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Hummel v. Rushmore Loan Managaement LLC

United States District Court, D. Arizona

December 22, 2017

Bryan W. Hummel and Sandra M. Dahl Living Trust, Plaintiff,
v.
Rushmore Loan Management LLC, et al., Defendants.

          ORDER

          DAVID G. CAMPBELL, UNITED STATES DISTRICT JUDGE.

         The “Brian W. Hummel and Sandra M. Dahl Living Trust” (the “Trust” or “Plaintiff”) has sued Defendants Rushmore Loan Management, LLC and U.S. Bank National Association. Doc. 1. The Court previously granted a motion to dismiss some of Plaintiff's claims. Doc. 20. Plaintiff filed an amended complaint (Doc. 27), and U.S. Bank filed a third-party complaint against Bryan Hummel and Sandra Dahl as individuals (collectively, the “Hummels”) (Doc. 37).

         Defendants now seek dismissal of Plaintiff's adverse possession and common law fraud claims under Rules 12(b)(6) and 9(b). Doc. 35. The Hummels seek dismissal of all claims against them under Rule 12(b)(6). Doc. 50. No party has requested oral argument. The Court will grant Defendants' motion and deny the Hummels' motion.

         I. Background.

         The factual basis of Plaintiff's claims remains substantially unchanged from the original complaint and is discussed at length in the Court's order of June 8, 2017. See Doc. 20 at 1-4. The Hummels purchased real property in Mohave County, Arizona in 2003. They transferred the property to the Trust in 2007, and the Trust properly recorded the transfer. In 2008, the Hummels entered into a loan agreement with Defendants' predecessor in interest, secured by a deed of trust on the property (the “DOT”). The DOT was recorded in Maricopa County. The Hummels defaulted in 2009, and Defendants' predecessor invoked the acceleration clause. In 2011, the DOT was re-recorded in Mohave County by Defendants' predecessor. In 2017, shortly after the DOT was assigned to Rushmore, Rushmore noticed a trustee's sale of the property. The parties postponed the trustee's sale multiple times, and, on June 14, 2017, the Court entered a preliminary injunction prohibiting the sale during the pendency of this case. Doc. 26. The Trust's amended complaint seeks to bar the trustee's sale on the basis of statute of limitations, adverse possession, declaratory relief, common law fraud, and quiet title. Doc. 27 at 5-9.

         U.S. Bank has filed a third-party complaint (“TPC”) against the Hummels. Doc. 37 at 10-15. The TPC alleges that when the Hummels entered into the loan and DOT they were the trustees of the Trust. Id. at 11 ¶ 7. It also alleges that the Hummels covenanted in the DOT that they were “lawfully seised of the estate hereby conveyed” and had “the right to grant and convey the Property.” Id. at 11-12 ¶ 13. The TPC alleges that the Hummels and the Trust used the loan funds to pay off prior loans and taxes on the property, and that U.S. Bank has been damaged in the amount of $640, 319.89. Id. at 11 ¶ 9, 15 ¶ 49. The TPC asserts claims for reformation of the DOT, unjust enrichment, equitable lien, and fraud. Id. at 10-15.

         II. Legal Standard.

         A successful motion to dismiss under Rule 12(b)(6) must show either that the complaint lacks a cognizable legal theory or fails to allege facts sufficient to support its theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A complaint that sets forth a cognizable legal theory will survive a motion to dismiss if it contains “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing 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.” Id. (citing Twombly, 550 U.S. at 556). “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. (citing Twombly, 550 U.S. at 556).[1]

         III. Defendants' Motion.

         Defendants move to dismiss Counts II (adverse possession) and IV (common law fraud) of Plaintiff's amended complaint. Doc. 35.

         A. Adverse Possession.

         The amended complaint asserts a claim for adverse possession “pursuant to A.R.S. 12-523; 12-524; 12-522 and 12-526.” Doc. 27 at 6. Plaintiff alleges that it “acquired title to the property in 2007, ” has been “in peaceable adverse possession with color of title for the statutory period, ” has paid and continues to pay taxes on the property, and has made substantial improvements to the property. Doc. 27 at 6 ¶¶ 7-11.

         Defendants argue that Plaintiff's claim fails because an action for adverse possession may be maintained only by a true owner who seeks to recover property from one who is in possession. Doc. 35 at 4-5; Doc. 48 at 2. Defendants are correct. The statue primarily cited by Plaintiff states that an “action to recover real property from a person in peaceable and adverse possession under title or color of title shall be commenced within three years after the cause of action accrues.” A.R.S. § 12-523(A) (emphasis added). Sections 12-524, 12-522, and 12-526 all contain similar language. In this case, Plaintiff is not seeking to recover the property from a person in peaceable and adverse possession of it. The parties agree that Plaintiff is in possession of the property (Doc. 27 at 6 ¶ 8; Doc. 48 at 2) and is the true owner and titleholder (Doc. 37 at 2 ¶ 3; Doc. 35 at 5).

         Moreover, Plaintiff cannot argue that it adversely possessed the property from Defendants because, under Arizona law, Defendants do not hold title to the property. “Arizona is a lien theory state. A mortgage creates lien rights in the mortgagee, but it passes neither legal nor equitable title to the mortgagee.” Berryhill v. Moore, 881 P.2d 1182, 1193 (Ariz.Ct.App. 1994), as corrected ...


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