarized an assignment of deed of trust, a substitution of trustee, and a notice of trustee’s sale on Plaintiff’s property. (Id.) These three documents were recorded in the Maricopa County recorder’s office, the last initiating a trustee’s sale of the property to satisfy the defaulted note secured by the deed of trust. (Id.; see Doc. 16-1 at 3, 7, 10.)[1]

Plaintiff filed this action in Maricopa County Superior Court on December 8, 2014. (Doc. 1 at 2.) His Amended Class Action Complaint, submitted on January 27, 2015, requests certification of a class comprising “[a]ll property owners or beneficial title holders whose properties were the subject of recordations by Defendants . . . in the Office of the County Recorder wherever situated during the applicable statutory limitations period that were notarized in the State of Arizona by employees of Defendants at a time when their Notary Licenses had been revoked or suspended.” (Doc. 1-1 at 14, 18.)

The Complaint’s single cause of action is under A.R.S. § 33-420(A), which penalizes persons claiming an interest or lien in real property for knowingly recording a document that is “forged, groundless, contains a material misstatement or false claim or is otherwise invalid”:

A. A person purporting to claim an interest in, or a lien or encumbrance against, real property, who causes a document asserting such claim to be recorded in the office of the county recorder, knowing or having reason to know that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid is liable to the owner or beneficial title holder of the real property for the sum of not less than five thousand dollars, or for treble the actual damages caused by the recording, whichever is greater, and reasonable attorney fees and costs of the action.

(Emphasis added.) The broader statutory section, A.R.S. § 33-420, is entitled “False documents; liability; special action; damages; violation; classification.” It contains four other subsections. Subsection B authorizes a special action to clear title, in addition to an action for damages:

B. The owner or beneficial title holder of the real property may bring an action pursuant to this section in the superior court in the county in which the real property is located for such relief as is required to immediately clear title to the real property as provided for in the rules of procedure for special actions. This special action may be brought based on the ground that the lien is forged, groundless, contains a material misstatement or false claim or is otherwise invalid. The owner or beneficial title holder may bring a separate special action to clear title to the real property or join such action with an action for damages as described in this section. In either case, the owner or beneficial title holder may recover reasonable attorney fees and costs of the action if he prevails.

Subsection C further penalizes a person named in a document described in subsection A if the person fails to timely correct the document upon request:

C. A person who is named in a document which purports to create an interest in, or a lien or encumbrance against, real property and who knows that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid shall be liable to the owner or title holder for the sum of not less than one thousand dollars, or for treble actual damages, whichever is greater, and reasonable attorney fees and costs as provided in this section, if he willfully refuses to release or correct such document of record within twenty days from the date of a written request from the owner of beneficial title holder of the real property.

Subsection D creates a presumption that documents containing unauthorized property interests or liens are groundless and invalid:

D. A document purporting to create an interest in, or a lien or encumbrance against, real property not authorized by statute, judgment or other specific legal authority is presumed to be groundless and invalid.

Subsection E renders a person in violation of subsection A guilty of a class 1 misdemeanor:

E. A person purporting to claim an interest in, or a lien or encumbrance against, real property, who causes a document asserting such claim to be recorded in the office of the county recorder, knowing or having reason to know that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid is guilty of a class 1 misdemeanor.

Plaintiff alleges that revocation of the notary’s commission rendered the three documents relating to the trustee’s sale of his property and hundreds or thousands of other documents “forged, groundless, or otherwise invalid, ” triggering the $5, 000.00 per document penalty of § 33-420(A) because Defendants knew the commission had been revoked. (Doc. 1-1 at 17.) (Trustee’s sales typically involve recordation of three acknowledged documents, as in Plaintiff’s case.) He further alleges that Defendants violated the statute by “failing to correct and retract documents they recorded that they knew or should have known had been recorded in violation of the statute, ” though he does not allege that he asked them to do so. (Id.)

Plaintiff does not claim that these documents or transactions were substantively invalid. Nor does he claim that the signatures on these documents were inauthentic or unauthorized or that the notary did not in fact witness the signatures. He claims only that the certificates of acknowledgment accompanying these documents were signed by a notary whose commission had been revoked. (See Doc. 16-1 at 3, 7, 10.)

On February 27, 2015, Defendants removed the action to this court under the Class Action Fairness Act. (Doc. 1 at 7.) There are no questions of ...


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