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Kester v. CitiMortgage Inc.

United States District Court, D. Arizona

March 22, 2019

David A Kester, Plaintiff,
CitiMortgage Incorporated, et al., Defendants.



         At issue is Defendant CR Title Services, Inc.'s (“CR”) motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), which is fully briefed. (Docs. 62, 66, 67, 92-1, 94-1, 94-2, 94-3). For the following reasons, CR's motion is denied.

         I. Background[1]

         Plaintiff David Kester and his spouse owned real property in Chandler, Arizona. Defendant CitiMortgage Incorporated (“Citi”) was the beneficiary of a deed of trust securing repayment of Kester's home loan, and CR was the trustee under that deed of trust. Kester alleges that Defendants knowingly used the services of notary Kristin Lindner after the state of Arizona revoked her commission to execute and record an Assignment of Deed of Trust (“Assignment”), a Substitution of Trustee (“Substitution”), and a Notice of Trustee's Sale (“Notice”), which then were used to initiate a trustee's sale his property after he defaulted on his loan payments. The Assignment transferred all beneficial interest in the deed of trust from Citi's predecessor in interest to Citi, the Substitution substituted CR as trustee in lieu of First American Title Insurance Company, and the Notice scheduled the trustee's sale.

         Kester's second amended complaint alleges a single claim for violation of A.R.S. § 33-420(A), Arizona's “false recordings” statute, which states:

A person purporting to claim an interest in, or a lien or encumbrance against, real property, who causes a document asserting such a 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.

         Kester claims that Defendants violated this statute “by preparing, notarizing, and recording Assignments of Deed of Trust, Substitutions of Trustee, Notices of Default, and Notices of Trustee Sale that they knew were forged, groundless, or otherwise invalid as they were notarized by employees whose notary commissions were either revoked or suspected at the time they executed the documents at issue, ” and “by failing to correct and retract documents they recorded that they knew or should have known had been recorded in violation of the statue.” (Doc. 58 ¶¶ 27-28.)

         In March of 2016, the Court dismissed a prior version of Kester's complaint after concluding, among other things, that the deficient notarizations were immaterial to him, and that the Assignment, Substitution, and Notice were valid under Arizona law notwithstanding the deficient notarizations. (Doc. 37.) On appeal, the Ninth Circuit Court of Appeals reversed and remanded, reasoning that the false recordings statute imposes a materiality requirement only on misstatements and false claims. Kester v. CitiMortgage Inc., 709 Fed. App'x 869, 872-73 (9th Cir. 2017). Because Kester's claim is not based on alleged misstatements or false claims within the recorded documents, the Ninth Circuit concluded that the Court erred in dismissing Kester's claims based on the immateriality of the deficient notarizations. Id. The Ninth Circuit also concluded that deficient notarizations would render the Assignment and Substitution invalid, but that the Notice “would not have been rendered invalid by any deficient acknowledgment.” Id. at 874.

         On remand, the parties agree that the Notice no longer is at issue in light of the Ninth Circuit's conclusion that it would not be rendered invalid by the deficient notarization. The parties also agree that the Assignment is not relevant to Kester's claim against CR because the Assignment does not assert an interest in Kester's property on behalf of CR. Instead, Kester's claim against CR is based solely on the allegation that CR recorded or caused to be recorded the Substitution, which was invalid because it was not properly notarized.

         II. Legal Standard

         A motion for judgment on the pleadings “is properly granted when, taking all the allegations in the non-moving party's pleadings as true, the moving party is entitled to judgment as a matter of law.” Fajardo v. Cty. of L.A., 179 F.3d 698, 699 (9th Cir. 1999). “Rule 12(c) is ‘functionally identical' to Rule 12(b)(6) and . . . ‘the same standard of review' applies to motions brought under either rule.” Cafasso v. Gen. Dynamics C4 Sys., 637 F.3d 1047, 1054 n.4 (9th Cir. 2011) (quoting Dworkin v. Hustler Magazine Inc., 867 F.2d 1188, 1192 (9th Cir. 1989)). A motion for judgment on the pleadings therefore should not be granted if the complaint is based on a cognizable legal theory and 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) (quotation and citation omitted).

         III. Analysis

         CR contends that it must be dismissed from this lawsuit pursuant to A.R.S. § 33-807(E), which states:

The trustee need only be joined as a party in legal actions pertaining to a breach of the trustee's obligation under this chapter or under the deed of trust. Any order of the court entered against the beneficiary is binding upon the trustee with respect to any actions that the trustee is authorized to take by the trust deed or by this chapter. If the trustee is joined as a party in any other action, the trustee is entitled to be ...

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